Olje og energi

23.09.2022 kl 14:46 4920

The acquisition of this new oil field is great news, assuming that it all goes ahead as stated.

The positives from my point of view are very clear:
a) Benin seems like they are very serious at a government level about improving their oil and gas industry which indicates that carrying out business there will be less bureaucratic than in either the Congo or Tunisia.

b) The license area that is in the process of being acquired is a production asset rather than an exploration asset, has reserves of 22 million barrels of oil and 428 billion cubic feet of natural gas. It last produced at a rate of 2,000 bopd. The reason that the field was abandoned in the past was due to the oil price dropping to $30 and leaving the field uncommercial. With the current oil price at £87 this is no longer a problem.

c) The acquisition of this field would double the company’s P2 reserves (including Tilapia) and if the company’s net share of production was 1,000 bopd then it would also treble our current production.

d) Because of the existing production in Tunisa and Italy, the company is generating approximately $17 million per annum net which is easily enough to service a debt facility that would enable Zenith to bring the field back into production without having to dilute shareholders by issuing new equity.

e) The acquisition of another license in another jurisdiction spreads the risk of events in a single country (Tunisia/Congo) impacting on Zenith’s production potential.

f) Zenith shareholders have been waiting for what seems like forever to get approval for Tilapia 2. Now we have another asset of equal potential that the company can begin work on while we wait for the T2 license to be granted. It gives a much greater near-term upside as long as it is acquired quickly as we will no longer be held hostage by a single bureaucracy in a single country.

To me this seems, like an excellent deal. It ticks the boxes for many things that I have been advocating on these boards for some time – spreading risk, giving another “crown jewel” asset, significantly increasing the company’s near-term production potential and giving another big reason for the market to re-rate the company.

There are a few questions that still need to be answered about the asset before we can decide exactly how good a deal this might be, and I will be bringing these up (added to my long list of questions) at the next investor conference call.

1) What is the timescale in which the offer may/may not be accepted?
2) What is the cost of the acquisition and how will it be funded? (hopefully out of existing cash-flow if possible or otherwise debt)
3) What is the timescale in which the fields could be brought into production once the field is acquired and what would be the cost of this? Would it be funded by debt?

Subject to these questions being answered satisfactorily then I think that we could lack on this acquisition as a major company defining moment for Zenith.

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