Turner Pope Research Note, 10 October 2024
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| Zephyr has announced its decision to drill a lateral extension on the State 36-2R well (‘the Well’), while confirming a non-binding letter of intent (the ‘LOI’) has been signed with a US-based industry investor (‘the Investor’) to fund 100% of the estimated cost. The Board expects to close the c.US$7m requirement in the coming weeks, following which it will move to secure a rig contract plus additional equipment in anticipation of commencing the next phase of on-site operations in late 2024 or early 2025. Supporting this, management has also estimated ultimate recoveries (‘EURs’) from the Well following completion of the extended lateral could be as high as two million barrels of oil equivalent (‘boe’), a figure substantially higher than would likely be achieved from the Well in its current form. The fact that Zephyr has managed to advance negotiations so rapidly after confirming a positive result from the second phase production test on 6 September, suggests both a high level of interest and confidence in a successful outcome. The final terms will of course be key, but the fact that the proposal contains no equity element, while retaining operatorship and a majority of the economic benefits from the Well suggests an excellent outcome for shareholders. Other funding discussions with different industry and asset-level financial partners in respect of the larger, long-term development of the Paradox project remain ongoing, with the Investor receiving no future participation or option beyond the individual wellbore interest. We would draw your attention to the various disclaimers in the document both at the beginning and at the end of the note. Retail clients (as defined by the rules of the FCA) must not rely on the research document. In particular you should note that the research document is a non-independent marketing communication. The analyst who has prepared the research is aware that TPI provides research to Zephyr Energy plc. Accordingly the research has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibitions on dealing ahead of its dissemination. The information in the document is published solely for information purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The material contained in the document is general information intended for recipients who understand the risks associated with equity investment in smaller companies. It does not constitute a personal recommendation as defined by the FCA or take into account the particular investment objectives, financial situation or needs of individual investors nor provide any indication as to whether an investment, a course of action or the associated risks are suitable for the recipient. |
