Zefiro Methane: Year-End Investor Update

 

I had a quick interview with Zefiro COO Luke Plants and CFO Corinne Loeffler yesterday, and then Claude and I wrote this update.

Takeaways are —

1. impressive new team now, both operationally and financially
2. they can hit the ground running now
3. high organic growth coming, already in the backlog,
4. so cash will be tight
5. M&A is high on the agenda
6. stayed cash flow positive during growth in 2025
7. Carbon Credits are coming, but to be safe say at least 2 quarters out

Zefiro Methane (Cboe Canada: ZEFI) grew revenue 31% to US$42.5 million in fiscal 2026 (year ended June 30), and adjusted EBITDA swung to a US$3.8 million profit from a loss the year before. The next couple of quarters will look thinner as Zefiro pays to absorb Viking and staff up new work. But pricing, contract wins and a leaner head office all point the right way.

Revenue up 31%, and the BIG contracts have barely started

Fiscal 2026 at a glance (US$, year ended June 30):

• Revenue: $42.5 million, up 31% from $32.4 million
• Gross profit: $12.4 million, up 66% from $7.5 million
• Gross margin: 29.2%, up from 23.0%
• Adjusted EBITDA: $3.8 million, up from a loss
• Net loss: $3.5 million, down from $10.6 million

Service rigs did most of the work, rising to US$27.7 million from US$21.7 million. Cementing, transportation and construction also grew. Carbon credits added only US$0.5 million, the first such sales Zefiro has booked.
What the numbers don’t show is the backlog. Luke Plants, CEO of operating subsidiary Plants & Goodwin, told me the US$19.6 million Ohio contract to plug marginal “stripper” wells is only now starting its first project. The state must also spend that money in about 20 months, not the original three years.

More work was added after year-end:

• An US$11.5 million state-funded contract, awarded in early September, for work from November 2026 to June 2029.
• First jobs in Indiana (a US$750,000 carbon sequestration project) and Michigan (a US$500,000 emergency well response), made possible by the Viking rigs.
• A new line in wastewater disposal well remediation, which brought in US$1.4 million in the fourth quarter alone.

Luke’s stated goal is US$100 million in annual revenue by 2028.

Growth costs money: expect thinner EBITDA for a few quarters

Fourth-quarter revenue rose 17% to US$9.3 million, but gross margin fell to 18.6% from 32.8% a year earlier.
The costs came before the revenue. In the quarter Zefiro:

• Mobilized additional rigs and began integrating the Viking fleet, bought in May.
• Signed four new corporate energy accounts in June and hired 20 field workers to serve them.
• Leaned on subcontracted labour and rented equipment to start new projects.

Expect EBITDA to stay thin for the next couple of quarters while that new capacity fills up. The path to better margins is scale. As Zefiro owns more of its equipment and sets up permanent bases in new states, spending on rentals and subcontractors should fall. I’d treat a few soft EBITDA quarters as the price of getting there, not a change in the story.

Often the only bidder, and it shows in pricing

Zefiro is often the only bidder, or one of two, when states put plugging work out to tender. That is lifting prices. In Ohio, Zefiro is winning contracts at about US$180,000 per well. When the first round of federal money came out in 2023–24, the average was about US$120,000. That’s roughly 50% more per well.

The squeeze has room to run. Pennsylvania is only starting to roll out its federal grants. New York, West Virginia and Oklahoma haven’t started yet. As Luke put it, as the supply of crews gets used up, “the amount you’re able to charge for every job just gets higher and higher.”

Recent wins show it. On three new federally funded jobs in Ohio and Pennsylvania worth US$1.9 million, Zefiro was the only bidder on two, and its price per well was above the state’s published average.
Why don’t competitors show up? The market splits in two:

• Big players such as Ranger Energy Services and Axis Energy Services plug wells for majors like Chevron, Exxon and Oxy. They don’t chase orphan-well work.
• Orphan-well contractors are mostly family-owned two-rig shops. They lack the capital to expand, and most don’t want to.

Labour is a moat too. No trade school teaches this work. Zefiro trains its own crews through six-month apprenticeship blocks. It pays entry-level workers almost US$80,000 a year in Bradford, Pennsylvania, where the median household income is about US$45,000.
A transition year: old management and its overhead are gone
Fiscal 2026 was the first full year after former CEO Talal Debs left in June 2025. The new team cut the head-office spending that came with the old regime (US$, fiscal 2025 to fiscal 2026):

• General and administrative: $3.46 million to $1.95 million, down 44%
• Advertising (within G&A): $1.12 million to $0.46 million, down 59%
• Consulting and management fees: $0.85 million to $0.60 million, down 30%
• Corporate salaries and benefits: $5.76 million to $5.13 million, down 11%
• Professional fees: $1.32 million to $2.11 million, up 59%
The one line that rose, professional fees, reflects cleanup costs. They include the British Columbia Securities Commission hearing, a special committee investigation, the shares-for-debt deals, the Viking purchase and two financings. Much of that should not repeat.

Management says Debs has had no involvement with the company since the annual meeting in March. Correne Loeffler became CFO in June after more than a year on the board. She spent 10-plus years in energy banking at JPMorgan and Bank of America, and was CFO of Whiting Petroleum and Key Energy Services.

The result: the net loss fell to US$3.5 million from US$10.6 million, even after a US$0.5 million write-down on the Viking assets.

Shares outstanding rose about 43%

Common shares went from about 75.9 million at the start of the year to 108.5 million at June 30. By late September there were 110.9 million, and 140.2 million fully diluted. The 32.6 million new shares came from:

• Private placements, 14.5 million: 9.4 million at C$0.48 in April (C$4.5 million) and 5.1 million at C$0.65 in June (C$3.3 million).
• Warrant exercises, 12.1 million: mostly at C$0.23 in January; about 75% cashless, applied against promissory notes.
• Shares for debt, 5.1 million: settled about US$2.6 million of notes, interest and payables.
• Restricted share units and other, 0.9 million.

That’s real dilution, but much of it bought a cleaner balance sheet. Related-party notes and three of four secured loan tranches were settled in January.

The warrant overhang is worth watching. About 9.4 million warrants from the April financing are exercisable at C$0.60 until April 2028, just under the current share price. If exercised, they would bring in about C$5.6 million.

Cash is tight, and I think a deal is coming

Zefiro ended the year with US$1.1 million in cash. Several debts come due in the next seven months, including notes in November 2026 and the Viking seller note’s balloon payment in April 2027.

Correne was direct about it: “It’s a growth company. Cash is always going to be tight.” Management’s plan has three parts:

1. Let the Viking rigs ramp up and add cash flow.
2. Renegotiate the near-term loans to push out their maturities.
3. Put equipment financing on the Viking assets to pay down what’s due.

Meanwhile, acquisitions are clearly on deck. Luke described Zefiro as “an old school roll-up”: buy oilfield service companies at low multiples and fold them into an environmental services business that earns a higher one. “I think we’ve got a decent M&A pipeline in front of us right now,” he said. Correne added that “we need to do continuous acquisitions” to reach the size needed before considering other listings, such as the U.S. OTC market.

Management has also talked about targeting states friendlier to plugging work, such as New Mexico and California, and possibly Canada. They talked about jurisdictions outside of Texas where competition is mature and fiercer. There is lower hanging fruit around the edges of main oil areas.

My read: with this little cash on hand, the next acquisition will very likely come with an equity raise. That means more dilution. But a raise near today’s C$0.64 would be well above April’s C$0.48 financing, and it would buy assets that add revenue.

Carbon credits: two roads,
and neither is in today’s numbers

Carbon credits brought in just US$0.5 million last year, so any carbon deal is upside. Management is pursuing two routes at once.

The registry route. The American Carbon Registry (ACR) paused its orphan-well methodology, and the replacement, version 2.0, hasn’t come out. Luke expects ACR to publish it before the end of this calendar year. He also expects Isometric, a registry popular with buyers of carbon removals, to publish its own orphan oil and gas method this year. Deals tied to those registries should follow.

The direct route. Luke says the old regime’s plan was wrong. It sold credits through bank trading desks, which “are paying us nothing and then marking it up considerably for their client.” The new plan is to sign long-term deals with the end buyers themselves. Two kinds stand out:

• Data centres. Tech giants made net-zero pledges, but their new data centres run on natural gas, which leaks methane. Many sit near gas fields with thousands of orphan wells. Paying to plug nearby wells offsets those emissions and earns goodwill in communities pushing back on data centres.

• LNG exporters. The EU charges about US$75 a tonne on the carbon intensity of imports. Paying US$20–25 a tonne to cut methane before the gas leaves the U.S. is cheaper.

To win buyers’ trust without waiting on a registry, Zefiro wants its own methodology rated by third-party rating agencies and backed by insurance. Credits could then be sold directly, cutting out the middleman. Luke said Zefiro is “decently far along in some conversations” with interested buyers.

Two side projects support this. Zefiro already owns methane-measuring equipment, and governments now pay contractors to measure leaks from stripper wells, which is a new service line. It is also developing a biochar product that absorbs methane when pumped into wells. Luke says lab results are strong and corporate customers may pay a premium for it.

Governance: waiting on a New York lawsuit

Talal is out of the business, but a lawsuit tied to him still shapes the board. Dave McGrath, the largest limited partner in Talal’s fund, is suing him in New York. Talal’s remaining interest, including preferred units in Zefiro’s U.S. subsidiary, is held through XMST, the original equity partner, not in his own name. Loeffler said the outcome could have a positive impact for Zefiro.

No new directors will join until that case is settled. Luke called it “a waiting pattern.” For now the board includes the CFO and early backer Jonson Sun.
The case also matters for the stock. The 22 million shares issued in the original Zefiro Methane deal come off transfer restrictions in stages, starting in April 2027:

• April 2027: 10%, or 2.2 million shares
• October 2027: 15%, or 3.3 million shares
• April 2028, October 2028, April 2029, October 2029 and April 2030:
15% each, or 3.3 million shares each time

That puts 5.5 million shares, or 25% of the block, free to trade by the end of 2027. These shares sit with investors separate from Talal. Management doesn’t expect them to be sold: Correne said they should end up with friendly, long-term holders who believe in the story.

Bottom line

Fiscal 2026 was the cleanup year. Fiscal 2027 is the build year. Zefiro now has a leaner head office, more rigs, pricing power in a market where it is often the only bidder, and large contracts that are only starting.
The trade-off is a few quarters of thin EBITDA, tight cash and likely more shares as acquisitions arrive. Carbon credits and M&A are the upside. At C$0.64 (September 29), with 110.9 million shares out, Zefiro has a market value of about C$71 million—about 1.4x sales.

Key risks: refinancing the near-term debt, dilution from a raise, integrating Viking, the timing of carbon deals, and the outcome of the New York lawsuit.

Sources

• Zefiro Methane Corp., Management’s Discussion and Analysis for the year ended June 30, 2026
• Zefiro Methane Corp., Annual Information Form
• Author’s interview with Luke Plants (CEO, Plants & Goodwin) and Correne Loeffler (CFO), September 2026

All dollar figures are U.S. dollars unless marked C$.