Zenith Energy - Capital Network: Encouraging Progress in Azerbaijan

Written by Lionel Therond

Encouraging Progress in Azerbaijan

Zenith Energy (LON:ZEN) provided an update on the redevelopment project in Azerbaijan. The update included the results of the successful perforation of unexploited pay zones in well C-21 in the Jafarli field, as well as the start of the workover on well Z-28 in the Zardab field. We are encouraged by the outcome of the work undertaken on C-21 where the application of new technology to identify new pay zones enabled the company to raise production by 35 bbl/d, in excess of the target of 15 bbl/d per well over the scope of the project. Although it has no impact on our 41p valuation of Zenith (LON:ZEN), continuing to demonstrate successful progress will be essential to secure the necessary financing to ramp up operations in the near future, as per the development plan.

Zenith (LON:ZEN) is current redeveloping the Muradkhnali, Jafarli and Zardab oil fields, which form the largest onshore oilfield of Azerbaijan. The fields were discovered and brought to production in the 1970s; Zenith intends to apply new technology to recover some 33 MMbbl of additional oil reserves potential (Figure 1)

On C-21, which was previously a non-producing well in the Jafarli field, the technical team used an innovative quad neutron logging technology, a technology that had never been employed previously in its Azerbaijan operations. The data enabled the identification of previously unexploited pay zones and two sets of new perforations were carried out, 7.1m within a gross 3706-3871m interval and another 7.8m within a gross 3429-3638m interval. The first set of new perforations increased flow rates to 15 bbl/d, whilst the second one brought it up to 35 bbl/d which is in excess of the target of 15 bbl/d per well over the scope of the project and, as such, is a very successful outcome.

Zenith now intends to install an electric submersible pump (ESP) to draw down the formation pressure with the objective of further increasing oil production from well C21.

Well Z-28 is located on the Zardab dormant field. The workover started on 7/10/17 and is expected to be completed by mid-November 2017.

Our valuation of 41p remains unchanged. However, we do believe that demonstrating continuing successful progress will be essential to secure the necessary financing to ramp up operations in the near future, as per the development plan. We identified a financing gap of $35M from the cash flow projections in the CPR, which will need to be financed, most likely through a mix of equity and debt. We reckon that such success enable both existing and potential investors in Zenith to gain increased confidence in the ability of the Company to manage what is a significant undertaking.




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