Zenith Energy Regulatory News (ZEN)

November 30, 2020

ZENITH ENERGY LTD.

("Zenith" or the "Company")

Filing of Half-Year Results 

Zenith Energy Ltd. ("Zenith" or the "Company") (LSE: ZEN; OSE: ZENA-ME), the listed international oil & gas production company focused on pursuing African development opportunities, is pleased to announce the filing of its consolidated interim results for the six months ended September 30, 2020 (the "Interim Results") on SEDAR (www.sedar.com).

A copy of the Interim Results will shortly be made available for review on the Company's website (www.zenithenergy.ca).

Highlights:

·  The Company generated revenues from oil and natural gas of CAD$145k (2019 - CAD$2,651k) in the six months ended September 30, 2019.

· During the six months ended September 30, 2020, the Company sold 8,544 mcf of natural gas from its Italian assets, as compared to 5,499 mcf of natural gas in the 2019 similar period.

· On April 20, 2020, the Company announced that its newly created wholly owned subsidiary Zenith Energy Netherlands B.V. had signed a conditional sale and purchase agreement with KUFPEC (Tunisia) Limited, a subsidiary of the State of Kuwait's national oil company, for the acquisition of a working interest in, inter alia, the North Kairouan permit and the Sidi El Kilani Concession, which contains the Sidi El Kilani oilfield.

· On April 22, 2020, the Company confirmed the full repayment of its largest outstanding liability.

· On May 5, 2020, the Company announced the successful completion of the acquisition from AIM listed Anglo African Oil & Gas plc ("AAOG") of a 100 percent interest in its fully owned subsidiary in the Republic of the Congo, Anglo African Oil & Gas Congo S.A.U ("AAOG Congo"), which at the time had a 56 percent majority interest in, and was the operator of, the Tilapia oilfield.

· On May 28, 2020, the Company announced that the TSX Venture Exchange ("TSX-V") had confirmed that effective at the close of business Friday, May 29, 2020, the common shares of the Company would be delisted from the TSX-V at Zenith's request.

· On June 11, 2020, the Company announced that it had made payment for a total of US$250,000 (approximately CAD$350k) to Kuwait Foreign Petroleum Exploration Company K.S.C.C ("KUFPEC"), a subsidiary of the State of Kuwait's national oil company, in relation to the acquisition of a 22.5% working interest in the North Kairouan permit and the Sidi El Kilani Concession, which contains the Sidi El Kilani oilfield.

· On June 25, 2020, the Company announced it had completed the handover process (the "Handover") of the Contract Rehabilitation Area to SOCAR in the Republic of Azerbaijan. As a result of the Handover, Zenith has ceased all oil production operations in Azerbaijan and all field production personnel, approximately 170 employees, have been transferred to a division of SOCAR.

· On June 30, 2020, the Company announced that it had fully paid the semi-annual interest in relation to the following debt instrument: "ZENITH ENERGY LTD 8% NOTES - 2021". The payment in relation to the Notes is the third such payment, with previous interest payments having taken place during the months of June 2019 and December 2019 respectively.

· On August 10, 2020, the Company announced that it had incorporated Zenith Energy Congo SA ("Zenith Congo"), a fully owned subsidiary of the Company, created under the laws of the Republic of Congo. Zenith Congo was established for the purpose of submitting a comprehensive commercial and technical offer to the Ministry of Hydrocarbons of the Republic of the Congo for the award of a new 25-year licence for the Tilapia oilfield to be named "Tilapia II". 

· On August 26, 2020, the Company announced that BCRA Credit Rating Agency AD ("BCRA") had assigned Zenith a "B-" with Stable Outlook long-term debt issuer credit rating.

· On September 8, 2020, the Company announced that its wholly owned subsidiary, Zenith Energy Netherlands B.V. had signed a conditional sale and purchase agreement with CNPC International (Tunisia) Ltd., a 100% subsidiary of CNPCI, China National Petroleum Corporation International Ltd., for the acquisition of a working interest in, inter alia, the North Kairouan permit and the Sidi El Kilani Concession, which contains the Sidi El Kilani oilfield.

Further Information:

Notes to Editors: 

Zenith Energy Ltd. is an international oil and gas production company, listed on the London Stock Exchange (LSE:ZEN) and the Merkur Market of the Oslo Stock Exchange (ZENA:ME).

Zenith's development strategy is to identify and rapidly seize value-accretive hydrocarbon production opportunities in the onshore oil & gas sector, specifically in Africa. The Company's board of directors and senior management team have the experience and technical expertise to develop the Company successfully.

CEO Statement

Zenith Energy Ltd. ("Zenith" or "the Group") is an international oil and gas production Group, incorporated in Canada, listed on the Main Market for listed securities of the London Stock Exchange under the ticker symbol "ZEN" and on the Merkur Market of the Oslo Børs under the ticker "ZENA:ME". The Company has also issued two series of EMTN, that are listed on the third Vienna Stock Exchange Market.

Zenith's strategic objective is to become a mid-tier, Africa focused hydrocarbon production and exploration Group. Specific attention is directed towards assets with proven development potential via development drilling, field rehabilitation, and low-risk exploration activities.

In view of the recent decline in oil prices, as well as macroeconomic developments caused by the COVID-19 pandemic, opportunities have arisen for companies such as Zenith to acquire, at commercially advantageous terms, oil and gas production and exploration assets being divested by many oil majors and leading oil and gas companies. As a leadership team, we are seeking to maximize this opportunity in order to ensure Zenith emerges from the current low oil price environment a stronger and more attractive entity with significant future development potential.

We are very pleased to have entered into two separate conditional transactions in relation to working interests in an onshore oil production asset in Tunisia. The first with KUFPEC, a subsidiary of Kuwait Petroleum Corporation, and the second with China National Petroleum Corporation, to acquire their respective working interests of 22.5% in the Sidi El Kilani Concession and the North Kairouan permit, which contain the producing Sidi El Kilani oilfield. It is our expectation to receive regulatory approval from the Comité Consultatif des Hydrocarbures of the Republic of Tunisia in respect of the transfer of ownership for both acquisitions in due course.

Further, we are delighted to have established a presence in the Republic of the Congo following our acquisition of Anglo African Oil & Gas Congo S.A.U ("AAOG Congo"), the former Congolese subsidiary of Anglo African Oil & Gas plc (a company listed on the AIM of the London Stock Exchange) in May 2020. The decline in oil prices brought about by the COVID-19 pandemic, as well as renegotiations with the seller, enabled Zenith to acquire, at advantageous terms, an interest, albeit brief, in the now expired Tilapia I license (expired on July 18, 2020), as well as receivables, now amounting to approximately US$5.7 million dollars owed by SNPC (Société Nationale des Pétroles du Congo), the National Oil Company.

As publicly announced, the Company has presented a comprehensive commercial and technical offer (the "Offer") to the Ministry of Hydrocarbons of the Republic of the Congo in order to be awarded a new 25-year license for the Tilapia oilfield (to be named Tilapia II). We are confident that we shall be successful in obtaining a new 25-year license.

The results for the six months ended September 30, 2020, reflect the significant changes the Group has undergone during the course of this period, specifically in result of the impairment resulting from the handover of the CRA in Azerbaijan and its associated reserves.

We are very excited about our countercyclical acquisition campaign in Africa in the current low oil price environment, especially the highly prospective development production potential of the Tilapia oilfield and the material daily production revenue to be obtained from completion of our acquisitions in Tunisia. Indeed, we are hopeful to conclude further acquisitions of a similar kind in due course.

I thank shareholders for their loyal support. As is clear, my confidence in Zenith, as well as that of the team, remains unchanged. We fully believe that our new geographic concentration in Africa, in less geologically challenging assets acquired at highly advantageous commercial terms, will enable the Group to achieve its operational objectives and deliver value to our investors.

We shall continue to evaluate the acquisition of additional energy production opportunities building on the momentum of our recent progress to further support the Group's expansion.

Andrea Cattaneo

President, CEO and Director

Brazzaville, Republic of the Congo

November 30, 2020

The cash transactions from discontinued operations included above are as follows:

Notes to the condensed financial statements

1. Corporate and Group information

The consolidated financial statements of Zenith Energy Ltd. and its subsidiaries (collectively, the "Group") have been prepared on the basis set out below. The Group is exempt from preparing separate parent company financial statements for the period ended September 30, 2020, in accordance with the Canada Business Corporations Act.

Zenith Energy Ltd. ("Zenith" or the "Group") was incorporated pursuant to the provisions of the British Columbia Business Corporations Act on September 20, 2007 and is domiciled in Canada. The address of the Group's registered office is 20th Floor, 250 Howe Street, Vancouver, BC. VC6 3R8, Canada and its business address is 15th Floor, 850 - 2nd Street S.W., Calgary, Alberta T2P 0R8, Canada. The Group's primary business activity is the international development of oil and gas production and development assets. As publicly reported, the Group is currently in the process of seeking to complete a number of acquisitions in Africa.

The Company's website is www.zenithenergy.ca.

Zenith is a public company listed on the Main Market of the London Stock Exchange under the ticker "ZEN", as well as being listed on the Merkur Market of the Oslo Børs under the ticker "ZENA-ME".

2. Basis of preparation

The consolidated financial statements presented in this document have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB").

The financial statements have been prepared under the historical cost convention except for financial instruments which are measured at fair value through profit or loss. The financial statements are presented in Canadian Dollars (CAD$) and have been rounded to the nearest thousand (CAD$'000) except where otherwise indicated.

The Board has reviewed the accounting policies set out below, which have been applied consistently, and considers them to be the most appropriate to the Group's business activities.

Presentation and functional currency

The presentation currency of the Group is the Canadian dollar ("CAD$").

Functional currency is the currency of the primary economic environment in which a company operates. The functional currency of the Group's subsidiaries are; United States dollar ("US$") for the subsidiaries in Dubai, British Virgin Islands (including Azerbaijan operations) and Democratic Republic of Congo, Euros ("EUR") for the subsidiary in Italy, Sterling ("GBP") for the subsidiary in the United Kingdom, Swiss Francs ("CHF") for the subsidiary in Switzerland and Norwegian Krone ("NOK") for the subsidiary in Norway.

The functional currency is determined by the Directors by looking at a number of relevant factors including the currency in which Group entities usually generate and spend cash and in which business transactions are normally denominated.

All of the transactions that are not in the functional currency are treated as foreign and indicate currency transactions.

The factors that have determined the adoption of the CAD$ as presentation currency include:

· mainly affects the prices at which the goods or services are consolidated;

· Canada is the country whose regulations, market conditions and competitive forces mainly affect the pricing policy of the entity;

· influences the costs and expenses of the entity;

· the funds are usually generated in that currency; and

· the receipts from operating activities are retained in that currency.

3. Significant accounting policies

Consolidation

The following entities have been consolidated within the Group's financial statements:

(1) Zenith Energy Ltd. has 100% control over Canoel Italia S.r.l. The Group granted 1.4% to the Director managing the Italian subsidiary in order to limit the risk of any liability to that entity. Therefore, no non-controlling interest arises from the consolidation of this subsidiary.

(2) On January 30, 2020, the Company announced the establishment of its fully owned Norwegian subsidiary, Zenith Energy AS ("Zenith Norway"), to be used as a vehicle for intended participation in future licensing bids to be organized by the Norwegian Ministry of Petroleum and Energy, as well as to actively pursue the potential acquisition of working interests in mature energy production assets across Northern Europe.

(3) On January 13, 2020, the Company announced the passing of a resolution by the shareholders of Anglo African Oil & Gas plc to approve the share purchase agreement, signed between the parties on December 27, 2019, for the acquisition of its fully owned subsidiary in the Republic of the Congo, Anglo African Oil & Gas Congo S.A.U.

Subsidiaries are entities over which the Group has control. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. Adjustments are made to the results of subsidiaries to bring the accounting policies used by them, with those used by the Group.

Intercompany balances and transactions are eliminated on consolidation, and any unrealized income and expenses arising from intercompany transactions are eliminated in preparing the consolidated financial statements.

The following entities have not been consolidated within the Group's financial statements because they are considered to be immaterial to the Group:

5. Administrative expenses

During the six months ended September 30, 2020, the Group incurred CAD$ 3,548k (2019 - CAD$ 1,989k) of administrative expenses. Furthermore, during the same period the Group incurred CAD$ 703k (2019 - CAD$ 345k) of non-recurring expenses which relate to the cost of raising funds, negotiation costs for the potential acquisition of producing assets and share based payments costs, which is a non-cash item.

6. Finance expense

Six months ended September 30,

7. Taxation

Six months ended September 30,

8. Property, plant and equipment

9. Non-current financial assets held at amortised cost

10. Inventory

As of September 30, 2020, inventory consists of CAD $nil (2019 - CAD $nil) of crude oil that has been produced but not yet sold, and CAD $682k of materials (2019 - CAD $161k) . The amount of inventory recognised in the statement of comprehensive income is CAD $nil (2019 - CAD $8k).

11. Trade and other receivables

12. Change in working capital

13. Share Capital

Zenith is authorised to issue an unlimited number of Common Shares, of which 465,000,000 were issued at no par value and fully paid during the six months ended September 30, 2020 (2019 - 107,695,043).

Following the issue of the new Ordinary Shares, the Company had 1,042,072,921 common shares in issue and admitted to trading on the Mekur Market of the Oslo Bors, as of September 30, 2020. As of the same date, Zenith had 313,400,824 common shares in issue and admitted to trading on the Main Market of the London Stock Exchange.

14. Warrants and options

Options

Warrants

15. Trade and other payables

16. Loans

Six months ended September 30

17. Non-convertible bonds

Non-convertible bonds

18. Loss from discontinued operations

The Group has re-focused the geographic area of its activities. On March 2, 2020, the Company announced that, in view of Zenith's strategic focus on pursuing large-scale oil production and development opportunities in Africa, it would return the Contract Rehabilitation Area to SOCAR.

As a result of this decision, the results of the subsidiary in Azerbaijan have been included in the loss from discontinued operations in the statement of comprehensive income and they are comprised as follows:

19. Decommissioning provision

The following table presents the reconciliation of the carrying amount of the obligation associated with the reclamation and abandonment of the Group's oil and gas properties:

The provision has been made by estimating the decommissioning cost at current prices using existing technology.

20. Earnings per share

(1) The Group did not have any in-the-money convertible notes, warrants and stock options during the six months ended September 30, 2020 and 2019.

21. Commitments and contingencies

 Asset Purchase commitments

The Company acquired the Congolese asset for a consideration of GBP 200,000, that was fully paid in May 2020.

On April 20, 2020, and on September 8, 2020, Zenith entered into two separate conditional acquisitions in Tunisia from KUFPEC and CNPC, two world-renowned oil companies, for their respective working interests in the Sidi El Kilani Concession. Upon completion, conditional upon regulatory approval being granted by the Comité Consultatif des Hydrocarbures ("CCH") of the Republic of Tunisia, it is expected that Zenith will have a daily production ranging between 250-300 barrels of oil per day.

The acquisition from KUFPEC was agreed for a consideration of US$500,000, of which US$250,000 was paid in June 2020, as per the terms of the conditional share purchase agreement in relation to this transaction. The balance of the purchase price is due upon completion of the acquisition, which is expected to be obtained within December 31, 2020.

The acquisition from CNPC was agreed for a consideration of US$300,000, as per the terms of the conditional share purchase agreement in relation to this transaction. The payment of the purchase price is due upon completion of the acquisition.

22. Financial risk management and financial instruments

Zenith's main financial risks are foreign currency risk, liquidity risk, interest rate risk, commodity price risk and credit risks. Set out below are policies that are used to manage such risks:

a) Credit risk

Credit risk is the risk of an unexpected loss if a customer or counter party to a financial instrument fails to meet its commercial obligations. The Group's maximum credit risk exposure is limited to the carrying amount cash of CAD$1,453k (2019 - CAD$1,681k) and trade and other receivables of CAD$15,258k (2019 - CAD$3,839k).

Deposits are, as a general rule, placed with banks and financial institutions that have credit rating of not less than AA or equivalent which are verified before placing the deposits.

The composition of trade and other receivables is summarized in the following table:

 The Group's receivables are aged as follows:

b) Liquidity risk

As of September 30, 2020, the contractual cash flows, including estimated future interest, of current and non-current financial assets mature as follows:

As of September 30, 2020, the contractual cash flows, including estimated future interest, of current and non-current financial liabilities mature as follows:

c) Foreign currency risk

Foreign currency exchange risk is the risk that the fair value of future cash flows will fluctuate as a result of changes in foreign exchange rates. Foreign exchange rates to Canadian dollars for the noted dates and periods are as follows:

d) Commodity price risk

Commodity price risk is the risk that the fair value of future cash flows will fluctuate as a result of changes in commodity prices.

As of September 30, 2020, a 5% change in the price of natural gas produced in Italy would represent a change in net loss for the six-month ended September 30, 2020 of approximately CAD $ nil (2019 - CAD $2k) and a 5% change in the price of electricity produced in Italy would represent a change in net loss for the six month ended September 30, 2020 of approximately CAD $nil (2019 - CAD $15k).

e) Interest rate risk

Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The Group has fixed interest on notes payable, loans payable and convertible notes and therefore is not currently exposed to interest rate risk.

23. Capital management

The Group's objective when managing capital is to safeguard the Group's ability to continue as a going concern, so that it can continue to explore and develop its projects to provide returns for shareholders and benefits for other stakeholders. The Group manages its working capital deficiency, long‐term debt, and shareholders' equity as capital.

24. Operating segments

The Group's operations are conducted in one business sector, the oil and natural gas industry. Geographical areas are used to identify Group's reportable segments. A geographic segment is considered a reportable segment once its activities are regularly reviewed by the Board of the Directors.

The Group has three reportable segments which are as follows:

· Italy, which commenced gas operations following the acquisition of assets in June 2013

· The Republic of the Congo, which was acquired during the 2020 FY

· Other, which includes corporate assets and the operations in the Canadian, Swiss, Argentinian and Norwegian entities.

Azerbaijan, which was acquired during the FY 2017 and divested during FY 2020, is mentioned only for comparative purposes with the past financial year. The results for Azerbaijan as of September 30, 2019 are included in the "Discontinued Operations" (note 18).

Further Information:

Notes to Editors: 

Zenith Energy Ltd. is an international oil and gas production company, listed on the London Stock Exchange (LSE:ZEN) and the Merkur Market of the Oslo Stock Exchange (ZENA:ME).

Zenith's development strategy is to identify and rapidly seize value-accretive hydrocarbon production opportunities in the onshore oil & gas sector, specifically in Africa. The Company's board of directors and senior management team have the experience and technical expertise to develop the Company successfully.