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It seems like there is political progress in Congo which will affect Zenith poitively. https://gouvernement.cg/compte-rendu-du-conseil-des-ministres-du-12-octobre-2022/

«The Council of Ministers met at the Palais du Peuple, this Wednesday, October 12, 2022, under the very high authority of His Excellency, Mr. Denis SASSOU N'GUESSO, President of the Republic, Head of State.
Seven (7) matters were on its agenda."

«Presenting the second draft of the Ministry of Budget, Public Accounts and Public Portfolio, namely the draft decree setting the terms of application of domestic tax provisions in the upstream oil sector, Minister THYSTERE TCHICAYA specified that the legislative and regulatory framework upstream oil activity is made up of several texts, the main ones being: the hydrocarbons code; the general tax code; the customs code; production sharing contracts; Community regulations on foreign exchange, insurance and OHADA law, applicable to all companies, as well as numerous regulatory texts.
The economic weight of oil activity in public revenue requires that the related tax system be clearly and completely presented, with a view to its easier application. It is in this context that the project submitted for examination by the Council aims to bring together the applicable texts in this area, in order to make the tax and customs provisions that govern this sector more legible.
After review and discussion, the Council of Ministers adopted the draft decree setting the terms of application of domestic tax provisions in the upstream oil sector.

As you say Raincat, with the oil prices as they are now and the income currently coming in from our Tunisian and Italian assets all Zenith need to do now if to pus the company to a whole new level.

At the moment Zenith have the part of the equation that most small cap oilers are usually missing and this is that the company is already generating significant revenue of approximately $16-$18 million per annum from our existing production assets. However, our existing assets do not have a huge amount of scope to increase significantly. Even if we work on all of them they may double or perhaps treble in terms of production. This potential on its own is not enough to get investors in the wider market particularly excited.

Weirdly, Zenith are also missing out on what most small cap oilers already have which is a “blue sky” exploration asset that with enough time and money spent on it MAY develop into something very valuable that produces 10,000 bopd and therefor has enormous company-changing potential.

However, while we do not have currently own the license to a blue-sky exploration project we do now appear to have three such prospects that are close to getting signed: Tilapia, Benin and now Egypt. And the first two, at least, have the advantage that they are not complete exploration projects. We know that the oil is there and we know (in the case of Benin) that it has previously flowed so we just need to get operations restarted.

Once one of these three potential assets is officially owned by Zenith then the company will have all of the advantages of the upside potential of the best speculative small-cap stock and also the revenue coming in that will give them the debt to pay for the development.

All we need is for one of the three putative licenses to actually be acquired and there will be a massive market re-rate on Zenith. If we acquire all three then the potential here is stratospheric.

What makes you excited for the future for Zenith Energy?
The fact that there are less and less operators. If you think about the people that you interview and the companies that you consider likeable clients for your organisation and similar organisations to yours the number or operators: American, English Australian and Norwegian are shrinking by the year and so there are more investors and there are a lesser number of properties managed by the majors but there is also a smaller number of operators. Being an operator by law and by technical necessity is the centre of petroleum activity and we are very proud to be one of the few remaining junior operators.

For those who have not heard the Zenith story can you give us an introduction to the company?
Zenith is an oil and gas producer and operator that started in Canada in 2008 and moved to London in 2017 with an IPO. We have moved our focus in our producing properties to: Sub-Sahara, North Africa, the Middle East and Italy. Italy is the remainder of an acquisition from a long time ago that is, at the moment, doing very well.

So give us an update on your projects and the developments at Benin

Our most recent development is a negotiation in Benin. Benin is a very interesting republic next door to Nigeria so the geology is the same as the basin in West basin of Nigeria and there are other properties in the market, not far, but in Nigeria while we are in Benin negotiating for the license called Seme 1 which has been the only producing license for Benin for many years. Production has been suspended in the last 7 years and now we are looking to revamp this property and to expand the geological horizons of the production

I am sure that investors will be interested in Italy in the background there, can you give us a bit more of a flavour of that?

Our focus is Africa because we are looking at a large increase in our production rate but Italy has always been there steady in the background making gas which for the last 10 years, before January 2021 was very cheap as the competition with Russian gas was depressing the gas price made by the West European operators. So we made this gas at very low rates of income and so we started to produce electricity to create a larger margin in our production. The all of a sudden, starting in January 2021 the price of gas and electricity started to ramp up and they have become ten times the original prices. Now for the sake of household and factories the prices are flexing but we are still making a very large profit in our Italian assets.

Our oil horizon is in Africa and we started with the acquisition of AAOGC in December 2019. We are now in the process of renewing the famous property called Tilapia and we are confident that we are in the final stage of it (the renewal). This will permit us to bring our production of light oil to a substantial level in Central Africa. In West Africa we have started the negotiation for the acquisition of Seme 1 with the government of Benin and this is the main focus of my visit to Capetown. The we have also negotiations in Egypt and we have also four producing assets in Tunisia.

I have just listened to Andrea’s interview and written it up as usual. I do this because I believe it is only when re-reading what is said that you actually get to understand the full details of the information that these interviews impart to investors. Most of what he said was just an introduction to Zenith that we all know but .

The key elements that he mentioned in this interview are: (as Callit has already pointed out)

1. That he is in Capetown focused on closing the negotiation with Benin
2. That the company is in negotiations for assets in Egypt.

We know from the investor conference call last week that Andrea said:
a) "We believe that a major acquisition will come in the next quarter. "

and

b) "There are also other locations where we are in advanced negotiations. Our policy is to have a diversified portfolio of as many as possible producing fields that do not require heavy capex. We want to operate in countries that are friendly to oil companies in their political outlook. "

It looks like this next acquisition may well be in Egypt. Remember that back In Jan 2021 the company announced a co-operation agreement with Fleet Oil and Gas, a company led by the former Egyptian Petroleum Minister Mahmoud Latif Amer. Obvioulsy this was a long time ago but maybe it could have somethign to do with that: https://www.lse.co.uk/rns/ZEN/cooperation-agreement-for-new-acquisitions-in-mena-63s75k4xpom3l9b.html

Yes, Raincat, I think that you are probably right. Those who just came in the stock over the last few weeks could have invested on the basis of news before the conference call in the hope of making a quick profit and then got out at roughly break-even when they found that the news was not coming quickly enough – minimising their risk and not holding for the long-term.

From my point of view as long-term holder, now is the ideal time to purchase more shares. We know that Benin should be approved before the end of the year (90 days max) and that T2 is very close (whatever this means in Congolese timescales). We also know that the company is hoping to announce another major deal before the end of the year.

When each bit of news here is announced we should see a significant share-price increase and there will not necessarily be enough time to buy back in before this happens. But I do appreciate that we do not know the timescales on this so if traders think that they can make more money more quickly elsewhere then good luck to them. Personally I will be gradually adding at these prices and am confident that when the news does come on T2 / Benin / the other deal that my investment will be very much rewarded.

I agree though, it does all depend on completing the deals, but the more deals we have in progress the more likely one is to get finalised in the near future – and we now have three potentially transformational deals on the table. Consequently, I can't help but feel those who sold out yesterday may end up regretting it sooner rather than later.

As some here have already said, I do not get the slightly negative reaction to yesterday's conference call whatsoever. As opposed to some of the conference calls in the past which have been long on ambition and short on immediate detail, I think that today’s conference call covered all of the key points that we wanted to know.

1. Tilapia license is close to being complete.
2. Benin license will be approved before the end of the year at the latest.
3. We are planning on increasing production in our Italian gas assets.
4. We will acquire another significant African asset by the end of the year.
5. Once we have acquired all of these assets we will be looking for farm-in partners to help develop them.

When you look at all of this information you can see that the company is putting all of the building blocks in place to be come a mid-tier O&G company with a market cap in excess of £100 million over the course of 2023.

Hedgehog - from the figures you have quoted, I agree it looks like I have under-estimated the potential of the Italian gas fields. This is because I have just been going off the electricity generation information released by RNS. and not by the gas numbers in the annual report.

I will take a look at the annual report as soon as I can to re-work the revenue figures. Thanks for pointing this out.

And one point I forgot:

8. Any new assets that they buy will not be small producers. The days of buying Tunisian assets that produce 300 bopd are over unless that is what they are producing now but they can produce much more after work (presumably in the 2,000 bopd region such as Benin.

1. Zenith clearly delayed the conference call in the hope that they would have been able to announced Tilapia before the call happened. This has obviously not been the case in the end but they feel that the final granting of the license is close. Once this closes they will be the only independent foreign operator in Congo.

2. They are negotiating another African asset which they should announce in Q4 this year. They are also looking at acquiring new assets in Italy as well as developing the existing assets. They think that they could make an additional €1 million Euros per annum from working over their existing assets in Italy.

3. Once they acquire their next African assets they will be looking for farm-in partners on all of the African assets to share the costs.

4. Benin – they expect this to be approved in less than 90 days. Once they have the license they think that it will be 6-8 months until production is restated.

5. Nigeria and OML141 is dead – they are no longer interested.

6. Share buy-back is still under consideration but it will depend on how much cash the operations generate. Andrea wants to buy more shares as soon as he is able but with the acquisitions that they are currently undertaking he needs to wait for a legal window to do so.

7. They expect the bond rating to go up again before the end of the year.

3. How does Zenith think that it can improve the lives of local communities and improve the lives of people in Benin?

Benin will be one of the gems in our crown and we will be the biggest operator in the country (prime operator) and we will take this seriously and look to be very upstanding on our SER. We have a history of helping the countries that we have worked in like buying respirators during covid period in Tunisa and we have also sponsored the football team there as it is a major local

Forgive us for the delays which are not our delays but we are working very hard to try and achieve all of the goals that we have promised investors.

Nigeria

1. OML141 – what is the state of play? Is this still alive after the legal issues are over?

Zenth are very active in looking at trying to acquire new deals. However, global bureaucracies can be slow which creates a sense amongst shareholders that we start deals and do not finish them. However, in Nigeria we have been wise. It was a good opportunity, but the legal case between NHNL and ADM could take years to be solved and we do not want to be involved in this so we have dropped this opportunity as we do not want to get embroiled in a case that could be endless. It has been abandoned. However, Nigeria is bordering with Benin so all the international suppliers that work in Nigeria are easily available to provide services in Benin – especially as production in Nigeria is not going well.

New Acquisitions

1. Are we looking at any further major African acquisitions?

If we see a proposal for a 300 bopd acquisition we are not interested unless it has the potential to be much bigger (ie no more Tunisia’s). We believe that a major acquisition will come in the next quarter. Will this leave us with too many assets? We will look into taking partners and farm-outs to minimise our management and financial commitments. We have a significant African management team (it has increased threefold) including expats etc. This allows us to look at things more cheaply than flying out people from London to do analysis.

Financials
1. Is there any progress in the idea of the share buy-back program. Are you still considering this?

We are still looking at it but it depends on the availability of cash. I believe tremendously in the future of the company and I will buy more shares when it is permitted but it is difficult for me to find a legal window to do this because of all the asset purchases etc. We are looking as well for some other institutional investors to add to our existing two.

2. Since Zenith have not issued shares in the last year then has the bond market helped this?

With respect to eh bond market we are in the continental Europe market and this is helped by our recent rating increase. We believe that we will get another rating increase before the end of the year.

Benin
1. What Is the timescale for the Seme field offer being accepted?

I have already mentioned about Niger’s 90 day government response policy.. This is thought to be a good idea by Benin and they are aiming to make decisions in the same timescale or even quicker. We are confident that this will be approved quickly.

2. How long before Benin could start reproduction and how much?

6- 8 months from the first day of operation. Money not sure but there is the community of contractors in Nigeria who have a very low level of new business and there is a willingness to support us with supplier credit which will reduce our need for capital.

3. What progress has been made in Tilapia since the last conference call in Feb 2022?

We have had antagonism with the ministry before the change of minister. The new minister has re-examined the company and has come to appreciate our technical confidence and financial strength. We are very confident in the professionalism and competence of the new ministry and I am very confident that we will soon have our license renewed.

Questions
1. How much development opportunity and how much more gas can be produced?

The other operators in Italy are mainly from Canda US and GB. They liked the advantageous fiscal setup and they produced a lot of license in the last 10 years. We purchased our fields for a negative consideration (they paid us) when we bought to portfolio of Mediterranean oil and gas in 2012. We almost bought the assets of Coro Oil & Gas but due to political problems then this did not happen due to the anti-fossil fuel lobby. Now they have all realised that they were wrong and there is a lack of energy availability. The invasion of Ukraine caused the gas price to rise because of sanctions etc and this has pushed the price very high in Italy and we a re now making a lot of money.

The situation politically is that we can reopen some of our gas fields. We just need the approvals which takes time but with families and businesses being affected by high oil prices the govt is now looking at increasing Italian gas production . We are waiting for the new govt to be appointed but we are confident that approvals will be received once this is in place. It is just a matter of how long.

Our assets when brough back on line would do 9,000 cubic meters of additional production today and if this is re-opened it could earn another €1 million per annum.

We believe that some existing gas entities in Italy will get rid of their assets because of the financial guarantees required and need a strong balance sheet and we expect certain opportunities to by foreign owned assets will take place. So we will revamp our existing assets and will get approval for this and we will buy addition assets.

2. When does the company plan to drill a second well in Torrentocino?

This has very strong potential with a second well as the current well is lateral to the reservoir and theories the potential to drill a second well directly into the main reservoir but this will be a more substantial investment and we do not have a date for it yet?

Congo

1. What is the state of play with eh SNPC debt and when does the company expect to receive the money?

Congo has a very large debt (mainly to CNPC). Many billions. Our debt is commercial and will not be renegotiated when the IMF loans there are renegotiated. It willl be after the Tilapia drill in done and producing that we are likely to get payment then in full plus interest

2. Legal case vs SMP – what is the update on this?

Here we have much better news. We inherited this legal claim when we acquired AAOG. While preparing the case on the claim we have made a very robust case and the Parisian legal team is very confident that it will be successful. There is always an element of doubt on the courts decision but we are confident that we will win.

Benin is a country I first visited in 1979 and the attitude of the people and the govt is very different from their neighbours in Nigeria. Benin produced oil for 15 years and then stopped it. The port in the main city or Port Anu?) is set up to export oil. CNPC is building a very important pipeline bringing oil from Niger bringing oil down to an oil terminal that is being built and out asset is just 1km from this terminal (or pipeline – I am not sure). This has focused the attention of the govt on oil again. We have been able by moving quickly to discuss and participate an offer for the Seme field. We are confident that we will get the license due to a small amount of competitors going for this field. Seme is the number 1 field in the country and we are confident that this deal can be closed rapidly due to a number of lucky factors as well as the fact that the speed of this transaction will be quicker. Regionally, Benin is quite prompt in giving answers and Niger the neighbour has a policy that govt decisions on things like this should be made in 90 days. We are confident that this will be resolved swiftly to our satisfaction.

Congo is where we have Tilapia which is an asset of great potential. I can say (and I know that I have said it before) that we are very convinced that we are near the end of this journey and we will have the operatorship and then can complete the well.

There are also other locations where we are in advanced negotiations. Our policy is to have a diversified portfolio of as many as possible producing fields that do not require heavy capex. We want to operate in countries that are friendly to oil companies in their political outlook.

Here is my write-up from the conference call today. It was done in real-time so these are not Andrea's exact words, but the sentiment is correct. If they put up the ICC on the website I will try to replace this with an actual transcript later.

Zenith Energy - September 28th Investor Conference Call

Apologies for the two delays in the conference as the company was hoping to deliver the news that you would expect about the company.

Zenith has Italy, Tunisia and Congo and now Benin.

Italy has been the big surprise of the year because of the war in Ukraine and the increase in the gas prices. This has been unfortunate for families but has brought reward for producers. In the previous years Italy was a few words at the ends of the presentation and now it is first as it is producing big profits because the costs are fixed but the gas prices have gone up.

We will continue our campaign of revamping existing fields in our portfolio and also intend to make acquisitions of other companies who do not want to go through the bureaucracy of getting the permission to produce despite the high gas prices. This will take time and you will have to give us if this takes longer than you expect but these are the rules of the game.,

Except some states in the USA ie Texas where rules are very lax all other countries have very bureaucratic rules of production as gas is regarded as a very political asset and it is monitored and taxed by great attention by governments and finally because of the ecological impact of oil and gas production.

In the balance sheet of a junior certain delays are much more evident than on the balance sheet of a major.

There has been a lot of complaints about timescales slipping especially in Congo but we work 24-7 and nobody else in Congo is going quicker. When we get the license we will be the only independent OPERATOR in Congo and this shows that this is difficult.

In Tunisia we have activity in four fields. Tunisia has been going through some political turmoil with a new constitution and elections in December. This is positive for us but the activity in the political scene has brought delays in the bureaucracy as new oil chiefs are appointed after this upheaval.

Hi Hedgehog - since the administrative expenses for Zenith have been pretty consistent over the last two years at $10 million USD per annum I would expect pre-tax earnings to be approx $6-7 million on the income that I mentioned. This would be enough to comfortably service a four year $20 million debt facility.

Obviously, the exact earnings figures will go up and down a little bit in relation to the oil and gas prices but I am pretty confident that the company could manage somewhere around a £20 million loan. as things stand currently.

Off to listen to the conference call now.

Clearly things are progressing in the right direction towards Zenith significantly enhancing both it’s oil production levels and it’s overall market cap and, consequently, as I said at the beginning of this post, the groundwork is being laid for a substantial increase in share price. One key point to remember is that neither Benin nor Tilapia are exploration plays, for the first drills at least. We know that there is oil in place in both licenses and that in Benin it has previously flowed at high rates as well so the risk level on both licenses is almost as small as it can be when it comes to Oil and Gas shares.

Once we acquire one or both of the Benin or Tilapia exploration/development licenses then the foundations of the company will be complete and we will have both the assets that can massively change the company’s fortunes in just a couple of drills and the cash-flow from existing production that will be required to develop them. The jigsaw is almost complete. We jus need to put the last couple of pieces in place by getting the contracts on the T2 and Benin licenses signed and the share price will rocket.

Zenith is definitely preparing the groundwork for a substantial increase in share price, but it is the groundwork and we still need to finish off a number of issues before the market will seriously re-appraise the company’s potential.

At the moment, the big advantage that Zenith has against most of our small-cap rivals is that we have existing production assets (Tunisia and Italy) that are making the company a very substantial amount of net revenue each year. By my calculations we should be generating approximately $17 million per annum in total ($12 million from Tunisia and $5 million from Italy). We also have the $5.2 million owed to the company by the Congolese SNPC and the ongoing multi-million dollar court-case against the French drilling company SMP which are both a legacy of AAOG’s

However, Zenith does have a one disadvantage compared to our small-cap peers in that we do not currently have a big exploration/development asset that could (in the medium-term) deliver the kind of company-changing revenues that will propel Zenith into being a mid-tier (£100 million plus market cap) oil company.

This is because the two potentially company changing assets that we potentially have on the books, Tilapia and Benin, are not signed off as being ours yet. Essentially, we are still waiting for both applications to be approved. As soon as the approvals for these land then the company will have 50% of a potential additional 5,000 bopd production from the two sites as well as the means to fund them (the Italian and Tunisian revenues).

Until ownership of these two fields is formally agreed then neither the market itself, nor many investors, will be convinced that they are going to happen – but once they do, then a market-wide re-rate will be quickly on the cards.

Obviously, Tilapia is a bit of a mystery. It never occurred to me when we got the approval as the preferred bidder back in December 2020 that we would still be waiting around in September 2022 for the formal approval. However, it would appear, as AC has said on more than once occasion, that the wheels of bureaucracy grind very slowly in Congo and as long as the company still thinks that things are progressing there then I guess we will get there eventually. I only hope that it is before the end of the year so we can still complete the drill in H1 2023.

Benin, I believe, is going to be granted at a very different pace to Tilapia. We know from the last investor conference call that Andrea said that “we are looking to acquire assets that can be closed quickly” and I do not believe that the company would have applied for the Benin license if they did not expect that it would meet this criteria.

Hedgehog, I think that you have hit the nail on the head when you say that this new acquisition could be enough to potentially take Zenith up to the stage of being a mid-tier O&G company. As we all know, this will not happen overnight but it has always been one of Andrea’s stated aims to do this and it looks like another step on the way.

What I really like about this deal is that it is starting to deliver on some of the aims that Andrea has discussed with shareholders over the course of the last two years in the investor conference calls.

In the 22nd February Investor Conference Call Andrea said:

(1) “Zenith has many other negotiations going on in Africa which have not reached announceable stage yet. However, we are looking at trying to acquire assets that can be closed quickly”.
(2) “we cannot speed up African bureaucracy but our solution is to have multi-pronged deals in process so when one is stalled then others are in progress”.
(3) In response to the question “where do you see Zenith at the end of 2022?” he replied “production in excess of 3,000bopd… completed one of the… negotiations that will allow us to raise money without issuing equity”

This gives us three very significant bits of information relating to the potential Benin asset: (1) that they expect that the deal will close quickly and (2) that the strategy of acquiring multiple assets in Africa to develop them at different speeds has actually been carried out (3) that we are unlikely to have to issue equity in order to fund either the purchase or the development of the Benin asset.
I don’t think that we are going to complete the aim of 3,000bopd production this year unless we acquire a few more assets as even if we were to receive Tilapia now it would still take 6 months until we could start to drill it, but I do think that this goal would be attainable in H1 2023 with what we currently have. If we are successful in drilling Rob 3 and getting another 250 bopd from that then we would be at a production level of approx. 750bopd in Tunisia and with the two Ezzaouia wells being drilled afterwards this would take us up to 1,000 bopd in Tunisia. With 50% of 2,000 bopd from Benin this would take us to 2,000bopd and then success in Tilapia should take us to 3,500 – all of which is perfectly achievable by H1 2023. Assuming an oil price of $90 and opex costs of $40 then this 3,500 bopd could potentially be netting Zenith over $60 million per year in operational profit, which would in my opinion be than enough to move us to a mid-tier oil O&G company with a market cap of approx. £150 million.