Zephyr Energy Plc (ZPHRF:OTCQB; ZPHR:LSE) agreed to acquire, for US$600,000, a majority stake in a 1,047-acre parcel having proven helium reserves in the Salt Wash Field in Utah's Paradox Basin, reported Auctus Advisors analyst Stephane Foucaud in an October 18 research note.
433% Return Projected
Auctus reiterated its £0.16 per share target price on the United Kingdom-based energy company, currently trading at about £0.03 share price.
The difference between these prices implies a material potential return for investors of 433%.
Potential Value of Helium
Foucaud highlighted that the helium in the Salt Wash plot Zephyr is acquiring could be "very valuable" given the estimated quantity present and current helium prices, as high as US$1,000 per thousand cubic foot (US$1,000/Mcf). The parcel has been shown to have 70,000−190,000 cubic feet (70−190 Mcf) of discovered helium plus another 40−66 Mcf of prospective helium.
"Using our valuation for the Topaz helium project (Pulsar Helium), the unrisked value of [130 Mcf] of helium at Salt Wash could be about US$60 million (about £0.03 per share)," Foucaud wrote. "Many nearby Paradox Basin operators are already producing co-mingled helium in commercial quantities, and there is an active local offtake market for helium."
Terms of Agreement
The share of the Salt Wash plot Zephyr is acquiring is at least a 75% working interest, reported Foucaud. The total consideration for this is two payments of US$300,000, the first due upfront and the second due 60 days post-transaction.
The seller may opt back in for 25% interest after the first well is drilled. Zephyr plans to spud the well in H1/24.
About Salt Wash
The Salt Wash field sits three miles south of Zephyr's White Sands Unit, Foucaud relayed. After being discovered in 1961, it produced 1,650,000 barrels of oil from a 15-foot oil rim and 11,700,000,000 cubic feet of natural gas.
A 500-feet gas column above the oil rim contains 1.4−1.7% helium, 22% hydrocarbon, and 72% nitrogen, noted Foucaud.
Twinning of 36-2 Well Planned
In other news pertaining to the Paradox Basin, reported Foucaud, in Q1/24, Zephyr intends to twin the original State 36-2 location well, at which tubing got damaged earlier this year. The company expects the cost of this future work to be covered by insurance.
"The 36-2 well bore may have future reuse potential, such as a vertical host for a new target," the analyst wrote.
Well-Funded for 2024
Foucaud indicated that with cash on hand plus the first cash flow from the Slawson wells anticipated in Q1/24, Zephyr should have enough capital to fund next year's work plan.
Auctus estimated its cost at about US$23 million.
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Disclosures for Auctus Advisors, Zephyr Energy Plc., October 18, 2023
Zephyr Energy Plc (“Zephyr” or the “Company”) is a corporate client of Auctus Advisors LLP (“Auctus”). Auctus receives, and has received in the past 12 months, compensation for providing corporate broking and/or investment banking services to the Company, including the publication and dissemination of marketing material from time to time.
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Author The research analyst who prepared this research report was Stephane Foucaud, a partner of Auctus.
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