England-Based Oil & Gas Co. Raises Equity
Research Report

Zephyr Energy Plc. (ZPHRF:OTCQB; ZPHR:LSE) raised £3.15 million of equity to address a production delay and a capex increase, reported Auctus Advisors analyst Stephane Foucaud in a June 6 research note. To account for these factors and resulting dilution, Auctus lowered its target price on the oil and gas explorer-producer to £0.18 per share from £0.20.

Potential Return Attractive

Despite the decrease, the implied return for investors in Zephyr remains significant, at 429%, wrote Foucaud.

This potential upside is shown in the difference between the £0.18 per share target price and the England-based energy company's current share price of £0.04.

Production Start Revised

Foucaud explained that the start of production from the Slawson wells in North Dakota's Williston basin had been pushed back six months and is, thus, one reason for the equity raise.

Now, production is expected to commence sometime in Q4/23 or Q1/24, when construction of the surface facilities, which was begun later than planned, is finished.

Temporary Bump in Capex

Zephyr also raised equity because it must pay the costs associated with the blowout of the State 36-2 well in Utah's Paradox basin. Eventually, the insurer will reimburse the energy firm for most of this expense, but Zephyr is responsible for it in its entirety in the meantime.

As for the current status of State 36-2, it is slated for a restart this month and is projected to produce about 10,000,000 cubic feet per day (10 MMcf/d) of natural gas, according to Foucaud. He added, though, it could yield as much as 15 Mmcf/d. Were production to be greater than initially expected, a larger gas processing plant would be needed.

State 36-2 also should positively impact Zephyr's reserves, Foucaud pointed out.

New Financial Forecasts

Given the recent developments, Auctus revised some of its estimates on Zephyr, wrote Foucaud. Auctus removed two 2023 exploration wells from its model and increased the expected performance of the wells in the Paradox. These changes led to a reduction in capex for the full-year 2023 (FY23) and FY24.

Auctus' new capex estimates are US$24 million (US$24M) for FY23, down from US$34M, and US$44M for FY24, down from US$58M.

As for Zephyr's output, Auctus projects the Slawson, State 36-2, and State 16-2 wells will together produce more than 4,500 barrels of oil equivalent per day (4.5 Mboe/d) in Q1/24, and this will increase to more than 7.5 Mboe/d in Q4/24.

Regarding its cash balance, Auctus estimates Zephyr will have about US$18M net by YE24.

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Disclosures for Auctus Advisors, Zephyr Energy Plc., June 6, 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. MiFID II Disclosures This document, being paid for by a corporate issuer, is believed by Auctus to be an ‘acceptable minor non-monetary benefit’ as set out in Article 12 (3) of the Commission Delegated Act C(2016) 2031 which is part of UK law by virtue of the European Union (Withdrawal) Act 2018. It is produced solely in support of our corporate broking and corporate finance business. Auctus does not offer a secondary execution service in the UK. This note is a marketing communication and NOT independent research. As such, it has not been prepared in accordance with legal requirements designed to promote the independence of investment research and this note is NOT subject to the prohibition on dealing ahead of the dissemination of investment research.

Author The research analyst who prepared this research report was Stephane Foucaud, a partner of Auctus. Not an offer to buy or sell Under no circumstances is this note to be construed to be an offer to buy or sell or deal in any security and/or derivative instruments. It is not an initiation or an inducement to engage in investment activity under section 21 of the Financial Services and Markets Act 2000. Note prepared in good faith and in reliance on publicly available information Comments made in this note have been arrived at in good faith and are based, at least in part, on current public information that Auctus considers reliable, but which it does not represent to be accurate or complete, and it should not be relied on as such. The information, opinions, forecasts and estimates contained in this document are current as of the date of this document and are subject to change without prior notification. No representation or warranty either actual or implied is made as to the accuracy, precision, completeness or correctness of the statements, opinions and judgements contained in this document. Auctus’ and related interests The persons who produced this note may be partners, employees and/or associates of Auctus.

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