Oil and gas well plugging specialist Zefiro announces IPO

Quantum Commodity Intelligence – Zefiro, a Miami-based company that plugs orphaned oil and gas wells and earns the methane reductions as carbon credits, is preparing to list its shares on a Canadian stock exchange in order to raise funds for its development, it said Friday.

The company will offer two million shares in its business at a price of CAD1.50 ($1.10) per share.

PI Financial Corp will act as the lead underwriter, the main broker for the shares, as part of a syndicate that includes Raymond James and Echelon Wealth Partners.

The initial public offering on the Cboe Canada exchange is expected to close on April 23 and the three underwriters will have the option to sell an additional 300,000 Zefiro shares at a later date, said the company.

Zefiro specialises in sealing orphaned oil and gas wells - those that have an untraceable parent - located in North America and claiming the reductions in methane emissions as carbon credits under a methodology approved by US-based registry ACR last year.

The founding team includes former JP Morgan bankers, operations specialists as well as individuals with years of experience in the carbon markets, including Tina Reine, who helped develop several carbon offset methodologies.

Last year, Zefiro acquired a plugging specialist subsidiary called Plants and Goodwin with 50 years of operations in Pennsylvania, New York, Ohio and West Virginia.

"The net proceeds of the offering will be used for equipment purchases, operation team scaling, carbon credit pre-sale fees, integration of Plants and Goodwin, Inc, professional fees, management overhead, repayment of outstanding notes, marketing and investor relations, and working capital," said Zefiro.

Jonson Sun, one of the company's board members, told Quantum in an interview last month the company's target market is worth $400-600 billion as there are 6.7 million unplugged wells in the US alone seeping methane into the atmosphere.

Of these, 3.7 million are orphaned, which is when the wells no longer have a traceable corporate parent, often because the owner has gone bankrupt or closed activities.

$100k per well

Sun said there is a need to significantly boost the amount of resources allocated to the problem: with existing plugging capacity in the US estimated to be just 20,000 to 25,000 wells a year, it will take several decades to run through the current inventory.

Typically, plugging an oil and gas well costs around $100,000, he said, adding that the IPO will enable Zefiro to continue to raise finance over time.

"The oil and gas industry is cyclical. The top producers, they own the best producing wells, and as the wells become less economical, they pass them on, they sell them down to smaller players," said Sun.

"It's a huge cheque, it's not something that even the government can afford to deal with at this moment."

Last year, Zefiro announced a pre-sale deal for its methane credits with Mercuria Energy America in the "tens of thousands of tonnes" without specifying a price.

The US company says pre-sales are a suitable economic model for now, given that the credits are brand new in the carbon market and price discovery is uncertain.

Zefiro has agreed a framework with Mercuria to facilitate further trading in future.

"Unlike a lot of project developers who like to sit on the credit, we mine and hand our credits right away... We want to demonstrate and build a market for these," said Sun.

"Our carbon team can pick up the phone and call Mercuria, and if they agree on price, the trade can just be done via email. That's what we mean by an institutional grade carbon offset distribution channel."

The Biden administration has allocated $4.7 billion to the orphaned well problem, but that will be enough to plug fewer than 50,000 wells, or less than 1% of the number in existence.

The US government has also defined a $900 penalty for methane emissions in its Inflation Reduction Act, increasing to $1,500 in 2026.

Zefiro has identified an inventory of 900 higher priority wells and earlier this week, it officially registered its project under ACR.

It said it is already working with three states in Appalachia following a $1 billion federal award to the region.

"Zefiro - through Plants and Goodwin - is the largest plugger of wells in the region, yet the surface is barely scratched in retiring all documented wells," the firm concluded.

"There is tremendous demand which will drive organic growth."

Competitors in the field include Carbon Shield, Crbon Labs, Rebellion Energy Solutions, Vital EcoSystems, PermCap-GHG and Tradewater.