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Zenith completes purchase of Chinese oilfield equipment

Zenith Energy Ltd. ("Zenith" or the "Company") (LSEZENTSX.VZEE), the dual listed international oil & gas production company operating the largest onshore oilfield in Azerbaijan, is pleased to announce that the Company has signed a contract for the procurement of oil production materials with Kerui Petroleum, a leading Chinese manufacturer of oilfield equipment.

The total value of the procurement contract between Kerui Petroleum and Zenith is USD 1,705,608 (approximately £1,325,000; CAD$ 2,146,000). The terms of payment have been defined in accordance with INCOTERMS 2010, and will take place within 1 year of the contract's effective date.  Zenith will pay 15 percent of the total contract value in advance as deposit.

The procurement of this new equipment will enhance Zenith's operational capabilities, enable the Company's personnel to work in remote field locations, and replenish Zenith's stock of oil production materials.

Delivery of these materials is expected within 90 days.

The materials procured include: a blowout preventer (BOP); a full set of well control equipment; drill pipes to be used as a work string; tubing to be used in the installation of new electric submersible pumps and in old wells that have been returned to production; new oilfield infrastructure; lighting equipment; and a generator system to enable a workover rig to operate without the need for nearby infrastructure across Zenith's 642.4 kmfield area.

The procurement of these materials evidences Zenith's preference towards employing its own equipment and resources across its operational activities.  This ensures lower costs, direct accountability, and comprehensive oversight of the Company's operations.  The Company's stock of oilfield equipment will also avoid the risk of Zenith's operations being affected by third-party delays in supplying equipment that the Company's systematic field rehabilitation activities require on an immediate basis.  

Zenith's CEO, Andrea Cattaneo, commented:

"I thank Kerui for the confidence they have shown in Zenith. This is demonstrated by the fact that they have granted the Company a supplier credit line of one year in our first contract.

At the same time, this also confirms the confidence our balance sheet instils in counterparties. The new connections Zenith is developing in China increasingly indicate that procurement contracts of this type can, when necessary, be replicated for larger equipment worth many times the value of the present contract.

The Board of Directors recognises the existential dangers presented by risky expenditure. There are many examples of junior oil & gas companies that have voided any gains achieved by their workover or drilling operations due to the sizeable levels of debt incurred towards third-party oilfield service companies. Owning our own equipment will enable the Company to have physical assets with tangible value. Indeed, in the worst-case scenario of there being an unsuccessful outcome in any given operation, the Company will still retain unchanged operational capabilities that will position Zenith for future success elsewhere, rather than being left with a series of expensive bills to pay. 

Similarly, operating our own equipment will be significantly cheaper, ensures comprehensive operational oversight, provides direct accountability and delivers unparalleled operational flexibility.  Zenith's operational team will have full knowledge of the capabilities of its equipment, designing its operations from the outset in consideration of the condition and type of equipment that will be employed. 

The use of debt, in this case supplier credit from a leading Chinese manufacturer of oilfield equipment, is Zenith's preferred form of funding and avoids the unnecessary dilution of the Company's very undervalued equity.  The Board of Directors is a significant shareholder in the capital of the Company and wants to minimise dilution whenever possible, being aligned to the interests of shareholders."

 

 

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