Malcy’s Blog – Zephyr Energy and finally…

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Oil price, Zephyr, President. And finally…

WTI $69.23 -39c, Brent $71.49 -40c, Diff -$2.26 -1c, NG $3.07 -3c, UKNG 67.31p +4.71p

Oil price

A mixed bag which after last week’s rise is keeping the oil price under a little pressure. Chinese imports have fallen but against a quarter in which they hoovered a lot of very cheap barrels for the SPD is hardly a good comparison. Reuters are reporting a speech by the Opec Secretary General in Nigeria where he expects inventories to fall further in coming months after a drop of 6.9m barrels in April.

It’s retail gasoline day and a gallon overall will cost you $3.035 which is up 0.8 cents w/w. M/M is also up, by 7.4c and y/y is up 99.9 cents. This week sees the monthly reports coming out, lets see what the IEA say after being ridiculed at the Opec+ meeting.

Zephyr Energy (LON:ZPHR)

Zephyr has announced that it intends to achieve carbon-neutrality across its operational footprint by 30 September 2021.  This industry-leading pledge is a major first step towards near-term delivery of hydrocarbons produced with an operational “net-zero” carbon impact, and the Company’s Board members are unanimously committed to this initiative.

 As an integral part of this undertaking, Zephyr has agreed to collaborate with the Prax Group, a British multinational independent oil refining, trading, storage, distribution and retail conglomerate dealing in crude oil, petroleum products and bio-fuels, headquartered in London, United Kingdom.  The Prax Group, which has trading offices in London, Singapore and the United States of America, will work with Zephyr to measure, reduce and mitigate greenhouse gas (“GHG”) emissions across Zephyr’s businesses, with mitigation efforts primarily focused on the purchase of sustainability/decarbonisation offsets (called Verified Emission Reductions or “VER”) from reputable pre-vetted developers of sustainable projects.  This exercise will include Zephyr’s current corporate activity, its non-operated production assets in the Williston Basin, North Dakota, US, and its upcoming appraisal drilling project in the Paradox Basin, Utah, US.

 The cost to purchase the appropriate number of VERs to offset Zephyr’s growing operational footprint is expected to average well under $1 per barrel of oil equivalent produced, although the net cost to Zephyr may be considerably less given the potential to sell oil volumes at a premium as a result of the anticipated “net-zero” operational carbon status of those volumes. Purchases of VERs will be staged in increments matching Zephyr’s forecast production profile to facilitate effective cash management.    Recent market-based evidence suggests that purchasers and supply chain partners of “net-zero” operated volumes are willing to absorb costs associated with the purchase of VER offsets related to oil and gas production.

 Zephyr’s initial efforts will be focused on its Scope 1 GHG impacts1, which cover all direct emissions from Zephyr-owned or controlled sources – from the drilling and production of operated and non-operated hydrocarbons through to transport to the refinery, as well as all other corporate emissions.  Over the next few months, Zephyr and the Prax Group will focus on measuring, reducing and mitigating operational GHG emissions across the Company, and Zephyr’s pledge to achieve carbon-neutral operations in a rapid manner is demonstrative of Zephyr’s commitment to achieving sector-leading environmental standards. 

 Zephyr’s Board also understands that mitigating the Company’s operational CO2 impact is only a first step – emissions from the ultimate end-use of produced volumes have a significant CO2 impact as well.   Going forward, Zephyr pledges to work with potential end-users of its products to explore routes to more fully offset its product CO2 (Scope 3 Emissions1) to the greatest extent possible. 

 In addition to the environmental benefits that will result from Zephyr’s efforts to reach carbon-neutrality, the Company anticipates that this approach will also yield economic benefits – including expanded access to a wider group of potential institutional investors, as total ESG-focused assets under management are currently estimated to be over US$30 trillion globally.  Moreover, the average cost of capital for companies with committed ESG and decarbonisation initiatives has been shown to be demonstrably less than that of traditional resource companies. The Board believes that incremental regulatory benefits may also materialise from Zephyr’s actions.

Colin Harrington, Chief Executive of Zephyr, said:

 “When we relaunched the Company as Zephyr almost a year ago, the Board unanimously agreed a policy to always operate with two core values in mind: to be responsible stewards of our investors’ capital and to be responsible stewards of the environment in which we work. 

 “These values are straightforward, fundamental, and at the forefront of every decision we make.  It’s why I’m excited that today’s announcement, a pledge to offset 100% of carbon emissions from our operations starting this September, is both a ground-breaking initiative for Zephyr and a major step towards a tangible demonstration of our commitments.

 “Zephyr recently entered a new phase of growth – we are now a cash-generating oil producer with plans for near-term development on our flagship Paradox Basin appraisal project.  This new phase comes with a corresponding new carbon impact, which is why the timing is right to launch what we believe is an industry-leading environmental commitment.  As our existing asset portfolio consists of light, high-quality, low-GHG intensity resource developments, we have confidence that Zephyr is an ideal platform from which to launch this initiative.

 “The path forward, albeit nascent and experimental, is grounded in the sentiment that good environmental & operational performance + good governance = superior investor returns.   Today’s announcement is illustrative of this thesis.  We believe that eliminating our operational carbon footprint is important from an environmental perspective – and we also feel that our shareholders will benefit from the potential for premium commodity pricing, access to a wider pool of institutional investors and cheaper cost of capital, as well as enhanced relations with our regulatory partners.

 “We’ve set ourselves an ambitious target to reach carbon neutrality for all operations by the end of September, and I am thankful for our collaboration with Christopher Dillman and his team at the Prax Group for assisting us with this endeavour. Their capabilities in structuring and executing bespoke actionable decarbonisation strategies makes them an excellent fit for Zephyr.

 “We look forward to working with the Prax Group team to deliver on this commitment to improve Zephyr’s environmental performance and minimise the impacts of our corporate activity and hydrocarbon production.”

 Yet again Zephyr are amongst industry leaders as they commit to environmental performance tied in with  state of the art governance to eliminate their carbon footprint. Here it is being done at what seems like an attractive price and having done it they become part of the industry bar. 

I am interviewing Colin this week and I’m sure that he will be able to add significant detail to the programme.

President Energy (AIM:PPC)

President has announced that the farm-out agreement, in partnership with a state-owned energy company for the purpose of drilling an exploration well at the Pirity Concession, Paraguay, has now been signed. Drilling is projected to commence in H1 2022.

President has announced an agreement signed with a ‘substantial Northern Hemisphere state-owned energy company’, to farm in for a 50% participating interest in the Pirity Concession, Paraguay. In return, the Farminee will pay 60% of the costs of an exploration well currently scheduled to commence during H1 2022 and will also pay President US$4m in consideration of the Company agreeing to enter into its performance obligations under the Agreement.

The agreement is subject only to regulatory approval and prolongation of the licence for a defined period. The exploration well will target the Delray complex of prospects, estimated by the Company to contain in aggregate over 260 MMbo of Pmean Unrisked Resources and the costs of the well are estimated at between US$10-15 million with an estimated chance of success of 30%.  President will continue as the operator of Pirity.

Peter Levine, Chairman, commented:
“I am very pleased that President is entering into a partnership with this substantial state-owned energy company whose name will remain confidential until the conditions attaching to the farm-out agreement are completed.
“Having in the course of negotiations visited the Farminee in its home country, I have been impressed by the professionalism of its workforce, the country and its people. I am sure that the Farminee will be an excellent and supportive partner as together we embark with enthusiasm and the appropriate level of optimism on an unfinished journey President started but never completed in the quest to create history and be the first to find oil in Paraguay.
“President itself is a transformed company since our previous Paraguayan drilling campaign. With lessons learnt, we have mobilised our significant in depth management, operational and technical expertise, leveraging on our extensive production and exploration assets in neighbouring Argentina combined with our financial strength to maximise the potential of success for the upcoming drilling in 2022.
“With the recent robust oil prices and demand increases, the timing is perfect especially when taking into account in a success case the end market opportunities provided in a country that currently imports all its oil in refined form by barge all the way from the River Plate. We have in this regard a significant joker in our pack of cards through the possibilities which will be no doubt available through our second largest shareholder Trafigura, one of the World’s leading commodity traders whose associated company in Paraguay, Puma, is an important importer of fuel into the Country and has there an extensive and significant network of retail filling stations.
“Finally, I would like to extend my thanks to the Farminee for their friendship and hard work to get us to this point. In particular, I would also like to extend my personal gratitude to the President, Government and regulatory authorities of Paraguay for their help and understanding in our work. It is a country and people I hold dear to my heart. Together with the Farminee we will do what we can within our powers to make this well as successful as possible.
At long last it seems that President are finally going to spin the drill bit in Paraguay, there are people who said it wouldn’t happen but they clearly didn’t know Peter Levine, who has had a determination to drill in this country ever since I have known him. It goes without saying that any success here would not only be incredibly profitable, but given its strategic importance to Paraguay and the PPC relationship with Trafigura tick a lot of economic boxes too. I agree that having listened to the message from Peter that it is too early to get excited ahead of drilling next Spring but investors are entitled to have a small smile today.

And finally…

Lorenzo Musetti playing in his first ever Grand Slam nearly beat Djoko, taking him nearly to 5 sets before collapsing in a heap, losing 13 games on the trot and withdrawing from the match.

After yesterday’s revelations about Ollie Robinson and his teenage texts it looks like Wisden has been busy digging trying to find more. I am amazed that there are so many people able to cast the stones given the glass houses that they live in.

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