WTI $68.35 -94c, Brent $71.69 -92c, Diff -$3.34 +2c, NG $4.57 -14c, UKNG 137.20p +4.81p

Oil price

Oil was down around a dollar, itself being strong partly to blame for the fall. There is some recovery today, that is partly down to China, August imported oil came to over 10m b/d which is positive as is the early telegraphing of the US inventory stats which indicate further draws this week which will be delayed by Labor Day.

It’s retail gasoline day today but these and upcoming figures will start to be affected by Ida, as we know there is still significant production and refining output outage as well as it having been the Labor Day weekend so I expect irregularities for a few weeks.

Zephyr Energy

Zephyr has provided an update on its non-operated working interests in the Williston Basin, North Dakota, U.S., to announce the acquisition of two additional non-operated near-term production portfolios in the Williston Basin, and to announce a joint-venture with Purified Resource Partners LLC  related to ongoing non-operated business development efforts.

With regard to current production, Zephyr owns minority working interests in seven non-operated producing wells in the Williston Basin. These wells were acquired in the first half of 2021 with a goal of delivering a diversified and stable cash flow stream which could be used to fund additional operated Paradox Basin drilling and/or potential new acquisitions.  

The Company is pleased to report that production from the seven wells was, net to Zephyr, 509 barrels of oil equivalent per day during August 2021. Four of the wells continue to be brought into full production, with oil production still rising, water cuts reducing and stable gas oil ratios.

Four of the wells were initially brought on at reduced production rates in order to minimise any gas flaring and CO2 emission impact while gas export infrastructure constraints were addressed, a CO2 mitigation effort very much welcomed by the Zephyr Board. Now that those infrastructure constraints have been resolved, the Company expects overall production to continue to rise during the next quarter and further updates will be announced as production data matures.

Zephyr has announced the completion of two additional non-operated portfolio acquisitions in the Williston Basin. The first acquisition purchased 72.5 net acres, resulting in an average 5.6% working interest in four drilled but uncompleted wells operated by Prima Exploration Inc which target production from the Middle Bakken reservoir in Richland County, Montana, U.S.

The second acquisition purchased an average 3.1% WI in 11 wells (one currently being drilled and 10 DUC wells) operated by Whiting Petroleum Corporation, all of which target the Middle Bakken reservoir in Mountrail County, North Dakota, U.S.

All newly acquired wells are estimated by Zephyr to have rapid paybacks (within two years), high internal rates of return and a combined total 2P estimated ultimate recoveries (EURs) net to Zephyr, of 194,000 barrels of oil equivalent. Once initial payback has been achieved, Zephyr can utilise its historical tax losses of more than US$15 million to reduce the federal tax payable on the revenues received from these new acquisitions.

Total consideration for the new acquisitions is $968,000, which has been paid for from the Company’s existing cash resources. In addition to the acquisition price paid, Zephyr plans to fund the discretionary net capital expenditure related to the drilling and completion of the 15 wells acquired. This CAPEX total is forecast to be circa $3.9 million. CAPEX will be due in late 2021 and early 2022, and the Board expects to be able to fund this CAPEX out of its current cash resources and with additional revenues from its current production.

The Company expects all 15 newly acquired wells to be in production by 31 March 2022, resulting in a forecasted additional 200-300 net boepd. Additional updates will be provided as wells come online and adequate production history is gathered.

Zephyr has also announced the formation of a JV with Purified for the identification and execution of additional non-operated acquisitions. Purified’s principals have substantial experience in the Williston Basin, a basin in which they previously helped assemble and close over $70 million of non-operated asset acquisitions and associated CAPEX for a private equity-backed vehicle.  More recently, Purified assisted and/or co-invested in all four Williston acquisitions that Zephyr has closed this year, and their team will have the right to continue to co-invest up to 20% in future transactions. The newly formed JV provides Zephyr with significant land and business development expertise directly in Zephyr’s geographic region of focus.

Colin Harrington, Chief Executive of Zephyr, said:
“While the safe and successful completion of the State 16-2 LN-CC well on our Paradox project remains the Company’s top priority, I’m delighted to report continued progress and significant growth on the non-operated side of our business.

“As we outlined to Shareholders in January, Zephyr’s key goal for 2021 was to establish production and positive cash flow – either through our existing portfolio, via acquisition, or through a combination of both.  We will end 2021 having significantly exceeded my expectations.  We have now closed five separate acquisitions this year – and these deals created a balanced asset base of interests in 22 producing or near-term production wells, provided exposure to additional non-operated drilling expected in 2022, added significant new operated acreage in the Paradox Basin, and tie together nicely with the State 16-2LN-CC well which is lined up for near-term completion and production testing.  I’m particularly pleased that the current blend of strong commodity prices and highly economic production has the potential to generate enough cash flow to self-fund additional Paradox Basin development, as we work to delineate and deliver significant potential upside from the hydraulic stimulation of that asset.

“The acquisitions announced today are in prime locations, and the majority of the wells are operated by Whiting, a leading Williston Basin producer already serving as operator of a number of our existing wells.  Sourcing and structuring these deals takes detailed basin knowledge and deep local experience, which is why I’m delighted to further our relationship with the Purified team.  I’ve known the Purified principals for over two decades, and have watched as they successfully assembled a top-notch portfolio of Williston Basin non-operated interests for their former sponsor. Over the last year, we’ve worked together even more closely to successfully close our initial Williston Basin acquisitions, and I look forward to continued collaboration and co-investment from their team.

“The next few months are expected to bring news flow on all fronts as we target completion of our operated State 16-2LN-CC well in October, further define our Paradox resource potential, achieve carbon neutrality across our asset base and receive increased cash flow from our non-operated asset portfolio – including cash flow from our new acquisitions.

“We look forward to keeping Shareholders updated as we deliver on our strategy and achieve additional objectives across the portfolio.  In the process of doing so, as always, we will strive to be responsible stewards of our investors’ capital and responsible stewards of the environment in which we work.”

Zephyr has certainly delivered the goods time and time again since it came back to the market and has been a text book, nay business school model of how to build a successful E&P company in North America. Indeed Ever since I met up with Messrs Harrington and Grant in February last year and they outlined their vision for Zephyr I couldnt possibly have thought how well or indeed how quickly their plans would be effected. 

Zephyr has already ticked many boxes and has a valuable business with the Paradox Basin blue riband property well placed to deliver significant value flanked by an increasingly powerful portfolio of income from the Williston Basin and the JV with Purified which I think will prove to be another inspired decision from the team. This is quite likely gong to lead to another increase in valuation and therefore target price, as they say in all the best movies, ‘to infinity and beyond’…..

Jadestone Energy

Jadestone has provided an update on the planned completion of the acquisition of the 69% operated interest in the Maari asset, shallow water offshore New Zealand.

Further to the Company’s announcement on 31 August 2021, and following discussions with the seller OMV New Zealand Limited, both Jadestone and OMV NZ have agreed to extend the long stop date under the Maari sale and purchase agreement to 31 December 2021.

Prospex Energy

Prospex has confirmed that it has received correspondence asserting that the then directors of the Company may have exceeded share authorities granted at the 30 June 2020 AGM to issue new Ordinary Shares and rights over new Ordinary Shares in the Company at certain points in the recent past.

‘The current Directors take this matter seriously and have been working with the Company’s UK counsel, as well as relevant past directors of the Company, to establish whether there has been a breach of any share authorities’.

‘As part of the 9 March 2021 placing, the Company stated that those persons participating in the placing would be issued with one new warrant per two placing shares subscribed for.  This amounted to 25 million warrants to be issued to subscribe for, in aggregate, 25 million new Ordinary Shares.  Representatives of the Company have spoken to the placing Agent, Novum Securities Limited, who have confirmed they understand that the grant of such warrants is dependent on the Company having sufficient share authorities in the future to issue the warrants .  Similarly, the exercise of 1,920,000 Broker Warrants granted to Novum is dependent on such authorities.  As such, until that point, no warrants to be issued pursuant to the March 2021 Placing will be issued and as such the issue of the warrant instruments are conditional upon the Company having share authorities in the future to issue the shares and thus form a future contractual liability with the Company’.

As part of the investigation, the Company has also examined the issue of convertible loan notes and warrants as announced on 24 December 2020. A significant portion of those convertible loan notes and warrants issued in December 2020 were rolled over from convertible loan notes and warrants issued in 2018, for which share authorities had already been granted in 2018, and which the then directors of the Company believed also rolled over. If the roll-over of share authorities relating to the original 2018 loan notes and warrants into the December 2020 agreements did not occur as assumed, then the Company may not have had sufficient headroom within its share authorities to allot all the new Ordinary Shares issued in the March 2021 placing.  The Company is clarifying with urgency that this was the correct understanding.

I am somewhat uncertain about quite what has been going on at Prospex where current directors are investigating former or ‘past directors’ but this is like a diagram that illustrates that some directors are in both bubbles, some for many years.

If it has happened like this it must be odd as members of the board, some of whom are lawyers or similar and advised by brokers and Nomads have approved what is a breach of the law. Also warrants that have been issued to recent investors and of course ‘broker warrants’ may not now be exercised.

It looks as if the company are kicking this can down the road which is of no help if you are holding warrants that you can’t exercise, I am not taking sides here but will look forward to being updated as to quite where Prospex go from here.

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