Investing with JP Morgan Execs on Startup Zefiro Methane, ZEFI
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This is a very unique company and I am adding to my Disruptive Technology list because it really does not fit with energy despite some relation there. We know that climate change is all about taxes and wealth distribution and a big part of that equation is carbon pricing and credits and their price has been rising. China is potentially a huge carbon market, about 3 times that of the EU so positive to see the price rise there for the carbon market.
In China, since the launch in 2021 it has been trading around €6 per tonne (CNY45). However, since mid-2023 the China Emission Allowance (CEA) price has doubled. In spring 2024 CEAs have traded close to €13 ($11, or CNY93.75) per tonne. That said we would need to see a 4 or 5 fold increase to get on par with other markets.
As a greenhouse gas, carbon is nothing compared to methane which is 25 to 84 times worse, so a focus there is great benefit to the environment and that is where Zefiro Methane comes in.
In the past decades there was much less regulation and focus on properly closing in old oil&gas wells. There are millions that need remediation with estimates of over 5,000,000 in the USA alone. Recognizing this, the US government's Infrastructure Investment and Jobs Act allocated US$4.7 billion for environmental remediation and restoration activities, in 2022. Many states have received grants via The United States Department of the Interior.
Increasing regulation as the methane emission charge will start at US$900/tonne in 2024 and increase to US$1,200 in 2025 and US$1,500 in 2025.
Zefiro Methane - - CBOE Canada:ZEFI - - Frankfurt :Y6B - - Recent Price C$1.70
Shares Outstanding 65.7 million - - - Insiders own 37%
Zefiro is an environmental services company, specializing in methane abatement. Zefiro strives to be a key commercial force toward active sustainability. Leveraging decades of operational expertise, Zefiro is building a new toolkit to clean up air, land and water sources directly impacted by methane leaks. The company has built a fully integrated ground operation driven by an innovative monetization solution for the emerging methane abatement marketplace.
Zefiro has an approved method to monetize methane reduction, or abatement, in North America that could generate high-margin cash flows for investors. Zefiro just had their first batch of methane abatement credits approved by the American Carbon Registry (ACR), one of the three leading registries worldwide.
Management – All the Right Stuff
Zefiro is headed up by a proven team of ex-JP Morgan executives -Talal Debs, Catherine Flax and Tina Reine.
Talal Debs, Founder, Chairman and CEO is an expert in the energy sector.
Managing Partner at XMC Strategies -an energy sector investment fund.
Former chair of JPMorgan oil price deck committee (among other high-level leadership roles)
PhD in Modern Physics from Cambridge University with roles at Harvard and LSE.
Tina Reine, Chief Commercial Officer is a preeminent carbon market leader.
Helped develop several new carbon offset methodologies.
Experience as a carbon market originator and trader.
Helped build out environmental markets divisions at JPMorgan and NextEra.
Lead commercialization team at World Kinect Energy Services.
Catherine Flax, Board Member is an energy sector and finance senior executive.
Led and co-founded the team that represented the first major financial institution in the carbon offset market.
President, Private Markets at XMC Strategies.
Former global CMO, CEO commodities EMEA and other very senior roles at JPMorgan and other leading financial institutions.
Board Member at BASE Carbon -publicly traded Toronto firm specializing in nature-based offsets.
Matthew Brooks, Head of Operations is an energy sector A&D expert.
Leader in managing acquisitions and divestitures in the domestic upstream oil and gas sector.
Served in senior roles in the Land & Legal Department for Urban Oil & Gas Group, LLC.
Developed Urban’s divestiture program.
Luke Plants, CEO, Plants & Goodwin is a third-generation owner of P&G with widespread knowledge in the oil and gas sector. He served in various roles, such as operations manager & COO, at P&G before being promoted to CEO
According to a 2021 study by the American Chemistry Society, each site needing remediation leaks 78 cubic meters of methane a year - that is almost 300,000 tonnes of methane into the atmosphere.
There is so much lucrative and easy to acquire opportunities here it’s hard to imagine. Who would have thought old abandoned wells would be worth anything as they were considered a liability. My, my how times have changed and for Zefiro's benefit nobody tried to accumulate thousands or tens of thousands of sites needing remediation among millions in the U.S.
It’s because they didn’t know how to monetize them. That’s what the Zefiro team does as the main principals are ex-JP Morgan carbon market specialists. They have spent the last two years creating the methodology—which has now been accepted—to monetize the methane abatement.
Revenue Model
Distinctive strategy with three established revenue streams. Zefiro operates in three business segments - environmental monitoring, asset retirement and carbon offsets. Environmental monitoring is a service contracted to survey and measure wellhead emissions, while asset retirement is a service contracted for plugging and abandonment work. Both segments are positioned to benefit from a large total market with millions of AOOG wells and increased regulatory pressure to fix the methane emitted from these unplugged wells.
Zefiro has purchased majority interests in two operating subsidiaries which did over US$35 million in methane abatement and environmental remediation in fiscal 2023, so they are already off to a head start. Zefiro has already won state contracts for methane abatement in Pennsylvania.
The 3rd stream and big opportunity is the carbon credits that are sold and delivered to buyers, with increased global demand from corporations and institutions.
Zefiro estimates that they can sell their credits up to $20/tonne. I believe this is a very conservative number given the carbon pricing at the beginning of my report. Using a realistic 50,000 credits per methane abatement at $20 per credit is an even $1 million. Consider just a small number of 25,000 opportunities in Pennsylvania gives a potential market of $25B for Pennsylvania alone.
Zefiro is already engaged with Appalachian state governments:
Pennsylvania Department of Environmental Protection;
New York Department of Environmental Conservation;
Ohio Department of Natural Resources;
West Virginia.
Zefiro have worked through the initial stages of a couple pilots in Pennsylvania and Louisiana. As above, Zefiro has acquired two companies specializing in methane abatement, and their pipeline of potential projects is now over 500, and growing. They estimate there are 45,000 immediate opportunities for methane abatement between all these jurisdictions, almost double in the example I give above.
First Mover Advantage
It is not easy or simple to get into this market so Zefiro has a big advantage as first to market and the expertise and resources to do the steps:
Identifying sites that are emitting methane ;
Have a qualified team to measure and quantify each site (the economics);
Get one of the three major carbon registries to accept your methodology .
Conclusion
Zefiro is amazing because they created the opportunity of methane carbon credits, have the team. and the business model and now the public trading vehicle to leverage it all. And now it’s going to start rolling out. Zefiro has already pre-sold tens of thousands of emission reduction tons of its methane emissions offset portfolio to Mercuria Energy America LLC.
Right now the stock is just a junior listing with little liquidity and the plan is to go straight up to a senior listing on NASDAQ or New York. However, if we wait until then to buy, it will be at least 2 or 3 times the current price.
Majority of shares are under lock up with about 5.5 million founder shares becoming free trading with the listing date of April 23rd. On that date Zefiro completed their IPO raising $3.45 million at $1.50 per share. Next to become free trading will be 2.1 million shares from $1.00 seed financing on August 24th and then 12 million shares free trading from $0.50 seed financing on October 23rd.
I doubt there will be much if any insider seller and seed round selling until much higher prices. An indication is Dr. Talal Debs, an insider of Zefiro, participated in the $1.50 IPO offering, acquiring an aggregate of 420,200 shares under the offering through X Machina Capital Strategies Fund I LP.
Important is strong and aligned management and Board, including former members of the carbon market team at J.P. Morgan, with a track record of success in financing and risk management of deals in the oil and gas sector as well as creating carbon offset projects that generate high-quality offsets.
Zefiro to benefit from large total addressable market with 3.7-5.0 million AOOG wells across 26 states in the US as of 2020, representing 280-500 million tons of CO2e offset potential.
Robust project pipeline ahead with AOOG wells sourced from a proprietary network of oil field services firms, landmen, oil & gas operators and energy investors with locations across the US. Zefiro is in preliminary discussion with multiple government agencies and departments regarding collaboration on several possibilities. These states have upwards of 45,000 documented orphaned wells. The Company’s majority stake in P&G expands the deal pipeline further.
Additionally, the Company has an active M&A strategy with recently acquired Plant & Goodwin (“P&G”) and Appalachian Well Surveys.
We have a unique opportunity here to invest with JP Morgan executives on a first mover player in methane abatement carbon credits. Most investors do not even know something like this exists, but when they do, we could be sitting on a 10 bagger from current prices. A perfect fit for my disruptive technology sector.
Leaking methane gas is nasty for the environment in many aspects and many many times worse than the carbon from it when burned. Investing in Zefiro is also helping the environment and I like that. I strongly suggest watching this 3 minute video with the CEO to get a good grasp on this opportunity. There is only 170 views so little exposure so far.
I waited a while to see how the stock would trade and it has been in a $1.65 to $1.75 range with only about 50,000 shares per day. I would accumulate up to $2.00 for now.
I do own Zefiro stock
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