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Zenith Energy’s forecast production costs could become higher

Oil&Gas Materials 20 November 2019 12:06
Zenith Energy’s forecast production costs could become higher

BAKU, Azerbaijan, Nov.20

By Leman Zeynalova – Trend:

Forecast production costs of Canada’s Zenith Energy company, as well as levels of investments needed to extract the proposed level of hydrocarbons could become higher and projected levels of production could be delayed, Trend reports citing Rating-Agentur Expert RA (RAEX).

Rating-Agentur Expert RA assigned ‘B+’ (Moderately low level of creditworthiness) credit rating according to the international scale to Zenith Energy Ltd. The rating outlook is stable which means that in the mid-term perspective there is a high probability of maintaining the rating score.

“The company has a clear strategy, which it has been adequately executing. In Italy, the Group owns various working interests related to gas and, in Azerbaijan, Zenith Energy entered into a Rehabilitation, Exploration, Development and Production Sharing Agreement (REDPSA) to extract oil from the largest onshore oil field in the country. Understanding and planning of the CAPEX needs and funding sources is consistent,” said RAEX.

However, in view of past results in workover and drilling operations in these fields, more conservative assumptions in terms of oil production could better reflect the mid-term perspective of the company, according to the report.

“We consider a fundamental part of the strategy the fact that the company invests in its own drilling equipment and has its own drilling subsidiary (Zena Drilling) as it decreases dependency on third parties. Zenith Energy’s 2P reserves amounted to 30.6 million barrels of oil in Azerbaijan and 16.2 BCF1 of natural gas in Italy. However, given that only 11.8 percent of the 1P reserves (3.9 million barrels of oil) have been developed, along with the risk inherent on the oil exploration and extracting activities, forecast production costs, as well as levels of investments needed to extract the proposed level of hydrocarbons could become higher and projected levels of production could be delayed,” said RAEX.

Also, included in the company’s strategy, is the acquisition of assets in other countries in the near future, reads the report.

“Finally, the recent acquisition of the Norwegian oil and gas company, Nordic Petroleum AS, besides contributing to a capital increase of around CAD 1,3 m, it sets Zenith Energy in an ideal position to potentially acquire productive assets in Norway and it gives the company the opportunity to increase the Norwegian investor base specialized in the hydrocarbon industry.”

Azerbaijan’s state oil company SOCAR and Zenith Aran Oil Company signed a Rehabilitation, Exploration, Development and Production Sharing Agreement (REDPSA) in March 2016 for a block that includes the Muradkhanli, Jafarli and Zardab oil fields. Zenith Energy Ltd established its subsidiary company Zenith Aran Oil Company Ltd for production operations in these three fields. Production under the agreement began in August 2016.

Zenith holds an 80-percent participating interest in the three fields within the contract area, while SOCAR retains the remaining 20 percent. The agreement is for 25 years, with a potential extension by five additional years.

The total area of the Muradkhanli, Jafarli and Zardab fields is 642.2 square kilometers, and according to the contract, it is divided into rehabilitation and exploration territories.

The Muradkhanli-Jafarli-Zardab block is located in the Yevlakh-Agjabadi oil and gas region of Imishli district of Azerbaijan. The Muradkhanli field was discovered in 1971, Jafarli - in 1984, and Zardab - in 1981.

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