Azerbaijan Oil & Gas Producer: Coming to the London Main Market This Week (LON:ZEN)

Tuesday, 10th January 2017 09:24 - by Stefania Barbaglio

The common wisdom that Canadian markets are a difficult environment for independent oil & gas companies to raise money may be true. However, this week features an exciting IPO (Initial Public Offering) on the London Stock Exchange of Zenith Energy PLC (LON: ZEN), which will be dual listed, having decided to keep their TSX-V listing (TSX-V: ZEE).

Zenith is an oil & gas production company with an attractive portfolio of assets in Argentina and Italy but mainly Azerbaijan, where it operates in one of the largest onshore oil fields in the country through a ‘REDPSA’ (Rehabilitation, Exploration, Development and Production Sharing Agreement) with SOCAR, the State Oil Company of the Azerbaijan Republic. This agreement was signed on March 16^th 2016 for an area of 642 square kilometres; Azerbaijan’s largest onshore field.

The Azeri deal, completed last year in August, has added substantial business with production revenues and could lead the company towards a mid-cap oil valuation on a long-term investment timeframe. It is the ‘Jewel in the crown’. Nevertheless, although the lead up to the acquisition was clearly flagged over a year ago, investors remained inactive, possibly sceptical of a deal that a small Canadian company managed to complete in a well-known oil major arena. However, the London listing could prove to be a game changer as the company seek to establish itself as a serious potential oil producer.

Now, maybe investors should ask the CEO and President of Zenith, Andrea Cattaneo, who currently spends most of his time flying back and forth to the Capital of Azerbaijan, Baku, how he manages to strike deals in Italy while negotiating the Azerbaijan TANAP pipeline? He is certainly a busy man. Cattaneo has a solid background in oil trading and banking.  A real entrepreneur and dealmaker, he is a pioneering thinker with over 30 years of experience in emerging markets such as the USSR and FSR. He also negotiated the first ever loan in history to VIETCOMBANK, the national bank of Vietnam, which was at that time the third poorest country in the world. A strong financial background alongside 3 decades of experience in emerging markets as a government advisor on financial, industrial and energy related matters mean that Andrea is a man who can get deals done.

The investment proposition is in my humble opinion attractive and could reap rewards. They already have ~300bopd of current oil production, Zenith looks to me, quite undervalued if we look at EV/BOBP compared to some of their peers listed in London and Canada.  They currently trade at 12.5 Canadian cents approx.’ 7.5pence

The work programme in Azerbaijan utilises existing infrastructure and masses of data from the Soviet era. There’s a substantial work-over operation soon to be implemented using Western first world technology with modern techniques, which will significantly increase production. Although the reservoirs are quite deep, the pressure is good. The key Muradxanli Block produced some 14,010bbls over the first 49 days of operatorship to 30th September and generated gross revenues of CAD $659,000 within that quarter.

Revenues will consequently increase in line with monthly payments for the oil produced and delivered into the international pipeline network via the network of SOCAR pipelines.

The fact that oil prices are also expected to stabilise at a reasonable price over Q1, following the recent OPEC agreement, can only add another positive element to company profitability. Investment opportunities are as ever ‘speculative’ but this one to me looks straightforward with a good chance of returns.

The independent investment research company Align Research recently headlined Zenith as a “Compelling investment play in Azerbaijan – with a conviction buy and target of 65.1 cents per share” in their latest research published in October 2016. The report is available on http://www.alignresearch.co.uk/cpt-company/zenith-energy/. I expect an update from Align Research very soon. Admission to the London Main Market is scheduled for tomorrow, Wednesday 11^th January 2017. A rerating could happen, giving a higher valuation which could be significantly in excess of their IPO price.

Let’s watch and see.

I’d suggest that investors get researching Zenith Energy. We will have a Special Shareviews TV show tomorrow with CEO and President Andrea Cattaneo to present the Company and the investment case. Make sure you watch it.

The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.