WTI (Sept*) $99.88 -86c, Brent (Sept) $106.92 -43c, Diff -$7.04 +$3.91 *Aug expiry, USNG (Sept) $8.01 +53c, UKNG (Aug) 270.0p +53.47p, TTF €151.695 -€6.56

Oil price

Oil was weak yesterday, not much but enough to make the August WTI expiry meaningful compared to Brent. Exports from Libya are also on the increase, officials are suggesting it has reached around 600/- b/d already and should double in the next few weeks, let’s see….

Covid in China remains very much around and about, the testing programme in Shanghai has been extended to the end of the month. Better news this morning comes from Germany who are reporting that the Nordstream 1 pipeline has been reopened but so far at some 40% of capacity.

Finally a tricky set of inventory data from the EIA. Crude drew by 445/- barrels against the scribblers guesses of a build of 1.4m blaming higher than expected US exports on lower domestic production. Perhaps more importantly gasoline stocks added some 3.498m b’s which indicates that the love affair with the automobile is faltering, especially with gas at 5 bucks a gallon, refinery rate of some 93.7% down 1.2% added to these concerns.

Zephyr Energy

Zephyr Energy plc will hold its Annual General Meeting at 10am BST today, at the offices of Zephyr Energy plc, First Floor, Newmarket House, Market Street, Newbury, Berkshire, RG14 5DP. 

Ahead of the AGM today, Rick Grant, Zephyr’s Non-Executive Chairman, has made the following statement:
“The past year has been a period of substantial growth for Zephyr which has seen the Company transform into a carbon neutral, cash generative, self-sustaining oil production company with a balanced portfolio of both operated and non-operated assets located in two established oil producing basins in the U.S.

We continue to make sustained progress on our stated mission – to open up the next prolific onshore U.S. oil and gas play. To this end, we have added value through initial drilling success at our flagship operated Paradox project in Utah, U.S., culminating in defining the first project reserves and significantly increasing both the contingent and prospective resources, while simultaneously highlighting the scale and future production potential of the project. We aim to materially increase the project reserves when we target undertaking extended production testing from our State 16-2LN-CC well by the end of September 2022 and through our three well drilling programme which is expected to commence in the second half of 2022 and for which detailed planning has long been underway.

In addition to our operated Paradox project, we are producing significant levels of cash flow from our non-operated Williston Basin assets in North Dakota, U.S. First quarter 2022 revenues from the portfolio totalled US$11.5m, generated from an average of 1,600 barrels of oil equivalent per day, net to Zephyr, at an average sales price for the oil of US$90.11 per barrel.   Q1 operating cash flow (net of royalty, tax and operating expenditure) was US$9.8 million, which demonstrates the high profit margin realised from the hydrocarbons sold during the period. Today, we reiterate our previous full-year 2022 revenue forecast of US$35-40 million, which is based on a forecast production range of 500,000 – 550,000 barrels of oil equivalent for the year. We also continue to evaluate opportunistic acquisitions to further grow our production portfolio during 2022 and beyond.

Importantly, even through this period of significant production and cashflow growth, the Company will always strive to operate within our core values of being responsible stewards of both our investors’ capital and of the environment in which we operate. We believe that we are ideally positioned to deliver on our stated strategy and we look forward to keeping the market updated as the Paradox drilling programme commences, alongside other milestones.

On behalf of the Board, I would like to thank everyone within Zephyr for their unswerving hard work and commitment during this transformational period. I would also like to extend my heartfelt gratitude to our Shareholders and advisers for their continued support.

Due to the achievements of 2021, we look to the future with a high degree of confidence and excitement as we continue our pursuit of building a group of which all our stakeholders can be proud.”

Williston production and sales update

The Company expects to update the market on second quarter 2022 production and sales volumes from its Williston non-operated portfolio in early August 2022. Going forward, and given the timing of the provision of production and sales data to Zephyr from the well operators, the Company intends to provide quarterly updates on its non-operated portfolio performance with updates published within 45 days of the relevant quarter end.

Whilst all the figures here are inevitably historic it does give investors a guide to the incredible achievements of the Zephyr management team over the last 18 months. They have more than delivered, successfully drilling the Paradox Basin starting with Government money leading to the current position, an extended well test ongoing and an Autumn campaign of three more wells which must have a very good chance of  opening up the next prolific onshore U.S. oil and gas play.

 Indeed, after success at the Paradox, the company invested in the Williston Basin portfolio designed to give the company a much needed cash flow to pay for the potential at the Paradox. This has had the effect of making Zephyr into a full cycle company with a great deal of upside scope from Utah and add to that increasing Williston Basin high yielding production, it does what it says on the tin. 

It is going to be a busy 2H for Zephyr and one in which much news will be hitting the market, don’t forget the company is currently fully funded so barring the unexpected won’t be coming to the market for funds. The build of this company has already started and I expect it to be a very substantial one in a very short space of time, it may come very quickly. 

As an equity investment Zephyr looks incredibly attractive, indeed as suggested above I expect it to grow exponentially and under pretty much any economic industry metrics. At 4p investors should park their increasingly incorrect views about the company and see it as at least a ten bagger form here and maybe quite soon. 

KeyFacts Energy Industry Directory: Malcy's Blog