Source: Stephane Foucaud
June 8, 2023 (Investorideas.com Newswire) Despite a consequent reduction in the target price on this firm, it still offers investors a significant potential return, of 429%, noted an Auctus Advisors 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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