Member Info for MarketGunslinger

I suggest that you check DS's room at the new ATOG offices, maybe the missing computers are in there - and who knows what else you may find...

Tidswell-Pretorius was ousted from the Angus board in 2018 by the then CEO Paul Vonk. He got his revenge by threatening an EGM to get rid of Vonk and forcing him to resign before George Lucan arrived as CEO. He is still a major (4.49%) shareholder in Angus but has nothing to do with running the company from an executive position. As itsagame has pointed out Tidswell did also lose millions in Angus from the top to where it is now.

One final thing that is worth noting about Tidswell is that he is the man who was originally behind UKOG’s Horse Hill. He acquired 65% of Horse Hill from their then owners Magellan Energy when Angus was a private company and was also in charge of the first drill that proved the oil was there. The Angus share of HH was all sold off when Paul Vonk was CEO – maybe this was one of the reasons that the two of them fell out so badly?

In short, two things to remember about Tidswell-Pretorius

1. He “discovered” Horse Hill – which at one stage drove UKOG’s share price to 8.9p and it’s market cap to £317 million.

2. He was involved in Angus when their share price was driven up from their IPO of 6p to a high of 35p and a market cap of £85 million.

Anyway, my point is that Tidswell does have a track record of discovering major assets and getting company share prices and market caps to increase massively. He would not have joined the board at Challenger unless he thought that he could work some magic here too. That’s why I am in.

The old board should be there until new board members are appointed in order to ensure that they maintain a quorum - I imagine that somewhere buried deep in the company statutes is a minimum requirement of board members. They will have absolutely no decision-making ability though and will just be picking up a wage to be there.

New board members will be appointed when the new asset if vended into the company. They will obviously have appropriate experience to whatever the asset is - though looking at Dexter Ferreira's background it is almost certainly going to be a mining asset.

The wait continues, but I think that Tiburn is right - it is the lack of air travel that is slowing things down at the moment.

I am not sure why there is the obsession with getting the SNPC money paid over to Zenith immediately. All of these things are a step by step process and the first stage of things is definitely getting the license renewed.

As I have mentioned on many occasions, I am pretty sure that AC would not have done the deal with AAOG if he did not already know that the license would be renewed - we know that he met the President on Feb 21st and I can't think of anything else that they would have had to talk about: https://twitter.com/DavidBurton1971/status/1230749438886342658/photo/1

"The idea that simply because Forum hold shares at 0.5p there would be support or a floor at that level has been shown to be without foundation."

I agree with you 100% if there has ever been anyone who thought that there would be support at 0.5p then it was very foolish of them.

As I have said repeatedly this is a gamble based on the fact that forum have spent £500,000 on acquiring a shell at an average price of 0.5p. Whatever asset they reverse into this (and we do not know what it will be) we can assume that they have a plan to get the share price to may multiples of 0.5p in order t make a profit on their investment.

My take on this is very simple. If you can get in at a price of lower than 0.5p then you are guaranteed to make money as Forum will ensure that they do and you will have a better buy-in price than Forum. However, I think that anything up to 1p will still multibag once assets are put in.

SEA7 - Sorry, I meant to say, that is an interesting find on Dean Clark but I am not overly familiar with TSX filing requirements so I am not sure of the implications. I assume that Dean Clark is a 3-10% holder in Zenith and has had to report that he has sold/bought an option on 1,000,000 shares. However, I am unsure if he bought or sold the option or if the option was short or long.

Apologies for my ignorance on this matter. Would you mind clarifying for me?

I agree with Ezhik , there is nothing untoward about the signature bonus and no reason why we should not discuss something that was announced formally in the RNS of December 27th 2019: https://www.lse.co.uk/rns/ZEN/first-acquisition-in-africa-vebuyaa4wj2gj32.html

That said, I also agree with orjones the signature bonus had a maximum on it but did not have a minimum. Back in December WTI was at $60 per barrel and it is now down at $34. Add in the Covid issue and there is no way that the amount charged by the Congolese Ministry of Hydrocarbons will not have gone down.

Remember that originally Zenith were due to pay £1 million for 80% of AAOG's 56% stake in Tilapia. After the bottom fell out of the market they ended up paying £200,000 for 100%.

Takeyourbets & Petroleum - IMO we have already had an green light from the government before we even paid for the asset - what other reason would there have been for Andrea to be meeting the Congo President before Feb 21st 2020: https://twitter.com/DavidBurton1971/status/1230749438886342658/photo/1

A second indicator is the fact that the Tilapia purchase was on the front page of Les Depeches de Brazzaville: on May 13th 2020 https://mobile.twitter.com/zenithenergyltd/status/1261240297582985217. This daily newspaper is run by is owned by Jean-Paul Pigasse whose wikipedia entry describes him as "friends with Congolese President Denis Sassou Nguesso" https://en.wikipedia.org/wiki/Jean-Paul_Pigasse

There is only one thing that AC would have been meeting President Dennis to discuss and there is no way that Les Dépêches de Brazzaville would have published that story on their front page unless they had already checked with their government contacts that the deal was going to get the green light.

IMO, the green light has already been given and it just hasn't been formally announced yet.

Also (and I almost forgot about this) I believe from the 23rd April RNS https://www.lse.co.uk/rns/ZEN/receipt-of-payments-from-socar-xp6r2gphlq7tpt8.html that Zenith are still due another $1.2 million from SOCAR which can go into the exploration development pot as well - taking it to a potential $12.2 million by my calculations.

6. “Seems to me that the investment case here now is extremely high risk compared to the initial model of slow but sure small incremental production increases from a hundred or so wells spread across the biggest ahem oil field in Azerbaijan when the POO was double and the production to Zen was 350bbls a day and there were about 120m shares in issue and cash in the bank. “

I could not disagree more. You are assuming that it is high risk because you have misallocated $12.5 million of debt that does not exist and you are also ignoring the fundamental flaws in the Azerbaijan strategy which is the “all eggs in one basket” problem that I have been harping on about for the last few weeks. It frankly does not matter that you are producing 350 bopd and can sell them at $60 if it is costing you more than that to get it to market. If you look at the 2019 accounts (page 74) you will see that by the time you factor in the general and administrative expense to the Azerbaijan production that it was costing Zenith CAD$165,000 a year to produce any oil there. This is not a sustainable business and hence why they must have got rid.
Now we have a company that is about to acquire production assets producing approx. 700 bopd and also has two sizeable exploration opportunities that look very likely to be able to be funded out of debt.
If I was Zenith, what I would do is focus on the Congo and try and get this to a level whereby it began to produce. AAOG’s target was always 5,000 bopd but even 500 would be great and then make it self financing going forward. At that point I would return the focus to Azerbaijan for an exploration push. But that us just me, The great thing about having two separate assets is that if the situation changes and it becomes better to go for Azer rather then Congo then we can pivot and do this anyway.
Whichever way you look at it Zenith it a much more exciting company with far more upside potential now that it was 2-3 years ago.

7. “Someone needs to take up those 25m bonds at a 10% coupon that come with no guarantees of repayment. “

This is clearly why Zenith are so keen to acquire production assets. Once they can show that they have cash income coming in to service the bonds then that is a $25 million line of credit that is already set up and ready to go.

8. “Still no news on the promised review of corporate overheads and salaries.”

I agree with you here. I definitely want to seen some trimmings of both of these coming out soon – I guess you could argue that a start has already been made on this by delisting from the TSX.

4. “They will need to confirm those appointments for in-country negotiators that were mentioned back in Jan or Feb, and they will have to set up an operational base. Realistically and to give them some headroom on finance they need $10m to get going in Congo alone. Repayment of any monies to Zen is likely to be conditional upon Zen tipping their own money in and after some success has been achieved in getting to the oil ( so that's a never then in real terms). “

It won’t be anything like $10 million to get it up and running. We know that the workplan for Tilapia states that the budget is $5.5 million and the Zenith share of this is only 56% ($3.15million) anyway. Even with another $1 million for the signature bonus, this is only just over a third of the $11 million that I said was possible to raise based on the points above.

5. “If I read it correctly about the 12.5 debt, plus the funds required for each of the other projects, Italy, Africa, etc, Zen need oohh-err, a lot of cash. They could drip feed payments on the debt, but it would sit on the balance sheet until they managed to get full throttle on oil production upwards of 3000bbls a day or some such figure and then pay it down.”

You have allocated $12.5 million as a debt owed by Zenith when in fact it is a debt owed TO Zenith (albeit one that is more an accounting technicality than an actual debt). So that puts things in a better perspective. Frankly, at the moment ZEN appear to have very little debt as they have paid most of it off over the last 12 months. This means that while they will certainly have to put cash into each of the projects to get them going this will be money directly into the projects not to pay off acquired debts.

Ezhik,
You raised some very interesting points in your post earlier today, which I have broken down into individual points and addressed below:

1. “How will Zenith service the 12.5 million loan which has been novated from AAOG Congo to Zenith Energy? Or have I read this wrong? Zenith can of course subsequently offset any interest payments as being deductible, but they still have to pay it no?”

No, the loan is from one division of AAOG to another. The novation of the loan is to transfer the debt from AAOG to Zenith. Technically this is a debt owed TO Zenith now for the work done in the past and it will have a tax advantage if AAOG Congo start to generate income (ie the debt can be paid back without tax being due on the money)

2. “I noted that part of the overall transaction was that Zenith would need to obtain regulatory approval from TSX, however, de-listing from TSX has removed this hurdle? Interesting move? Financial reasons as stated or avoidance of anticipated TSX approval problems? who knows really..”

I assume it is a bit of both. The TSX always seem to want to sign off on anything from the issuing of new shares to the acquisition of assets – though they never seem to have rejected anythign. Also, the market is dead at the moment (unless you are in the marijuana industry I believe). I assume that delisting from the TSX is a combination of financial benefit and less admin headaches. I will certainly save some money – though how much is anybody’s guess.

3. “Zenith are supposed to be committing, therefore presumably need proof of their ability, to fund a $5.5m work program for Tilapia, also they need to pay the brown envelope or 'signature bonus' capped at $2m (if they pay in one lump sum), or a higher figure if they need to pay over time.”

Once Zenith have Tunisia and West African production assets up and running these and Italy will deliver $4.8 million in revenue per annum which would enable them to service borrowings of approx. $4 million. Getting the SNPC money agreed on a payment schedule would allow debt to be raised against it and would deliver $5 million (which would effectively be serviced by the SNPC). The Arab investment at 2.5p is potentially another $2 million. So in total we have $11 million that can very easily be coming into the company which is more than enough to get the Congo going with millions of dollars in leeway already built in.
The signature bonus is just a cost of doing business to get the license renewed. As with all business deals it is negotiable and it certainly shouldn’t be anything like $2 million as that figure was put in place when oil prices were much higher. I reckon it will be less than half of that – after all the deal to acquire Tilapia was originally meant to be $1 million but was actually closed for $200k.

mls678 - Yes I am aware of the very large remuneration taken by AC in 2019. It is perhaps the one bit of the business that I am unhappy with. However, if you look at the wider picture the 2019 salary is an exception to the normal rule so I hope that it will revert back down somewhat in 2020. There is also the fact that a big chunk of the 2019 salary was taken in shares rather than cash.

Payment for AC (converted to Sterling at a rate of CAD$01 to £0.58816)

2019 - £910,472
2018 - £481,703
2017 - £131,748
2016 - £178,212
Average over 4 years: £425,533

When you compare this to the peer companies (UKOG, Solo, Block) then it shows as follows:

Stephen Sanderson (UKOG)
2019 - £767,000
2018 - £584,000
2017 - £339,000
2016 - £607,000
Average over 4 years: £574,250

Dan Mailing & Neil Ritson (SOLO)
2019 – (not published yet)
2018 - £220,000 (Maling)
2017 - £180,000 (Maling)
2016 - £137,000 (Ritson)
Average over 3 years: £179,000

Paul Hayward (Block Energy)
2019 - £268,954
2018 - £100,562
Average over 2 years: £184,758

Then you compare AC’s ownership percentage of Zenith to that of the other directors and it is very favourable:

Cattaneo owns 8% of the shares in Zenith
Maling owns 1.76% of the shares in Solo
Hayward owns 0.95% of the shares in Block
Sanderson owns 0% of the shares in UKOG

So, in short I think that AC was paid too much in 2019. However, I think that this one headline figure (especially when it is quoted in Canadian dollars which makes it seem much higher than it really is) is misleading. His 4 year average of pay is still quite high but if he had been paid that every year then there would have been much less of a fuss made about it. He is better paid than most AIM directors but is far from the best paid.

I also very much like the fact that AC owns 8% of the company, compared to his peers who earn almost nothing in theirs.

I’m not sure I agree that the future of ZEN is as interlinked with the receipt of the $5.3 million from SNPC as you do Kels.

As I said in my previous posts, I believe that Zenith are now structured in such a way that they are set up for significant success from this point onwards regardless of what happens with the SNPC money – for all the reasons that I have already mentioned.

I totally agree that it would be bloody marvellous if the whole amount did turn up in the near future, but I would certainly not say that this is the red or black moment that would define the future of the company. If I believed that it was then there is no way that I would have invested.

What I believe is most likely to happen is that there will be an acknowledgement that the debt is owed and a payment schedule will be agreed that will pay the debt off over the course of a year or so. I believe that the payment will be in some way underwritten by Congo govt to enable Zenith to borrow money based on the fees due. – so I am not sure the timescale of the payments will matter too much in the big scheme of things (although it will obviously have a degree of cost in terms of interest).

Re Congo – I totally accept it is business as usual there in terms of oil operations. I spoke to an acquaintance yesterday who works in oil services and he said that oil exploration globally is still continuing due license requirements (ie if certain targets are not met then firms will lose their licenses). That said, he did say that if firms do not have to do exploration at the moment (for the aforementioned license reasons) then they were avoiding it (until moving people and equipment around returned somewhat to normal). Production, of course, will never stop unless it absolutely has to.

I also like (though I accept that some others think it is wrong) the move into the PPE and hand sanitiser production, not because I think that this will make ZEN any significant money but I do believe that it will have benefits in dealing with various developing countries that will become more apparent as time goes forward (making it easier both to close deals and to operate under isolating conditions by ensuring that local staff are all adequately protected).

Overall:

- Zenith have all of the exploration upside that was originally there 2-3 years ago (Azerbaijan).
- They also have some completely new exploration assets (Congo)
- They also have two different sets of production assets in the process of being finalised (Tunisia & West Africa).
- The geographic risk is far more evenly distributed than it was 2-3 years ago which means no single point of failure.
- The share price is much lower than it was 2-3 years ago, so the downside is much lower and the upside is much greater.

However, it is from this point on that Zenith starts to become a much more interesting proposition in my opinion. Essentially they pretty much returned to the original plan that everyone bought into 2-3 years ago of using production revenue to fund exploration upside but they got rid of the risk of putting all their eggs in one basket. What I really like about ZEN now is that they are in the process of acquiring production assets that can be used to bring in cash flow in order to fund the targeting of the expensive but high reward exploration assets. The clear lesson learned is that instead of having these in the same place ZEN have (wisely IMO) spread their net wider and taken advantage of the Covid crisis to put the deals together to acquire spread-out production assets in Tunisia and West Africa. Between them, these assets (with the existing small scale Italian capacity) should deliver approximately 700 bopd (and more if ZEN take more than a 50% stake in the West Africa assets). Assuming opex costs of $15/b in Tunisia & West Africa and an oil price of $33 then this should deliver $8.6 million in revenue and $4.8 million in operating profit to ZEN every year.

This $4.8 million will be a recurring income that will enable the company to utilise debt (including bonds) to fund its exploration word aiming for company changing results. The exploration itself has also been significantly expanded by the acquisition of the Tilapia asset in the Republic of Congo from AAOG. This was acquired for the bargain price of £200,000 (for an asset that AAOG paid £6 million for in 2017 and then spent over 10 million on since) and was the only asset responsible for driving the AAOG market cap up to £33million in 2019.

So once the various deals are complete ZEN will have production assets which will cover expenses and enable debt to be serviced. They will also have two big exploration assets in their portfolio in Congo and Azerbaijan. Every asset that Zen owns will be located in a different jurisdiction which will mean that they are not subject to a single point of failure (as they were in Azerbaijan and AAOG were in Congo).

This is a very sensible and appealing corporate strategy to me. It takes all of the upside from the original strategy that Kelsbells and others bought into 2-3 years ago but it fixes the flaws that were inherent in the original plan. By spreading out the different license jurisdictions for production, the risk of stoppages and failure is diminished and by having two exploration assets on the go at the same time money can be allocated to wherever is considered more likely to be successful or to be able to commence more quickly.

kelsbells, I appreciate that you have been invested here far longer than I have and that being down on your investment will cause you to have personal issues with the BoD of the company. However, just because you have been invested here longer than I have, that does not grant you permission to come up with nonsensical statements like the one you did yesterday expressing your anger that they have not renewed their Tilapia license, or got back the $5.3 million from SNPC in the two weeks since they acquired the asset.

I do a lot of research into a stock before I invest in it and so do not think for one second that because I invested after you I know nothing about this company or it's history. I have read every RNS going back years, I have analysed each set of accounts and I have looked at this (and other) forums going back as far as they have records. If you think that none of that matters because I invested after you then that is your right – but it is precisely because I do all of this research that I seldom lose money on my investments.

There are definitely some sensible discussions to be had about past failures and whether lessons have been learnt and I am happy to have them with you, but the key work is "sensible" and saying that nothing will ever work because Azerbaijan did not work is not a rational way of looking at things.

As I keep repeating, the ZEN of today is not the same investment of 2-3 years ago. Azerbaijan was an appealing prospect, but just as with AAOG and Tilapia it was a gamble because all of ZEN’s eggs were in one basket and an element of success was priced in. I have to be honest here and say that I would not have invested in ZEN at this point anyway as I very rarely invest in companies that only have a single asset in a high risk jurisdiction. If I do invest, I accept that it is very high risk and essentially gambling.

The reason for this is that a company putting all of its eggs in one basket makes them too vulnerable to single points of failure that can sometimes be outwith their control. Sure enough, this is what happened to ZEN. Once things started to go wrong with the rehabilitation plans in Azerbaijan (data not correct, wells in much worse condition than advertised etc) then the trouble was that there was nowhere left for the company to go. The flaw in the basic strategy of putting “all eggs in one basket” had been completely exposed. Instead of making money the rehabilitation programme began costing money (as seen on p74 of the 2019 annual report) then the plan of using income to fund exploration (via debt I assume) fell apart.

" At the end of feb we were told they should be drilling at tilapia by the end of Apr. It’s now 2 weeks since this acquisition finally completed and still absolutely no sign that the $5.3m will be handed over or license renewed".

These are not the words of a patient man.

" At the end of feb we were told they should be drilling at tilapia by the end of Apr. It’s now 2 weeks since this acquisition finally completed and still absolutely no sign that the $5.3m will be handed over or license renewed".

I can only assume that this comment is a joke. You are aware that the entire world is still shut down because of coronavirus and you are angry because two weeks after ZEN have completed their acquisition of Tilapia that they have not had the license renewed and the $5.3 million repaid in full?

To give you an idea of how Africa is operating at the moment: an associate of mine sent a large sum of money to a West African central bank last week and it has not yet been credited to their account. When they phoned up to find out what was going on they were told that there were only 6 people working in the entire central bank out of a normal staff of 67. Government business was carried out first and then everything else when they had time. This is just how it is at the moment. In the middle of a global healthcare and economic crisis things take longer than they normally do.

As for criticising ZEN for not already drilling in Tilapia, like they said that they would in February, this is truly staggering for so many reasons:

Firstly, The Covid 19 worldwide pandemic has pretty much stopped most drilling globally.

Secondly, the original acquisition of 80% of AAOG Congo was announced in the RNS on December 27th 2019 and ZEN were to pay £500k cash and £500k shares. On the 24th March 2020 this was renegotiated to £800k paid in 10 monthly cash instalments for 80% of AAOG Congo. On 17th April 2020 this was negotiated down further to 100% of AAOG Congo for £200k cash – which was then paid on May 5th. So by taking their time ZEN have saved £800k and acquired an extra 20% of the asset. You would rather they wasted £800k of our money to acquire less of the asset, just so that they could drill in the middle of a global pandemic?

Thirdly, drilling in the middle of a pandemic would be an incredibly stupid idea and you would be the first to blame ZEN for complete incompetence and disregard for doing things properly if they were stupid enough to be trying to drill Tilapia in the middle of Coronavirus. If anything went wrong you and I and every other private investor would, quite rightly, absolutely crucify them for being stupid enough to try and carry out a drill in the Congo when they whole world was shut down.

As Capability says: “patience”.

Of course the license will get renewed. We have a picture of AC with the Congo President which dates from a couple of months after ZEN put together their deal with AAOG to buy Tilapia and a couple of months before the deal actually went through.

The only thing that AC and the President could have had to talk about was Tilapia and the only reason for them to talk about it was to make sure that both sides agreed that Zenith would be a good it as the owners of Tilapia. The license renewal formalities were hashed out there IMO and Zenith would not have continued with the deal if there had been any risk of it not having been renewed.