Zenith Energy Share Discussion Threads

[sea7] 20/4/2017 18:12

They have raised a further £860,000 since as well.

[sea7] 20/4/2017 18:12

working capital

Do not forget that argentina is gone and not going to be swallowing any cash.

zenith listed on the main market in jan of this year and raised £2 million or CAD$3.5 million.

They are fully funded for this years work programme.

[sea7] 20/4/2017 18:08

The exploration and development activities are over the next 15 years and when they start the development drilling, each well will cost around £3-£4m a shot. They are expecting to drill 10 each year from 2018 onwards. So they will either require a partner or a decent finance package to achieve the aims.

They are looking at spending around £33m a year for fifteen years, totalling around half a billion.

So, that statement is quite accurate, current cash resources will not be sufficient to continue ......

[11smith] 20/4/2017 17:20

Can anyone explain this - ''an accumulated surplus of $602,623,046 (March 31, 2016 deficit – $13,645,926) since its inception, and may incur future losses in the development of its business. Current cash resources will not be sufficient to continue the exploration and development activities.''
I look forward to the next published accounts (audited).

[11smith] 20/4/2017 17:14

The warning signs are obvious in my opinion. If there is no major improvement soon Zenith will be forced to curtail or suspend activity, as stated below.
// From - Condensed Interim Consolidated Financial Statements
As at and for the three and six months ended September 30, 2016 (Unaudited)
As at September 30, 2016, the Company has a working capital deficit of $5,345,971 (March 31, 2016 –
$6,709,115), negative cash flows from operating activities of $1,534,604 (March 31, 2016 - $2,473,767) and an accumulated surplus of $602,623,046 (March 31, 2016 deficit – $13,645,926) since its inception, and may incur future losses in the development of its business. Current cash resources will not be sufficient to continue the exploration and development activities. These conditions indicate the existence of material uncertainties that may cast doubt on the Company’s ability to continue as a going concern. Continuing operations are dependent on the ability to obtain adequate funding to finance existing operations, and attain future profitable operations in Argentina and Italy. Additional financing is subject to the global financial markets and economic conditions, and volatility in the debt and equity markets. These factors have made, and will likely continue to make it challenging to obtain cost effective funding. There is no assurance this capital will be available and if it is not, the Company may be forced to curtail or suspend planned activity. // NB. This is extracted from an unaudited financial statement.

[sea7] 20/4/2017 14:50

Cash,

On 30th January 2017 - zenith stated it had converted another £247,000 of convertible notes to equity. This left £201,832 of the swiss convertible notes.

On 14th March 2017 - zenith issued 505,263 shares to settle a debt and paid the remainder of the same debt in cash.

On 21st March 2017 - zenith converted £100,000 convertible note with Gunsynd into 1,637,000 shares.

As far as I know the only restructuring was on the swiss franc convertibles as the price was changed and the couldn't issue the full amount in shares.

This is another £400,000 off the debt that zenith has.

[cashandcard] 20/4/2017 14:17

Sea7,


£1.5mln is an amount that can largely be dealt with through cashflow, maybe a little dilution. But I would hope they avoid restructuring the entire amount into equity. That could cause serious share price drag here.


Cash

[sea7] 20/4/2017 14:04

Net debt as at 31st December 2016 is:- in sterling.

current liabilities...

loans payable - £1,127,430
notes payable - £123,721
deferred consideration payable - £290,432

Non current liabilities..

Loans payable - £1,376,160
convertible notes - £304,546
derivative liability - £230,956
bonds - £221,764

Non current other - for information.

decommissioning obligation - £5,616,534
deferred taxes - £89,092,780
deferred consideration payable - £166,140,635

..............

There are other current liabilities such as the usual trade payables, however, I am not including these.

Some of the current liabilities will have been partially paid already as this data is months old and there has been some restructuring of some debt this year.

The above gives a picture of where we were.

About £1.5m is due before end December this year and as I said some of this has been restructured. I think the debts are manageable at this time.

Hope this makes things clearer.

[cashandcard] 20/4/2017 09:34

Divmad,


I'm suggesting that drilling new, optimally located wells is the best way to go for capital deployment.

I think the real value in the WO program is the data-gathering exercise downhole, before new drills.

I would like to see them drill new wells or atleast new sections to avoid money and time waste from now on.


Cash

[divmad] 20/4/2017 09:21

Cash,

"The approach so far, trying to resuscitate old soviet wells that have failed for multiple reasons, imo, is a waste of time. So the news yesterday that they've decided to move on, side track and and drill a new 'undisturbed' section of the reservoir was music to my ears. "

Are you suggesting that the whole workover program is of questionable value added to ZEN?

[oakville] 20/4/2017 05:13

Just back from Italy and off to bed now, we have put another order in this morning so will see what happens later.

[oakville] 20/4/2017 05:11

Looking really cheap now.

[11smith] 20/4/2017 00:54

The above post exploring the 2016 accounts was becoming too long. In order to ensure a balanced discussion here is (note 28)- subsequent events. - from accounts to March 31st 2016.
28. Subsequent events
(a) In April and June 2016, the Company completed non-brokered
private placements for the issuance of an
aggregate 12,086,900 units at $0.08 per unit for gross proceeds
of $966,952, of which $133,982 was received
in March 2016 and is included in trade and other payables as at
March 31, 2016. Each unit is comprised of one
common share and one warrant exercisable at $0.15 per share for
a period of 24 months from the date of
issuance. In connection with the private placement, the Company
paid a finder’s fees of $40,377 and granted
504,712 finder’s warrants exercisable at $0.15 until for a
period of 24 months from the date of issuance.
(b) In June 2016, the Company issued 472,500 common shares
for the settlement of $45,170 of debt owed to
certain vendors.
(c) In June 2016, the Company issued 2,730,000 common shares
on the conversion of approximately 230,000 Swiss
Francs ($300,303) principal amount of convertible notes (Note 14).
(d) In May 2016, the Company amended the loan payable (Note 13(a))
to extend the payment date of the USD
700,000 principal payment to June 5, 2016. The Company did not make
the USD 700,000 payment on June 5,
2016 nor has the lender indicated any intention to convert the
outstanding debt to equity. A further
amendment to the repayment schedule and terms is being
negotiated with the lender.
(e) In July 2016, the Company sold 116,913 shares of GRIT
for gross cash proceeds of $10,840.
(f) In June 2016, the Company received notice that the Parliament
of the Republic of Azerbaijan ratified REDPSA
for certain blocks of Azerbaijan oil fields in which the Company
holds an 80% participating interest in current
and future production.
(g) In July 2016, the Company established Aran Oil Operating
Company Ltd., an 80% owned subsidiary of Zenith
Aran, to serve as operator of the REDPSA.
In my view there is a risk of a debt spiral. Once again, I look forward to significant improvement of cashflow and reduction in debt. This is the main market, I assume Zenith want to remain listed there. If the situation deteriorates regarding debt, share issues to cover it an poor cashflow, a main market listing may not be maintained.

[cashandcard] 19/4/2017 22:40

Sea7 & Zengas,Really good posts. Anyone who has researched this company will get to know there is huge potential to unlock, the audited reserves and undiscovered potential oil aswell.The approach so far, trying to resuscitate old soviet wells that have failed for multiple reasons, imo, is a waste of time. So the news yesterday that they've decided to move on, side track and and drill a new 'undisturbed' section of the reservoir was music to my ears. I've got more hope they'll come good that way so may increase my holdings here in due course. New techniques, engineering and completions will help out value currently locked away. I agree, one cannot rule out the possibility a well (or two) could surpass any of our expectations.I also agree, in difficult reservoir types, horizontals give a better chance of success as they access a much greater section of reservoir. I would like to see them progress with that, not now, but in due course. I don't want to get ahead of myself, but a successful horizontal in the right area of the field could be a spectacle to behold.Cash

[ravin146] 19/4/2017 22:28

Sea7, agree entirely.This stock is very much under the radar. Once the result is released that the first workover is a success, I can see a major re-rating and a few market commentators on this like rash.Gl to holders, as I keep reiterating it needs patience.

[pugugly] 19/4/2017 22:02

11smith: You have put your finger on it - The Q3 accounts are (imo) very confusing (for a non accountant) in respect of liabilities Still digging through them but on balance they are tipping to a negative (no buy) at current 10p share price Any glitches in workover or sand blocking could (imo) require more funds. Anyone able to comment further on the net debt position in respect of working capital and ignoring assumed asset valuations.

[thegreatgeraldo] 19/4/2017 21:33

I was a bit surprised at the amount of work that needs doing, as per yesterday's RNSes, mainly the Team A wells.

I upset the resident ramper last week by referring to AC as "deluded", that may have been a bit strong, but I still think that either the scale of the workovers was underestimated or he was less than frank with investors whilst during the rounds promoting the company.

Have held on to my small holding, but am not too upset that my cheeky orders in Canada last week weren't filled

[11smith] 19/4/2017 21:07

I have looked over the 2016 accounts, an improvement in net debt and the way it is being managed is one thig I am certainly looking for in the forthcoming accounts.
Copied from 2016 accounts, consider the following:

Consolidated Financial Statements
As at and for the years ended March 31, 2016 and 2015
13. Loans payable
a) USD loan payable
An event of default occurred on March 30, 2016, 30 days after the Company failed to make the USD 700,000
payment at which time overdue interest was increased to a rate of 20% per annum and the entire balance of
the loan was classified as a current liability. The lender did not exercise the debt-to-equity option.
As at March 31, 2016, $2,834,600 (2015 – $2,166,679) of principal is classified as a current liability; $nil (2016
– $433,336) of principal is classified as long-term and $156,874 (2015 – $166,641) of accrued interest is included
in traded and other payables.
The loan agreement was subsequently amended in May 2016 to extend the USD 700,000 principal payment
date to June 5, 2016
b) Euro bank debt
On August 6, 2015, the Company obtained a EUR 220,000 loan ($315,986) from the GBM Banca of Rome. The
loan is unsecured, bears fixed interest at 7% per annum and is repayable in 60 monthly payments of principal
and interest until August 6, 2020.
As at March 31, 2016, the principal balance of the loan was EUR 194,930 ($288,422) of which $58,953 is
classified as a current liability and $229,469 is classified as long-term.
c) Euro bank debt
On December 17, 2015, the Company obtained a EUR 200,000 loan ($301,880) from Credito Valtellinese Bank
of Tortona. The loan is unsecured, bears fixed interest at 4.5% per annum and is repayable in 42 monthly
payments of principal and interest until July 17, 2019.
As at March 31, 2016, the principal balance of the loan was EUR 200,000 ($282,457) of which $81,594 is
classified as a current liability and $200,863 is classified as long-term.
d) Euro loan payable
On October 1, 2015, the Company acquired a co-generation plant (Note 8) from a third party of which EUR
401,148 ($594,943) of the purchase price is in the form of a loan payable to the seller. The loan payable is
secured by the co-generation plant and bears interest at 3.5% and is repayable in 30 monthly payments of
principal and interest until March 31, 2018.
As at March 31, 2016, the principal balance of the loan was EUR 323,709 ($478,282) of which $234,967 is
classified as a current liability and $243,315 is classified as long-term.

There is Section 28 to consider, subsequent events. The following Section 26 and notes clearly states the position as at 31st March 2016.

26. Financial risk management
b) Liquidity risk
As at March 31, 2016, the Company had $8,201,167 (2015 – $5,606,441) of current liabilities for which the
Company’s $137,982 (2015 – $936,499) cash balance is insufficient to settle the current liabilities. It is expected
that further debt and equity financings will be required in order to settle existing current liabilities, continue
development of the Company’s assets and meet future obligations. There can be no assurance that such
financings will be available to the Company (Note 1).

1. Nature of operations and going concern
Zenith Energy Ltd. (“Zenith”; or the “Company”;) was incorporated pursuant to the provisions of the British
Columbia Business Corporations Act on September 20, 2007. The address of the Company’s registered office
is 15th Floor, 850 - 2nd Street S.W., Calgary, Alberta T2P 0R8, Canada. The Company is primarily involved in
the exploration for, development of and production of oil and natural gas properties primarily in Argentina and
Italy.
As at March 31, 2016, the Company has a working capital deficit of $6,709,115 (2015 – $3,407,115), negative
cash flows from operating activities of $2,473,767 (2015 – $634,383) and an accumulated deficit of $13,645,926
(2015 – $5,971,478) since its inception, and may incur future losses in the development of its business. Current
cash resources will not be sufficient to continue the exploration and development activities. These conditions
indicate the existence of material uncertainties that may cast significant doubt on the Company’s ability to
continue as a going concern. Continuing operations are dependent on the ability to obtain adequate funding
to finance existing operations, and attain future profitable operations in Argentina and Italy. Additional
financing is subject to the global financial markets and economic conditions, and volatility in the debt and equity
markets. These factors have made, and will likely continue to make it challenging to obtain cost effective
funding. There is no assurance this capital will be available and if it is not, the Company may be forced to curtail
or suspend planned activity.
The post is getting too long and will be continued. The accounts for this year which we will receive shortly should be studied closely and I hope for some significant improvements,

[2nell] 19/4/2017 20:43

Interesting reading folks and thanks.

Just a note that all the existing wells are vertical so in theory M-195 is the first sidetrack horizontal drill, which could make it even more interesting.

[sea7] 19/4/2017 20:36

It would be fair to say that zenith is generating free cash flow of about £100k a month which is £1.2m a year. The mcap is £11.4m so, we are getting nearly 10% of the mcap in free cash per year at this stage of the game.

This gives a fair bit to cover those workovers this year without additional funding requirements. We get a decent result on the sidetrack and we should be going great.

We are not doing exploration, merely reworking existing wells into known oil pools,
so the chances of success are much higher than the usual drilling for new resources off 3d seismic.

[sea7] 19/4/2017 20:29

One thing to remember here is that when ramco said it abandoned the moc-1 well due it not flowing commercial quantities oil was $27 a barrel. When the Chinese abandoned plans to regenerate this field in 2003, they stated difficult geography and that it was not commercially viable. Oil was $27 a barrel again.

The techniques today are far more advanced and oil is twice the price.

[grannyboy] 19/4/2017 20:28

ZENGAS Good explanation, Thanx..

[zengas] 19/4/2017 20:20

grannyboy, it's easy to get frustrated but it won't take much to change sentiment and it's still early days given the timescale they have allowed. If this was £40-£50m valuation and this was happening, yes I would be worried about downside on sentiment. At this level and as sea7 points out it's very cheap. Realistically their average target increase is only seeking about 170 bopd/quarter.

If there was only 1-2 million bls extracted out of this field under the old soviet era wells, it would be questionable, but they got 22.5 mmbls of oil out and that's a big positive indicator - ie a massive amount of oil produced despite all the so called difficulties - so imo odds on that Zen could reasonably get 1m/year (3k bopd) given the scale of the P2 reserves and being patient for both the workovers and then moving on to new drilling. Got to expect difficulties from time to time and even PPC have been tooing and frowing on workovers for 2 years with mixed results and low output on fairly tight oil currently at 7 times Zens m/cap and has been in that range this past 2 years.

The worst Zen could do here imo on 'new' drilling is to replicate some basic soviet era wells that produce for a few years given there's still 70m P2 to get out. With horizontal potential that should be achievable to some degree, one wonders what X times the normal vertical production rate could be when they get around to that and if 1-2 were successful.

[sea7] 19/4/2017 20:17

no problem pug,

I have been looking at it for a little while and bought a few earlier today.

[brasso3] 19/4/2017 20:15

Zengas

I see your comparison with PPC in post 1302. Does this mean you have sold out of PPC?

By the way, what do you think of SDX? Massive production (nearly 5000 BOPD) and modest reserves.