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KAM12345 - Early investors who put money into Zenith when it bet everything on Azerbaijan should have been aware that they were taking a gamble. They stood to make big money if it went right and they stood to be wiped out if it went wrong. This was the nature of the risk and everyone who invested should have understood that the risk was real. Most did but there are a small few who cannot take responsibility for their own risky investment decisions and still continue to moan about it years later. If you want guaranteed returns then invest in government bonds not small cap oil and gas stocks.

If you go back over my posts over the years then you will see that my biggest criticism of Zenith is the fact that it started off focused solely on Azerbaijan and there was no spreading of risk. That is not the case now. They have lost Congo but they still have Yemen and Benin being negotiated. Both of these (especially Yemen) are potentially bigger and more quickly monetised assets than Tilapia. As long as one of them comes in then the share price will climb back up to new highs.

Am I disappointed that Tilapia was not acquired? Yes, of course I am. But I am also grown-up enough to understand that this is the nature of the risk of investing in small cap O&G companies. If Tilapia had been the only asset that Zenith had been going for then it would have been a disaster, but it isn’t. The company has cash-flow from Italy and Tunisia and massive potential in Benin and Yemen.

Small cap oil and gas companies take risks. Some are successful and some are not. Look at Angus Energy for example. They failed on their Weald drills and then acquired a gas asset for £1. They rehabilitated this and now it looks like it will deliver millions of pounds in revenue to shareholders.

Zenith as I keep saying are actually in a very good position at the moment. They have cash-flow coming in from producing assets and once they acquire one of the bigger licenses that AC has been clear that they are targeting over the years then the company trajectory will change. I can see the path to the future and I am confident in it’s eventual success.

No moaning or whining from me. I have done a lot of research and I believe that the future here is still bright. I am also not the only one. The company have just raised £2.3 million including from existing institutional investors. This only goes to show that the upside here is still very significant no matter what those who cannot forgive Azerbaijan have to say.

I have said it before and I will say it again. I do not believe that Zenith have lost Ezzaouia, SLK or any of their other Tunisian concessions. The information that has been put on these forums today is not new, it was originally posted by 123tor back in December and I find it inconceivable that the company has lost these concessions and has not published anything about it. It simply would not happen.

As far as I am concerned, until we hear otherwise via RNS (as we did about losing T2) then the assets listed on the company website are assets that the company owns. I will be investigation all of this further though.

AGEOS – I was convinced from the fact that Olive Energy lists FracGeo on their website as a subsidiary and the fact that the two companies share the same address in two different continents that they were not independent. However, I did just take this information at face value and did not look any further.

After reading your last post, I felt that your suggestion that this was merely a coincidence or that they were the holding addresses of separate companies for tax purposes was possible (if unlikely), so I did some further digging…

If you go to the registry of US companies for Olive Energy LLC (https://opencorporates.com/companies/us_tx/0802517782) you will see that the sole director of Olive Energy is a man called Ahmed Ouenes. If you then do the same investigation on Fra-Geo (https://opencorporates.com/companies/us_tx/0801945982) you will see that the CEO and sole director of FracGeo LLC is also Ahmed Ouenes.

If you then go to Ahmed Ouenes’ LinkedIn page (https://www.linkedin.com/in/ahmed-ouenes-3728341/details/experience/) you will then see that he lists himself as CEO and Founder of both Olive Energy and FracGeo.

I fully respect the work that you put into your investigations, but we all make mistakes (myself included). On this occasion the thesis that you have put forward in your last two posts that Frac-Geo and Olive Energy are not connected and that Zenith Energy could have benefitted from using FracGeo’s expertise to acquire the Tilapia 2 license is fundamentally incorrect. There are no ifs, buts or maybes about this. They are two companies founded and operated by the same man, who is the only director of both companies.

Thanks for the information on Tunisia. I will look into this further over the next few days and revert to this board with the results of my enquiries once they are completed.

Thanks Florida, I am glad that they have been of some help.

My opinion on the money owed and the court cases, for what it is worth is that the one against the SNPC is guaranteed to be won by Zenith. There is no argument that the debt is owed and no legal question marks over liabilities. This is just a relatively simple matter of enforcing the payment of a debt that is owed.

The court case against the SNP is clearly more complicated as it involves proving negligence on the behalf of the SMP and the subsequent losses caused to AAOG Congo by this negligence. I think that the losses will be very easy to prove but the success of the case will hang on whether it can be proved that the SMP were responsible for the failure through their actions (or inactions) or whether this was just a matter of being the risk of drilling for oil.

From what little I have read about the situation it does seem to appear that the SMP made some serious errors otherwise AAOG and subsequently Zenith would have been told by their lawyers that it was not worth bringing the legal case in the first place. Zenith also seem confident in their position but, as we all know, when a case goes to court anything can happen. My gut feeling is that this will be settled for a number smaller than $9 million before the case is actually heard. However, if Zenith could get half of that then along with the $5.3 million plus interest from the SMPC it would still represent a $10+ million return on a £200,000 investment (of the original AAOG Congo acquisition) which is a very healthy profit. Time will tell.

Apologies, I completely missed this out earlier today, but there is of course a fourth element to the comments I made earlier which is the existing court case between AAOG Congo (now owned by Zenith and the French well drilling company “Société de Maintenance Pétrolière” (SMP).

4) The $9 million court case against the SMP

The court case against the SMP is a matter that is wholly and completely unrelated to the Congolese government. It is between AAOG Congo (now 100% owned by Zenith) and the French well drilling company “Société de Maintenance Pétrolière” (SMP) who drilled the TLP-103 and TLP-103C wells on behalf of AAOG Congo at Tilapia in 2018. It is being heard in the French courts.

The claim was originally made by AAOG on July 15th 2019 and relates to various performance failures of the SMP102 rig during the drill which caused this drill to be unsuccessful. I not been able to find out any details of this claim from the AAOG side (I have not really looked very hard) but according to the RNS put out by Zenith on 11the November 2020 it was originally filed for $3.1 million. In the same RNS Zenith mentioned that as the new owners of AAOG Congo they intended to continue with the claim and that there was a likelihood that it could be significantly increased considering the subsequent commercial damage caused to AAOG Congo by the failures of the SMP.

We also know from yesterday’s RNS that Zenith have now increased the claim against SMP from $3.1 million to $9 million. I expect the fact that Zenith did not get granted the Tilapia 2 license will have strengthened the chance of winning the case in the French courts as, I suspect, that if the original TLP-30C drill had been successful then AAOG would have had the license renewed. Ironically, of course, if this had been the case then AAOG the listed company would never have got into huge financial difficulties and Zenith would never have acquired it in the first place!

So to be clear, the $9 million case is against a French drilling company and not the Congolese government or anything to do with the Congo. It is simply a business disagreement with very serious financial consequences for the SMP should they lose – though this will, of course, be covered by their insurance company.

3) The debt of the $5.3 million

The debt of the $5.3 million owed to AAOG by the SNPC is a matter entirely unrelated to the fact that the license was not granted to Zenith.

The origin of this debt goes back to the original attempt to drill the Tilapia drill that was carried out by AAOG via its 100% owned subsidiary Petro Kouilou SA back in 2017-18. SNPC were meant to pay 44% of the costs of the drilling and ancillary costs. However, they were unable (or chose not) to pay anything and instead let AAOG cover all of the costs. In total they ran up a debit of $8.5 million to AAOG (a figure agreed by SNPC as its share after a comprehensive audit).

The AAOG annual report from 2018 announced that the SNOC had confirmed in writing that they acknowledged the debt and confirmed the harm the non-payment had done to AAOG. They then paid off some of this debt to bring it down to the $5.3 million level that is currently owed.

When Zenith acquired the Congolese assets of AAOG they acquired Petro Kouilou SA and therefore the money is now owed from SNPC to Zenith. Up until this point there has clearly been no point in pursuing this debt as I think that everybody has assumed that when the T2 license was granted to Zenith then there would have been a signature bonus of $5.3 million and the debt would have been written off as part of this process. However, now they have given the license to Olive Energy the debt still remains due.

The key point about the debt is, as I mentioned earlier:

a) It has been acknowledged in writing by the SNPC
b) Some of the debt has already been paid off (from $8.5 million down to $5.3 million)

This means that the SNOC cannot argue that the debt does not exist or that they do not need to pay it. They have already admitted that it does and that they do. So this is the simplest court case in the world, it is just a matter of enforcing the debt by seizing SNPC assets or oil. If this cannot be done in corrupt Congolese courts then it can be easily done in international courts and since the SNOC sell oil on the international markets the money can easily be seized. It is simply a matter of how long it takes to do this – When not If.

2) The right of the Congolese government to grant the Tilapia license to whoever they want.

The granting of the license (PSC) is wholly within the purview of the Congolese government. It is their country and they can grant the license to whomever they want for whatever reasons they wish. There is no way of appealing this decision or taking them to court over this matter and the fact that Zenith passed the IPU put the Congo under no legal obligation to grant the license to Zenith. All the IPU did was qualify Zenith as an entity that was qualified to operate the asset should the license be granted.

The Congolese authourities appear to have behaved in an underhand and unprofessional manner in how they have gone about granting the license, but there is nothing Zenith can do about this. The Republic of Congo is well known for being a corrupt place. The current President Denis Sassou Nguesso has been in power for 36 years and won the last election with a staggering 88% of the vote and amidst allegations that there were more votes for the President than there were voters in many polling areas. On top of this, the President’s son Denis Christel has been accused by Global Witness of embezzling millions of dollars from the SNPC (the Congolese state oil company) to fund his millionaire lifestyle. Put simply, corruption is endemic throughout the country.

On final point that should also be noted is the fact that AC made it clear in the February 2022 investor conference call that the only way to speed up bureaucracy in countries such as Congo was to pay bribes but that Zenith did not do this. Zenith then waited years for the approval of the T2 license that never came. However, Olive Energy appear to have turned up late in the process and gotten the license granted to them with incredible speed. I’ll leave you to draw your own conclusions as to why this could be the case.

Paul1Deano – from reading your post this morning I think you may have misunderstood exactly what is going on with the technical credentials, the granting of the license and the court case for the $5.3 million as all three of these are completely unrelated matters.

1) Zenith Energy’s Technical Credentials

The technical credentials of Zenith to operate the well were cleared by the Congolese in early 2021 when the company completed what the Congolese call an “enquête d'utilité publique” (or IPU). This involved Congolese officials visiting their operations in Italy and carrying out an in-depth technical and financial review of the company. The company passed this IPU and were pronounced as fit to operate the license in Congo as per the RNS of Feb 10th 2021. However, they did note in the RNS that this did not mean that they had acquired the asset but that they still had to complete the ratification of the Production Sharing Agreement (PSC).

It is also worth nothing that on December 2nd 2022 Zenith passed a review that permitted them to continue to operate oil and gas licenses in Italy – a first world country subject to stringent EU safety criteria. It is without question that this would be a more difficult procedure to pass than that required by a developing country with a long history of corruption.

CanaryInTheMine is correct. If you look at the website for FracGeo (https://www.fracgeo.com/contact.php) then the French address of the company is : 2 Avenue Pierre Angot Technopole Helioparc 64000 Pau

and the US address of the company is: 719 Sawdust Rd #321, Spring, Texas 77380

If you look at the Olive Energy website (https://olive-energy.com/contact.php) then the French address of the company is: 2 Avenue Pierre Angot Technopole Helioparc 64000. and the US address of the company is: 719 Sawdust Rd, Ste 320
The Woodlands, TX 77380, USA.

FracGeo and Olive Energy are clearly the same entity.

It does not make any difference to Zenith's current situation but I do believe that on this occasion AGEOS is wrong. It would not have mattered what Zenith did or who Zenith got involved on their behalf. The decision to grant the license to Olive Energy was clearly taken for political and nationalistic reasons as opposed to any question of Zenith's competence.

I don’t see that there is going to be any issue with collecting the money owed from the SNPC as there has never been any argument that it was not actually owed. In my opinion, the reason that it has been delayed is because it was always assumed by everyone (Zenith and the Congolese) that it would just disappear when the license was granted – ie the exact figure that was owed to Zenith would be the amount of money that the government charged as the signing bonus when the license was granted.

Now that the license has been given to somebody else the money is still owed and it will have to be paid. If Zenith have no luck in the local courts (they may not even bother going there) then they will just take it to an international court and will win the case there. Obviously, it would be better to get it settled amicably first but this is only because it would be a quicker process than going via international courts. This money will definitely have to be paid, it is just a matter of how long it will take to get it.

Today’s drop seems a little overdone to me.

At the moment the market cap of the company is only £12 million and we have US$14 million being generated in net revenue from Italy and Tunisa on an annual basis. Put simply, the markets had not priced in Tilapia to the company’s market cap and so to have a 10% reduction when the license falls through seems like an over-reaction. However, as we all know, the markets always over-react to news, whether good or bad and so I think that the share price will recover very quickly over the coming days.

It is obviously disappointing that the Tilapia license has been granted to somebody else and it clearly would have been more beneficial for Zenith to have been granted the license than not to be. However, there are clearly some very major issues posed to working in Congo as has been demonstrated by the fact that the license has taken so long to be granted to anybody and also that the Congolese Ministry of Hydrocarbons have acted so unprofessionally at the end of the process.

For them to publicly announce that the license had been given to Olive Energy without even bothering to formally inform Zenith shows that corruption permeates the government from top to bottom. When you add in the fact that the former Director of Hydrocarbons was an out and out anti-white ****** and that the Olive Energy website contains slogans such as: “by Africans for Africans” and “Preparing the next generation free from colonial thinking” then it is clear that neither Zenith, nor any other European company are welcome in that country. They are happy to take our money but that appears to be all that they want from us.

On the plus side, as Calllit has pointed out, the deal is not a total loss for Zenith. The Congolese still owe $5.3 million plus interest to the company for the debt that was owed to AAOG and it should not be difficult to find a court that will enforce this legally binding debt. Now that the license is off the table there is no need for the company to play nice with them any more and the appointment of legal counsel on this is to be welcomed. Alongside the legal case against the SMP this means that the company could receive $15 million from the Congolese experiment and that would be a significant return on an initial £200k investment.

Once we get one of the other two major asset deals over the line then Congo will be just a distant memory. The company needs to be working on these 24-7 at the moment.

Tunisia is always going to be a good revenue generator, but it is never going to be the company-maker that we need. I think that it is an interesting sign of the company’s growing maturity that every new asset that they are looking at seems to be slightly better than the last.

Tilapia is potentially great but it is only producing about 30 bopd so there is a drilling risk associated with bringing the project up to the initial 1,000 bopd and it is clear that bureaucracy in the Congo makes progress very slow. This means that even if things all go well with every drill once the license is granted it is still 3-4 years away from producing at the top of the predicted range of 4,000 bopd.

Yemen is a fascinating asset and is the one that I would me most pleased to see the company acquire. This is because, despite the civil situation there, it is already producing at 6,000 bopd and has a historical track record of producing at 15,000 bopd. If this is acquired then it will generate cash instantly and it is very possible that it can be brought up to full speed in 1-2 years, especially because the drilling risk level here is very low. The gas upside here is also staggering if Zenith can bring their Italian gas to electricity strategy to the country.

Benin has by far the biggest reserves of any of the three major projects and we know that the Benin government want to move quickly on granting the license and that the Seme field has previously produced at 2,000 bopd. The only reason that this is not my favourite project above Yemen is that it has had a longer period where it is not producing and it is offshore. Even though it is shallow water it is still likely to be more expensive than if it was onshore.

So, to go back to my initial point. Tunisia is great as a cashflow generator but the thing that is going to drive the Zenith share price forwards is the acquisition of one of the three major assets that the company is chasing: Yemen, Benin and Congo (Tilapia). I feel confident that at least one of these acquisitions is going to come off in the near future. Any one of them would be a game-changer for the company and if we get all three then it would be mind-blowing. It is also great to see the company chasing three different assets of comparable size in three different jurisdictions – meaning that they have learned from the lessons of the past in not putting all of their eggs in one basket.

I agree with Ezhik’s opinion on Tunisia, in that it is a bit on the back-burner at the moment. It is a great revenue generator for the company as I have mentioned alongside my previous posts, but as Ezhik has accurately pointed out, it does seem to be a jurisdiction where workovers have proved problematic (both for Candax and subsequently Zenith with Rob-1).

I also think that we should put Tunisia in to context as to where it stands in relation to AC’s overall plan for Zenith. The Tunisian assets were an opportunistic acquisition for the company which were made for two reasons:

a) The Azerbaijan project had effectively just failed and the Tiliapia, which was being brought in as the Azerbaijan replacement was not going to get renewed as quickly as had been originally hoped when the acquisition was made. This left the company with only the Italian assets in the portfolio and, due to the gas prices at the time, these were not delivering any significant revenue.

b) The world was in the midst of the covid pandemic. Oil prices had collapsed from $62 per barrel in December 2019 down to $12 per barrel in April 2020. This meant that assets were available cheaply from distressed competitors (such as Candax) and also from majors such as KUFPEC and CNPC who were not interested in marginal fields. AC was therefore able to acquire these assets for very essentially $750k.
a. $300k for the 22.5% share of SLK from CNPC
b. $250k for the 45% stake in Ezzaouia
c. $200k for Robanna & El Bibane (assumption of debt)

However, it is clear from everything that AC has said in the investor presentations that small assets like Tunisia are not the end-game for Zenith. The company is looking to acquire assets that produce in the thousands of barrels per day not just hundreds. This is why they went for Tilapia in the first place and it is why they went for the Nigerian license OML141 back in 2021. It is also why they are going after Benin and Yemen at the moment.

Hi Callit, all of the figures and dates that I mentioned were from 2022.

I see where you are trying to go with looking for a pattern, but there isn’t one. The 2021 production from Ezzaouia (where I only have data until October) is 1 barrel per day more than production in the comparable period in 2022 – so there is no significant decline in production year-on-year.

To further illustrate this:

a) At Ezzaouia, the month of November 2022 where the lowest daily production of 191 bopd was recorded was not the month when the lowest average production was recorded (this was August which averaged 389 bopd over the course of the month as opposed to 421 in November).

b) The month of April where the highest daily production of 777 bopd was recorded was not the month where the highest average production was recorded either (this was June which average 502 bopd over the course of the month as opposed to 491 in April).

Put simply, if you are looking for evidence that production at Ezzaouia or SLK is declining over time there is no evidence to show this. I know as I have checked. It is just that production at both sites goes up and down a bit from month to month. Annual production however, is stable year on year at around 465-470 bopd.

Please also note that all of the numbers that I have quoted here are the gross numbers for the entire production of the field and not just Zenith’s share of it.

There appears to be some confusion as to what licenses in Tunisia are producing what amounts of oil. To clarify:

a) Ezzaouia produces 209 bopd net to Zenith
b) SLK produces 113 bopd net to Zenith
c) Robbana produces 30 bopd net to Zenith
d) El Bibane produces 90 bopd net to Zentih.

The total amount of production is 442 bopd.

This figure does not include Rob-3 because it has not been drilled yet and is therefore not producing. These figures are simply existing production.

Entreprise Tunisienne d'Activités Pétrolières (ETAP) is a state-owned industrial and commercial company in Tunisia directly in charge of the petroleum sector as well as the state's partnerships with foreign exploration and production operators. The figures for Ezzaouia and Sidi El Kilani production can be seen on the ETAP website here: http://www.etap.com.tn/index.php?id=1663 The figures are published there for all concessions in which the Tunisian national oil company has a stake, hence EZZ and SLK are there but Robanna and El Bibane are not as they are 100% owned by Zenith.

Note that there is no single document that contains all of the information for the year’s production, they are just published on a week by week basis. To get an accurate figure you have to manually input each day’s production into an excel file and read the data from there.

You can also not just go to the most recent week or moth and read these figures in isolation. The production at Ezzaouia in 2022 has varied between 190 bopd (2nd November) at the lowest and 777 bopd (12th April) at the highest but the average production is 464.875 bopd over the course of the year. Production from SLK has varied from 251bopd (8th November) to 578 bopd (29th November).

The production figures for the El Bibane concession were announced by Zenith here: https://www.lse.co.uk/rns/ZEN/operational-update-8211-tunisia-4vmmhqa6vk2la0p.html and the production figures for Robanna were announced here: https://www.lse.co.uk/rns/ZEN/operational-update-robbana-concession-6dp94hwtvpv3wpi.html These are not and have never been published on the etap website as they are 100% owned by Zenith and so Etap has nothing to do with them.

I hope this helps clarify where the 450 bopd figure has come from.

PAUL1DEANO – I have just been over all of the etap figures for and brought my spreadsheet up to date for all of 2022’s production back up until the last date I can find published which is Dec 4th 2022. The average production over the year for Ezzaouia is 464 bopd (209 net to Zenith at 45%). The SLK production averages at 501 bops (113 barrels net to Zenith at 22.5%)

This gives a total from the govt figures of 322 bopd from these concessions.

In addition to this the company announced in their June 24th 2022 RNS that Rob-1 was producing at 30 bopd and in the 24th Jan 2022 RNS that El Bibane was producing at a stable rate of 90 bopd.

In total, this gives a production figure of 442 bopd. It is slightly lower than the 450bopd figure that I mentioned, and for this I apologise. However, in my defence, I did say “approximately” 450bopd and the change only makes a difference of $175,200 per annum in net revenue.

PAUL1DEANO- The production figures are from the various operational RNS updates released last year, cross referenced with the etap production data that is still available until the end of 2022. The cost basis of $25 per barrel was mentioned in one of the early investor conference calls about Tunisia. The oil price was just the oil price at the time of writing.

Flashgarden, I agree that country risk should factor very highly in any valuation for yemen.
Have you done a valuation of Yemen yourself with this risk weighed into it? What numbers did you come up with?

BENIN

Finally, we also have the potential acquisition of the Benin asset which would also be a total game-changer for the company. We know that the company announced a three month exclusivity deal to negotiate the acquisition back in January and it is a massive, massive license. It covers 551km of shallow water offshore and is already known to contain two discovered oil fields with P2 reserves totalling almost 60 million barrels and 428 BCF of P2 gas reserves.

If the company can get both oil fields producing at 2,000 bopd which is the production figure that has been achieved in the past at the Seme well then even assuming that the Benin government takes 50% of production and that production costs are US$35 per barrel then this would deliver a net revenue of US$44 million to Zenith out of the two fields.

The gas potential in Benin is obviously enormous. It is impossible to put a price on how much this could be worth on an annual basis without knowing what the production numbers could be but the current UK gas price is £1.33 per therm (US$1.62) and the license contains the equivalent of almost 4.5 billion therms so even on small production numbers this could easily be worth US$10-20 million per annum.

OVERALL
Overall, I think that Zenith is in an incredibly good place at the moment. The company is pretty much undervalued even based on existing US$14 million annual net revenues from Italy and Tunisa so there is no downside from where we are now.

Tilapia could be worth US$55 million per annum in annual net revenue.
Yemen could be worth US$43.5 million per annum in annual net revenue.
Benin could be worth US$54-64 million in annual net revenue.

We know that the acquisition of all of these assets is being worked on and if even one of them comes off then we are looking as easily being a company with a market cap (and therefore a share price) of ten to twenty times the current level. If AC can get all of them over the line then Zenith will be massive and it will be a truly extraordinary achievement.

YEMEN

Secondly, we have Yemen. If the deal comes off, and I think that there is at least a 50% chance that it will then it will be massive for Zenith.

The current production rate of OMV’s Yemeni assets is 6,000 bopd with a production cost of $28 per barrel which means that at an US$85 oil price then the fields should deliver a net revenue of $342,000 PER DAY!

The financial interest to Zenith Energy Netherlands is 57.14% which means that their share should be US$195,541 per day and Zenith Energy LTD’s share should be 49% of this which is US$9,815 per day. Over the course of the year this amounts to: USD$35 million per year.

At the historical production rate of 15,000 barrels of oil per day then the financial interest to Zenith Energy Netherlands would increase to US$488,547 per day and Zenith Energy LTD’s share should be 49% of this which is US$239,888 per day. Over the course of the year this amounts to: US$87 million per year.

Assuming that the Yemeni government will take a 50% share of all profits then we are still looking at an initial revenue of US$17 million per annum (at a production rate of 6,000 bopd) and an eventual revenue of US$43.5 million per annum (assuming that we can get production back up to the 15,000 bopd level). This is also all from an initial investment of USD$10,809,500 which looks like it will be earned back in about 8-9 months of production at existing levels.

Obviously, we do not know whether the Yemen deal will come off or not but it is an absolute game-changer for the company if it does.