Zeta Petroleum's (ASX: ZTA) successful A$8.35 million initial public offering has given it the springboard to develop advanced and highly prospective oil and gas assets in Romania and expand into Eastern Europe.
Proceeds from the IPO will fund development of highly prospective Romanian oil and gas assets, and leverage near term and future cash flow for the development of oil and gas assets that may be acquired in onshore Eastern Europe.
Zeta's flagship asset is the Bobocu Gas Field, which is a historic gas field that produced 33 billion cubic feet (Bcf) of gas, and where updated technical studies have identified mean contingent gas resources of 44.8Bcf or 7.71 million barrels of oil equivalent (MMboe), and an additional mean prospective gas resource of 68.73Bcf or 11.82MMboe.
The Company has proposed a 6 well development program that will commence with the drilling of the first Bobocu well (Bobocu 310).
Romania borders the Black Sea and has one of the world's oldest oil and gas industries that was ranked as 7th largest oil producer in 1937, but had dropped to 50th place after 40 years of communist party rule marked by under-investment and a lack of access to western technology..
Zeta Petroleum was founded in 2005 to acquire and develop Romanian oil and gas assets that were being opened up to private investment after the collapse of communism, development of democratic rule, and a market economy.
Zeta has already raised around £11.5 million of private equity to acquire a balanced portfolio of Romanian oil and gas assets that include appraisal and exploration projects, along with developed prospects with mature drilling targets.
Romania is considered highly prospective with supermajors that include ExxonMobil acquiring Romanian offshore blocks in the Black Sea, and Chevron acquiring onshore blocks to explore for unconventional hydrocarbons. A shift is also underway in the appraisal and re-development of existing onshore fields by developers such as Zeta.
Romania is an attractive destination for a smaller development company such as Zeta as it has an extensive network of oil and gas pipelines that are close to existing projects, and are connected to cross border pipelines that supply Ukraine, Bulgaria and Hungary. Romania is also trying to position itself as a transport route for energy supplies from Russia and the Caspian Sea for delivery to European markets.
The transportation royalty rate for transit through the national pipeline system is 10%, with income tax at 16%, and an excise duty is applied for European sales and levied on a volume basis.
Production royalties are charged on the gross production of a field on a sliding scale of 3.5% - 13.5% for crude oil and 3% - 13% for natural gas.
The Romanian gas price is expected to de-regulate in mid 2013, and that is expected to push up local pricing of natural gas which currently fetches US$4.67 per thousand cubic feet (Mcf). Supplies of imported natural gas are currently priced at US$11.33 per Mcf, and it remains uncertain if local authorities will allow local prices to appreciate so much.
The IPO funding will allow Zeta to drill one appraisal and development well on the Bobocu Gas Field; farm-out a 50% interest in the Jimbolia Oil Field to finance the drilling of an appraisal well; undertake field development plans on the Bobocu and Jimbolia fields; participate in new licensing rounds in Romania; apply for additional licences; and source and review additional onshore project opportunities in Eastern Europe.
ZETA HAS ASSEMBLED A STRONG MANAGMENT AND TECHNICAL TEAM
Timothy Osborne serves as Non-Executive Chairman, and is an attorney and Senior Partner at Wiggin Osborne Fullerlove since 2003. He is a director of GML Limited, a diversified financial holding company which holds a stake in Zeta Petroleum, and at one time owned strategic stakes in a number of Russian companies that included a majority shareholding in Yukos Oil Company of Russia.
Stephen West serves as Managing Director, and is a founder of Zeta Petroleum and a Chartered Accountant with over 17 years of financial and corporate experience ranging from public practice, investment banking, and development of oil and gas assets. His previous appointments include senior positions at Duesburys Chartered Accountants, PriceWaterhouseCoopers of Australia, Barclays Capital of London, and Regal Petroleum plc.
Philip Crookall is the Chief Operating Officer, and is a petro-physicist with over 24 years industry experience with both independent oil companies and consultancy groups including Valiant Petroleum, Hamilton Brothers Oil & Gas Ltd, Ultramar Ltd, LASMO, Hardy Oil & Gas, Scott Pickford Ltd, and Paradigm Geophysical.
Michael Scott is a Non-Executive Director, and is a petroleum reservoir engineer with over 25 years upstream and downstream industry experience. During his career he has worked for Texaco Ltd, Esso Australia Ltd, and Woodside Energy Ltd, and during 2004-2011 was the Managing Director of Cooper Energy Limited.
Helen Prior is Technical Manager, and is a qualified Geologist with over 11 years experience. Prior to joining Zeta Petroleum she worked for Troy-Ikoda on a range of international projects including geological and log analysis and reserves audits, and as a Senior Geoscientist for Regal Petroleum on their Romanian assets; and for Granby Oil & Gas covering both their central and northern North Sea assets and licensing asset reviews. She has covered a wide range of geo-scientific disciplines and has worked closely with engineers to integrate results and to create a full subsurface understanding of assets.
Bogdan Popescu is the Romanian Country Manager, and is an oil industry specialist and NAMR certified expert with extensive international experience. His prior appointments include Executive Senior Vice President of The Rompetrol Group, Senior Vice President (Australia) and CEO (Switzerland) of Millennium Group of Companies, and held various positions at Petroconsultants SA/IHS Energy, and Earth Sciences Researcher at the Institute of Geology and Geophysics. He is currently the elected President of the Petroleum Exploration & Production Managers Forum in Romania.
IIie Stefan serves as Senior Reservoir Engineer and is a qualified Reservoir Engineer and NAMR certified specialist with 20 years experience in conventional and advanced reservoir engineering.
Jimmy Micu serves as Senior Geologist and is an NAMR certified Geologist with over 40 years experience mainly been spent in Romania.
Founders and seed investors will retain an approximate 68% interest in Zeta after the IPO is completed, with the largest shareholder being GML Limited with a current holding of a 35.63% interest.
GM Investment & Co Limited holds a convertible loan of approximately A$3,470,046 that converts into a maximum of 18,136,291 shares at the time Zeta Petroleum is listed for trading on the ASX, and is a subsidiary of GML Limited.
BOBOCU GAS FIELD
Zeta holds 100% of the Bobocu Gas Field that is located 110 kilometres northeast of Bucharest, and lies on the northeast part of the Moesian Platform. The field was discovered in 1966, and reached peak production of 12.8 million cubic feet of gas per day (MMsf/d) in 1981 from 9 wells.
Due to sand production, poor completion practices and a generally poor understanding of the field, the Bobocu field was shut in 1995 after producing a total of 33Bcf of gas over an 18 year life.
Zeta acquired Bobocu in 2007 and undertook extensive technical studies, geological modeling, and in 2010 completed and interpreted 75 square kilometres of 3D seismic over the field. The 3D seismic study led to a revised geological model, with a significant improvement in the understanding of the geology and distribution of hydrocarbons across the Bobocu gas field.
Previous production from the field was from several reservoirs at a depth of 2,500 - 2,700 metres within stratigraphic traps of a delta lobe environment or Delta Wedge Sequence. Some of the delta wedge lobes have previously been produced but have remaining resources, and there is mapped potential in undrilled delta wedge lobes similar on the seismic to the previously produced lobes. Further exploration targets are also identified in the intervals above and below the Delta Wedge Sequence.
These studies identified mean contingent gas resources of 44.8Bcf or 7.71MMboe, and an additional mean prospective gas resource of 68.73Bcf or 11.82MMboe. Additional potential was also identified in shallower and deeper horizons that will be evaluated during development programs.
The Company has identified drill ready targets for a 6 well development program, and has scheduled the Bobocu 310 well for drilling in the second half of 2012. Zeta has targeted first gas production for 2013, and will be able to connect to a gas pipeline that is in close proximity to Bobocu and local gas markets.
JIMBOLIA OIL FIELD
The Jimbolia Oil Field is 100% owned and is located in the proven producing eastern part of the Pannonian Basin, 40km west of Timisoara on the Romanian-Serbian border, and covers an area of 23.9 square kilometres.
The licence contains two discoveries known as Jimbolia Veche, and Jimbolia Vest that were discovered by Petrom in 1983.
Jimbolia Veche has two hydrocarbon bearing intervals that include the Pliocene VIII which is an oil reservoir with a gas cap that was penetrated by two wells at Jimbolia-1 which flowed at rates of 120 barrels per day bbls/day, and tested at a sustained rate of 55bbls/day for 6 days; and at Jimbolia-6 which penetrated an oil leg with 50 degrees API oil. Both wells were never developed as oil producers.
Management believe that there is also additional potential in a second separate structure at the Jimbolia Vest discovery which tested two intervals in the Lower Pliocene IV, reporting 33% CO2, 61% CH4, and condensate of 196,000 cubic feet per day in the lower interval, and an unreported amount of gas in the higher interval.
The Pliocene III gas reservoir was brought on stream from 1985 - 1998 and produced 2.89Bcf of gas. The last well penetration in 2010 suggested that there may be some remaining reserves, or that some limited recharge may have taken place within the structure.
Zeta has collated all existing well data and 2D seismic data on the field to complete a geological model, identify drill targets and establish a mean contingent oil resource of 1.72 million barrels (MMbbls).
A letter of intent has been received for a farm-out of a 50% interest, and discussions are underway to finance the drilling of an appraisal well known as Jimbolia-1 in the third quarter of 2012.
Importantly, the project is close to local infrastructure and markets, and attracts an Urals crude price. Initial oil production is targeted for 2013.
PADURENI GAS FIELD
The Padureni licence is 12.5% owned and lies in the eastern area of the Transylvanian Basin and developed from late Cretaceous times. Padureni is a structurally complex gas field that is located 25 kilometres northeast of Targu-Mures.
The Padureni gas field was discovered by Romgaz in 1984, and produced 0.226Bcf from Padureni-2 from 1991- 1994. The field has a total of 5 wells drilled on the structure, and currently hosts a mean contingent gas resource of 0.52 Bcf.
Zeta sold an 87.5% interest to Expert Petroleum, and is currently free carried on all expenditures by the farm-in partner which is finalising a geological model and developing drill targets.
The Company retains 100% interests in excess of 6,000 square kilometres of non-exclusive Prospecting Permits located in the Eastern Moldavian Region that include Falticeni covering 653 square kilometres, Faurei covering 2,439 square kilometres, and Vaslui covering 2,981 square kilometres.
All three of the Prospecting Permits are within known hydrocarbon prone areas, and Zeta is finalising an extensive evaluation that will allow the Company to place them into a bidding round in 2012, and be given an opportunity to secure 100% ownership of prospective permits.
While North America is under a regime of low natural gas prices and current over supply of natural gas, a number of markets in Europe have witnessed gas prices that have risen and in some cases doubled over the past 24 months.
Upcoming deregulation of the Romanian gas market in 2013 will bring the gas price into line with the European market, typically between $8 and $13 per Mcf.
Romania has an extensive network of oil and gas pipelines throughout the country with
capacity to deliver new production of gas and oil.
In addition, the attractive fiscal terms in Romania go some way toward de-fraying sovereign risk.
NEAR TERM CATALYSTS
- IPO funding and ASX listing
- Drilling of Bobocu 310 well and gas production assessment Q3 2012
- Farm-out of Jimbolia Project finalised
- Drilling of Jimbolia-1 and oil production assessment Q3 2012
- Development plans for Bobocu and Jimbolia
- Deregulation of Romanian gas market 2013
- First revenues from oil and gas production 2013
Zeta offers a compelling valuation built around high impact assets located within areas with historic production or discovery in onshore Romania that significantly de-risks the assets and reduces total exploration and development costs.
The strong board, management team, and technical staff bring a track record, energy, ideas and ambition to aggressively develop Zeta into a significant producer of oil and gas over the next two years.
The Company has a strong international presence with offices in Perth, U.K. and Romania, and is assessing acquisition opportunities to expand the current portfolio to include assets in the Ukraine, Bulgaria, Serbia and Hungary.
These opportunities will be on-shore and target proven oil and gas assets with near term production and low risk exploration.
Zeta's known gas and oilfields in Romania are in known gas and oilfields in Romania. By using modern drilling techniques and where possible, undertaking work overs of existing wells, there is a road to earlier production and cash flows.
The Company has recently identified several drill ready targets and plans to commence drilling in 2012 with a view of commencing production in 2013.
As seen by the arrival of "majors" into Romania including Chevron, Hunt Oil Company, Petrosantander and ExxonMobil since its petroleum industry was opened up in 2005/6, Zeta is at the forefront of the movement to "kick-start" the Romanian oil and gas industry. While not without risk, near term production opportunities in 2013 will assist to lower risk and increase the return trade off for investors in Zeta.
The IPO price on listing of $0.20 gives Zeta = a market cap of around $25 million. Given that Zeta plans to rapidly establish operating cash flow from its Bobocu gas field in eastern Romania by developing a targeted 44Bcf of Contingent gas for sale in high-value gas markets - this valuation does not seem high relative to peer companies.
In fact, we believe that as development of the Bobocu gas field progresses in 2012 and moves closer toward production and cash flows (after appraisal wells and securing development funding) in 2013 that the Zeta Petroleum valuation could be nearer to $0.40, affording investors potential upside from the IPO.