Zenith Energy: The junior oil & gas company and its aggressive growth strategy

In the current commodity price environment, with oil prices at their lowest level for decades, companies are under huge pressure. It’s survival of the fittest. Many have been forced to halt operations, announce revised budgets as well as administration expenses and where feasible strategic reviews of projects and timelines. However, there are some that have been working below the radar to take advantage of opportunities thrown up by the downturn, deals that 12 months ago were far beyond their financial reach. The current depressed market is indeed a good occasion for companies to expand counter-cyclically by securing large, revenue generating oil and gas production assets at advantageous terms. In this regard, take a look at junior producer Zenith Energy (ZEN).
Since December last year, Zenith has continuously released a flow of impressive news focusing on their revised growth strategy and new acquisitions. Their decision to move away from the Azerbaijan-focused portfolio has centred around a new strategic focus on pursuing large-scale, revenue generating oil production and development opportunities in Africa, on favourable terms as well as proven oil producing geology Azerbaijan is a hard country to navigate and work in for a small oil & gas company. Geology was difficult while operations were hampered by poor local infrastructure. The project was hard to manage but even so, significant oil flowed. The problem was the time and resources required were above management expectations and results were coming too slowly when gauged against expenditure vis-à-vis the potential of other producing assets in much safer oil jurisdictions. A strategic review of the business by the Board, led by Andrea Cattaneo, CEO of ZEN decided to look at African opportunities that had been brought to the company’s attention. The two first assets were secured in the Republic of the Congo and Tunisia. These went mainly unnoticed by the market. The first was the acquisition of an 80% interest in Anglo African Oil & Gas Congo, announced in December, which gives Zenith access to a highly prospective oil production and development asset. At the start of 2020, in view of its planned future activities in the Republic of the Congo. Zenith announced the appointment of Mr. Bienvenu Briss Aleba as an advisor. Mr. Aleba has worked at Congolaise de Raffinage, the refinery subsidiary of the national oil company of the Republic of the Congo, Société Nationale des Pétroles du Congo for the past nine years In April, Zenith was able to secure the acquisition of 100% of the Tilapia oilfield in the Republic of the Congo for £200,000. In the previous agreement, as announced on 24 March, the cost was set at £800,000 for 80% interest in the asset. However, the current climate, fuelled by economic uncertainty around low oil prices and the Corona Virus pandemic, opened an opportunity for a renegotiation that proved to be incredibly positive for Zenith Energy. The acquisition also novated 100% of AAOG inter-company loans with AAOG Congo to ZEN for approx. £12.5M as well as US$5.3M that AAOG was owed by Société Nationale des Pétroles du Congo as result of past work performed on the licence. All great news for the Zenith balance sheet. Successful drilling undertaken during 2018 and 2019 identified multiple potential productive reservoirs within the Tilapia oilfield across a number of formations including the regionally proven Mengo and Djeno reservoirs. Only a few days later, Zenith announced the acquisition of Sidi El Kilani from KUFPEC.The asset covers an area of 204 square kilometres, located onshore, in the Pelagian Basin, Eastern Tunisia, and it is one of the most productive fields onshore Tunisia and currently produces natural flow, at a rate of approx. 700 bopd. Once concluded, Zenith’s entry into Tunisia could yield in excess of US$3M net annual revenues whilst also working alongside CNPC. Tunisia is an attractive market for oil producers, who make up the majority of foreign investors in the country. It is also a key location in North Africa, with close proximity to European markets as well as Arab Gulf states. African countries present a promising business outlook for foreign companies. Africa’s economic growth remained stable in 2019 at 3.4%, and for the first time in ten years investment expenditure accounted for over 50% of GDP growth. Beyond Africa, Zenith Energy also acquired Coro Energy Plc’s Italian natural gas production and exploration portfolio, which will turn the company into one of Italy’s leading natural gas producers with an increase in Italian gross production revenue of approximately 410%, with an expected yearly gross revenue of approx. €3.6M. What Zenith has achieved is unique and valuable: assets which will generate certain oil production and cash flow as well as the opportunity to partner and work with big industry players. Zenith’s partners in the acreage include two industry heavyweights with the national oil company of Tunisia (55% interest) and CNPC (22.5 % interest). Few junior companies have the network, expertise and credibility offered by Zenith.
Zenith Energy CEO Andrea Cattaneo commented about the company’s new focus during a major market shakedown: “The recent steep decline in oil prices as a result of world events has particularly impacted financial markets, whilst also presenting new opportunities to acquire highly prospective oil and natural gas production assets at advantageous terms. The current low oil price environment provides an unprecedented opportunity for companies wishing to expand countercyclically by securing large, revenue generating oil and gas production assets at advantageous terms. We are currently in the process of completing a series of transformational acquisitions that, by virtue of their material existing production, or near-term highly prospective production potential in the case of Tilapia, will enable Zenith to rapidly enlarge and diversify its portfolio at a time of great opportunity for companies with a clear strategic focus.” About the acquisitions in Africa, Cattaneo says: “It is Zenith’s strategy to acquire revenue generating oil and gas production assets. The acquisitions represent an attractive opportunity to enrich our asset portfolio in a country where management has significant experience. The recent Acquisitions enrich, as well as diversify, our asset portfolio by adding significant reserves and prospective production potential. This is in line with our company strategy of acquiring assets with significant untapped production potential.” Finally, today Zenith has announced its intention to delist from the TSX-V as part of its strategy to cost cut and preserve resources whilst maximising the efficiency of its corporate structure. The delisting is due to completed on or around April 30, 2020. Zenith will remain listed on the London Standard Market (LSE: ZEN) and the Oslo stock market (OSE: ZENA-ME). Zenith is definitely a company on a winning strategy. Pick winners. Watchlist Zenith

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