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EXPLORATION/DEVELOPMENT ASSETS
On top of this we have the potential for the new assets to deliver company-changing (and more significantly to us share-price changing) news to the company once they are signed off.

CONGO

Firstly, we have Tilapia. We have been waiting on the approval of this acquisition for over two years now but IF it does come in then we will have acquired for £200,000 a 25 year license on an asset that AAOG originally paid almost £7 million for when it only had 5 years left. The license also contains a well (TLP-103C) that has already been drilled at a cost of £9.6 million (£5.4 million net to AAOG with the rest owed by SNPC) and has discovered oil across 56 meters.

We also know that AAOG messed up the original drill and that there is only a short (and cheap) sidetrack to drill with the potential for this to deliver 1,000 bopd if it is successful. Assuming that 50% of this would be net to Zenith and that the cost of production is only $10 per barrel (AAOG publicly estimated $5 per barrel so I am simply doubling that) then this could deliver a net revenue of $13.5 million per annum – instantly doubling the company’s current revenues. There was also talk by AAOG of deeper drilling that may deliver a further 3,000 bopd, so there is significant exploration upside here too. If we can get to this production level then the company would be generating 4,000 bopd (2,000 net to Zenith) and we would be looking at a net revenue of US$55 million per annum - though admittedly this is a long way into the future.

With all the deals that we are waiting on at the moment, and all the squabbling on this board, I think that it is a good time to have a recap on exactly where we are with Zenith Energy. This is a post that I posted on the Norwegian forums earlier today. It would be useful I feel to debate the potential of the company (both pros and cons) instead of just mindlessly arguing with each other. It will be interesting to see if any of the negative posters actually join in with sensible and detailed debate. Time will tell. If they do, then that is good for the board and all investors. However, if they do not then it will reveal much about their true intentions.

PRODUCTION ASSETS

We have two producing assets – Tunisia and Italy. Tunisia is producing approximately 450 bopd and at the current oil price of US$85 per barrel this is delivering a gross revenue of $14 million per annum. Assuming that there is an extraction cost of $25 per barrel then this is a net revenue of approx. US$10 million per annum.

The Italian gas to electricity sales have held up fairly steadily at about 990MWh per month and although the huge variations in the Italian electricity prices meant that in 2022 monthly revenue varied from €195,000 in May 2022 right up to €530,000 in August 2022 it seems that these assets will continue to deliver a total net revenue of approx. €3,500,000 per annum. Over the forthcoming year. So in total the existing production assets should deliver a net revenue of almost US$14 million per annum in 2023. This more than justifies the current market capitalisation of the company.

Today’s publication of December’s Italian gas revenues mean that we now know the revenue generation for 9 of the 12 months of 2022.

Month Elec Product Sale Price Net Revenue

Jan-22 NO FIGURES RELEASED
Feb-22 NO FIGURES RELEASED
Mar-22 1015 MWh/month €295/MWh €300,000
Apr-22 974. 4MWh/month €236/MWh €230,000
May-22 875.6 MWh/month €223/MWh €195,000
Jun-22 NO FIGURES RELEASED
Jul-22 996 MWh/month €419/MWh €417,000
Aug-22 985.6/ MWh/month 538/MWh €530,000
Sept-22 955.5 MWh/ month €419/ MWh €400,000
Oct-22 956 MWh/month €208 / MWh €198,000
Nov-22 983 MWh/month €312 / MWH €209,000
Dec-22 1,025 MWh/month €280 / MWh €286,000

The total published revenues come up to $2,765,000 and there are still 4 months missing so I think that even conservatively it is fair to assume that the Italian assets have generated around $3.5 million in 2002 after expenses.

Production has also been very stable. From the 8 months of figures that we have available electricity sales average at 974MWh per month and for the last quarter of 2022 they averaged 988MWh per month so they are slightly increasing if anything.

With the company also having received their approval as an Italian gas operator (as per the Dec 2nd RNS) and with the plans announced in that RNS to increase production significantly in order to generate another 30,000 cubic meters of natural gas per day (commencing Q1 2023) which should deliver a further €2.5 million per annum in revenue the future of Zenith’s European gas production looks both stable and profitable for the forthcoming year.

Kelsbells, I take very serious issue with the post that you made at 12.07 today when you posted.

“Anyway it’s still ridiculous lining up an acquisition in one of the most politically difficult countries in the world , announcing the agreed acquisition price of $21.6m while clearly having had no conversation with the relevant authorities about their criteria for any takeover in their country.”

There is an considerable amount of evidence available that proves your statement to be completely wrong.

Firstly - On November 14th 2022 Aenith released the RNS entitled Opening of Representative Office in Yemen where Andrea stated that: “We are very pleased to have opened a representative office in Yemen. The team and I have had the opportunity to visit Aden and to have fruitful interactions with the country's local authorities”.

Secondly - It is also obvious that OMV would not have signed the SPA with Zenith unless both they and Zenith had had a conversation the Yemeni authorities that would have given some degree of positive indication that the transaction could be approved.

Thirdly - There is the following tweet from a Yemeni geologist and consultant on the matter which states that negotiations between all parties have been ongoing for the last four months: https://twitter.com/1Gaghman/status/1610522134123528193?t=3ms7ZWcpJUUPJzf2MzTT5A&s=19

Fourthly - The link that Callit posted yesterday also provides further evidence that the Yemeni authorities were fully aware of the transaction going through right up to presidential level. It explained that the current position of the oil ministry is due to a dispute between the President and the oil minister about the distribution of funds from the sale: https://www.dailyyemen.net/2023/01/06/aden-oil-commissions-spark-disputes-between-pm-and-oil-minister/

In short, the statement that you have made alleging that the Yemeni authorities are unaware that Zenith have been negotiating with OMV for the acquisition of their Yemeni assets is clearly untrue. Whether this is because you have a poor grasp of the documentation on the subject or because you enjoy deliberately making negative posts on Zenith I leave for others to decide.

Very interesting Callit - so there is yet another level to this which appears to be nothing to do with Zenith but rather about how much the oil minister gets for his approval.

"Sources in Aden government reported that the oil minister affiliated with the transitional government, Al Shamasi was behind the recent leaks on oil sales deals. Noting that Al-Shamasi refuses to receive his commissions from the last deal, which stipulated the sale of sector S2 from OMV. in Austrian company Zenith Dutch.

The sources indicated that Al-Shammasi demanded a larger share as compensation for previous deals in exchange for his efforts to secure the sale.

However, the prime minister of Aden government Maeen, stressed on the need to reduce the quota, as it is not enough for the rest of the officials."

This is the best news that we have had today IMO as it shows that the issue is nothing to do with Zenith or how fit they are to operate the block but everything to do with inter-governmental squabbles and who gets to take what part of the government share.

After reading that I am significantly more convinced that Zenith will ultimately acquire OMV's Yemeni exploration assets.

It's like peeling away the layers of an onion...

Once Zenith assure the Yemeni Oil ministry that they have not already claimed that they own the asset then everything can be looked at with cooler heads. The is certainly no doubt about Zenith’s ability as an operator as they have just been approved by the Italian government as a company that meets the required standards to operate in a major European country. Although their financial status is nowhere near that of OMV this is probably where Hingbo come in. Their financial firepower and (presumable) access to China’s influence in the region must be the whole reason why Zenith teamed up with them in the first place, otherwise they bring nothing to the partnership.

In my opinion, Zenith should be explaining the misunderstanding to the Yemeni first thing Monday morning (unless they have already started doing so) and once this is out of the way then they can start making their case for why they should be allowed to operate the assets that OMV no longer want to be involved with. It is far from certain that we will be approved to operate the license but it also far from certain that we won’t. In my opinion, everything is still in play.

We have to wait and see what happens but if Hingbo bring the finance and Zenith can show the Yemei authorities that they have not prematurely announced the purchase already (which will be easy to do) then this acquisition is far from over. I also think that is highly unlikely that Zenith would have gone ahead with pursuing the transaction if they had not had at least some discussions with officials in Yemen. Hopefully it is just a storm in a teacup, but only time will tell.

Post 3 of 3

Of more significant concern it the part of the ministry’s statement that says that it believes that Zenith Company does not have the competence and financial and technical capacity approved by the Ministry and the Oil Authority, and does not apply to it the standards governing cases of abandoning the ownership of the share owned by OMV.”

This does appear to suggest that they are unlikely to grant the necessary approvals to allow Zenith to acquire the asset but it is now down to Zenith to convince them that they are a worthy custodian of the Yemeni blocks and we always knew that this was going to be the case.

We also need to bear in mind that OMV is an oil company with a multi-billion dollar market capitalisation and the fact that they have entered into the sale agreement with Zenith means that Zenith have obviously convinced them that they do have the technical and financial capabilities to operate the field. This is not the same thing as getting approval from the Yemeni authorities, but I think that it is important to recognise that OMV would have had to be convinced that Zenith’s bid for the Yemeni assets COULD be successful before they would have gone so far as to enter an SPA with them.

The Yemeni authorities would understandably prefer to have a company the size of OMV operating in their country than one the size of Zenith. However, they also have to recognise that OMV look at their Yemeni assets as pretty small and insignificant. The Yemeni assets generate about $80 million a year in revenues at current production rates of 6,000 bopd and while this is a huge amount of money for a company like Zenith it is only 0.22% of OMV’s total annual revenues of $36 billion. IF OMV want out of Yemen, which they have publicly stated that they do “based on OMV's strategy of reducing the share of oil in the portfolio" then there is not a lot that Yemen can do about it. They cannot force them to invest in the country and OMV have made it publicly clear that they wish to divest themselves of the Yemeni assets as soon as possible. Again, it is understandable why. Yemen only contributes 0.22% of OMV’s revenues but it is certain that the security issues in Yemen issue have certainly contributed to more than 0.22% of the company’s management attention. OMV are getting out and it is only a matter of who they sell to and when.

Post 2 of 3

My contribution is a copy of the post I put on the Norwegian forums earlier this evening. Apologies for the length, but I hope that it contributes to the discussion somewhat.

I think that there is clearly a current issue of misunderstanding between Zenith and the Yemeni government. Reading the statement from the Ministry of Oil it clearly attacks Zenith for issuing a statement saying that they have already acquired the assets of OMV when in fact this is not what Zenith have done.

The ministry’s statement on their Facebook page states (translated to English via Google translate) that: “The Ministry of Oil and Minerals denied the validity of the media statements made by Zenith Energy, in which it claimed its acquisition of OMV's stake in the oil sectors (S2, 3 and 70).”

It goes on to say that: “The Ministry clarifies to the public opinion that this news is incorrect, that no agreement has been concluded with it, and that the Ministry is still studying the documents submitted by OMV.”

The key point here is that the ministry appear to be accusing Zenith of having already announced that the sale of the assets was a done deal and that they already owned them. However, the Zenith announcement clearly states that the completion of the transaction is conditional on the approval of the Yemeni government and also the Austrian government. The RNS explicitly states that:

“The obligations set out in the SPA of the Seller and Zenith Netherlands to consummate the sale and purchase of the shares in OMV Yemen at completion are subject to, inter alia, the approval of the authorities in Yemen, and the approval by the Federal Ministry of the Republic of Austria for Labour and Economy in respect of the transfer of shares from OMV to Zenith Netherlands ("Completion"). The SPA has a longstop date of nine months from the date of signing.”

This is clearly is not an ideal situation as any misunderstanding with regulatory authorities in a country that a company wishes to operate is always to be avoided. However, at the moment the Yemeni ministry of oil appear to be accusing Zenith of something that they have not done.

if the misunderstanding is as simple as the Yemeni Ministry of Oil thinking that Zenith had announced that the acquisition had already been completed, then it is easily cleared up just by highlighting to them the paragraph above where it clearly states that any purchase is subject to their approval .

Post 1 of 3

Interestingly, I was looking up reasons why OMV would sell such a significant asset for so little money and I discovered that they announced back in June 2022 that “The intended divestment is based on OMV's strategy of reducing the share of oil in the portfolio." https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/oil/062922-omv-says-it-is-trying-to-sell-yemen-assets-as-part-of-oil-divestment

Their motive fits in exactly with something that AC has been saying for a long time now which is that many major oil companies are under pressure from shareholders to decarbonise their portfolios. He said this almost word for word back in the investor conference call in Feb 2022 when he mentioned

“the opportunities that come from majors and second-tier majors abandoning their overseas assets. The supermajors want to get away from any producing field that is not vital for their cashflow.”

He was also more specific when he said that:

“(Major) oil companies are generally leaving medium size countries and fields and are only focusing on huge fields (usually offshore) which deliver their cashflow. Getting rid of their smaller fields allows them to say that they are getting out of “bad” fossil fuels but it gives opportunities to companies like us. We can therefore do quick transactions with the majors and don’t have to go through governments, We are also an operator and are recognised as such by 5 countries and majors and ministers will not allow the purchase of these marginal fields by somebody who is not an operator.”

It looks like we have seized just such an opportunity in the acquisition of the Yemen asset. OMV have decided to “reduce the share of oil in the portfolio” and it has allowed Zenith to pick up a very significant producing asset on the cheap.

I think that the line AC mentioned about Zenith’s producer status is also very important in this transaction. It is no coincidence that the previously dormant Zenith Energy Netherlands B.V entity has been used as the acquisition vehicle for this transaction with Hingbo Industries Company Limited taking a 51% stake in this entity on 30th December 2022. It is clear that Hingbo bring money to the transaction but I think that it is unlikely that they would have entered the deal with a company that was not able to operate the asset. AC has always been very clear about the importance that he attaches to Zenith’s operatorship and it appears that he has been right.

I would also like to say a big hats-off to our CEO for setting out a strategy over a year ago to acquire large assets from major operators at discounted prices as they respond to pressure from the environmental lobby. For a long time it appeared that this was just a dream but with this acquisition it has proved that the strategy really does work and Zenith have now acquired a significant share in a major asset for a very low price.

No worries nomlungu. We definitely do agree that this should be a significant transaction for Zen. IMO it is a game-changer for the company.

I put taxes and royalties in at 50% of revenues if you re-read the last paragraph. It won't be more than that.

Here are my initial thoughts on the acquisition based on the current oil price of USD$85. They can be best summed up by "it looks big".

At the current production rate of 6,000 bopd and production cost of $28 per barrel then the gross output of the field should be delivering $324,000 worth of oil per day.

The financial interest to Zenith Energy Netherlands is 57.14% which means that their share should be USD$195,418 per day and Zenith Energy LTD’s share should be 49% of this which is USD$95,755 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 USD$488,547 per day and Zenith Energy LTD’s share should be 49% of this which is USD$239,888 per day. Over the course of the year this amounts to: USD$87 million per year.

Obviously there will be some details in there which have not yet been announced such as the share of the oil production taken by the Yemeni government in tax but even if this is 50% (which is the absolute maximum level that I can imagine it being) then we are still looking at an initial revenue of USD$17 million per annum (at a production rate of 6,000 bopd) and an eventual revenue of USD$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.

I would like to come in and correct some misinformation that appears to be doing the rounds on these boards at the moment with regard to the company’s half-year accounts.

The net profit for the half yearly accounts is CAD$119,000. The additional CAD$1,178,000 that takes the total comprehensive loss for the period to CAD$1,059,000 is an accounting retranslation of the assets held on the balance sheet and is clearly labelled in the notes on page 9 as Exchange differences on translating foreign operations, net of tax (no cash item).

Whatever way you want to break this up this is an accounting issue and not a loss for the period as the half yearly reports clearly show a CAD$119,000 profit. I realise that this may not fit in with the negative agendas that some posters on here appear to have about Angus but unfortunately it remains inarguably the truth.

If people wish, for their own reasons, to insist on reading the “Total comprehensive (loss)/income for the period attributable to owners of the parent” figure and taking it as gospel (as some here have insisted over the last few days) then that is their prerogative - incorrect as it is.

However, I would then point out that they should then also go back and re-read the same figure from the the annual accounts from 31st March 2022. This would show a “Total comprehensive (loss)/income for the period attributable to owners of the parent” for that period of CAD$64,437,254.

The fact is simply that both figures are just accountancy numbers and should not be taken seriously. As I said at the beginning of this post, the accounts clearly show a net profit of CAD$119,000 for the half year period ending 30th September 2022. I hope that this clears up any confusion

I don’t think that there is any point in constantly raking over old ground here. Azerbaijan was a high risk project that had the potential to deliver excellent returns if all was as it was meant to be. However, as is the case with many risky projects all was not as it appeared and so it failed. Those that lost money on it should just bite the bullet and accept that not all high risk investments work out. They should not continue to blame the management for what happened more than three years ago when the companies now a different and much more organised entity heading in a new direction. It is certainly nonsensical to claim that because Azerbaijan did not work out three years ago that Benin, Tilapia, Yemen, Egypt, Tunisa and Italy will all fail in the future.

If you have issue with management then that is your prerogative, but please do not use your own grievances from the past to flood this forum with false information to try and damage it’s prospects for the future.

Kelsbells, I am afraid that your timeline is slightly wrong. Zenith withdrew from Azerbaijan in March 2020 and at that point the share price dropped down from 0.9p to 0.425p . The acquisition of AAOG Congo was completed in May 2020 and the share price rose back up to 0.8p. Effectively from a market perspective Tilapia and Azerbaijan cancelled each other out.

In my opinion the market got it right. Azerbaijan did have the potential to be an excellent asset when it was first acquired. You can see that the original plan was sensible as there was a whole load of detailed information on the old wells in the area and that the wells could be brought back into production using the existing staff to carry out the contract rehabilitation. These rehabilitation wells were meant to deliver cashflow to fund the company while it went out in search of the exploration “big time”. However, clearly working in Azerbaijan proved much more difficult than was anticipated (data not correct, wells in much worse condition than advertised etc). The trouble with everything being focused on Azerbaijan was that when things went wrong there and 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. Azerbaijan cost more money than it produced every year that it was run due to the hundreds of staff and it would have continued to lose money until it bled Zenith dry.

The company was also only allowed to continue operating at the whim of the Azerbaijani authorities and this was always my big problem with the asset – it meant that Zenith put all of its eggs into one basket and both the company and those who invested in it were foolish not to see what a problem that this would become. I certainly would not have invested here in the Azerbaijani years but I am pleased that the company has learned its lesson and now spreads the risk around multiple jurisdictions.

The acquisition of Tilapia was the first step that the company took to spread this risk and although they knowingly bought an expiring license for only £200,000 you can see how toxic Azerbaijan had become when the market valued the expiring license at the same effective value as Azerbaijan.

Very interesting today to see the RNS announcing that Zenith are opening an office in Yemen. As the RNS points out, Yemen is a country with very significant oil and gas reserves and it is certainly the sort of place that a company like Zenith could acquire some interesting licenses.

The important thing about the RNS is the fact that it was released at all. Why would the company bother to announced that they have opened an office in a new, and previously unmentioned, country unless they were likely to be acquiring a license in that country in the near future?

It is yet another very good sign for the company’s future. As I have been saying for a while, Zenith need to acquire another license with significant production and exploration potential in order to have the market re-rate the company and to see the share price move up to a new and much higher level. We know that they are already working on Tilapia, Benin and Egypt and now we have a fourth potential license in the works. The more the merrier as far as I am concerned.

With the company working on so many different potential acquisitions at the same time, one of them has to come in sooner or later and whichever one does in should make a huge difference to the company’s prospects. You never know, it could end up that all of these licenses are like buses – you wait ages for one and then they all arrive at the same time. Wouldn’t that be a nice end of year bonus for us?

I also think that It is perfectly fair, and sensible to be critical of management when they do not deliver and therefore I think that at the end of the year, if we have not delivered one of the three significant additional assets (T2, Benin and Egypt) that we know the company are trying to add to the portfolio then it is time for investors to start asking some serious questions about management capabilities.

However, I do not think that it is yet time to criticise the company. In the last two years AC has performed an incredibly successful reinvention of what the company is about. It has changed from a company that put all of it’s eggs in one basket when gambling on the success of re-drilling wells in Azerbaijan; into a company that is producing oil and revenue in two separate jurisdictions and is negotiating to gain assets in three more. Lessons have clearly been learned about focusing all of the company’s efforts in a single country and as I read it they continue to be learned.

I do not think that we can blame Zenith about the time it is taking to get the Tilapia license renewed. Short of paying bribes, when Andrea has confirmed that Zenith would never do, there is simply no way to speed up the process of the T2 license renewal.

The company has also not just waited and bet everything on Tilapia. We know that they were trying to get the Barracuda OML141 license last year which was ultimately frustrated by the legal action between ADME and NHN and we know that they are trying to acquire licenses in Egypt and Benin currently.

However the clock is ticking. In order to move the company on to the next level we need an additional license with significant production and exploration potential. The company do seem to be going all out to find one but, they do need to deliver as it is only this that will drive the share price up significantly.

The company is in a better place now than it has ever been and in my opinion there are not many stocks around offering this kind of upside with such a low downside and this is what makes Zenith such an attractive investment at the moment. However, a new project has to be delivered soon. I have every faith that it will and this is why I remain invested and continue to increase my holdings when the opportunity presents itself. But if something is not signed by the end of the year I will want to know why.

There is truth in both the bull and the bear outlook on Zenith Energy at the moment. But fundamentally they are both the same thing and simply all pivot around whether you agree that the new and bigger licenses that the company is targeting will actually be acquired or not.

The positive outlook on the company is that:

1) They are producing $5 million worth of gas per annum from the Italian assets and are producing $13 million worth of oil from the Tunisian assets.

2) They are in the process of acquiring major fields which have existing production and major exploration upside in Tilapia and Benin and they are also in negotiations for an additional field in Egypt.

The negative case for the company is that:

1) They own some small production fields in Italy and Tunisia but the production from these on their own is not going to send the share price increasing because there are so many shares in issue.

2) The three major fields licenses that they are after (Congo, Benin and Egypt) are all currently in the negotiation phase and none of them are actually owned by Zenith yet. Tilpaia especially has been in stasis for almost two years.

Essentially the positive and negative cases for the company are exactly the same and they simply rely on what you believe will be the outcome of point 2. If none of the licenses in Congo, Benin or Egypt are acquired then the share price is likely to simply stay around the current levels. However if any of them are acquired then the company share price is likely to shoot up to completely new highs. So if you believe that any of these assets will be acquired then you believe the share price will go up and if you believe that they are not then you think the share price will stay where it is.

From my point of view though, this makes Zenith a very very low risk stock at the moment. Because they have built a solid production base that is delivering revenue to the company then, in the worst case scenario, the share price stays where it is. But in the best case scenario Zenith acquires new assets and the share price multiples x3 or more.

Hi Hedgehog - sorry, I have not had a chance to look at Zenith's gas production as I said I would last month. I will try again over the weekend and get back to you as soon as I have.

"III/ – Ministry of Hydrocarbons.
Taking the floor after being invited by the President of the Republic, Mr. Jean-Marc THYSTERE TCHICAYA, Minister of Special Economic Zones and Economic Diversification, presented a draft decree regulating flaring and the advantage of gas in upstream activities of the hydrocarbons sector, in place of Minister Bruno Jean Richard ITOUA, Minister of Hydrocarbons, on mission.
Minister THYSTERE TCHICAYA specified that gas is considered as a transitional green energy. Also, the decree submitted for examination by the Council aims to enhance its production while preserving the environment. To this end, effective regulation of gas flaring and venting will enable our country to comply with the international commitments to which it has subscribed with regard to greenhouse gas emissions.
The draft decree also offers opportunities for investors to direct their funds towards projects for the use or transformation of associated gas, currently intended for the flare, in particular petrochemicals, mining, agriculture through fertilizers , the production of electricity and the transformation of gas into liquid fuel.
The draft decree aims to put in place a legal instrument to better administer gas flaring procedures in the Republic of Congo. It is in line with the constant will expressed for years by the President of the Republic and recorded by the hydrocarbons code. It is therefore a question, by the adoption of this decree, of reconciling the necessities of production with the fixing of sanctions which must be effective, and this without delays or procrastination against the offenders.
After examination and discussion, the Council of Ministers adopted the draft decree regulating flaring and the advantage of gas in the upstream activities of the hydrocarbon sector.