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Zephyr has provided initial fourth quarter 2022 and full-year 2022 results related to hydrocarbon production and cashflows from its non-operated asset portfolio in the Williston Basin, North Dakota, U.S.
Q4 2022 and FY 2022 Williston Basin Highlights
· Q4 revenues totalled US$7.4 million, net to Zephyr, giving the Company total expected revenues for FY 2022 of US$42.9 million (subject to audit) – representing a seven-fold increase over full-year 2021 (“FY 2021”) revenues of US$6 million and in excess of Zephyr’s initial public guidance for FY 2022 revenues of US$35-US$40 million.
· Q4 sales volumes averaged 1,192 barrels of oil equivalent per day (“boepd”), giving the Company total sales for FY 2022 of 543,948 barrels of oil equivalent (“boe”) – at the high end of the range of Zephyr’s guidance for FY 2022 sales and representing more than a six-fold increase from FY 2021 sales of 88,037 boe.
o FY 2022 sales volumes averaged 1,490 boepd compared to the FY 2021 sales volumes average of 263 boepd.
o The Company hedged 171,000 barrels of oil in FY 2022 at a weighted-average price of US$98.04 per barrel of oil.
· Q4 operating income was US$6.3 million (after taxes, lease operating expenses, realised hedging impacts, and gathering and marketing fees). Operating income for FY 2022 was US$35.7 million.
· At 31 December 2022, 223 wells in the portfolio were available for production, including 17 wells which came online at some point during the quarter.
o Net working interests across the Williston Basin non-operated portfolio now average 6.3% per well, equivalent to 15 gross wells, all of which utilised horizontal drilling and modern, hydraulically stimulated completions.
o An estimated eight additional wells in which Zephyr owns a working interest are forecast to be brought on production by the end of June 2023, and these wells are expected to significantly increase daily production rates from the Williston portfolio.
o Zephyr reiterates its previously released guidance of 1,550 to 1,750 boepd, net to Zephyr, for its full-year 2023 (“FY 2023”) Williston Basin production – an estimate which includes contributions from the six recently acquired Slawson Exploration (“Slawson”) operated wellbore interests (as announced to the market on 21 December 2022).
Colin Harrington, Chief Executive of Zephyr, said:
“I am delighted with the growth and strong cash flows generated from our Williston portfolio during 2022. We comfortably exceeded our initial FY 2022 revenue guidance, and production was within the upper end of the forecast range. Cash flows generated from these operations have been reinvested back into both our operated and non-operated asset portfolios, and we expect continued growth in 2023. We fully expect this years’ Williston project production to exceed last years’ once again.
“Our non-operated asset base is a now diverse mix of interests in 223 low-risk, high-margin producing wells with top-tier Williston Basin operators such as Slawson, the operator of 6 newly drilled wellbores in which we acquired working-interests in December 2022 and which will be coming online over the next few months.
“We have a busy period ahead and we look forward to keeping Shareholders regularly updated on our ongoing activities over the coming weeks.”
It is difficult sometimes to realise that these operations at Zephyr are not the lead part of the company and not the portfolio that has been created with the primary requirement to deliver an income stream to fund the Paradox Basin operations.
Indeed the production number was both ahead of guidance and with a number of new wells coming onstream over the next few months things continue to be ahead of industry forecasts. The primary business, the exploration and development programme at the Paradox basin has moved into its next phase and with its current well testing hydrocarbons the progress is highly encouraging.
Overall Zephyr is in very good nick at both the Williston and Paradox and I continue to stay with my current target price of 20p per share.
Q4 Sales Detail
Zephyr’s net sales for Q4 were approximately 109,706 boe.
Q4 product mix was 72% crude oil, 14% natural gas, and 14% natural gas liquids. The table below provides sales volumes, product mix, and average sales prices for the quarter:
Oil: 79,177 barrels (“bbls”) at an average sales price of US$81.55/bbl*
Natural Gas: 92,952 thousand cubic feet (“mcf”) at an average sales price of US$4.73 /mcf
Natural Gas Liquids: 15,037 bbls at an average sales price of US$33.67 per bbl
*not including hedges
(Note: Fourth quarter production volumes and average sales prices figures include field estimates in respect of Dec 2022 natural gas and natural gas liquids sales volumes and are subject to future revision.)
During Q4, a number of Zephyr’s existing production wells were temporarily shut-in due to “frac-protect” procedures while new nearby wells were stimulated and completed. As new infill wells are drilled, existing offset wells may be temporarily shut in to optimise the nearby completion and mitigate offset well production losses. Offset wells are then re-instated for production when the new infill wells are started up for production.
In the Williston Basin, cashflow from non-operated interests in newly drilled wells may lag actual production by up to five months. Such payments from the operator accrue on a monthly basis and are paid in full prior to the sixth month of production, which may result in impacts to quarterly sales volumes and revenues during times of significant completion activity. Zephyr expects additional accrued payments from operators in the first six months of 2023 given the Company’s interests in 18 newly drilled wells which came online during Q4.
Williston Basin production outlook
Eight additional producing wells from Zephyr’s existing portfolio are expected to be brought online during the next six months, which will more than mitigate decline rates typical of Williston Basin production.
The Company reiterates its FY 2023 production forecast of 1,550 to 1,750 boepd from the Williston project (net to Zephyr).
The Company has hedged 157,000 barrels of oil over the next 15 months (starting 1 January 2023) at a weighted-average price of US$86.89 per barrel. The Company is expecting significant additional production volumes by the end of March 2023 from new wells coming online and will continue to evaluate its commodity price risk management strategy on a regular basis.
Getech has announced that Dr Jonathan Copus has notified the Board of his decision to step down as Group CEO and Director on 28 February 2023, following which he will be available to the Board and the executive team to ensure a smooth and successful handover.
As of today’s date, Richard Bennett will assume the role of interim Executive Chairman, Mr. Bennett joined the Board of Directors in January 2021 as Non-Executive Chairman, bringing extensive experience in technology and renewable energy.
Getech has commenced a search for a new CEO and will update the market on the results of this search in due course.
Richard Bennett, Getech Chair commented:
“The Board and I would like to thank Jonathan for his seven years of service. Jonathan has successfully repositioned Getech’s business and applied the company’s geoscience and geospatial expertise to new markets within the energy transition, in particular the search for critical minerals, geothermal, hydrogen and carbon storage projects. The products and solutions developed are vital for these fast-growing sectors and form the foundation for the future growth of the Company. We thank Jonathan for his time and dedication to Getech and wish him every success with his future ventures.”
Dr Jonathan Copus commented:
“In my time as Getech’s CEO, I am proud of how the business has transformed into a champion of the energy transition, taking unique products and solutions that we built for the petroleum industry, and revolutionising their use to locate geothermal, carbon storage, hydrogen and critical mineral assets.
Since raising growth capital in 2021, we have increased revenue by 40% and significantly diversified and decarbonised the sources of this revenue – with over 33% now coming from non-hydrocarbon origin. Underpinning this is an orderbook that has grown by 70%, to a record high, and Getech has begun 2023 with a strong asset-backed balance sheet. I have personally decided that now is the right time for me to take up a new challenge. The Company is in a strong position, and I am certain it will thrive under new leadership.”
I really put the kibosh on Getech when I wrote recently that having followed them almost since arrival on the market and sometimes virtually on my own, that things were just starting to look up and this was really worth looking at.
Now I have absolutely no idea what has gone on here, I have heard various rumours of talks with possible partners and thoughts from those who believe that the company needed to bulk up but this is clearly something big.
Dr Copus has brought the company through since, if I recollect correctly, a university hopper and I wonder where it plans to go from here. It would surprise me a great deal if he has decided to jump ship right now but stranger things have happened at sea….
Prospex yesterday announced that the Operator of the Selva Malvezzi production concession in which Prospex has a 37% working interest, has signed a gas sales agreement (“GSA”) with BP Gas Marketing Limited (“BPGM”), an indirect, wholly owned subsidiary of BP International Limited (“BPI”) under which BPGM will purchase the forecast gas production from the soon to be completed Podere Maiar-1 production facility in the Selva Malvezzi production concession located in the Po Valley Region of Italy. Po Valley Operations Pty Limited (“PVO”), a wholly owned subsidiary of Po Valley Energy Limited (ASX: PVE) is the Operator of the Selva Malvezzi production concession with 63% ownership interest and Prospex has the remaining 37% working interest.
· 18-month GSA contract to commence on 1 April 2023 with potential to extend
· An estimated 37 million standard cubic metres of natural gas is expected to be supplied to BPGM under the contract
· Gas supply price will be linked to Italy’s “Heren PSV day ahead mid” price assessment
· The Joint Venture is fully funded to complete the Podere Maiar-1 production facility development and first gas is on track for early Q2 2023.
Mark Routh, Prospex’s CEO, commented:
“The gas sales agreement with BP Gas Marketing Ltd marks a significant milestone for the Company and its joint venture partner, Po Valley as we get closer to first gas production from the Selva field development. We are delighted that Po Valley has secured the agreement with BP Gas Marketing Limited, a recognisable brand in the industry, to take delivery and sell our gas and look forward to working with them. Prospex is selling its share of the gas production jointly with the Operator, Po Valley, under a joint marketing agreement, in order to optimise the value of our gas sales.
“First gas is still on track for early in the second quarter of 2023, on schedule and on budget.”
I did see this yesterday but ran out of time as I was out of the office, but it is worth commending mark and the whole team for such a good GSA which further cements the profitability of the project.