Member Info for MarketGunslinger

johnpohn - No I think that the revenue will be much much more for this time period as the numbers that I have come up with only cover the oil that we had in storage at SLK up until June. Since our financial year runs through to March 2022 we have another 8 months of revenue to generate for the 2021-2022 tax year.

At the moment we are producing approx 600bopd net to Zenith in Tunisia so for the forthcoming 8 months then this should equate to a total of a further 165,000 barrels of oil which at today's price of $73 would be worth an additional $12 million gross (and by my reckoning about $7 million net). So I expect the minimum revenue to be $22 million this year.

However, in addition to this the company is planning to conduct a Tunisian work program to increase production by another 240bopd and they are also looking to acquire new assets in Congo and Nigeria. If these are producing assets on the sort of deals that AC has already pulled off then we could see a very significant increase in revenues above the $22 million.

There is also the $5.7 million SNPC money which I hope that we will receive after the new Tilapia license is granted - but that cannot really be described as revenue.

This is a list of the questions that I have submitted for tomorrow's norwegian Q&A via the norway@zenithenergy.ca address. I think that these are the most important points to get updates on but if there is anything that you think I have missed then you should email and get your ones on the list.

Really exciting times for the company at the moment in my opinion. Real money being made from the sale of our own oil and the market is only just starting to catch up to our potential.

Questions:

1. How are things progressing with the potential assets in Nigeria? Originally we were looking to go for the marginal fields but from recent interviews I have got the impression that the company is now much more interested in other potential opportunities there. Is this the case? Also:
a. Can you give us an idea of how things are progressing with both sets of potential license acquisitions.
b. For both the marginal fields and the other potential opportunity can you give us an idea of the kind of oil production numbers that we could expect from these licenses?

2. If the first stage of the Tunisian work program is successful how much increased production should we expect and how much should the work program for this cost? When should we expect it to start?

3. How is the acquisition of SLK going – is there any progress in getting the regulatory approval for the transfer of ownership from the Tunisian govt.

4. How are we getting on with the negotiations for the renewal of the Tilapia license? The new country manager was appointed at the end of May – what progress has been made since then?

5. Assuming that we are granted the Tilapia license are we still on track to draw in Q3 2021 and since we are now generating revenue from our Tunisian operations, will we be able to fund this out of debt rather than equity?

6. Andrea has mentioned on a number of occasions that we are also discussing the acquisition of a second , third and maybe even fourth assets in Congo. Are there any updates that you can give on this?

7. Are there any updates on when we can expect repayment of SNPC money?

8. When are we likely to get the CPR reserves report covering our new Tunisian assets
released?

This is fantastic news today. We only paid $300,000 for Robbana and El Biban and $250,000 for Ezzaouia and we have already sold the 68,000 barrels of oil generated from there for $4.5 million. That is a hell of a deal – giving us revenue of approx. $66 per barrel.

On top of this, when we finally get approval for the Sidi El Kilani purchase which we know from the 17th March RNS had 65,000 barrels of oil in storage on February 28th 2021 and produces approx. 250 bopd net to Zenith which would mean an additional 30,000 barrels produced between then and the end of June then we should have over 100,000 barrels to sell from there which at the figures from todays sale should give us another $6.6 million coming in.

This will mean that in the near future our Tunisian assets which we would have bough for under $1,000,000 combined would have delivered revenues of over $10,000,000. Of course there will be production costs to come off from these numbers but we should still be generating a signifncant net profit from it.

When you think that we will be starting a work program in Tunisia soon and increasing production significantly from this point on then the future looks very exciting.

But hats off to Zenith. Today we have made $4.5 million in sales on an original investment of $550,000. That is incredible business.

Gosia - a very good point on the Italian assets. I had completely forgotten about them and that was remiss of me because they are actually (and perhaps unexpectedly) very important to the company:

Italian Assets

There is no cash value to the Italian assets. According to the 2020 accounts (page 82) the value of property and equipment and the liabilities pretty much cancel themselves out and the revenue is only NOK6 million (£500k) and this is in itself cancelled out by expenses. The Italian assets basically either break even or lose a small amount of money each year and so on a purely balance-sheet basis it would make sense to get rid of them.

However, as has been mentioned, in the Stig Myrseth interview on 6th may 2021 Andrea Cattaneo made it very clear that the value of the Italian assets is not in their financial side but more as a marketing side for Zenith when it comes to acquiring operatorship of future assets.

He pointed out that the fact that we were: (a) operating gas fields there (b) working with condensate (c) successfully delivering gas to electricity in the real world and this all gave us operatorship experience in different areas. This is important because when the company is negotiating with oil ministers in Congo / Tunisia / Nigeria etc they only want to grant license concessions to companies that can operate them themselves and they only want to be dealing with operators who already have experience in the areas that they are pitching for. He said explicitly that when you visit an oil minister they do not ask you “where have you been a participant?” they ask you “where have you been operator?” because the concessions are often mandated to only go to companies who are operators.

This was already proved when the Congolese delegation came to visit these assets in Italy as part of the Inquiry of Public Utility process and they saw that the company was operating gas fields and that they were already working with the technology for generating electricity from flared gas. This is a process that AC has stated that Zenith is keen to carry out in the Congo and it fits into the country’s own electricity requirements.

It is for this reason that in the interview AC specifically stated that operatorship of the Italian assets have a significant value to the company that cannot be put on the balance sheet and this is one of the reasons that the company keeps the Italian assets even though outsiders always claim that they have negligible value.

And that is the end of my massive post that I originally out on the Norwegian forums - you should all join me there as there is some interesting debate to be had in the Oslo markets as well as over here in London.

I think that I have made a fair and frank assessment of where Zenith is at the moment and I think that the future for the company is incredibly bright. As pointed out on the Norwegian forums the strategy is brilliant but it is not all about the execution.

Perhaps we should rename Andrea Cattaneo as "Albert Pierrepoint"...

Conclusion

This is an incredibly exciting time for Zenith’s development and if things go well it should not be much longer before the company is genuinely moving towards becoming the sort of mid-tier production company that AC has always claimed that it could be – with a market cap and share price to match.

We are waiting for:

Oil Production and License Acquisition

1. The beginning of a workover program in Tunisia that is aiming to increase production by nearly 1,000 bopd over the course of this year.
2. The delivering of the Tilapia2 license which I believe should come by the end of July (but the company have hinted in interviews could be sooner than this).
3. The acquisition of additional license concessions in the Congo where the company has already said that they are in discussions with up to three more assets.
4. The acquisition of one of more licenses in Nigeria/West Africa where the company would expect production to be somewhere between 5,000-12,000 bopd.

Money coming into the company

1. Production revenues from the current Tunisian oil production of 573bopd and then 1,500 per day should the Tunisian work program be successful.
2. Additional revenues from the sale of stored oil at Sidi El Kilani and Ezzaouia which should total 128,000 barrels and deliver a revenue of $5.4 million to Zenith.
3. Repayment of the SNPC money which currently stands at $5.7 million and AC has said that he is 100% certain that we will receive.
4. A $3.1 million court case against the SMP which the company is confident of getting a favourable judgement for in Q1 2022.

But more than anything else, the most exciting thing about Zenith at the moment is that the company appears to be about to move into a position whereby it can fund the development of any assets it acquires through debt only. I cannot emphasise enough what a big deal that this will be for us shareholders if the company can carry out the Tunisian work program successfully. It will be a total game-changer for the company and should see a massive re-rate with the share price rocketing up to where it really deserves to be.

4. The company do not get paid the SNPC money – not receiving $5.7 million would of course be painful for Zenith but whereas twelve months ago it would have pretty much destroyed the company by leaving them unable to drill Tilapia without a crippling equity dilution, now it is far less of a big deal. With the Tunisian production assets able to service debt borrowings then Tilapia can be drilled with or without the SNPC money. That said, I am absolutely convinced that it will come in.

5. The company gets nothing from the Nigeria Marginal fields bid – this is totally insignificant in my opinion. AC has already made it clear that we have plenty of other options in Nigeria and with the amount of different license opportunities AC has mentioned in Tunisa, Congo, Nigeria and West Africa I do not think that the acquisition of assets is going to be a problem for Zenith.

6. Losing the SMP court case – this is also insignificant. It was not our money when it was lost (it was AAOGs) so if we get nothing then we have lost nothing and if we do win it is simply free money.

Overall, while there are individual risks to Zenith in every action that they are carrying out, because of the sheer quantity of different events that Zenith is involved in the risks of one thing going wrong is mitigated by the possibilities of the others. Not everything is going to go wrong and unlike when they were in Azerbaijan Zenth’s eggs are now in many different baskets instead of just one.

Risks that things could go wrong

There is always a risk that things can go wrong in any company (and especially any oil and gas exploration and development company). The following are what I see are the key risks to Zenith just now:
1. The Tunisian work program is unsuccessful – this is a fairly serious risk as it means that we will have spent $5 million for nothing and we are not in a position to service future drilling campaigns out of increased revenue. However, this is mitigated by the fact that the campaign is made up of six or seven different drills/workover and so it is not a heads or tails process.

2. The company does not get approval for ownership of SLK – this would be a bit of a body blow for the company as it would mean a significant reduction in production revenues from Tunisia and (more importantly in the short-term) a loss of the $3.5 million worth of oil which we are currently expecting to receive. If this does not go ahead it would be damaging but at least a bright side for the company is that the sellers that it is dealing with are so huge that $3.5 million is nothing for them. I will definitely be much happier once this deal is fully completed though.

3. The company does not get granted the Tilapia 2 license – this is always a risk in a country like Congo but given the close relationship that AC has with the President and the fact that the new Minister of Hydrocarbons is the President’s long-term ally I think that this is minimal. AC is already talking about acquiring additional assets in Congo and he would be unlikely to do this if he thought that there was doubt about Tilapia.

Development going forwards

One of the big issues that I have had with Zenith’s acquisition strategy in the past is the worry that it might be stretching the company’s cash position too thin. After all, it is one thing to acquire a license for exploration/production but it is another thing altogether to then properly fund it so that the company is not constantly (a) diluting its own shareholders by issuing equity to fund development or (b) farming out assets and diluting their own holdings to fund development.

I have long been an admirer of the strategic change in direction that the company made in Q2 last year when they started acquiring production assets in Tunisia as I could see the benefits that having cash coming into the company would make to operations. What I am now very happy about is that this change in strategy is paying off in delivering the cash that I was talking about. This change has not manifested itself in an improvement in the company share price yet but IMO it is only a matter of time for this to filter through as the market recognises what is happening.

The material change to the way the company is operating is that it now owns assets that enable it to generate money by selling oil and this in turn allows it to borrow money to increase production rates. We can already see this by what is happening with the Winance deal. The company is able to borrow money in order to increase production rates in Tunisia from the current 573bopd up to a figure of 1,463bopd if all is successful with the announced drill programs. The company is able to borrow the money to do this because the lender can see that the existing oil production can service the debt.

Once the Tunisian work program is completed then the company will be generating approx. 1,500bops and a net revenue of $63,000 per day or $23 million per annum. This is enough to service a new $10 million loan to carry out the drilling at Tilapia (and any additional Congolese license acquired) while also allowing a similar amount to be borrowed to carry out a work program in Nigeria should we acquire a new asset there. If these are successful then the whole process can be repeated again at even higher amounts and very quickly the company bonds will become a very viable funding mechanism.

Thee point is that the company has made a major push forward in credibility since the Tunisian assets have been acquired. Whereas in the past we all hoped that the SNPC money would be paid in order that Tilapia 2 could be drilled without having to issue too much equity but now it looks very much like Tilapia and other future acquisitions can be funded without the issue of any equity by the company.

Issuing of the Reserves Base Report

As per the interview that AC carried out with Stig Myrseth on May 6th that we are waiting for Zenith’s Canadian engineering company to produce a reserves report on their global assets including the new acquisitions in Tunisia. I believe that these will come out when the annual report is issued in August so I am hopeful for this to help new investors realise how different a proposition Zenith Energy is in June 2021 to what it was in June 2020.

Nigeria

We know from the investors conference call in April 2021 that Zenith are very keen to work in Nigeria. Even though the company applied to the marginal fields bid round we know that this is not all that they are interested in within the country. AC explained there that the company has been offered other opportunities that are unrelated to the marginal fields and he also hinted that any concession that we did get access to there would be producing on the order of between 5,000-12,000 bopd. This fits in with the strategy of aiming to get production to 20,000 bopd by 2023.


Court claim against the SMP

We know that the company is proceeding with AAOG’s court claim against the SMP rig operator/supplier for negligence in the original Tilapia drill and that the claim is for $3.1 million or even higher. AC has said that he has 100% confidence that the court will rule in Zenith’s favour and that the amount received could be higher than the $3.1 million. Judgement expected in April 2022

Money Raising – with and without issuing equity

So far in 2021 Zenith have managed to raise a massive £5.6 million (NOK66 million) with £1.5 million (NOK18.2million) raised by issuing equity and £3.5 million (NOK 48 million) issued by way of loans.
It is interesting that the loans have started featuring so heavily now. Every Zenith investor has at times had cause to moan about the amount of shares that have been issued to raise equity and investors in both London and Oslo have made this clear to Andrea on many occasions. He has always said that the company would raise money by debt as soon as it was possible to do so and it looks like he is being good to his word. We know that Zenith have always had the long-term ambition to pay for all of their development costs via the bond market when possible – but most of us also know that this is not going to be possible in any serious way until the company is generating significant cash flow and profits from operations. It seems to me that Zenith have now found an interesting middle ground on this whereby they can use Winance to fund development over the short term until the company matures enough to use the bond market.
From the money that had been raised so far this year (pre-Winance) it has occurred to me that Zenith did not necessarily need the Winance cash in order to carry out the Tunisan operations (assuming that the SLK and Ezzaouia reserves are sold) but instead they have borrowed the money in order to build up a credit history so that more is borrowable later on when it comes to carrying out work in the Congo and potentially Nigeria.

Congo

1. We are currently owed $5.7 million (plus additional interest). The company has repeatedly said that relations between ourselves and the SNPC are “excellent” and they are confident about the recovery of 100% of the money owed. Obviously there is no “expected” deadline for the return of this money but it is likely to come at the same time as the Tilapia license renewal - not least because I fully expect some of this money to have to be allocated to the signature bonus when the license renewal is granted.

2. In terms of when the Tilapia license will be renewed and when the well will be drilled – the company have stated that they are confident that we will get the license renewed and will drill the Tilapia well at the end of Q3 of the beginning of Q4 2021. Personally, I have always said that there were 6 steps that needed to be completed in order for us to get the license renewed. The first three have now been completed and I imagine that we are currently in the middle of step 4.

a. The President Denis Sassou Nguesso needs to win the election (Done)
b. Once DSN has won the election he will need to be inaugurated before he can appoint ministers and begin the process of running the country (Done)
c. Denis Sassou Nguesso then needs to appoint a cabinet of ministers to run the country. The relevant appointment that relates to Zenith is the appointment of the Minister for Hydrocarbons (Done)
d. Once the new Minister for Hydrocarbons is appointed (and JMTT and Teresa Goma are kicked out) then we can expect that we will proceed with the next stage of the license renewal which is getting the Production Sharing Agreement sorted out. (Presumably this is in progress now).
e. After the PSA is sorted then it goes to the cabinet of ministers to be ratified.
f. Finally, it goes to parliament for final ratification into law.

My guess would be that it will now be the end of July by the time that we formally receive the license but it is worth noting that AC implied in his interview with Stig Myrseth that we could be expecting this much sooner.

3. Additional Congolese asset acquisitions – we are also waiting to see about acquiring a number of additional licenses in the Congo. This was first mentioned by Andrea in his “Financial Fox” interview on February 21st 2021 where he said that the company were already in discussion about their second and (possibly) third and fourth assets. We have not heard anything more about these recently but it is important not to forget that the discussions are already under way.

Tunisia
1. Current assets owned (and in process of owning in Tunisia):

a. 45% of Sidi El Kilani - gross current production approx. 600 bopd (albeit we have not formally approved our purchase of this yet.
b. 45% Ezzaouia concession – gross current production approx. 465 bopd
c. 100% Robbanna concession – gross current production 25bopd
d. 100% El Bibane concession – gross current production 100bopd

2. Current oil production in Tunisia net to Zenith is 573 bopd.

a. 245bopd SLK
b. 203 bopd Ezzaouia
c. 25 bopd Robbanna
d. 100 bopd El Bibane

3. Anticipated production after workover programs in Tunisia would be an additional 890bopd meaning that total production in Tunisia would increase to 1463bopd (net to Zenith).

a. Sidi El Kilani – No workovers planned. Production to remain the same at 245bopd.
b. Ezzaouia – Three workovers planned at a budget of $1.2 million and with the aim to increase production by 500 bopd (gross) – 240bopd net to Zenith
c. Robbana – well intervention to increase production by 25 bopd and also an infill well planned to produce an additional 100-150 bopd (for a cost of $1.5 million)
d. El Bibane – Well intervention at the (currently shut-in) EBB-3 to produce an additional 500bopd (approximate cost $3.5 million)

4. Additional assets owned in Tunisia are the oil stored (and not yet sold) from Sidi El Kilani and from Ezzaouia which comes to approximately 128,000 barrels of oil currently valued at approximately $5.4 million (after production costs) when it is ultimately sold.

a. Sidi El Kilani – the company announced that there were approx. 65,000 barrels in storage on Feb 28th 2021 and since then they should have received around an additional 23,000 bopd by the end of May. We should have a total here of approx. 88,000 bopd. With production costs assumed at $30 per barrel and the current Brent price at $72 this should deliver a revenue of $42 per barrel or $3.7 million to Zenith once the SLK purchase is concluded and the stock sold.
b. The oil stored from Ezzaouia – as of March 15th this year the company announced that there were 25,000 barrels of oil held in storage and they should have received another 15,000 giving a total of 40,000 barrels. With production costs assumed at $30 per barrel and the current Brent price at $72 this should deliver a revenue of $42 per barrel or $1.7 million to Zenith once the Ezzaouia stock is sold.

I have spent the last few evenings going over my workings and putting together a list of what we should all expect from Zenith over the next few months. I apologise in advance because this is going to be a very long set of posts.

For those who cannot be bothered to read through 5 or 6 pages of text the main points to take note of are the many different things that are expected to happen in the near future. These are as follows:

1. Zenith should carry out a Tunisian workover program that is aiming to deliver an extra 1,000 bopd to the company once all is complete (and assuming that everything is successful). This work programme should be starting very soon.

2. The company should finalise its ownership of SLK by the end of this month and once this is done will have access to $3.7 million (net) worth of oil (as well as the additional $1.7 million from oil stored at Essaouia) – total $5.4 million.

3. The company should receive approval on the Tilapia2 license by the end of next month. At the same time, I would expect them to receive a repayment plan on the $5.7 million owed by the SNPC (less the signing fee for Tilapia 2).

4. The company should hear something about the Nigeria marginal field bid as well as potentially acquiring other Nigerian asset(s) that are unconnected to this.

5. The company should also hear something on the additional Congo licenses that they were talking about.

6. The reserves report should be issued over the next quarter an certainly as part of the annual report in August.

7. Once the Tunisian workover program under way the company should prove that they can finally deliver on the long-term promise of funding development through debt.

For those who want more detail – enjoy the following essay!

Best wishes,

MG

This fits in with exactly what Andrea was saying that he wanted to do in the investor conference call and the interview with Stig Myrseth on May 6th 2021 – which is to move the company away from funding operational activities via placings and instead funding them via the bond market. He said in the Stig interview “The intention as published recently in an RNS is clearly to reduce to a minimum (aiming for zero) the issuing of new shares. At the same time there are still a few warrants in circulation that will be triggered at some stage. There is also the fact that all the other mechanisms that we are using are more complicated than a simple equity issues.”

When asked in the Investor conference call of April 9th 2021l “Are you able to indicate when the sale of bonds can become a major source of financing for Zenith? He replied with the following statement “ As soon as possible, but it is a process. We are working in continental Europe rather than the UK to create a form of bonds that can be issued cheaply and easily by a lead broker that can replace them with joint brokers and investors. Bonds are a much more complicated entity than equities as they are international rather than just within one country and they are also purchased by investors who don’t want to make a lot of money or lose their stake but they wan t a prudent but secure return.”

The key point of both these answers is that they show a consistent aim to produce a company that is funding operational activities out of debt rather than equity. Obviously the long-term aim is clearly to generate funding via the bond market but this will not be practical until Zenith is clearly showing an annual report (or at least interims) that show there is significant revenue generation from operational activities. So in the short-term, until the company is in a stronger position to sell its own bonds Winance seems to be the perfect opportunity to finance development via debt instead of equity.

It is also important to remember that once we have completed the Ezzaouia work program (and assuming that it is successful) then we will be generating $472,500 per month in net revenue ($35 x 450bopd for 30 days) but if we get Robbana up to 200bopd this would deliver another $210,000 per month ($25 x 200 bopd x 30days) in revenue and a successful well intervention at EBB-3 would deliver a further 500bopd generating $525,000 per month ($35 x 500 x 30). In total this would equate to just over $1 million a month in production profit. This would very easily service a loan of $5 million to cover the costs of drilling Tilapia – meaning that we would no longer have to rely on the timely delivery of the SNPC $5.7 million.

The company is well funded going forwards for the Tunisian production work program and also for the acquisition of new assets. If all goes well we could soon be in a position to deliver on his aim of enabling future growth to be financed on debt instead of equity.

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This post is a slight re-write of one I made on the Norwegian forums earlier today. The re-write is just to allow it to make sense outside of the thread that it was originally posted in.

If we look at the money that Zenith have raised and borrowed so far this year then we can see that
January 6: Excercise of warrants: (£371,000)
January 11: Sale of Treasury shares: (£328,000)
February 24th.- Credit facility of approx 1.5 million Euro (£1.3 million - £650k drawn down)
March 18: Excercise of warrants: 2.5 million NOK £209,600
March 21 Share issue: approx 8.5 million NOK £725,000
April : 30 Excercise of warrants: 5.4 million NOK £450,000
May 10: Share issue, 6 million NOK £522,000
May 26: Loan: 21 million NOK £1.8 million
Total accessed: £5,055,600 (plus another E1 million euros available) = $8.6 million approx

From these figures it is clear that the company should be fully funded not just for the Ezzaouia workovers ($1.2 million) but also for the work at El Bibane ($3.5 million) and Robbana (which at a guess would be another $400k). In total the company has access to almost $9 million from the various warrants, placings and loans.

Obviously some of the money raised has gone on ongoing Tunisian operation costs as well as the purchases prices and covering of Compagnie Du Desert Ltd debt. However, it is clearly perfectly possible that the company could have gone ahead and developed all three of Ezzaouia, El Bibane and Robbana without borrowing funds from Winance at all. Which begs the question: why did they borrow the money?

I think that there are two answers to this:
The first is that: small-cap oil and gas companies can never have access to enough capital until they become cash-positive producers. It is prudent to make sure that there is always some “buffer” capital in the bank for unpredicted events – whether these are cost-overruns in drilling programs or unexpected asset acquisition opportunities. So on the one hand it is just the company being prudent with a loan that has not costed very much to put in place.

The second and more important point is that this could be a very clever piece of forward-thinking credit management by the company. By borrowing and repaying a sum of money that they do not really need over a very short period of time they are building up a credit history with Winance which will allow them to be in a position to borrow more money for other projects in the not-too-distant future. As you suggested, funding for Tilapia would certainly be a good use of this credit line.

(Post 1 of 2)

Takeyourbets - the Norwegian forum is https://finansavisen.no/forum/ and you can register there. It does want a Norwegian phone number before you can be confirmed as a member but when I emailed the admin there on forumadmin@hegnar.no they sorted that bit out for me.

The browser translate function works really well to read Norwegian posts and they do not seem to mind me posting in English. I'll hopefully see you over there.

Sorry for the Norwegian figures in the post earlier but I originally posted this on the Norwegian forums. Some of you should come over and join there as well as here as there is some informative discussion.

In conclusion – assuming the worse case scenario that every workover takes a full two months to complete and the company does not want to spend cash but would rather pay for the loan in shares then Zenith would be able to pay $300,000 from oil revenues in months 1 and 2 (Ezzaouia and El Bibane producing 290bopd between them). This would mean that:

1) In month 1 the company would have to issue $140,000 worth of shares.
2) In month 2 the company would also have to issue $140,000 worth of shares.
3) By month 3 the next 80bopd should be online (total 370bopd) and have generated a full month worth of revenue so the company would only have to issue $60,000 worth of shares.
4) In month 4 the company would also have to issue $60,000 worth of shares.
5) By month 5 the second 80bopd should be online (total 450bopd) and have generated a full month worth of revenue so the company would be able to pay back the loan in full just from oil revenues
6) Month 6 the payment would also be made in full.

By these calculations the maximum that the company would have to issue in shares would be $400,000 (3.3million NOK) and this is only if they did not want to spend any of the company cash reserves.

All this seems like extremely good news to me. We know from the shareholders conference call on 9th April 2021 that the company always planned to do three workovers on Ezzaouia in order to increase the production there by 500 bopd – resulting in a net production to Zenith of 450bopd in total and increase of 240bopd from current production rates.

We also know from the same call that the budget for the three workover drills is $1.2 million which is well within the costings of the E2.1 million that has been borrowed – leaving $1.3 million still available for acquisitions.

The other really interesting thing about this RNS was the announcement that the company intends to make the capital repayments to the loan from the oil production rather that the use of the shares (which have of course had to be issued as a back-up). This makes total sense. The total value of the loan in $ is $2.5 million plus $125,000 in the arrangement fees – total $2,625,000 which means that the monthly repayments would be $437,500 per month.

Given that the company has also just raised 5.4 million NOK ($650,000) via the warrants announced on April 30th and also 6million NOK ($720,000) via the recent institutional investment we know that the company has plenty of money to cover the first three months of any repayments.

In addition to this we should not forget that Ezzaouia is also generating oil for Zenith as we speak at a rate of 210bopd. At an average oil price of $65 this is a gross revenue of $410,000 per month. If we assume that operating costs are approx. $30 per barrel (which is an estimate) then this should generate a revenue of $220,500 per month – which is enough to pay half of the repayments from existing production. It is worth noting that these calculations do not include the 80bopde of condensate that are currently generated at El Bibane and which could potentially contribute another $84,000 per month of net cash flow.

Since we know we are doing three workovers in Ezzaouia and targeting production of another 240bopd from these we can estimate that each workover should deliver approximately 80bopd assuming they are successful. If we make the conservative assumption that each workover will take two months to do (and that the cost for production is also $30 per barrel) then we can assume that each workover will deliver $84,000 in free cashflow each month. Including the El Bibane 80bopde then after 4 months Zenith would be generating enough money from Tunisia alone to service this debt. After 6 months then the company would be generating enough to do this from Ezzaouia alone.

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