TPI provided its latest research note on Zephyr Energy plc (ZPHR.L).

Perfect timing! As suggested in its production update announcement of 8 April 2022, Zephyr has now hedged a substantial portion of its forecast non-operated production.

A programme (the ‘Programme’) related to 328,000 barrels (‘bbls’) of oil production from its non-operated asset portfolio over the next two years is designed to ensure receipt of over US$30 million of forecast revenue during that period. In so doing, the Programme has been structured to provide cashflow surety related to the Group’s senior debt obligations, as well as to materially de-risk funding requirements for the proposed upcoming drilling campaign at its flagship Paradox Basin project (the “Paradox project”).

Accordingly, by taking advantage of the strong current oil and natural gas pricing environment, management expects all of its forecast capital commitments, for at least the next 12 months, to be fully funded through a combination of existing cash resources and cash flow from production.

This provides an ideal backdrop for release of key findings from the Competent Persons Report (‘CPR’) on the Paradox project that are expected early next week, with planning for the drilling of three additional wells on the Paradox project in the second half of this year now well underway.

Assuming delivery in line with expectations, along with the fact that the original acquisition economics of the Williston Basin assets now look to have been particularly conservative, there appears to remain fairly substantial upside on the Group’s current valuation.

(Risk warning: Future performance and forecasts are not a reliable indicator of future results.)

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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.

Copyright © 2022 Turner Pope Investments (TPI) Limited, all rights reserved.

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