Zenith Energy (ZEN.L)
2 February 2017
Exciting new oil play – onshore Azerbaijan
Zenith has an 80% interest in three oil fields onshore Azerbaijan, collectively
called the Muradkhanli Contract Area. Current production is circa 300 barrels
per day from 65 wells, 81% of which produce under natural pressure.
Speculative Buy
Price:
10.0p
Target Price:
31.0p
Through simple workovers, management is targeting up to 1,000 bopd by 1Q18,
an ambitious but feasible target due to many years of suboptimal field
management. The more exciting workover prize is from five wells in the Zardab
Field. Two of these each produced >500 bopd before plugging with sand within 1
week. Zenith is targeting 200 bopd from the five Zardab wells which appears
conservative.
Sector: Oil & Gas
Share Price Performance
New drill targets on the property are Zenith’s most valuable asset, consultants
estimate 76 million barrels of gross 2P reserves. Targets include under a lake
where large areas were not drilled and multiple infill locations across the
642km2 licence. 2017 will be dominated by workovers and we expect the first
new well in 2018.
The workover programme starts this week with M-195 and M-45. There is plenty
of newsflow to look forward to and we initiate coverage with a 31p price target
and Speculative BUY recommendation.
Source: London Stock Exchange
Key Data
Market:
AIM
TIDM:
1 Month Hi/Lo:
ZEN.L
12.11p – 4.865p
Existing Shares:
111m
Market Cap:
ISIN:
SEDOL:
Co. Website:
£11.13m
CA98936C1068
CA98936C1068
www.zenithenergy.ca
The Azerbaijan acquisition – long process, not fully recognised
Junior E&P management teams spend much of their time seeking value accretive
exploration property, preferably in production and often onshore. Zenith’s nil cost
acquisition of the Muradkhanli Field is a major coup for shareholders and
completely transforms the business. It is the only international junior oil company
onshore Azerbaijan.
Current Azeri production generates FCF
Azerbaijan production is currently circa 300 bopd and rising rather than
declining due to simple maintenance and the high pressure, low decline,
nature of the field (average decline rate is 4-5% per annum). The 300 bopd
generates circa $150k of free cashflow to Zenith’s Azeri subsidiary.
Substantial 2P reserves and 145 drill locations
Zenith’s independent consultants calculate gross 2P reserves of 76 million
barrels, of which 33 million are net to Zenith post the SOCAR profit share. 80%
of these reserves are Probable Undeveloped from 145 drill locations.
Soviet practices leave multiple opportunities
Charles Long
Research Analyst
[email protected]
+44 020 7382 8384
Sheldon Modeland, P.Geo.
Research Analyst
[email protected]
The crux of the Azerbaijani opportunity is its slightly unconventional nature
(volcanic and carbonate fractured reservoirs) and the Soviet style
development and management approach which was relatively uncommercial,
low-tech, and only used vertical wells.
Valuation and recommendation
Our risked NAV is based on a cashflow model and a peer group comparison of
Zenith’s reserve base. We calculate a 31p target price and initiate coverage
with a Speculative BUY recommendation.
THIS RESEARCH BROCHURE IS A MARKETING COMMUNICATION: For full disclosures, please see the back page. © Beaufort Securities Ltd
Beaufort Securities is Authorised and Regulated by the Financial Conduct Authority and is a Member of the London Stock Exchange.
Zenith Energy
Investment summary
Muradkhanli Contract Area
Zenith’s flagship project and focus is a 642Km2 licence onshore Azerbaijan with production from three separate
fields, Muradkhanli, Jafarli and Zardab. The property is located c.250km inland from Baku in the Aran region and
takes its name from the largest field.
Muradkhanli remains the most productive field and predominantly produces from fractured volcanic rocks. Jafarli
produces from carbonates and Zardab from sandstone. The producing horizons range from 2,500 to 4,500 metres
depth and in all cases produce a medium-light sweet oil under strong natural pressure.
Zenith’s Muradkhanli Oil Field:
Source: Company
Acquisition process
Zenith’s nil cost acquisition of the Muradkhanli Contract Area was an excellent and transformative result for
Zenith shareholders. Credit is due to management which anticipated the opportunity, started negotiations in
2014 and received approval by the President in October 2015. Management spent six of the 12 months leading
up to this event in Azerbaijan.
The transaction was also made possible by the strong trading and diplomatic relationship between Azerbaijan
and Italy, where management comes from. Italy is Azerbaijan’s largest trading partner and Paolo Gentiloni (then
Foreign Minister, now Prime Minister) visited Azerbaijan in November 2015 shortly after Zenith received
presidential support for the transaction.
On 24th June 2016, the President of Azerbaijan signed the Muradkhanli Contract Area into law. The PSA is
officially called a Rehabilitation, Development and Production Sharing Agreement or REDPSA.
Zenith is operator with 80%
Zenith took operational control from state owned operator SOCAR in August and is midway through a
restructuring and general improvement programme. Since August, production has increased from 275 to 300
barrels per day due to simple maintenance work.
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Zenith Energy
1,000 bopd by early 2018
The investment case is based on multiple drilling and workover opportunities which should result in a much
greater production uplift. Management is targeting 1,000 bopd before end 1Q18 from workovers, while we
believe drilling has the potential to turn Zenith into a 3,000 bopd plus business within three years.
Muradkhanli Contract Area - large underexploited property
The potential of the Muradkhanli Contract Area is based on a very productive system with low decline rates, a
strong water drive and production from at least three distinct horizons. Although the field was first developed
during the 1970’s with peak production of 10,000 barrels in 1978, multiple infill and fresh drill targets still exist
across the vast 642km 2 property.
Exciting IP rates, slow decline
Well 211 drilled on the main Muradkhanli Field demonstrates the high initial production and low decline rates of
the area. Drilled in 1981 it initially produced over 2,000 bopd and after 18 years in 1999 was producing over
1,400 bopd before production stopped quickly and dropped to sub 50 bopd, probably due to a well collapse. It
still produces a few barrels today and is a potential recompletion or side-track opportunity.
Soviet oil field management
The Muradkhanli Contract Area has produced 22.5 million barrels of oil since it was first exploited in the 1970’s.
However, in part due to the poor field management multiple opportunities exist. This is demonstrated to us by
four facts:
1. Despite the main Muradkhanli field reservoir being fractured volcanic rocks, horizontal drilling has never
been attempted
2. Having taken operation control in August last year, Zenith has succeeded in increasing production by 25bopd
through simple maintenance
3. Three wells at Zardab produced over 500 bopd each but plugged with sand from the reservoir. This occurred
in 1985 but no concerted effort has been made to recover these productive wells
4. No drilling has been undertaken for 15 years despite the substantial remaining reserves
Azerbaijan Quick facts
Country
Independent in 1991
President Ilham Aliyev
Land area 86,600km2 approximately the size of Ireland
Oil & Gas
SOCAR – State Oil Company of Azerbaijan Republic
Founded 1992
Subsidiaries include:
Production, refining, transmission and ship building
Economics
Exports $25.7b
Of which oil & gas $22.4b
Exports to Italy $6.5b (mostly oil & gas)
Trade surplus or deficit dependent on oil price
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Zenith Energy
2017 work programme – started this week
Zenith’s 2017 work programme is designed to improve current operations through simple workovers and to
determine the best technology for cleaning out one or more of the Zardab wells.
Not including the Zardab workovers, the CPR identifies 44 workover opportunities across the licence area.
Management plans to complete 20 workovers over the next 24 months.
Last week (24th January) Zenith announced it had signed a workover contract and the workover rig is expected
to start operations this week. M-195 and M-45 are the first workover wells.
2017 programme:

Muradkhanli
up to 7 workovers including M-195 and M-45

Jafarli
up to 2 workovers

Zardab
1 workover - more complex well clean-out work
Competent Persons Report – 76 MMBO
The Muradkhanli Oil Field CPR is a useful document with reserve estimates, drill locations and proposed
workovers. It also adjusts Zenith’s reserves and NPV for the production sharing agreement with SOCAR the
Azerbaijan state owned oil company.
Muradkhanli Contract Area Reserves and NPV10
According to the Competent Persons Report (available on Zenith’s website) the Muradkhanli Contract Area
contains net to Zenith 3.95 million barrels of proved reserves and a further 29.0 million barrels of probable
reserves. This is the basis of the CPR’s US$472m NPV10 and Zenith’s C$771m exceptional gain reported in its 1H17
results to September.
Workovers and drill locations
In addition to reserve calculations, the Competent Persons Report identifies 44 workover opportunities on nonproducing wells and 33 prime drill locations on proved undeveloped reserves. It describes a further 112 probable
undeveloped well locations.
Proved reserves net to Zenith:
Probable reserves and 2P total net:
Reserves (MMB)
Reserves (MMB)
Project name
Gross
Net
Probable Developed Producing
80.0%
0.16
0.13
3.53
Probable Developed Non-producing
80.0%
0.80
0.64
3.95
Probable Undeveloped
80.0%
35.27
28.2
Gross
Net
Proved Developed Producing
80.0%
0.53
0.42
Proved Undeveloped
80.0%
4.41
Total PROVED
Project name
WI
WI
Total PROBABLE
29.0
Total PROVED PLUS PROBABLE
32.9
Source: CPR
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Zenith Energy
Well 130 – this is what could happen…
The CPR assumes average initial production of 120 barrels per day from vertical wells and 500 barrels from
horizontals. This is reasonable given variability between wells, however we don’t feel it properly reflects the
potential very high productivity of the Muradkhanli Contract Area reservoirs.
Well 130 drilled at Muradkhanli Field is a good example. Drilled in 1985 (15 years after first production), initial
production was a modest c.100bopd, however within 24 hours production increased to 10,000 bopd as an
uncontrollable gusher. Local farmers quickly built a sump and the well returned to normal production 25 days
later. It then failed 1 year later having produced 650,000 barrels of oil.
The Zardab area – high production workover opportunity
In the 1990’s 18 wells were drilled in the Zardab area - five were successful, one produced (and still produces)
and two produced but plugged-up with sand within a week. Significantly, the two plugged wells produced over
500 bopd during their short lives. Bearing in mind the slow decline rates and overall productivity of successful
wells in the area, these wells have the potential to be very significant for Zenith.
Cashflow and finances
Zenith took operational control of the Muradkhanli Oil Field in August 2016, since when we estimate the
Azerbaijan subsidiary has generated an average $150k per month free cashflow. This cash inflow plus new money
raised at two recent placings should ensure Zenith is funded to carry out its 2017 work programme.
1. £2.33m raised at the 11 th of January standard listing on the London Stock Exchange
2. £0.86m raised on 30 th January
Zenith is due to publish its 3Q17 results (year end March) before the end of February, after which we will produce
financial forecasts. Since 3Q17 to December is the first full financial period to include the Azerbaijani assets and
the recent appointment of a new CFO, we are reluctant to produce forecasts before then.
Summary
Zenith and its Azerbaijani asset is a new story for UK investors and we believe its full potential is not fully
appreciated. Even management is still learning exciting new details about the property. We visited in November
and with the correct technical expertise and funding, we recognise potential for very significant production
within 5 years. We believe 3,000bopd is possible within 3 years assuming sufficient funding, technical expertise
and a little luck with the drill bit.
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Zenith Energy
Valuation and financial forecasts
Our 31p target price is based on a risked sum of the parts. It includes an EV/2P value for the Azerbaijan assets, a
nominal $2.5m value for Italy and Argentina. We also include a 5 year DCF model for Azerbaijan to reflect the
current cash generation and the production uplift expected from workovers.
Our risk factors are 50% for the Azerbaijan NPV10 to account for execution and funding risks. The 2P reserves
value is based on our peer average of $5.3/2P Reserve and is risked by 75% for the same reasons. As the
workovers make progress and production increases towards management’s 12 month 1,000 bopd target, we will
reduce the discounts.
Zenith employed a new CFO in 4Q17 and is due to publish its 3Q17 results (year end March) before the end of
February. We will publish our financial forecasts post 3Q17 results.
Sum of the parts valuation:
Description
$m
Risk (%)
$m
£m
Azerbajan DCF
12.7
50%
6.36
5.17
2P reserves
175.8
25%
43.9
35.7
Net debt
-3.0
-3.0
-2.4
Sub total
185.5
47.3
38.5
Argentina
1.25
1.02
Italy
1.25
1.02
G&A
-7.0
-5.7
Risked NAV
42.8
34.8
Azerbaijan
Other
Price target
(p)
31
Current share price
(p)
10
Source: Beaufort Securities
Our peer group members were chosen based on their current production and size of 2P Reserves. i.e. we wanted
a peer group with similar production levels to Zenith. SDX is the outlier in terms of production due to its recent
Circle Oil acquisition, a useful data point where SDX paid $6.4/2P or $2.6 should the receivables be honoured.
Peer group:
2P Reserves
EV/2P
SDX Energy acuisition
ZENITH ENERGY LTD
32.90
0.4
Production
3350.00
NOSTRA TERRA OIL & GAS CO
0.68
2.7
2P reserves
4.69
LGO ENERGY PLC
11.80
1.3
Net back
$24/bbl
SDX ENERGY INC
12.03
2.6
Price
$6.4/boe
NORTHERN PETROLEUM PLC
1.90
17.2
Net of receivables
$2.56/boe
RANGE RESOURCES LTD
24.40
1.9
PRESIDENT ENERGY PLC
18.10
5.2
CONDOR PETROLEUM INC
6.80
5.0
HEMISPHERE ENERGY CORP
3.90
6.8
Average
5.3
Source: Bloomberg, Beaufort Securities Note: 2P Reserves MMBOE, EV/2P US$
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Zenith Energy
Risks
Financing risk
The Muradkhanli Contract Area requires sufficient funding to deliver new wells and production. Zenith is
generating cash and has recently raised new money (£2.3m + £0.86m gross) which should allow it to deliver its
workover programme. New drilling will require more funding with a vertical well costing approximately $4m and
a horizontal $8m - $10m. Depending on the success of the workovers, the first well may be partly or fully covered
by Azerbaijani cashflows.
Execution risk
Drilling - Despite substantial 2P reserves, historical and current production data, oil exploration is a high-risk
activity. There is a possibility that some wells may deliver no or at least less production than the CPR’s 120-150
bopd average estimate. That said, some wells should deliver substantially more.
Workovers - do not always deliver increased production. The Zardab Field is worth mentioning due to its
potential importance to near term cashflow. Wells 3 and 21 at Zardab plugged within one week of 500 bopd of
initial production. These are valuable workover targets but the clean out work required could be unsuccessful
due to the sand having cemented. If this happens it may be necessary to drill new wells.
Oil price
Fluctuations in the oil price will have an impact on the share price, revenues and profit margins.
Political risk - low
We regard political risk as low-risk factor given the importance of the oil industry to Azerbaijan. Note that BP has
been operating successfully since 1994. Also, the new South Gas Corridor is an important project for Europe
which should ensure international support for a stable Azerbaijani oil and gas industry.
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Zenith Energy
Azerbaijan – a very good oil jurisdiction
Zenith’s Azerbaijani Operations
Zenith sells its oil through the Marketing and Operations Department of SOCAR called SOCARMO. It pays a
modest commission of 1% of sales. Its oil is transported by Zenith trucks to the Shivran terminal where it is
exported via the Baku–Novorossiysk pipeline. If for any reason the Baku–Novorossiysk is shut, Zenith has the
option to use the larger BTC pipeline. Azerbaijan is very well connected to energy export markets.
SOCARMO blends Azerbaijan’s onshore oil production and makes a Urals specification product. The Urals Oil
Price is currently $53.94 per barrel a 3.0% discount to Brent although at times the discount is smaller.
Zenith’s Azerbaijan business:

Zenith’s subsidiary (Zenith Aran) took operational control of the Muradkhanli REDSPA on August 11th 2016
(50 days of Q2)

Zenith Aran now operates the field with most of SOCAR’s ex-employees and the same field infrastructure

Established export market and associated infrastructure

Stable fiscal regime
Azerbaijan midstream infrastructure, 4 pipelines:
Source: SOCAR
Azerbaijan oil industry
Azerbaijan is defined by its oil industry. It first produced oil in 1834 and its capital Baku was built (late 19th
century) with oil income. In certain industry sectors (e.g. retail or real estate) doing business in Azerbaijan is
challenging but in oil and gas it is very straightforward. This is best demonstrated by the established presence of
numerous oil majors including BP, Total, Chevron, Statoil and ExxonMobil, all of whom are in production and
paying dividends.
In 2016 Azerbaijan currently produces circa 0.83 million barrels of oil each day. It is also being developed into a
major gas supplier for Europe with the expansion and construction of a major pipeline to Italy. Once the pipeline
is commissioned, Azerbaijan will be a leading international gas supplier. Also, Azerbaijan’s importance to
Europe’s energy security means it should remain an attractive place to operate an oil or gas business for the long
term.
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Zenith Energy
Azerbaijan petroleum geology – a well charged hydrocarbon system
Azerbaijan is the oldest oil and gas producing country in the world with first production in 1834 from the onshore
Kirmaku Oil Field, 15km north of the capital Baku. Since then, several other onshore regions have produced,
however since the 1950’s production has been dominated by offshore fields in the Caspian Sea.
Azerbaijan historical production
According to SOCAR there have been 81 oil field discoveries in Azerbaijan, 61 of which have been developed (41
onshore, 20 offshore). By 2014, total Azerbaijan production (since 1834) is estimated at 970 million tonnes of oil
from onshore and 913 million tonnes from offshore, plus 711 billion m 3 of gas. In 2014 Azerbaijan produced 41
million tons of oil (300 million barrels) of which circa 8 million tonnes were produced by SOCAR.
BP and new gas line
BP first entered Azerbaijan in the 1980’s with the diplomatic assistance of Margret Thatcher. It has two large
production sharing agreements and seven platforms in the Caspian Sea. It is also midway through development
of the Shah Deniz 2 gas project, what it calls a mega-project. This will tie into the current gas pipeline (South
Caucus Pipeline or SCP) through Georgia to Turkey which is being extended all the way through the Balkans to
Italy. This is known as the Southern Gas Corridor project and is expected to be complete by 2020.
Southern Gas Corridor
The Southern Gas Corridor consists of the SCP (commissioned in 2006), the Trans Anatolian Pipeline and the
Trans Adriatic Pipeline. Seven companies are involved.

SCPX - Expansion of the South Caucus Pipeline through Azerbaijan and Georgia

TANAP - Trans Anatolian Pipeline 2000km across Turkey

TAP - Trans Adriatic Pipeline
Southern Gas Corridor – Azerbaijan to Europe:
Source: Trans Adriatic Pipeline AG
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Zenith Energy
The Muradkhanli Contract Area
The Muradkhanli Contract Area consists of three fields, Muradkhanli Field, Jafarli Field and Zardab Field. It is a
very large area (642Km 2) which means despite the 189 wells drilled historically there are numerous high quality
drill targets remaining. This is also true since the main reservoir is a fractured volcanic rock with weak
connectivity between wells.
Current production
The contract area produces approximately 295 bopd of sweet medium-light oil. When Zenith took over
operations from SOCAR, production was 275 bopd. In 2013 production was 385 bopd and in 2015 production
was 310bopd. This recent fairly rapid decline is regarded by Zenith as being due to a lack of maintenance and
good practice rather than natural decline. This seems a fair assessment given the historically very low decline
rates. The photographs below show a typical Muradkhanli well producing under natural pressure.
Wells at the Muradkhanli Field:
Source: Beaufort Securities
Historical production
The Contract Area has been in production since 1971. First production came from Muradkhanli, the largest
producer of the three fields which primarily produces from volcanic rocks.
Muradkhanli Field
The volcanic reservoir at Muradkhanli has produced over 16 million barrels. Sedimentary rocks at Muradkhanli
have produced over 1.6 million barrels.
Jafarli Field
Jafarli was discovered and developed in 1984. It primarily produces from a fractured carbonate reef and has
produced over 1,7 million barrels.
Zardab Field
Zardab was developed in 1981 but due to sand control problems it has seen only minimal production. N.B. Zardab
is an excellent high impact workover opportunity.
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Zenith Energy
Azerbaijani Structure
Rehabilitation, Exploration, Development & Production Sharing Agreement ( REDSPA)
Zenith’s contract with the Azerbaijan government and SOCAR is called a REDSPA, essentially a PSA designed for
a mature field such as Muradkhanli Contract Area. Within the REDSPA is the Contract Redevelopment Area in
which all current production and all future drilling and workover plans sit. The Contract Redevelopment Area is
subject to an R-Factor profit sharing agreement with SOCAR.
The R-Factor is calculated after all operating costs and half of outstanding capex is recovered.
R-Factor = cumulative capex recovered + cumulative profit / cumulative capital costs
R-Factor rules:
R-Factor
SOCAR (%)
ZENITH (%)
0.0 < R < 1.3
45%
55%
1.3 < R < 1.8
50%
50%
1.8 < R < 2.0
55%
45%
2.0 < R < 2.5
65%
35%
2.5 < R < 2.8
75%
25%
2.8 < R
20%
80%
Source: CPR
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Zenith Energy
Infill programme & connectivity
The CPR has identified 145 drill locations 60% of which are vertical with a drainage radius of 150m. The maps
below show locations at Muradkhanli and Jafarli. Worth noting is the variable connectivity of the three fields.
Generally, the volcanic reservoir at Muradkhanli has poor connectivity while Jafarli has relatively higher
connectivity.
Muradkhanli and Jafarli Infill drilling locations:
Source: CPR
Under the lake and horizontal wells
In addition to multiple infill opportunities which are currently envisaged as vertical well locations, the CPR has
identified 58 horizontal well locations. Many of these sit under a shallow lake which SOCAR didn’t attempt to
drain. Zenith will drain the lake and, if it sticks to the CPR work programme, will drill 10 horizontal wells.
Muradkhanli horizontal locations:
Source: CPR
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Zenith Energy
Muradkhanli Oil Field
The cross section shows the oil pools at Muradkhanli Field. In this field most production comes from the fractured
volcanics which average 30m thickness and are suitable for horizontal development. Production also comes from
the Eocene carbonate rocks along the western flank of the volcanic basement.
There is potential for exploration success down dip to the west, but here the depth of the Cretaceous volcanics
approaches 5,000m.
Muradkhanli geology and reservoirs:
Source: CPR
Zardab opportunity
The Zardab Field is approximately 100km 2 and the reservoir a porous sandstone at an average 3,000m depth.
Zardab has only produced 10,000 barrels of oil from one well despite its potential to be a very significant and
profitable field. Although 18 wells have been drilled there, of the five that produced, two were small, one is still
producing 20 years later and two failed after a short time online due to sand plugging i.e. the vast majority of
the oil reserves remain in the ground.
2 wells x 500 bopd for 1 week
Three wells drilled in the mid 80’s had very high initial production before two plugged with sand after one week,
yet they were never recovered.
Well 3 produced 86 tonnes oil over 14 hours (circa 550 barrels) – sand plugged
Well 21 produced 100-150 tonnes oil per day - sand plugged
Well 28 produced 100-150 tonnes oil per day, still producing a little today
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Zenith Energy
Potential for substantial near term cashflow
There are five workover targets at Zardab including those two wells. Yet initial production from the five Zardab
workover wells is only budgeted at 200 bopd in CPR.
The Zardab workovers have extra value due to their potential near term impact. The clean-out work required is
a slight challenge but not unusual, while management’s 500 bopd target seems conservative.
Zardab reserves – not in the CPR
Effectively Zardab is an undeveloped field with proven reserves, yet the CPR includes only 0.38 MMBO of 1P
reserves for Zardab. Standard sand exclusion devices (e.g. filters) and a jet pump should allow uninterrupted
production. Interestingly the one well which didn’t plug with sand is still producing today, 25 years after it was
completed.
The clean-out work required is a slight challenge but not unusual, while the CPR’s 200 bopd target seems
conservative.
168
Simple filter used at Zardab:
720
630
473
340
245
Zardab Pool:
Dx=136, Dd=72
125 t sem. vurulub
12m
36m
Hs=800m
570m
1000m
Hs=1610m
1682m
2992m
Dx=205, Dd=128
3558m
3692m
3568m
3755-3744m
3876-3867m
3932-3910m
3944m
Source: CPR, Company
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Zenith Energy
Geology
The Caspian Basin petroleum system which includes Turkmenistan and offshore Iran is one of the larger oil basins
in the world. The majority of production is from the Productive Series (Middle Pliocene – 5.3 to 2.6 million years
old) sandstones although Zenith’s onshore Aran Oil Field produces primarily from Cretaceous volcanics and
Eocene aged carbonates.
Muradkhanli onshore
The geological relationship between Zenith’s contract area and the hydrocarbon system of the Caspian Basin is
hard to tell. The map below shows a NE-SW trend and suggests one system. However, reserves at the
Muradkhanli Contract Area (Cretaceous and Eocene) are both older than the Mykop Shale, widely recognised as
the main source rock of the Caspian Basin.
Caspian Basins and regional oil pools:
Source: CPR
Vintage seismic and new programme
Sesmic, gravity and magnetic surveys were carried out in the late 1960’s before the first well was drilled in 1969.
The CPR assumes new 3D seismic is carried out from 2018 onwards and suggests a $20m investment over 5 years.
We would assume a more modest 3D seismic acquisition.
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Zenith Energy
Other assets – Italy and Argentina
Zenith has oil properties in Italy and Argentina that we attribute a combined nominal $2.5m value to. Zenith’s
Italian operations are break even with the potential for increased production and profitability. Argentina was a
productive and profitable operation until a 3rd party oil spillage resulted in pipelines being closed, removing
Zenith’s route to market. We believe Argentina’s value will most likely be realised through a trade sale.
Italy gas and gas to power
Zenith is operator of 8 producing assets with interests ranging from 20% to 100%. The most significant is the
Torrente Cingo concession (45% Zenith) in Puglia where Zenith has invested in workovers as recently as 2015 and
is likely to invest in future. Zenith produces power from the Masseria Vincelli 1 well using its own facilities within
the Torrente Cingo concession.
Potential production increase
Zenith’s management has identified several ways to increase production in Italy. These include a side-track at
Masseria Petrelli and a deviated well at Torrente Salsola.
Argentina - Chubut
Zenith has 100% of the Don Alberto and Don Ernesto oil fields in Chubut Province’s San Jorge Basin. The two
licences are a total 3km 2 and produce a heavy oil from Cretaceous sandstones. In August 2015 a storage tank
collapse in the nearby facilities of a local Argentinean major, resulted in a small scale environmental ‘disaster’
and the state operator was forced to shutdown the transmission lines. This situation is still negatively impacting
Zenith.
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Zenith Energy
Board and senior management
Andrea Cattaneo – President and CEO
Oil entrepreneur and government advisor with specific expertise in former Soviet Union Countries. Energy
focused and financial background with 30 years of experience in sovereign loans, capital markets, and oil trading
with western and emerging countries. Expertise in structuring contracts on international markets and the oil
industry.
In 1986, he arranged the first convertible currency loan in the history of the Socialist Republic of Vietnam in the
wake of the Vietnam War. Past member of the Business Advisory Council of the Greater Tumen Initiative, a UN
Development Programme project that involved China, North Korea, South Korea, Mongolia and Russia. Partner
of the Bolsa de Comercio de Buenos Aires (BCBA), or Buenos Aires Stock Exchange.
José Ramón Lopez-Portillo – Chairman
José Ramón read economics at the National Autonomous University of Mexico (UNAM) followed by further study
at the University of Oxford. Former Mexican Ambassador to FAO (1982-88) former minister in the Mexican
Federal Government, former Independent Chairman of the FAO Council, and leading researcher on the energy
security of Mexico. José Ramón is a Founder of the Centre for Mexican Studies at the University of Oxford. He
holds a doctor's degree from the University of Oxford.
Luigi Regis Milano - Director
Mr. Regis Milano was appointed as Director of the Company on 24 September 2008 and served as Chief Financial
Officer from 28 November 2012 until 7 March 2016. He is also currently Managing Director of the Company’s
Italian subsidiary, Canoel Italia S.r.l. He has a strong background in petroleum chemistry, having developed an
extensive network of relationships within the European and global oil industry over the course of more than 60
years’ experience.
Dario Ezio Sodero - Non-Executive Director
Mr. Sodero was appointed to the Board on 24 June 2009. As an experienced energy industry executive with 47
years of experience in North America, the Sub-Arctic, North Africa and the Middle East, Mr. Sodero has strong
geological, exploration and technical expertise. Mr. Sodero is a director of Rockbridge Resources Inc., a TSXV
publicly traded oil and natural gas company, since January 2011, and has formerly acted as director and executive
of several other TSX- and TSXV-listed exploration and production companies.
Francesco Mario Giuseppe Salimbeni - Non-Executive Director
Mr. Salimbeni, who is an engineer with over 50 years of experience in technical and management positions, has
been a Director of the Company since 16 February 2016. He is an internationally recognised oil recovery
specialist and also an advisor and consultant both to the Italian Government and to private enterprises in Italy
and abroad for environment, conservation, desalination and waste management.
Erik Sture Larre - Non-Executive Director
Mr. Larre has been a Director of the Company since 22 March 2011. Mr. Larre specialises in real estate, banking
and finance matters, and also has experience in the oil and gas industry.
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Zenith Energy
Senior Management
Alan Hume – Chief Financial Officer
Alan Hume is a qualified accountant with 30 years’ experience in both the energy and construction industries.
Mr. Hume has been chief financial officer for both AIM listed and private Canadian oil and gas exploration
companies. He also has significant experience in senior finance director and commercial director roles in the
oilfield services and power production sectors. Mr. Hume has operated in the UK, US, Norway, Turkey and other
European countries, as well as in Southern Africa.
Dario Sodero – Head Geologist
Dario is the Head Geologist of Zenith Energy and holds a doctorate in Geological Sciences from the University of
Turin, Italy. Experienced energy industry executive with 35 years of operational experience in North America, the
Sub-Arctic, North Africa and the Middle East. Strong geological, exploration and technical expertise. Director and
Senior Vice-President of Rockbridge Resources Inc., TSX Venture Exchange listed oil and natural gas company.
Luca Benedetto – Group Financial Controller
Luca graduated as Chartered Accountant and Computer Programmer in 1990. After periods at IBM and the
Intensa San Paolo Bank, he was financial and administrative officer at one of the most important Italian
companies in the construction of fuel tanks, water tanks and pressure tanks, dealing with the National oil sector
such as Exxon, Shell, IP, AGIP, API, ERG.
Since 2013 he has been the financial manager of the Zenith’ subsidiary Canoel Italia, also following any activities
of Zenith Energy Ltd and participating actively in the recent listing processes.
Zaur Hajizada – Chief of Operations Azerbaijan
Senior petroleum geologist with 25 years global experience at SOCAR, ENI and BP, onshore and offshore. Zaur
has large company and smaller company experience (Colombia) and following time in Sunbury with BP, he speaks
very good English.
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Zenith Energy
Appendix:
Azerbaijan background
Azerbaijan is part of Caucasia (aka the Caucasus), the region between the Black and Caspian seas bordering
Turkey, Iran and Russia. Throughout history Caucasia was mostly part of the Iranian empire before it was
conquered by the Russian Empire. It then became an FSU state during the 20th century. Its identity is a
combination of Turkic (the language is very similar to Turkish), Soviet (due to the education system and business
practice) and the Shiite religion of the majority. There is also a strong Azerbaijani characteristic based on
elements of its own history.
Caucasia:
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Zenith Energy
Recommendation Breakdown
During the three months to end-December 2016, the number of stocks on which Beaufort Securities published recommendations was 228, and the
recommendations were as follows: Buy - 83; Speculative Buy - 116; Hold - 27; Sell - 2.
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Zenith Energy
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