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Zoetic International makes rapid progress with new CBD operation

Snapshot

  • Originally oil and gas, Zoetic has recently moved into the CBD business
  • Company still has shale gas interests in wells in East Denver but these are likely to be sold
  • There is also a helium producing operation
  • New management team took over in September led by CEO Nick Tulloch
cannabis plants

Quick facts: Zoetic International PLC

Price: 9.12 GBX

LSE:ZOE
Market: LSE
Market Cap: £13.49 m
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What the company owns

Zoetic International plc (LON:ZOE) has undertaken a major shift in direction in recent months.

Originally known as Highlands Natural Resources, an oil and gas group with wells in Colorado, in March the company got into the CBD business and changed its name in August.

It has established  CBD sales on both sides of the Atlantic with 67 US stores now stocking its products.

Its first retail distribution and sales agreement was with Schrader Oil’s chain of eighteen convenience and gas stores, which invested £100,000 in the business as part of the deal.

 

How it is doing

The six months ended 30 September recorded revenues of £1.15mln, up from £0.52mln the previous year, and ended the period with £1mln in cash.

 

Gas production

Zoetic told investors in May that its eight part-owned production wells at the East Denver project yielded around 2,700 barrels of oil per day and 4mln cubic feet of gas per day.

Five of the eight new wells are currently operating on a limited choke, restricting output with a view to maintaining pressure and extending well life.

The company owns a 7.5% interest in the wells, and, it said that the asset is generating monthly revenue above the company’s fixed operating costs.

Taking account of expected revenues across the whole group, Zoetic said it retains the view that it will generate sufficient cash flow to cover all overheads for the current year.

At East Denver, Zoetic has also received a US$58.5mln commitment from a US oil and gas-focused private equity group to support an expansion of up to 24 wells at the site.

The East Denver project has an NPV10 range for six wells of between US$23.3mln to US$30.1mln. An estimate for the full 24 wells sees this estimate increase to between US$96.6mln to US$124.5mln.

Currently, Zoetic is looking to dispose of its oil and gas assets to focus solely on cannabis and hemp. 

DT Ultravert

Away from its production arm, this is also its DT Ultravert technology, which has been proven to prevent ‘well bashing’ and enhance well productivity.

The process involves the injection of nitrogen gas into an existing well at the same time as a new nearby well is fracked.

Zoetic has enjoyed some early-stage success in deploying the technology but needs its own nitrogen supply represents one of the largest cost inputs.

As a result, it has been looking to produce its own nitrogen from a project in Kansas.

The thinking is that if it can start producing its own nitrogen, it will not only reduce the cost for its customers, but it will also improve its own margins and possibly create another revenue stream if it becomes a supplier in its own right.

Zoetic holds a 75% stake in the DT Ultravert technology patents.

 

What the boss says, chief executive Nick Tulloch

"We really are writing the beginning of the story, but I think what matters is about proving the product, proving the brand, and we are getting great feedback on both.”

“Here in the UK… Every single review on our website is five stars, and these are unprompted reviews from customers who have tried it, they liked the product and it’s working for them.”

 

Watch the video


 

Inflexion points

Zoetic developing at a rapid rate with plans to launch a second brand and additional CBD products in coming weeks

It will begin production of its first feminised seeds before the end of the year, with initial sales expected in the first quarter of 2020

Increasing production from the East Denver wells as more come on stream, which will help with a sale of these assets

Hydrogen/nitrogen mix found in Kansas, with the most significant beneficial results in cannabis and hemp plant

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