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Wow that is a rather large sun of money if zenith win it will become one of the biggest oil companies on the LSE with the largest market cap.

You can see the details of this on my excel document here: https://ibb.co/RBzchkT

On a line by line basis the company has pretty much reduced costs across the board. They have saved $1.7 million in consultancy costs $42,000 in legal costs $247,000 in office costs and almost $1,000,000 in salaries. Even travel has gone down by $11,000. The only place that general and administrative expenses have going up is in order to the remuneration and accountancy which is up by $224,000 and administrative expenses which is up by $2,006,000. In total the savings on general administrative expenses a $761,000.

You can see the details on this here: https://ibb.co/6Jh6bk6

In Terms of non recurring expenses, the bond issue costs are down by $24,000; the costs for acquisitions are down by $134,000 and share-based payments are down by $733,000. Listing costs are up by $15,000 and the arbitration expenses are $1,658,000. Therefore, costs here are up by only $21,000.

You can see the details on this here: https://ibb.co/bmt7Bs9

So overall despite what some have been saying in these forums when you look at the accounts properly sentence expenses have not increased significantly in 2024 compared to 2023. In fact if you remove the arbitration costs the expenses have decreased.

As always with looking at accounts you need to look beyond the headline figures and really study the detail in order to understand what was going on and things that definitely not as bad as they're being portrayed here.

Decent MGS post taken from Norwegian forum:

I just got back from vacation and finally had some time to look into the zenith energy accounts. I was particularly interested at looking why the administrative costs had raised from $8.6 million Canadian dollars in 2023 to $24.4 million Canadian dollars in 2024. Once I started putting the data into my own excel spreadsheet and being able to move it around, the answer was interesting and frankly unexpected.

All of the additional $16 million costs came from only two areas:

a) Foreign Exchange Gain/Loss – total difference $8,857,000

b) Impairment costs $6,927,000

You can see the details of this on my excel document here: https://ibb.co/4MDh78d

In total these amounted to $15,784,000 of additional costs in 2024 compared to 2023. The important thing to remember about these costs is that they're just accountancy terms and not cash losses. In 2023 when the company benefited from nearly $6 million of foreign exchange gains they did not end up with an extra $6 million in the bank. Similarly in 2024 when they lost $2.8 million on foreign exchange they did not actually have to pay out this money. As can be seen on page 54 of the annual accounts under note 5 this is explicitly described as being “due to the foreign exchange related to the retranslation of the assets, a non-cash expense.”

It's the same situation with the $6.9 million impairment in the non recurring expenses. The company no longer own any assets in Congo so these obviously have to be written off compared to the 2023 accounts and impairment of the Tunisian assets is also very logical. Although Zenith still own them, the fact that the company has been prevented by the Tunisian government from selling any oil makes a write-down on their value inevitable. This is also described on page 54 in note 5 as being “non-recurring expenses which relate to the impairment of the assets in Congo and Tunisia”.

If you remove these figures from the account then you end up with a very different perspective on the cost base between 2023 and 2024 and there is only an increase in costs of $21,000 between the two years

You can see the details of this on my excel document here: https://ibb.co/7nGgPvr

Note that this is including the $1.6 million spent on Arbitration costs, which are clearly necessary to the company’s claim against the Tunisian state. If we were to remove these too, then costs would have declined by $1.6 million on a year to year basis.

Zengas, I was looking at your figures and they are certainly right but by putting the numbers in Canadian $ and not specifying this you make the situation look much worse than it actually is.

$22 million Candaian for consultancy and travel over 7 years is only $15 million USD which is only £12 million.

Travel of $3.9m CAD = $2.8m US = £2.2m sterling. Over 7 years this is £310k in travel for the entire company. This is not that unreasonable for a company that has had operations all over the world and listings in three different countries over this time period.

The consultancy of $18m CAD = $13m USD = £10m sterling. Over 7 years this is £1.4 million a year. Again this is not unreasonable for a company that has had operations in about 6 different countries int his time period.

Compare that to other small cap oilers on the LSE and the expenses are not much different.

Paul I concur it is imperative that we receive an update on the developments in South Sudan and Kazakhstan. However, it is my opinion that any forthcoming news from these regions is likely to be unfavorable. Historical precedent indicates that when Zenith becomes silent about the acquisition of an asset, it almost invariably precedes an announcement that the acquisition is no longer proceeding.

At present, the company's focus appears to be on two primary areas: US acquisitions and arbitrations. Based on the current news flow, it seems that approximately 95% of the focus is on the arbitrations, with only a marginal emphasis on the US. Despite exploring acquisitions in the US since August of last year, the sole announcement has been regarding a 5% royalty in another party’s production, and we remain uninformed about the daily oil production from this venture.

Conversely, there has been a consistent stream of updates concerning the arbitrations, including the recent engagement of a prestigious US law firm to represent them. Zenith has indicated that they expect the outcome of the first arbitration, valued at $7.5 million, by the end of the year, and the result of the second arbitration, valued at $85 million, by the first quarter of 2025.

I initially invested in Zenith as an oil company, yet they have not performed well in terms of oil production or acquiring new assets since their loss in Tunisia. Should they succeed in the arbitrations and secure $100 million, or even half of that amount, I will be highly satisfied. Ultimately, my primary concern is that the company generates revenue and that the share price appreciates, irrespective of whether the income stems from oil production or legal proceedings.

I see a lot of name blaming here however we are involved in several arbitration cases against the Republic of Tunisia and its national oil company, ETAP. These are from contractual breaches and unpaid invoices for oil produced and sold by Zenith’s subsidiaries. This is the fault of Tunisia and not AC and I am certain this is taking his time and more important than acquiring a risky asset in South Sudan.

The most notable arbitration is the ICC case initiated by Ecumed Petroleum Zarzis Ltd (EPZ), a subsidiary of Zenith, against ETAP. The arbitration tribunal has already rejected ETAP’s request to include the Tunisian state as a co-defendant and has ordered ETAP to pay costs. The tribunal is expected to convene again in April 2024, with a decision anticipated by the end of the year which will significantly impact the share price on a likely victory.

Another significant case involves Zenith’s subsidiary, Canadian North Africa Oil and Gas Limited (CNAOG), which is claiming damages of approximately $85.8 million. This claim includes lost production revenue and unpaid invoices, attributed to ETAP's non-compliance with contractual obligations. Again this is down to the republic of Tunisia and not zeniths fault.

There's no guarantee the arbitrations will work out, but Zenith seems to have a solid case. The Tunisian government has clearly acted in bad faith by not paying Zenith for the oil they sold. Since they've done this once, it's likely they've made other decisions that hurt Zenith too, which should help Zenith's case for damages. Plus, Zenith has put together a strong legal team, showing they're confident about winning a significant amount in the arbitrations. We can blame AC every day for this and that and the drop in the share price but the fact of the matter is if Tunisia and Congo had not acted in bad faith the share price would be bags higher than it is now.

If you believe that Zenith will announce the appointment of one of the world's top law firms to handle their arbitration claims against Tunisia without having considered how to finance it, you are mistaken.

It is highly unlikely that the company would make such an announcement only to later retract it due to an inability to pay.

Many large companies offer litigation funding for these types of actions, and it is standard practice to finance arbitrations in this manner. I anticipate that we will soon receive news that Zenith has secured a financial group to cover all their legal costs, enabling them to proceed confidently.

Follow the Norway market, LSE is completely redundant and only left with disgruntled ex investors. There is lots of upside in the near future on the arbitration case alone.

Zenith Energy Ltd., an international energy production and development company, has provided an update on its ICC Arbitration proceedings against Tunisia’s national oil company, ETAP. After previously securing a ‘conservative seizure’ of US$6.5 million due to ETAP’s contractual breaches, Zenith has now bolstered its legal team with the appointment of Clay Arbitration, led by Professor Thomas Clay, to support its ongoing case. The company continues to focus on developing revenue-generating assets and low-risk exploration in its North African, US, and European markets.

Source? Which account on X?

In this arbitration, the court seem to being asked to rule simply:

a) Was the license entitled to be renewed for an extended period under the terms of the CNAOG contract which Zenith inherited when it bought CNAOG from the China National Petroleum Company?

b) If so then what was the amount of production that was lost by this breach of contract and therefore what is the financial value of this loss

Obviously in addition to the CNAOG losses which seem quite straightforwards there is also the losses related to the Kuwait Foreign Petroleum Exploration Company (K.S.C.C)’s 22.5% but I feel that this could be a bit more complex because I am not sure that this deal was ever approved by the Tunisians.

The third arbitration seems to be by far the most complex of the three as it deals with issues related to the Tunisans deliberately blocking Zenith developing Sidi El Kilani and Ezzaouia. If this deliberate obstruction can be proved then Zenith can claim the potential for greater production that would have been achieved from both assets and therefore additional losses separate from those related to the second arbitration. But obviously there are many “ifs” and “maybes” in this one and I can see why it is going to take the longest. I do think that it is clever that Zenith have separated out the second and third arbitrations though.

I also think that the fact that Anima Dispute Resolutions have resigned from representing the Tunisians in this court case is very significant. According to their website they are a very experienced and internationally renowned law firm, so why would they stop representing the Tunisians in this case? It is not just because they think that they might lose as they would get paid for the work that they do anyway and lawyers do not walk away from high paid legal cases for no reason. To me, their resignation hints that there is something in there on the Tunisian side that is very rotten and they do not wish to be involved with – and if this is the case then it is potentially very beneficial for Zenith.

Finally, the mention of granting an extraordinary dividend to shareholders if the various arbitrations are successful is a very interesting move by the company and would be much welcomed by all of us. Obviously, I would like more information about what percentage of any award this extraordinary dividend would represent, but given that according to the 13th Feb 2024 fundraising RNS Andrea currently owns 9% of Zenith then it would obviously be in his own personal interest for any dividend to be as large as possible.

Decent posting by MGS

An interesting update from Zenith on the Tunisian arbitrations this morning. Here are my thoughts so far.

Arbitration 1 for $7.5 million expected to be decided this year

Arbitration 2 for $85.8 million to be decided by this time next year

Arbitration 3 for $48 million expected to be decided in 2027

On the face of it this all seems to make sense. The latest RNS has given a pretty comprehensive summary of what all of the arbitrations are about and where they sit in terms of settlement time periods.

The first arbitration is a relatively simple matter, as far as these things go. It is effectively a court case brought about by the fact that ETAP sold oil that was owned by EPZ (Zenith’s subsidiary) and did not pay Zenith their share of the money. So, as I have said for a long time now, this should be a pretty simple case to determine. If Zenith are owed the money then they need to be paid. It is also worth noting that this is the arbitration in which Zenith have already announced that they have seized $6.5 million of funds from an ETAP Swiss bank account. This means that the vast majority of the money is available for Zenith to receive as soon as the court order is made.

The second arbitration is less straightforward than the first as it has additional elements to it regarding loss of earnings based on Zenith not being able to operate their assets since the breach of contract by the Tunisians. As far as I understand the RNS this seems to relate to revenue that should have been received by Zenith from the moment of the company purchasing the CNAOG 22.5% of SLK, but that was not paid between then and the expiry date of the license in December 2022. It also relates to money lost from the Tunisian government refusing to grant Zenith the right to renew the license that CNAOG appear to have possessed in their original agreement – though it is not made clear how long this right to renew was for. This arbitration also includes a similar claim related to the KSCC 22.5% of SLK.

This arbitration is a fair bit more complex than the first one as it relates to loss of earnings and potential earnings rather than just the non-payment of a bill (as per arbitration 1) but it still does not seem too complex. In this case, the vast majority of the damages it seems to me relate to loss of earnings from the refusal to renew the 22.5% license from December 2022 for an extended term. Assuming that the CNAOG contract with the Tunisians was watertight, and based on the fact that the previous owner of CNAOG was China’s national oil company and the Tunisians would not have dared to mess them around it is probably safe to assume that it was. Then the case relates to damages for years worth of oil production that Zenith has not been able to access and this is why the numbers in this one are so big. Obviously we do not know how long the license was to be renewed for, but Zenith do and it must be for a substantial period.

Taverham In the event of a favorable outcome in the court case, I anticipate that enforcement will not present significant obstacles. Tunisia's close ties with Europe render it unlikely to pursue an independent course akin to Iran's defiance of international law. Moreover, Tunisia's ongoing application for assistance from the International Monetary Fund (IMF), coupled with the recent appointment of a new central bank governor, underscores its commitment to financial stability and compliance. Failure to honor international arbitration penalties, particularly those mandated by Washington, would jeopardize Tunisia's access to IMF funding. Additionally, specialized international funds exist to purchase granted but unenforced awards from successful claimants at a discounted rate, assuming responsibility for enforcement and subsequently realizing profits upon receipt of funds. This practice is now commonplace within the international arena.

The recent Regulatory News Service announcement presents both favorable and unfavorable aspects. The notable drawback is the issuance of an additional 38 million shares, resulting in an approximate 16% dilution. However, a positive element emerges as two company directors have personally invested a substantial sum in this issuance, while efforts persist to finalise the debt financing for the Devonian deal.

This fundraising action appears to be a proactive step in addressing capital needs. At the beginning of this year Zengas accurately hinted at the company's impending shortfall in working capital, and this has indeed proved to be the case. I had personally hoped that that bond raising efforts would obviate the need for equity issuance, but it would appear that the company have thought it prudent to carry out the recent fundraising initiative in order to proactively address any cash-flow issues between now and the completion of the bond issuance.

It remains pertinent to acknowledge Zenith's intention to finance the Kazakhstan drilling campaign through debt, a detail confirmed in the recent RNS. The company's pursuit of a €25 million bond program, as previously disclosed in their semi-annual accounts, has been underway for some time.

Given the recent £1,260,000 raised, with no immediate allocation to the Kazakhstan acquisition and development, it appears plausible that progress is being made on the bond issue. Consequently, the equity raising serves as a temporary measure to ensure solvency until the bond issuance concludes. While the RNS mentions earmarking some of the £1.26 million for acquisitions in America and development in Italy, it seems judicious to delay such expenditures until after securing the bond financing, thereby preserving current working capital to facilitate the deal's completion.

This fundraising effort instills confidence in Zenith's future prospects. The relatively modest amount raised, coupled with its non-allocation to major acquisitions, underscores its role as a short-term liquidity solution. The personal investments made by Andrea Cattaneo and Luca Benedetto, which total almost £250,000 of their own funds, demonstrate their confidence in the company's strategy. Successful execution of the €25 million bond issue, as envisaged, would position the company with a robust cash position and ample opportunities for development, such as the Devonian drills. My sentiment on Zenith is, therefore, very positive and I agree with the final line of the RNS: the year 2024 does indeed hold significant potential for shareholder value creation.

Ezhik, I appreciate the insightful points you've raised in your last post. However, I would like to express some minor differences of opinion regarding certain aspects of your comments.

Upon careful examination of the RNS concerning the acquisition, it is evident that the existing licenses extend until July 2025, precisely 18 months from the present date. However, I believe the drilling of the well within the current year, as you suggest, is a prudent approach.

The RNS explicitly outlines that drilling a well and reprocessing seismic data are the last two criteria mandated by the Kazakhstani government for the license transition from a six-year exploration license to a 25-year production license. It appears that successfully completing this well fulfills the remaining requirement, positioning the company to secure the 25-year license.

Contrary to your observation about drilling a deep well, I find no indication in the RNS that suggests Zenith would be drilling such a well. While the document mentions a deep well, AK-1P, drilled in Soviet times down to 6,290m, the document also makes clear that this was intended to drill to 7,000m but encountered difficulties with high gas pressure. I cannot see any circumstance whereby the company would drill to this depth for the first well.

To me, the RNS clearly suggests that the next well will be an appraisal well, signaling a transition from exploration as the license development advances toward a production permit. This leaves the choice between the AK-20 well, which recovered oil at 2,660m and gas at 1,913m, and the KM-1 well, encountering 30m of oil-bearing sands between 1,680 to 1,720. My inclination is toward the KM-1 well, given the additional details provided in the RNS and the known oil deposits. However, I defer to your expertise in the oil-field domain for correction or guidance on my assumptions.

Considering the relatively shallow depth of a well drilled to approximately 1,700m, as indicated in the RNS, and drawing on the example of the BD-260 rig's successful drilling to a total depth of 4,350 meters in the C37 drill in Azerbaijan, the rig demonstrates the capability to drill more than twice the required depth for the KM-1 well in Kazakhstan.

In my opinion, Zenith appears to possess the necessary equipment capable of drilling the anticipated shallow well, and finding a competent team to operate it should be feasible. The primary remaining question, as you rightly pointed out, is the duration required to recondition the BD-260 rig for drilling readiness. While I tentatively estimate 2-3 months as sufficient, I defer to your superior knowledge in this domain. However, I am strongly inclined to believe that the well will be drilled within the current year, hopefully early H2,, and I find no compelling reason to incur additional expenses on an external rig for this purpose.

Ezhik, thanks you for your sensible points. Your detailed knowledge of the Azerbaijan drills is certainly useful to me and I appreciate it.

I find it interesting that the significance of the rig acquisition becomes context-dependent, influenced by the temporal perspective from which it is observed. Initially, the decision to procure the rig aligned with strategic plans for extensive well drilling, presenting a cost-effective measure for long-term savings. However, with the subsequent utilization limited to a single well in Azerbaijan, the expenditure appeared imprudent and fiscally inefficient

.

Presently, as the organization strategises to undertake multiple well drilling projects in Kazakhstan utilizing their proprietary equipment, the earlier acquisition is reevaluated as a judicious investment. The dynamic nature of the oil drilling industry often renders judgments on such acquisitions subject to the evolving circumstances and outcomes.

In reflecting on this variability, an apt analogy is drawn from the words of Ian Fleming: "The distance between insanity and genius is measured only by success." This sentiment underscores the volatile nature of success in the oil drilling sector, where decisions may oscillate between brilliance and folly based on the realized outcomes and prevailing conditions.

We can only hope for a successful outcome in the drilling of the Kazakhstan license. However, to me it seems like a sensible commercial decision at this point in that the potential rewards of Kazakhstan considerably outweigh the potential risks, which are essentially the same as in any other drill. The program is neither genius nor insanity but it will inevitably be re-evaluated as one or the other when we look back at events with the benefit of hindsight.

Ezhik not sure what happened to your post it disappeared as I was responding. In the Azerbaijan drilling project, it's important to clarify that Zenith's rig demonstrated no issues with drilling capacity when employed for a deeper and more modern well. The failure in the cement job, as acknowledged, was attributed to the contractor and not the rig itself.

The absence of modern data for drilling operations in Azerbaijan clearly posed a significant challenge during the project and to claim otherwise is simply to engage in a historical reinterpretation that, from my perspective, lacks accuracy.

A notable hurdle in Azerbaijan was clearly the mandatory use of local Azerbaijani teams for all project-related work by Zenith. The inability to leverage international expertise became a central challenge in the drilling operations in the country and was a major contribution to the project’s failure.

Contrastingly, the upcoming project in Kazakhstan presents a different operational landscape for Zenith. The government's apparent openness to international collaboration, a proactive stance toward learning from international partners, and a more favorable approach to workforce utilization make Kazakhstan a more promising venture. Additionally, the availability of newer 3D seismic data in Kazakhstan distinguishes it significantly from the situation in Azerbaijan. Drawing direct comparisons between the two countries is erroneous given their distinct operational contexts as the one has no relationship with the other.

Responding to the previous poster however the post got deleted. either way shall still post the reply intended

A comparison between Azerbaijan and Kazakhstan is not warranted unless one harbors a bias related to events that transpired almost a decade ago. The challenges encountered in Azerbaijan stemmed from inaccuracies in Soviet-era well data. It became evident only during drilling that the provided information was significantly flawed. In such circumstances, success was unattainable, irrespective of the entity conducting the drilling. Notably, there were no issues with the rig itself in Azerbaijan; it successfully drilled all wells, but the erroneous data impeded oil flow.

Conversely, the situation in Kazakhstan is more promising. Updated 3D seismic data, acquired within the past decade, covers 70% of the license area. This stands in stark contrast to the reliance on 50-year-old data in Azerbaijan. Additionally, a comprehensive Petroleum Resource Assessment (CPR) indicates P50 resources totaling 120 million barrels of oil. Armed with a proven rig and benefiting from the region's historical success in producing significant oil fields, Zenith is presented with a substantial opportunity. The apparent support from the Kazakhstani government further reinforces the prospect of success.

Https://www.naturalgasworld.com/kazakhstan-hikes-oil-and-gas-condensate-output-7-in-2023-109079

Kazakhstan increased its crude oil and gas condensate production by 7% in 2023 to 89.9 million metric tons (1.8 million barrels per day), slightly below a planned 90.5 million tons, Reuters calculations based on official data showed on Tuesday.

Zengas, I appreciate your engagement, it is a pleasure to find somebody with whom one can have a sensbile conversation about accounts. We are rather a rarity on these forums.

I have to be honest with you and confess that the $1 million figure I previously mentioned was a rounded estimate from the half-yearly accounts. I acknowledge your point that the current cash balance may have evolved since then, considering both expenditures incurred and revenues generated from Italian electricity sales. Although the exact revenue remains unknown, my expectation is that this revenue would likely surpass the figures reported in the recent half-yearly report, given the typically increased winter prices.

Regarding the €25 million bond, I am confident that no warrants will be issued in connection to it. It is crucial to distinguish between debt and equity instruments, as they belong to distinct markets and warrants are typically associated with equity positions and are not issued in formal bond market settings. It is certainly common that warrants would be issued to private lenders, but never in the bond markets, it is just not done Personally, I find warrants used by any company acceptable if issued at a reasonable price, as they generate revenue when exercised. However, I am certain that they will not be issued in this instance for the aforementioned reasons.

On the point about Zenith giving a formal refusal to issue more equity, I think that it is unlikely we would ever receive this in an annual or half yearly report as it would definiteively eliminate a potential fundraising avenue. However, it is notable that Zenith has only issued 300 million (30 million post-consolidation) shares since the 2022 annual report, suggesting that reliance on equity issuance is not currently prevalent. I would agree with you here though, I would not like to see existing shareholders diluted any further than they already have been.

On the matter of the Devonian acquisition, I believe the dates may not be as definitive as you have presented here. My understanding, based on the RNS, is that payment is contingent upon receiving formal regulatory approvals from the Republic of Kazakhstan and not by any set date; though please correct me if I am in error on this. Regardless, I would certainly hope that they plan to have the €25 million bond in hand sooner rather than later. It would be better for the company all round.

I concur with the need for clarity on Leopard's operational plans and support your call for a more detailed presentation, not only for Kazakhstan but for the entire company. I also agree that Andrea Cattaneo deserves some success alongside all of us long-suffering shareholders. However, I feel optimistic that this year holds significant promise for Zenith Energy. We have certainly endured our fair share of challenges and deserve a positive turn of events to even up the scales.