Malcy’s Blog – Oil price, Zephyr Energy & finally

WTI $93.66 +$1.59, Brent $94.81 +$1.53, Diff -$1.15 -6c, NG $4.72 +41c, UKNG 172.38p +15.45p

By Malcolm Graham-Wood

Oil price

A big rally yesterday but checking throughout the day would not have made you any wiser as to the closing price, constant changes but after a good set of inventory stats the end result was firmly up. With crude adding 1.12m barrels refinery runs were 85.3% which on huge product demand led to gasoline drawing 1.33m and distillates 1.55m barrels.

Zephyr Energy

Zephyr has announced the completion of its US$36 million acquisition of non-operated working interests in currently producing and near-term production wells in the Williston Basin, North Dakota, U.S. All conditions of the Acquisition have now been satisfied, including the transfer of title of all associated working interests to Zephyr, and all payments due in respect of the Acquisition have been made from proceeds received from the Company’s recent equity fundraising and from a newly secured senior debt facility, further details of which are set out below.

Details of the Acquisition were originally announced by the Company on 22 November 2021, with subsequent  updates on 20 December 2021 and 26 January 2022, and defined terms used in this announcement have the same meaning as those set out in the original announcement.

The Acquisition consists of working interests in 163 currently producing wells with an average working interest of approximately 4%. In addition, a further 18 drilled but uncompleted wells are scheduled to come online by the end of June 2022, with 47 other locations to be drilled in the future. Proved reserves acquired were estimated, by third party consultant Sproule Incorporated, to be 2.7 million barrels of oil equivalent, with an estimated post-tax net present value of US$57.1 million at a ten per cent discount rate and a total estimated undiscounted future cash flow of US$82.0 million at current commodity prices.

The Acquisition has an effective date of 1 December 2021 and cash flows from the producing wells associated with the Acquisition since that date will accrue to Zephyr’s benefit. In December 2021, production from the Acquisition’s producing wells averaged 1,105 barrels of oil equivalent per day, giving Zephyr’s non-operated business (including other well interests already owned) a net pro forma combined run rate of 1,759 barrels of oil equivalent per day at the end of December 2021.

Zephyr has not hedged any production to date. The Company plans to hedge a substantial portion of the combined non-operated production in the near term and will provide a update on this in due course.

Colin Harrington, Chief Executive of Zephyr, said:

“The closing of this Acquisition is a landmark moment for the Company. We’ve acquired an accretive, high-quality, high-margin production base with significant near-term growth potential, and in doing so we have nearly tripled Zephyr’s existing non-operated production and more than doubled cash flow per fully diluted share. “Combined with our recent fundraise, the Acquisition’s cashflows will support growth across our broader portfolio, including funding a proposed high impact three-well drilling programme on our operated flagship Paradox project in the second half of 2022.

“I would like to take this opportunity to thank our lenders, both of the new senior debt facilities and of the initial bridge loan, for their proactive involvement in helping us complete the Acquisition. I’d also like to welcome our new equity investors to the Company – we look forward to providing regular updates on progress as we continue through this phase of rapid growth.

“Finally, in line with our core beliefs and public commitment, we intend to ensure that all net hydrocarbons produced from the Acquisition will have a “net-zero” Scope 1 operational carbon impact while under our ownership. This will be achieved largely through our programme of purchasing Verified Emission Reduction credits to mitigate all Scope 1 carbon emissions. As always, we will strive to operate as responsible stewards of investors’ capital and of the environment in which we work.”

This is an important deal now completed for Zephyr and which they always said would be part of the strategy. Bringing in WI’s in 163 producing wells and 18 to be completed before the end of June with 47 yet to be drilled gives income after hedging to be spent in the Paradox Basin. 

I have said all the way along that Zephyr has a high quality management team that will not sit around on the one asset, they are extremely accomplished at backing the Paradox with production making it possible to drill 3 wells later this year.

1 delineation/development well targeting the Cane Creek reservoir in the White Sands Unit (the “WSU”” ie the newly formed federal unit recently approved), 1 delineation/development well in the historically prolific Cane Creek Field (new acreage to the south of the WSU) and 1 exploration well targeting the WSU’s shallow Paradox Formation.

This all bodes well for Zephyr, this deal and the fundings have taken time but I am convinced that as from now it is all systems go on the Paradox and shareholders will start to see the price going a great deal higher. 

And finally…

F1 have announced that Race Director Michael Masi has been sacked after ‘failing to correctly apply the rules’ in the last race of last season. a good lawyer would expect to challenge the race result but probably won’t.

Last night in the Champions League Liverpool won 0-2 at Inter Milan.

And Adele will be beginning to panic, as we come to the end of the Olympics team GB are in 2 semis today and 2 skiing finals tomorrow…

The opinions expressed here are those of the author

Malcolm Graham-Wood

Disclaimer: Malcy’s Blog is provided for general information about the international oil and gas industry and the companies that operate within it. It does not constitute investment advice and Malcy does not buy or sell shares, warrants or bonds in any company written about within the blog. Information is taken from publicly available sources and any comment is that of the author who does not take any third party comment in the blog


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