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It is hugely frustrating that Zenith have not been able to apply the same technique that they used in acquiring Robbana and El Bibane into acquiring Sidi El Kilani and it is also extremely frustrating that the official extension for the KUFPEC extension appears to have passed. However, I do agree with what has been said on here earlier – this deal cannot have collapsed yet or the company would have been forced to release an RNS announcement. The fact that they have not done this is a sign that things are still progressing behind the scenes. Hopefully the success of the Rob-1 well has been noted by the Tunisian authorities and it is projecting Zenith as a reliable partner in the country.

Personally, I still think that we are going to acquire our share of SLK in the future but I just hope that it is the near future as an $8 million cash injection would make a huge difference to our share price.

I have done a little translation of this of my own and my conclusion is that I don’t think that there is anything to worry about with the committee’s decision to reject the transfer application.

I don’t think that there is any question that the document is genuine as it comes from the official website of Tunisia’s Ministry of Industry, Mines and Energy. However, I do think that we have to put a number of things into context before letting this document worry us to any great degree,

Firstly

Although the then Prime Minister of Tunisia took office in September 2020 he was almost immediately embroiled in a quarrel with President Kais Saied which pretty much paralysed government until he was dismissed by the President in July 2021. I think that it is interesting that if you look at the total responses in the 129th session of the Hydrocarbons Advisory Committee then everything that was asking for something new to happen got rejected and the only things that got approved were continuations of the status-quo.

Basically, it seems to me that given the position in Tunisia at the time (December 2020 and Jan 2021) with the balance of power appearing totally even between two opposing political camps that the committee did not dare to do anything other than continue with the status quo for fear of offending whoever would end up in charge, All new applications were rejected and the only things that were approved were extensions of existing licenses. In short they kept things going without making any decisions that could be deemed political. They did the same in the 130th meeting – rejecting all applications that were not from the Tunisian Corporation of Activities Petroleum itself. I suspect now that there has been a complete change of government then we will finally see decisions start to be made at the next meeting.

Secondly

The fact that the document says that the company were informed on the 24th February 2021 which also meant that KUFPEC and CNPC would have been informed at the same time. However, CNPC agreed an extension three weeks later on March 17th and KUFPEC a further three weeks after that on 8th April. Therefore, all parties at this point must have been satisfied that the committee’s mind could be changed.

I also think that it is very interesting that in the June 2021 session that the committee noted that there had been a change of ownership in "Ecumed Petroleum Tunisia Limited" (the Barbados registered vehicle that owns Robbana and El Bibane) that Zenith acquired from Candx on April 30th 2021. This seems to have sailed through – presumably because the committee could do nothing about the change in ownership of a foreign company.

I think that it is extremely unfair to categorise Zenith as a one-man-band. Absolutely Andrea is in the driving seat and making the decisions but there are clearly teams of people in both Tunisia and Congo who are actually carrying out the work. The company have also appointed fairly senior figures in both jurisdictions to help with the politics of the area.

In Tuisia they have the former Mayor of Tunis Mohamed Bouleymen as a member of the advisory committee alongside Jacky Fleschen (see 5th June RNS: https://www.investegate.co.uk/zenith-energy-ltd/rns/extension-of-kufpec-acquisition---coupon-payments/202106250700100918D/ )

In Congo they have Dotatien Mpika as the country manager (as per the RNS from May 18th 2021 https://www.investegate.co.uk/zenith-energy-ltd--zen-/rns/appointment-of-country-manager---prospectus/202105180700059187Y/ ) Mr Mpika is very connected at Presidential level in the Congo and has been credited with Andre in the July conference call as being crucial to the good relationships between Zenith and the Minister for Hydrocarbons.

So I agree that there is only one man in the driving seat but I don’t agree that Zenith is a one-man band. I also think that we do all need to tip our hats somewhat to Andrea Cattaneo. AC has taken a company that looked all but dead and buried when the Azerbaijan development failed and he has, through determination and clever deal making, transformed it into an Africa focused producer that is generating revenue at an ever increasing rate. Along the way it looks like he used all of his energy and entrepreneurship to acquire the company some incredible deals during the Covid oil price collapse that are paying off in spades today.

1. He acquired the AAOG Tilapia license for £200,000. This not only allowed us to acquire the Tilapia 2 license (pending completion) but it also bought us $5.7 million in debt owed to us by the SNPC.
2. He has acquired (pending approval) 45% of Sidi El Kilan in in Tunisia for $800,000 total and this asset has already generated $8 million worth of oil which will belong to Zenith once the approval arrives.
3. He has bought Ezzaouia for $250,000 from the distressed competitor Candax and we have already sold $4.5 million worth of oil from this asset as per the 8th July 2021 RNS https://www.lse.co.uk/rns/ZEN/sale-of-tunisian-oil-production-z5qjrq3ce4hglc8.html

The turnaround that AC has pulled of for Zenith – a company which at one stage looked like it was fighting for its very existence has been pretty remarkable and while serious mistakes were clearly made in the Azerbaijan period (especially operationally) these seem to have been corrected and learned from in Tunisia. After all, the ROB-1 workover looks like it will produce some incredibly successful results.

Zenith have a market cap of only £17 million and yet they are going to generate 50-100 (and jusdging by today’s RNS possibly even more) barrels of oil per day from ROB-1 .

This means that at an opex cost of $23 per barrel the company will make a profit of between $2.2 (50bopd) and $3.3 million (100bopd) from Rob 1 alone. This translates to £1.6 to £2.4 million sterling or 14% of the Zenith market cap.

When you add in the ROB 3 infill will which they suspect will be producing another 200bopd then this will be another £3.2 milllion and will give a total of £4.8-£5.6 million of annual profit from just two wells in Robanna alone. Given that the company has already stated today that they think that Robanna has only produced 5-10% of its reserve potential to date then there is clearly the potential of drilling a whole series of wells at Robanna and getting flow rates of between 100-200 bopd for each.

The great thing about this is that it would all basically be self-financing. The revenue generated by ROB-1 would provide the cash-flow to service a $1.5 million loan from Winance (or somebody similar) and would allow Zenith to drill ROB-3 pretty quickly. Then the income from ROB-3 would service the debt for a multi-well drilling campaign to exploit the 90% plus of Robanna reserves that have not yet been touched.

Of course, on top of this is the fact that the oil held from SLK totals about $8 million in value by now and so if/when we get permission for the acquisition to go ahead then we would not need any loans or other forms of fundraising to do a significant drilling campaign in Robanna, we could just drill it out of that $8 million.

The point is that Zenith have many options on different ways in which they can best exploit the potential in Robanna but all of these lead to significant oil production and cash revenue without taking huge levels of risk. On top of this we also have the option of putting together a number of workovers for Ezzaouia as well as the $3.5 million cost of restoring production from EBB-3 (which is currently producing nothing) back up to 500 bopd at El Bibane.

It is pretty easy to see how Zenith can get production in Tunisia up to 1,000 or more bopd in Tunisia while using debt and sweating the existing assets to create new cash revenue. And we still have Congo and (potentially) Nigeria to come with many thousands of barrels of production of their own.

Quietly, Andrea Cattaneo is fashioning Zenith into a proper producing oil company with huge upside potential and the markets is going to catch onto this sooner or later. Then this will fly imo…

That RNS is fantastic news. It gives us a substantial amount more detail on what we can expect as production rates from the ROB-1 workover if we are lucky and mathematically this could be an increase in production far beyond anything that we were expecting.

1. Firstly, we know that the workover has been successful and nothing has gone wrong.
2. We know that ROB-1 had originally been producing 50bopd but a botched workover by the previous owners back in 2012 reduced this to 20bopd.
3. We know that the current workover has cleared out nine years worth of paraffin and wax that were blocking the lower well perforations have now been cleared out.
4. We know (and this is the key one) that the well pump was only functioning at 20% of capacity.
5. We know that there were missing elements to the well structure (the tubing hangar) that have now been replaced.
6. We know that in 2-3 days (presumably by Wednesday or Thursday) we will start to receive the new oil production data from ROB-1.

So,, looking at this information we categorically know that ROB-1 is going to flow more oil than it did before the workover simply because of the amount of gunk that has been cleared out and the fact that broken and missing equipment has been replaced to bring the well back up to full working capacity. The big question is: how much extra oil is going to be produced?

I think from having read the RNS that it is an absolute given that we will exceed production of 50bopd, but actually what I am now extremely hopeful about is that we may exceed 100bopd. If the old pump was only functioning at 20% of its capabilities and the well was still producing 20 bopd then it is no stretch to think that a new modern pump working at 100% of its capabilities will easily be able to produce five times as much oil and hit 100bopd.

When you add in the fact that all of the gunk has been cleared out of the well then it is entirely possible that we could be seeing flow rates in excess of 100bopd and we should know by Wednesday.

Andrea is really starting to deliver not just in deal-making but also in the logistics of oil production and Zenith is quietly beginning to generate significant cash flow from operations. When the market catches up with the real potential on this share I think that we have the opportunity to see a share price that is many multiples of the current level. There is so much news to come here in so many different places and only some of it has to come in for it to be completely company-changing.

Roll on Wednesday/Thursday for the first step in this journey.

Hi Gary, yes you are absolutely right that the rise in Norway has meant that the two markets are now even in price, but the point that I was trying to make is that Oslo seems to be a leakier end to the Zenith ship than London and that the price has in the past risen there ahead of news being announced. This is what I think is happening at the moment.

If I am right and the rise in Oslo is indicative of good news imminent from the Robana workover then we should be at the top end of the projected increase in production and should show an increase of approximately 50-60bopd.

With oil prices as they are today $83per barrel then this additional 55bopd that should be produced by the ROB-1 workover would be worth $1.6 million per year in gross income. Assuming that the production cost is $23 per barrel then this should be $1.2 million net to Zenith per annum.

However, I think that there is more potential to Robbana than we realise. We know that the only reason that ROB-1 is not already producing 50+ bopd is because the botched well intervention by the previous owners got it stuck at this low rate. The Robanna concession as a whole was discovered in 1988 and peaked at 500bopd production in 1994 even though ROB-1 and ROB-2 were the only two wells ever drilled there. In short, we know that there is plenty of oil at Robbana and it has flowed in large volume in the past.

We also know that that Zenith has plans to drill a third well at Robbana and have said in their RNS that a successful infill well (ROB3) that is planned to be drilled nearby ROB-1 would be expected to produce 200bopd and cost $1.5 million.

These predicted $1.5m cost of the ROB-3 well is really interesting though as it is pretty close in numbers to the $1.2m in net revenue that ROB-1 should deliver if my production cost estimates are correct. This would mean that it would be very easy to get further debt funding from Winance or someone similar to drill ROB-3 and service the debt out of the production from ROB-1. The trick can then be repeated for any additional wells drilled in Robbana.
If Rob-1 produced 50 bopd then it would be worth $1.1 million per annum net to Zenith
If Rob-1 produced 100 bopd then it would be worth $2.2 million per annum net to Zenith
If Rob-3 produced 200bop then with would be worth $4.4 million per annum net to Zenith

If things go well with both this workover and then Rob 3 then for a total expense of $2 million the company could have a profit of $5.5 million per annum from Robanna for the next 5 years plus.

The first step is a successful workover of ROB-1 and as I said at the beginning I think that the indications coming out of Oslo suggest that this could be good.

From what I have now read from the various RNS releases and posts here and in Norway, the exclusivity agreement in Nigeria is exciting for Zenith and IMO a disaster for ADM. If you read the ADM forum in the UK it is full of investors there who are begging the company to issue a clarification on their ownership of OML141 and yet they are completely silent on it. It may be an assumption but it leads me to the conclusion that they are not clarifying things because they can’t clarify things.

Zenith’s RNS is pretty clear by comparison. They make it clear that Noble-Hill-Network Ltd own 100% of the Risk Services Contract for OML141 and therefore it is impossible for KONH to own 70% of it. I cannot see any way that if Zenith exercise their exclusivity agreement that ADME will end up holding any value in any of the asset. I also find it very suspicious that ADM did not make any payment directly to Noble-Hill-Network Ltd but instead they

Working on the assumption that Zenith will be able to buy the rights (or at least a proportion of them) for OML141 (for the reasons mentioned above) then we have to look at what kind of asset we have acquired. We already know that there are two discovered field and one prospective field with an estimated 232 million barrels of oil and the potential to increase to 500 million. We also know that in the last investor conference call Andrea stated that Nigerian assets produce in excess of 3,000 bopd almost without exception.

However, where things become really interesting is when we look at the information on OML141 that has been put out on the ADME website. In their RNS from 28th April (https://irpages2.equitystory.com/websites/rns_news/English/1100/news-tool---rns---eqs-group.html?article=31806576&company=admenergy) it says very clearly that they expect that the first well that they would drill would produce 4,000 bopd. This fits in exactly with what AC was suggesting about Nigerian volumes. ADM also suggested that the Barracuda license alone could produce approx. 23,000 bopd from 6 wells – so again we are looking at just under 4,000 bopd per well.

Obviously, we do not know how much money we are going to pay if we go ahead with the agreement or how much of a share of the license we are going to get but again, judging by the amount of money that ADM suggested that they would pay (which was $1.3 million for their 51% of KOHN’s 70%) then it is not going to break the bank to acquire a substantial share in an asset that could have huge upside.

Obviously Zenith still have to do their due diligence on the asset (and this will presumably include making sure that ADM do not have access to 70% of Barracuda) and after this they have to agree terms but I like where it is going. Andrea promised us that we were looking at a number of potentially company-making asset in Nigeria and this could be the one. I guess we will find out pretty soon.

Zenith Energy Annual Report – Key elements

1. $4.5 million sales (68,000 barrels) from Tunisia
2. Targeting a tenfold increase in production from Robanna to 250bopd
3. Current production (including conditional SLK) in Tunisia onshore is 650bopd and the aim is to get this to 1,000 bopd by H1 2022.
4. The company raised CAD$10.4 million by issuing 586,816,410 shares
5. After tax profit of CAD$3,525,000
6. Andrea owns 63,438,512 shares (4.51% of the company capital).

Key benefits

- Production costs massively down in Tunisia compared to Azerbaijan – revenue was down 23% but production was down 43%.
- Annual profit of CAD$3,250,000
- Key management compensation down from $1,764,000 to $9,59,000 (down 45%)
- Andrea’s salary down from CAD$1,291,000 to $694,000 (down 46%)

My Personal Key Takeouts from the accounts

A) Massive decrease in executive pay including Andrea’s
B) Production in Tunisia appears to be significantly cheaper and more profitable than production in Azerbaijan.
C) The key part is that the real valuable sales of oil from Tunisia (the US$4.5 million sales (68,000 barrels)) were not even included in this set of results as they were not announced until July 8th. This means that even now, only 6 months into the new financial year it looks like we will have even better results than the profitable year we had last year).

It is worth mentioning that when you look back at last year’s annual report you can see that in 2020 Zenith sold 70,005 bbls oil from the Azerbaijani assets which works out at 191 bopd The 20201 annual report tells us that now (for the reporting period that will be published for 2021-2022) that we are already producing 650 bopd (including the SLK production). This would mean that we would look at producing approx. 240,000 barrels of oil for sale this year from existing Tunisian production alone– nearly 3.5 times what was produced in Azerbaijan. With the additional workover programs that are planned for our offshore Tunisian assets, and not to mention the revenue to come from development of Tilapia when the license is approved and theOML141 if that is purchased then I think that in the future we will see this year’s annual report as the time when Zenith really turned things around and started to become a serious oil producer.

I have just taken a look at this morning’s RNS and I have to say I agree with everyone else – wow, what a transformational deal this could potentially be for Zenith. Andrea did tell us back in the investors call of early July that we were looking at acquiring assets in Nigeria that would be quicker to receive and potentially more valuable than those available in the marginal fields round. This certainly hits the bill on that description. It is also worth remembering that Andrea said in the same call that the minimum production in Nigeria that we are negotiating for is 3,000 bopd so we can safely assume that production in NW OML 141 will be above that.

However, while I was looking into this asset this morning, I have come up with an interesting finding and this is that the asset that we have just signed our exclusivity deal on seems to be the same asset that AIM listed ADM Energy have already announced back in April this year that they have already acquired. If you go to their website and look at their operations section they list the very same OML141 license and also the Barracuda oilfields that are mentioned in this morning’s RNS.

Obviously, there is some corporate confusion here. It is not possible for the same asset to both belong to ADM and also be part of an exclusivity agreement between Zenith and Noble Hill-Network. Given that Zenith have just made this announcement this morning I assume that AC has all of his ducks in a row and that it is ADM who are at fault. But it is certainly a confusing situation. This appears to be a very valuable asset and while it would definitely affect ADM much more than Zenith if they lost it (since they claim to own it and we only have an exclusivity agreement to potentially buy it) but I would definitely be disappointed if it were to turn out that this OML 141 is not available to us.

SO, some big corporate questions to answer here IMO. Why do we have an exclusivity deal on an asset that ADM Energy claim to already own? Are they wrong or are we?

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