Could Zenith Energy’s bull-run continue?

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Could Zenith Energy’s bull-run continue as its exciting drilling period continues?

Zenith Energy is an international oil and gas production company listed in London, Canada, and the Oslo Stock exchange in Norway. The firm’s primary focus is on developing its interests in Azerbaijan, the world’s oldest oil-producing country boasting average daily production of 797,000bbls and interest from majors like BP, Statoil, and Total.

Zenith is the only junior independent operator in the nation, where it owns an 80pc interest in three fields called Muradkhanli, Jafarli, and Zardab. The properties contain many active production wells and wells capable of production, alongside plenty of upside potential. All-in-all, the fields hold independently assessed 2P reserves of 31.7MMboe, which translates into an NPV(10) of $469m thanks to low all-in average production costs of $19/bbl.

After inaccurate historical data and poor well conditions led it to miss the mark on initial plans to reach 1,000bopd production by March 2018, Zenith has spent the last year rethinking its approach. It has completed detailed geological surveys, improved infrastructure, reconstructed its oil storage tank, and even purchased its own drilling rig to support workover and drilling activities.

With Zenith’s fields boasting peak historical production of 15,000boepd, the firm has now set its sights on reaching oil production of 1,000bopd by 31 December 2019 and 3,000bopd by the end of 2020. To achieve this, it has been working to maximise output from many active production wells through workovers and plans to identify bypassed pay zones in shut-in wells.

Most notably, however, the business has embarked upon a two well-deepening programme at Jafarli, which began on a well called C-37 in July. C-37 was first drilled in 2008 by SOCAR to a depth of nearly 4,000m and produced at a rate of just 5bopd following the installation of an electrical submersible pump. However, historical data indicates that an adjacent well called C-22 achieved an initial production rate of 700bopd from the Middle Eocene formation when drilled in 1986.  Then, in October last year, Zenith’s geological and reservoir investigations identified a new structure in the Middle Eocene and Upper Cretaceous formations at Jafarli.

Encouraging early signs

Earlier this month, Zenith shot up by more than a quarter to 3.1p after revealing that the deepening of C-37 had successfully identified three untapped oil-bearing clastic layers in the Middle Eocene formation. These boast a total net pay zone of around 16m. Meanwhile, the work also revealed that it had achieved its second objective of testing the Upper Cretaceous formation at Jafali. Work here evidenced a sequence of clay and carbonate facies that could indicate the presence of oil-bearing reservoirs.

Zenith will now begin evaluating the results from both formations through wireline logs. In the meantime, it will start civil works in preparation for the second target in its Jafarli well-deepening programme – C-30. The business’s chief executive Andrea Cattaneo added: 

The first indications we have received from drilling operations at well C-37 are very encouraging. The approximately 16 metres of net pay zone we have identified confirm our confidence in the productivity of the Middle Eocene formation, historically a strong producer across our Azerbaijan asset, and the merits of deepening well C-37 in order to materially increase our daily production of oil. We look forward to completing operations at well C-37, and to communicating flow rates to the market as soon as they are determined.’

Following these strong initial drilling results, Zenith received yet another boost earlier this week when it revealed that it had reduced its short-term debt by c.£2.175m over the past 14 months. The news led the organisation to rise 9.6pc to 3.6p, with Catanneo adding that the strengthened balance sheet could improve its issuer credit rating of B+ with a positive outlook. This could allow the firm to secure debt financing at more favourable terms, supporting its future development.

More room to grow?

Thanks to the stable updates covered above, Zenith now sits at c.3.9p, its highest value since November 2018 and way ahead of the 2.35p at which it entered September. However, it remains at a considerable discount to the 10p at which its shares are trading in Norway. With Zenith in the middle of an exciting drilling period as it balance sheet strengthens, there could be several catalysts on the way that allows this bull-run to continue as the company works towards its ambitious, longer-term production targets.

Andrea Cattaneo, CEO of Zenith Energy talks to Bonnie Hughes for Total Market Solutions 
The author was remunerated but does not hold shares in the company

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