Financing and Operational Update

(TheNewswire)

January 7, 2019 / TheNewswire / Calgary, AB - Zenith Energy Ltd. ("Zenith" or the "Company") (LSE: ZEN; TSX.V: ZEE; OSE: ZENA-ME) the listed international oil & gas production company operating the largest onshore oilfield in Azerbaijan, is pleased to provide a financing and operational update.

Convertible Loan Facility announced on September 5, 2018

The Company can confirm that it has successfully renegotiated the terms of the unsecured Convertible Loan Facility (the "Facility") announced on September 5, 2018 for an aggregate amount of US$1,500,000.

Zenith has agreed with the consortium of lenders that conversion of the Facility will now not take place before March 1, 2019 and that the total outstanding liability in relation to the Facility will stand at US$1,050,000 (approximately GBP825,000; CAD$1.4 million; NOK 9 million) by January 14, 2019.

Further details on the terms of the Facility, including the conversion terms, were announced by the Company on September 5, 2018.

Loan Agreement announced on April 5, 2018

The Company is pleased to announce that the non-convertible loan agreement for the total amount of GBP230,000, signed on April 3, 2018, was repaid in full on December 19, 2018.

Convertible Loan Facility

The Company has entered into a new unsecured convertible loan facility for an aggregate total amount of up to GBP1,000,000 (the "Loan Facility") with a consortium of lenders (the "Lenders"). The Loan Facility has a term of 24 months and the Company shall pay interest on the outstanding amount of the Loan Facility at the rate of 8% per annum (the "Interest Rate"). The Loan Facility includes a first closing that was completed on January 4, 2019 of GBP301,500 (approximately CAD$513,000; NOK 3.3 million), and further closings that might be completed at a later time. The Loan Facility is repayable on January 15, 2021.

Under the terms of the Loan Facility, the Company will create share purchase warrants (the "Warrants") equivalent to 10% of the total amount drawn down under the Loan Facility to subscribe for the equivalent number of common shares of no par value in the share capital of Zenith ("Common Shares") at a price of GBP0.043999 per Common Share subject to the articles of the Company and the terms and conditions of the Loan Facility.

With certain limitations, the Convertible Loan Notes ("CLNs") will be convertible into Common Shares of the Company at any time after the expiry of a 120 day lock up period from the date of issue of the CLNs, January 15, 2019, as required under applicable Canadian securities laws.

The conversion price will be the lower of GBP0.04399 (CAD$0.075; NOK 0.48) per share and 90% of the average of the London Stock Exchange sterling closing price of a Common Share for the five Business Days prior to the day on which the relevant conversion notice is served, with a conversion price to be no lower than CAD$0.06 (approximately GBP0.035; NOK 0.39 ) per Common Share for the full duration of the Loan Facility. In addition, conversion of the CLNs may not occur to the extent that the number of Common Shares to be issued pursuant to the relevant conversion notice would take the number of Common Shares issuable in respect of conversion notices served in any month to exceed 5,000,000 Common Shares.

An application will be made for any Common Shares issued and allotted upon exercise of the Warrants or conversion of the CLNs to be admitted to the standard segment of the Financial Conduct Authority UK Official List and to trading on the Main Market for listed securities of the London Stock Exchange (the "Admission") as well as the TSX Venture Exchange and Merkur Market of the Oslo Børs. The new Common Shares will rank pari passu in all respects with the existing common shares of the Company.

The Facility agreement includes normal warranties and default clauses.

Operational Update

Well C-37, Jafarli Field

The Company can confirm that preparation activities for well deepening operations in well C-37 of the Jafarli field have been completed successfully. The estimated saving achieved by utilising Zenith's A-80 workover rig to complete these activities has been assessed as approximately US$250,000.

As announced on November 23, 2018, these operations have involved running in hole with a scraper to perform a cleanout of the casing to a depth of 3,904 metres.

During these operations an obstruction was encountered at a depth of 1,830 metres requiring the scraper to be pulled out of hole and further well cleanout operations to be undertaken.

Once further cleanout activities were completed, Zenith's field team ran in hole with a

tri-cone drill bit successfully clearing the previously detected obstruction at a depth of 1,830 metres and reaching the target depth of 3,904 metres (production casing shoe). The tri-cone drill bit was subsequently pulled out of hole and a scraper was again run in hole and successfully cleaned out the wellbore to a depth of 3,904 metres as planned.

Following these activities, wireline logging was successfully performed, and the well is now deemed ready for well deepening activities.

Tender Process for Well C-37 Deepening Operation

The Company confirms that a total of 12 companies have participated in the tender by submitting commercial and technical bids for well C-37 deepening operations. Zenith is currently evaluating the aforementioned bids in consultation with its partner, SOCAR, and expects to award contracts, in accordance with its tender procedure and with the approval of its partner, during the next 14 business days.

Jafarli Field Well Deepening Programme

The Company's geological investigations have determined that a number of wells adjacent to well C-37 in the Jafarli field share a strong production potential from the Middle Eocene and Upper Cretaceous formations of the same unexploited structure identified as the target zone for well deepening operations in well C-37. The Company's field team is currently determining which well represents the best candidate for well deepening operations through a series of well tests and workover activities utilizing its A-80 workover rig.

Zenith can confirm that its A-80 workover rig is currently performing a full cleanout of the well C-26 wellbore to the depth of 3,920 metres (production casing shoe) in order to confirm the integrity of the production casing and thereby determine whether the well might be suitable for well deepening activities.

In the event of a successful result being achieved in well C-37 deepening operations, the Company will mobilise a drilling rig to a second well location in the Jafarli field to perform well deepening operations targeting the same Middle Eocene and Upper Cretaceous formations.

BD-260 Drilling Rig

The Company has received confirmation from B Robotics W S.r.l., ("Robotics") that the BD-260 drilling rig, purchased by its oilfield service company subsidiary, Zena Drilling Limited, ("Zena"), has been fully rigged up and that all components have been fully tested. Robotics is now rigging down the BD-260 drilling rig in preparation for transportation.

Zenith is currently defining an agreement with an international logistics company in order to transport the BD-260 drilling rig from Italy to Azerbaijan. The Company will make an announcement once transportation of the BD-260 drilling rig begins.

2019 Production Target

Zenith's oil production target for the 2019 calendar year remains unchanged at 1,000 barrels per day. The arrival of new equipment including a 260-ton drilling rig, a 100-ton truck-mounted workover rig, and the planned leasing of a 180-ton truck-mounted drilling rig from a local drilling contractor, to be used on the basis of detailed geological and reservoir investigations, is expected to enable the Company to achieve this target.

The Company's current average production is approximately 270 barrels per day generating gross monthly revenue of approximately US$450,000.

The decline in oil production has resulted from the temporary shutting-in of certain wells in the Jafarli and Muradkhanli fields due to uneconomical performance caused by high watercut, and the necessary suspension of production from wells undergoing well preparation for deepening activities in the Jafarli field.

2019 Drilling Campaign

As announced on August 13, 2018, the Company has completed two comprehensive geological studies to optimise the selection of potential drilling locations and workover opportunities across the Muradkhanli, Jafarli and Zardab fields.

The study focussed on the Muradkhanli and Jafarli fields enabled the identification of a new, previously unexplored, Mesozoic carbonate prospect running across the two fields beginning from the south-western flank of the Muradkhanli field.

The Zardab field geological study enabled an identification of the main producing target reservoirs, seal and source rocks, a comprehensive analysis of all well test results, digitalisation of all well logs, the creation of stratigraphic logs and structural logs, as well as several structural maps.

The Company is finalising a drilling programme that is planned to initially include the spudding of an appraisal well during the first six months of 2019, to be named ZEN-01, to target the aforementioned unexploited Mesozoic carbonate prospect in the Muradkhanli and Jafarli oilfields.

Andrea Cattaneo, Chief Executive Officer, commented:

"We are pleased to have successfully renegotiated the convertible facility announced on September 5, 2018, and to have obtained additional funding from a new loan facility that will be invested directly into our operations as we begin highly prospective drilling operations in Azerbaijan.

As is clear, considerable progress has been made in a number of areas and we are increasingly positioning ourselves towards achieving the transformational potential of our asset indicated by our independently assessed 2018 CPR 2P reserves (proved plus probable) of 31.7 million barrels of oil. The significant improvements in our knowledge of the field's geology, combined with the equipment we shall soon be able to deploy, should have a determining influence on the success of the intensive workover and drilling activities that we have planned during 2019.

I am excited about our planned activities during the months ahead which should enable us to reward the commitment of Zenith investors."

Neither the TSX Venture Exchange nor its Regulation Service Provider (as that term is defined in the policies of TSXV) accepts responsibility for the adequacy of this release.

Further information:

Zenith Energy Ltd.

Andrea Cattaneo

Chief Executive Officer

E-mail: [email protected]

Tel: +1 (587) 315 9031

Daniel Stewart & Company Plc - (Joint Broker)

Robert Emmet- Corporate Broking

Tel: + 44 (0) 207 776 6550

Optiva Securities - (Joint Broker)

Christian Dennis

Tel: + 44 (0) 203 137 1903

Allenby Capital Limited - (Financial Adviser)

Nick Harriss

Nick Athanas

Tel: + 44 (0) 203 328 5656

Notes to Editors:

Zenith Energy Ltd. is an international oil and gas production company, listed on the TSX Venture Exchange (TSX.V:ZEE) and London Stock Exchange (LSE:ZEN). In addition, the Company's common share capital was admitted to trading on the Merkur Market of the Oslo Børs (ZENA:ME) on November 8, 2018. The Merkur Market is a multilateral trading facility owned and operated by the Oslo Børs.

The Company was assigned a medium to long-term issuer credit rating of "B+ with Positive Outlook" on October 8, 2018 by Arc Ratings, S.A.

The Company operates the largest onshore oilfield in Azerbaijan following the signing of a 25-year REDPSA, (Rehabilitation, Exploration, Development and Production Sharing Agreement), with SOCAR, State Oil Company of the Republic of Azerbaijan, in 2016.

The Company's primary focus is the development of its Azerbaijan operations by leveraging its technical expertise and financial resources to maximise low-cost oil production via a systematic field rehabilitation programme intended to achieve significantly increased revenue. Zenith also operates, or has working interests in, a number of natural gas production concessions in Italy. The Company's Italian operations produce natural gas, condensate and electricity.

Zenith's development strategy is to identify and rapidly seize value-accretive hydrocarbon production opportunities in the onshore oil & gas sector. The Company's Board of Directors and senior management team have the corporate and technical expertise to develop the Company successfully.

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Financing and Operational Update