£12m placing & debt to fund Williston & Paradox

RNS Number : 6881Z

Zephyr Energy PLC

26 January 2022

 

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM THE UNITED STATES, RUSSIA, CANADA, AUSTRALIA, THE REPUBLIC OF SOUTH AFRICA OR JAPAN OR ANY OTHER JURISDICTION IN WHICH SUCH RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL.

THIS ANNOUNCEMENT IS FOR INFORMATION PURPOSES ONLY AND SHALL NOT CONSTITUTE AN OFFER TO SELL OR ISSUE OR THE SOLICITATION OF AN OFFER TO BUY, SUBSCRIBE FOR OR OTHERWISE ACQUIRE ANY ORDINARY SHARES OF ZEPHYR ENERGY PLC.

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF REGULATION 11 OF THE MARKET ABUSE (AMENDMENT) (EU EXIT) REGULATIONS 2019/310. MARKET SOUNDINGS WERE TAKEN IN RESPECT OF THE MATTERS CONTAINED IN THIS ANNOUNCEMENT, WITH THE RESULT THAT CERTAIN PERSONS PREVIOUSLY BECAME AWARE OF SUCH INSIDE INFORMATION. UPON THE PUBLICATION OF THIS ANNOUNCEMENT, THIS INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN AND ALL SUCH PERSONS SHALL THEREFORE CEASE TO BE IN POSSESSION OF INSIDE INFORMATION.

26 January 2022

Zephyr Energy plc

("Zephyr" or the "Company")

Equity fundraise of £12 million and US$28 million senior debt facility to complete the acquisition of non-operated production assets and associated CAPEX in the Williston Basin;

£1.2 million broker option to enable existing Shareholders to participate in the equity fundraise;

2022 Paradox Basin high impact drilling programme planned;

Notice of General Meeting

Zephyr Energy plc (AIM: ZPHR) (OTCQB: ZPHRF), the Rocky Mountain oil and gas company focused on responsible resource development from carbon-neutral operations, is pleased to announce a placing and subscription of, in aggregate, 240,000,000 new ordinary shares of 0.1 pence ("p") each in the Company ("Placing Shares"), at a price of 5p per Placing Share ("Issue Price"), to raise £12 million before expenses (together, the "Placing"). A Broker Option to raise up to an additional £1.2 million for the Company has been put in place to allow existing shareholders who are qualifying investors to participate on the same terms as the Placing. Further details of the Broker Option are set out below. Of the funds raised in the Placing, approximately £8.675 million is conditional, inter alia, on approval by the Company's Shareholders, further details of which are set out below.

The net proceeds of the Placing, along with a senior debt facility for US$28 million (together the "fundraise"), will be used to complete the US$36 million acquisition of non-operated working interests in currently producing wells in the Williston Basin, North Dakota, U.S. (the "Assets") (the "Acquisition" or "the Williston"), as well as to fund further near-term production growth in the Williston.  Expected cash flow from the Acquisition, in addition to cash flow from Zephyr's current non-operated portfolio, will be used to accelerate 2022 development in the Company's flagship Paradox Basin project in Utah, U.S. ("Paradox project").

Highlights

· The Company is undertaking a conditional fundraise which consists of a £12 million equity Placing, and has received an approved commitment for a US$28 million senior debt facility from a long-established North Dakota-based commercial bank.

· The Board believes that the combined debt and equity proceeds have the potential to deliver substantial near-term value and growth for Shareholders.

· Proceeds will be used for the following operational purposes:

o  To fully fund the US$36 million Acquisition:

§ The Acquisition will add a net 2.764 million barrels of oil equivalent ("mmboe") of Proven Reserves, and includes a growing production stream of approximately 1,105 barrels of oil equivalent per day ("boepd") net to the Assets in December 2021.

o  To fund an estimated US$6 million in near-term drilling capital expenditure ("CAPEX") which, along with anticipated additional cash flow generated in the coming months, will accelerate drilling and production growth across Zephyr's asset portfolio. 

o  To equip the Company's State 16-2 well for production, and to fund development of the surface infrastructure required to enable the sale of gas via the nearby pipeline and/or to a potential 2-megawatt ("MW") cryptocurrency mining facility development to be co-located on the well site.

· Once the Acquisition has been completed, the Company plans to hedge a significant portion of its non-operated production to take advantage of the increased commodity prices since the date of the original Acquisition announcement on 22 November 2021, in order to ensure substantial internal funding capacity for its ambitious growth plans.

· The cashflows from the Company's post-Acquisition non-operated portfolio have the potential to support significant growth in the Company's existing portfolio and will enable an accelerated drilling programme to be undertaken on the Company's flagship Paradox Basin asset. 

o  Zephyr plans to drill three Paradox Basin wells in the second half of 2022.  In addition, in the event the 2022 Paradox drilling programme meets expectations, the Company anticipates a significantly larger Paradox drilling programme in 2023.

· The Company has implemented a £1.2 million broker option scheme to enable existing Shareholders to participate in the equity fundraise on the same terms as the Placing.

Colin Harrington, Chief Executive of Zephyr, said : "The fundraise announced today and the associated Acquisition are further huge steps forward for the Company.  After closing this highly accretive acquisition, Zephyr will have nearly tripled its existing non-operated production - and pro forma forecast cash flow per fully-diluted share will have more than doubled through the addition of this high-quality, high-margin production base with significant near-term growth potential.

"Most importantly, the Acquisition's resultant cashflows have the potential to power growth across our broader portfolio.  Zephyr plans to financially hedge a substantial portion of the combined non-operated production in order to secure the funding required to accelerate a high impact three-well drilling programme on our operated flagship Paradox project in the second half of 2022 - which in turn, with success, may lead to a significantly larger Paradox drilling programme in 2023.  The cash flows from the non-operated portfolio will also allow for Zephyr to complete the infrastructure investment needed to bring the successfully tested State 16-2 well into full production in the coming months, and will also fund further near-term drilling in the enlarged non-operated Williston Basin portfolio.

"The fundraise and the completion of the Acquisition represent a fantastic start for 2022, and we look forward to maintaining our momentum and delivering on our key objective by unlocking significant further upside value from the Paradox project.  I would like to thank Turner Pope Investments ("TPI") and the rest of our adviser team for the successful execution of the Placing in very challenging market conditions, and I would like to take this opportunity to welcome our new Shareholders and institutional investors on board.  I am also delighted that we are able to attach a broker option scheme to the Placing which will enable existing Shareholders to participate on the same terms as the Placing.

"The Board looked a number of potential funding options for the Acquisition and concluded that the debt and equity package announced today was by far the optimal way forward, as it maximises the Company's ability to fast-track the development of the Paradox project. While the Board considered a number of proposals to fully fund the Acquisition by debt, those proposals ultimately came at a significantly higher cost and limited the amount of free cash that would be available over the next twelve months to invest into the Paradox project - and were therefore deemed less attractive alternatives to today's announced funding.

"Over the coming months, we will be providing regular updates for Shareholders as we progress through this transformational period - and in the coming weeks, we expect to be able to announce details of the independent Competent Persons Report ("CPR") being prepared on the Paradox project.  

"Finally, in line with our core beliefs and public commitment, we intend to ensure that all net hydrocarbons produced from the Acquisition will have a "net-zero" Scope 1 operational carbon impact while under our ownership. This will be achieved largely through our programme of purchasing Verified Emission Reduction credits to mitigate all Scope 1 carbon emissions.   As always, we will strive to operate as responsible stewards of our investors' capital and of the environment in which we work."

Background to the Placing and the Acquisition and details of General Meeting

Details of the Acquisition were announced by the Company on 22 November 2021, with an update announcement made on 20 December 2021. The Directors of Zephyr (the "Directors" or the "Board") believe that the Acquisition will be an ideal addition to Zephyr's existing asset portfolio and that the cashflows generated from the Assets will enable the Company to proceed with, amongst other things, the fast-track development of its Paradox project.  

The Placing has been supported by a range of new and existing institutional investors, family offices and other investors, and was conducted by TPI acting as sole broker for the Company.

Of the funds raised in the Placing, approximately £8.675 million is conditional, inter alia, on the approval by the Company's Shareholders of resolutions to provide authority to the Directors to issue and allot further ordinary shares of 0.1p each ("Ordinary Shares") on a non-pre-emptive basis, which will be sought at a General Meeting to be held on 10 February 2022, further details of which are set out below.

The Company is also launching the Broker Option to enable existing shareholders to participate on the same terms as the Placing. The Broker Option will potentially enable the Company to raise up to an additional £1.20 million through the issue of new ordinary shares at the Issue Price. The Broker Option will be open for 24 hours following the release of this announcement and details on how to participate in the scheme are outlined below.

Acquisition overview

On 22 November 2021, the Company announced to the market that it had entered into binding terms for the Acquisition. The Acquisition has an effective date of 1 December 2021 (the "Effective Date").

Under the terms the Acquisition, Zephyr is acquiring working interests in 163 currently producing wells (the "PDP wells") with net production of approximately 1,105 barrels of oil equivalent per day ("boepd") in December 2021.

· In addition to the PDP wells, the Acquisition includes:

o  18 proved not producing ("PNP") and drilled but uncompleted ("DUC") wells, all of which have been drilled and are expected to come online in 2022; and

o  o   47 proved but undeveloped ("PUD") locations for future drilling demonstrating the long-term potential growth of the Assets.

· The Assets are spread across 22 separate drilling pads in Mountrail County, North Dakota and are estimated, by the independent reserve consulting firm Sproule Incorporated ("Sproule"), to hold a net 2.764 million barrels of oil equivalent ("mmboe") of Proven Reserves.

· The Acquisition has robust economics which, along with Zephyr's existing Williston Basin production, is expected to generate substantial low risk cashflow which can be redeployed into the Company's growing Paradox Basin development. The Company estimates:

· The Acquisition cost equates to 2.1x the Assets' 2022 forecasted earnings before interest, tax, depreciation and amortisation ("EBITDA")

· Low operating expense of approximately US$13.91 per barrel of oil equivalent ("boe") which provides high cash margins of over 75%, as forecasted over the next three years

· When combined with Zephyr's current Williston Basin assets, the Company's pro forma non-operated portfolio is expected to generate approximately US$24 million of EBITDA in 2022 as forecast by the Board

· When combined with Zephyr's current Williston Basin assets, the Company's pro forma non-operated portfolio is expected to generate production of approximately 2,250 boepd in Q1 2022 reducing to approximately 1,250 boepd in Q4 2022 based on Sproule's forecasts. Production is expected to rise again in Q1 2023 as further DUCs are brought online.

· The Board estimates the post-tax net present value of the Acquisition is US$46.3 million, using Sproule's pricing (outlined in Appendix A) at a ten per cent discount rate ("NPV-10")

· Cashflows generated by the PDP wells acquired are expected to utilise the Company's historical tax losses of more than US$16 million

Note: Estimates using Sproule pricing as shown in Appendix A to this announcement

The key details of the Acquisition are as follows:

· Acquisition of 1,960 net acres of non-operated working interests in Williston Basin

· Purchase price of US$36 million, subject to various customary closing adjustments

o  US$4 million in non-refundable deposits has been paid to date

o  Closing adjustments will include US$3.8 million payable in respect of the balance of CAPEX due and will be further adjusted for the net income generated since the Effective Date  

· The working interests across the Assets average approximately 4%

· The wells are operated by Whiting Petroleum ("Whiting"), an active and highly experienced operator in the Williston Basin, which currently serves as the operator of a number of Zephyr's existing non-operated wells

The key benefits of the Acquisition are as follows:

· A diversified, low-decline production base with established history and stable cash flows

· Near term growth from DUC wells currently being brought online

· Potential to hedge a significant portion of the existing production at attractive prices to lock in returns and provide downside protection

· Excellent complement to (and funding source for) the less mature, higher upside Paradox Basin development

The economics on the Acquisition are extremely attractive. Once the DUC wells are online, the Company estimates that the Acquisition will provide:

· Up to US$13.8 million of undiscounted free cash flow after CAPEX, net to Zephyr, in 2022 to deploy into the Paradox development or into additional projects, and over the life of the project, a total US$73.6 million of undiscounted cash flow

· 2P net present value at a ten per cent discount rate (" NPV-10"): US$46.3 million

· Well-level operating expenses forecast to average approximately US$13.91 per boe produced over the next three years

· Acquisition price of 2.1x forecast 2022 EBITDA

Note: Estimates using Sproule pricing as shown in Appendix A to this announcement

Completion of the Acquisition

Once the Placing has been completed, and funds received (which, in relation to approximately £8.675 million of the Placing proceeds, remains subject to the requisite resolutions (the "Resolutions") being passed by shareholders of the Company at a general meeting ("GM") (details of which are set out below)), the Company will draw down on the senior debt facility and complete the Acquisition.

It is anticipated that, subject to, inter alia, the Resolutions being passed, the Acquisition will complete on or before 18 February 2022.

Details of the US$28 million senior debt facility

The Company has received credit committee approval from a North Dakota based commercial bank for a US$28 million senior debt facility, consisting of a fully amortising US$18 million term loan for a period of 48 months ("Term Loan") and a $10 million revolving credit facility ("RCF"). Principal and interest payments are to be made monthly on the Term Loan and monthly interest payments are payable on the RCF.

Other key terms of the Term Loan and the RCF are as follows:

· Fixed interest rate of 6.74%

· First lien mortgage, assignment of production, security agreement and financing covering all current and future mineral interests

· Unlimited full recourse corporate guarantee from Zephyr

Paradox project update

It is anticipated that cashflows generated by the Acquisition will be deployed into the Paradox project and the Company intends to commence a high impact three-well drilling programme in the second half of 2022 to further delineate the scale of the project. This will include:

· one delineation/development well targeting the Cane Creek reservoir in Zephyr's 25,000-acre White Sands Unit ("WSU");

· one exploration well targeting the WSU's shallow Paradox formation; and

· one delineation/development well in the historically prolific Cane Creek Field (new acreage south of the WSU)

150 additional drill target locations across nine reservoir targets have been identified to date, with significant additional scope and scale to be unlocked in the next three years upon delineation and exploration success. The Board estimates a potential 1 billion boe of hydrocarbon in place across its acreage position, with recoverable rates of between 5% and 15% based on current assumptions and mitigation of risk factors, and Zephyr will consider joint venture and strategic partnerships for further expedited development of the project.

An estimated US$10.0 million of funds raised from the Placing will be used to fund near-term CAPEX across Zephyr's asset portfolio and, along with cash flow generated, will also accelerate infrastructure construction on the Paradox project.

Following the recent successful production testing at the State 16-2 well, the Company will now commence with work to equip the well for production, with initial liquid volumes sold to Utah-based refineries and initial gas volumes potentially sold to a co-located cryptocurrency mining facility development.  While Zephyr will consider providing a small portion of seed funding for any co-located cryptocurrency mining development, it is currently envisaged that the potential cryptocurrency mining facility and any future such development projects would likely be spun out into a new entity for the benefit of Zephyr's shareholders, thereby limiting Zephyr's exposure to CAPEX associated with such a development.

Further infrastructure buildout at the State 16-2 well is expected to facilitate additional gas sales via a nearby pipeline. Work for a pipeline tie-in is expected to commence in the second half of 2022 for sales in 2023.

Zephyr has commissioned the independent reserve consulting firm Sproule to complete a CPR to assess the Company's reserves across both the Cane Creek reservoir and eight high-graded overlying reservoirs. The CPR is expected to be published in coming weeks once Sproule has completed their review. 

Details of the Placing

In total, 240,000,000 Placing Shares are proposed to be allotted and issued pursuant to the Placing, at an Issue Price of 5p per Placing Share to raise gross proceeds of £12 million. The Placing Shares, excluding in relation to the subscription as detailed below, have been conditionally placed by TPI acting as agent and broker of the Company, with certain new and existing institutional and other investors pursuant to a Placing Agreement, as detailed below. Placing Shares have also been subscribed for directly with the Company ("Subscription Shares") by subscribers pursuant to a subscription agreement.

The Company currently has limited shareholder authority to issue new Ordinary Shares for cash on a non-pre-emptive basis.  Accordingly, the Placing is being conducted in two tranches as set out below: 

1. First placing shares

A total of approximately £3.325 million, representing the issue of 66,500,000 Placing Shares at the Issue Price (the "First Placing Shares"), has been raised within the Company's existing share allotment authorities  which were granted at the Company's annual general meeting held on 30 June 2021  (the "First Placing"). Application has been made for the First Placing Shares to be admitted to trading on AIM and it is expected that their admission to AIM will take place on or around 1 February 2022 ("First Admission"). The issue of the First Placing Shares is conditional, inter alia, on First Admission and the Placing Agreement becoming unconditional in respect of the First Placing Shares and not being terminated in accordance with its terms prior to First Admission.  The issue of the First Placing Shares is not conditional on the Second Placing completing.

2. Second placing shares

The balance of the Placing, being approximately £8.675 million and representing the issue of 173,500,000 Placing Shares at the Issue Price (the "Second Placing"), is conditional upon, inter alia, the passing of resolutions to be put to shareholders of the Company at a general meeting of the Company to be held on 10 February 2022 to provide authority to the Directors to issue and allot further new Ordinary Shares for cash on a non-pre-emptive basis, whereby such authority will be utilised by the Directors to enable  completion of the Second Placing (amongst other things, as detailed below). A circular containing a notice of the GM will be posted to shareholders shortly.

Conditional on the passing of the resolutions at the GM, application will be made for the Second Placing Shares to be admitted to trading on AIM and it is expected that their admission to AIM will take place on or around 11 February 2022 ("Second Admission").

In addition to the passing of the resolutions at the GM, the Second Placing is conditional, inter alia, on Second Admission and the Placing Agreement becoming unconditional in respect of the Second Placing Shares and not being terminated in accordance with its terms prior to Second Admission. The First Placing is not conditional on the Second Placing completing.

If the necessary resolutions are approved at the GM, the Placing would result in the allotment and issue of an aggregate of 240,000,000 new Ordinary Shares, representing approximately 16 per cent. of the Company's issued ordinary share capital as enlarged by the Placing. 

The Placing Shares and the Broker Option shares (as defined below) will, when issued, be credited as fully paid and will rank pari passu in all respects with the existing Ordinary Shares of the Company, including the right to receive all dividends or other distributions made, paid or declared in respect of such shares after the date of issue of the relevant Placing Shares.

Broker Option

The Company has also granted an option to TPI under the Placing Agreement in order to deal with additional demand under the Placing in the event that requests to participate in the Placing from existing shareholders who are qualifying investors are received during the period of 24 hours following the release of this announcement (the "Broker Option"). To participate in the Broker Option, qualifying investors should communicate their interest to TPI via their independent financial adviser, stockbroker or other firm authorised by the Financial Conduct Authority (all of whom will be required to confirm to TPI that their client is an existing shareholder), as TPI cannot take direct orders from individual private investors. TPI should be contacted by telephone on ( 020) 3657 0050 or by email   at [e-mail] . The broker Option is conditional on the Resolutions being passed at the GM.

TPI may choose not to accept bids and/or to accept bids, either in whole or in part, on the basis of allocations determined at their discretion (after consultation with the Company) and may scale down any bids for this purpose on such basis as TPI may determine. A separate announcement will be made regarding the results of the Broker Option.

Any Ordinary Shares issued pursuant to the exercise of the Broker Option ("Broker Option Shares") will be issued on the same terms and conditions as the Placing Shares. The Broker Option may be exercised by TPI, following consultation with the Company, but there is no obligation on them to exercise the Broker Option or to seek to procure subscribers for Broker Option Shares pursuant to the Broker Option. The maximum number of Broker Option Shares that may be issued pursuant to the exercise of the Broker Option is 24,000,000. The maximum aggregate number of new Ordinary Shares (including both the Placing Shares and Broker Option Shares) that may be issued is 264,000,000.

The Broker Option Shares are not being made available to the public, only to existing Shareholders, and none of the Broker Option Shares are being offered or sold in any jurisdiction where it would be unlawful to do so. No Prospectus will be issued in connection with the Broker Option.

If the Broker Option is exercised, settlement for the Broker Option Shares and admission of the Broker Option Shares to trading on AIM is expected to take place on Second Admission. Assuming the Broker Option is fully subscribed, the Placing and Broker Option combined would result in the issue, in aggregate, of 264,000,000 new Ordinary Shares, representing approximately 17 per cent. of the Company's issued ordinary share capital as enlarged by the Placing and Broker Option. 

Warrants

The Company will issue investors in the Placing and the Broker Option with one warrant for every four Placing Shares or Broker Option Shares subscribed, meaning that a total of up to 66,000,000 warrants will be issued to subscribe for 66,000,000 new Ordinary Shares ("Investor Warrants"), assuming the Broker Option is taken up in full. The Investor Warrants will be exercisable at a price of 7. 5 pence per Ordinary Share for a period of three years from the date of issue.

The Company is proposing to issue TPI with up to 17,600,000 warrants to subscribe for 17,600,000 new Ordinary Shares ("Broker Warrants"), subject to full subscription under the Broker Option. The Broker Warrants are exercisable at a price of  7. 5 pence per Ordinary share for a period of three years from the date of the GM. TPI shall also receive commission on the exercise of the Investor Warrants and additional warrants equivalent to ten per cent. of the aggregate value of Investor Warrants exercised, such figure to be divided by the exercise price of 11.25 pence ("Additional Broker Warrants"). Up to 4,400,000 Additional Broker Warrants to subscribe for 4,400,000 new Ordinary Shares will be granted, assuming the Broker Option is taken up in full and that all Investor Warrants are validly exercised. The Additional Broker Warrants will be issued in tranches and will be exercisable at a price of  11.25 pence per Ordinary share for a period of three years from the date of issue.  

The issue of the Investor Warrants, the Broker Warrants and the Additional Broker Warrants is conditional on the passing of the resolutions to be put to shareholders of the Company at the GM to provide authority to the Directors to issue and allot further new ordinary shares on a non-pre-emptive basis.  None of the warrants will be admitted to trading on AIM or any other stock exchange.

Placing Agreement

Under the terms of a Placing Agreement between the Company and TPI, TPI will receive a corporate finance fee from the Company, commission relating to the Placing Shares and Broker Option Shares conditional on First Admission and Second Admission and commission in respect of the exercise of Investor Warrants.  The Company will give customary warranties and undertakings to TPI in relation, inter alia, to its business and the performance of its duties.  In addition, the Company has agreed to indemnify TPI in relation to certain liabilities that they may incur in undertaking the Placing. TPI has the right to terminate the Placing Agreement in certain circumstances prior to First Admission and Second Admission, in particular, in the event that there has been, inter alia, a material breach of any of the warranties. No part of the Placing is being underwritten.

Total voting rights

Following First Admission, the Company's total issued share capital will consist of 1,371,246,001 Ordinary Shares, with one voting right per share. The Company does not hold any shares in treasury. Therefore, the total number of Ordinary Shares and voting rights in the Company will be  1,371,246,001 from First Admission. This figure may be used by shareholders in the Company as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change in their interest in, the share capital of the Company pursuant to the FCA's Disclosure Guidance and Transparency Rules.

Placing - General Meeting requirement

Of the funds raised in the Placing, approximately £ 8.675 million is conditional, inter alia, on the approval by the Company's Shareholders of resolutions to provide authority to the Directors to issue and allot further new ordinary shares on a non-pre-emptive basis at a general meeting to be convened by the Company, further details of which are set out below.

Notice of General Meeting

The Company will publish a Circular to convene the GM to propose Resolutions to enable completion of the Placing, the issue of the Broker Option Shares and the grant of the Investor Warrants, the Broker Warrants and the Additional Broker Warrants.

The general meeting will be held at 10.00 a.m. on 10 February 2022.  The circular containing the notice of general meeting will be published and sent to shareholders today and will be available shortly thereafter on the Company's website, www.zephyrplc.com. Shareholders are strongly urged to vote by proxy in accordance with the instructions set out in the notice of general meeting.

Contacts:

Zephyr Energy plc Colin Harrington (CEO) Chris Eadie (CFO)	Tel: [phone]
Allenby Capital Limited  - AIM Nominated Adviser Jeremy Porter / Liz Kirchner	Tel: [phone]
Turner Pope Investments  - Broker James Pope / Andy Thacker Flagstaff Strategic and Investor Communications Tim Thompson / Mark Edwards / Fergus Mellon	Tel: [phone] Tel: [phone]

Dr Gregor Maxwell, BSc Hons. Geology and Petroleum Geology, PhD, Technical Adviser to the Board of Zephyr Energy plc, who meets the criteria of a qualified person under the AIM Note for Mining and Oil & Gas Companies - June 2009, has reviewed and approved the technical information contained within this announcement.

Estimates of resources and reserves contained within this announcement have been prepared according to the standards of the Society of Petroleum Engineers. All estimates, unless otherwise noted, are internally generated and subject to third party review and verification.

Glossary of Terms

1P:  proven reserves (both proved developed reserves + proved undeveloped reserves)

2P: 1P (proven reserves) + probable reserves, hence "proved and probable"

3P: the sum of 2P (proven reserves + probable reserves) + possible reserves, all 3Ps "proven and probable and possible"

Reserves: Reserves are defined as those quantities of petroleum which are anticipated to be commercially recovered from known accumulations from a given date forward

Appendix A

Sproule Proven Reserves Summary

Reserves Category	Well Count	Net Oil Reserves (Mbbl)	Net Gas Reserves (MMcf)	Net NGL Reserves (Mbbl)	Discounted Cash Flow 10%(M$)
PDP	1791	1,097	1,823	281	30,458
PNP	5	48	71	11	1,213
DUC/PUD1	13	325	372	57	7,504
PUD	47	415	473	73	7,173
Total	244	1,885	2,739	423	46,349

*Note: Some columns may not add due to rounding

1. PDP well count includes 163 PDP wells and 16 After Payout (APO) wells. The APO are classified as proved developed producing, but do not convert to a paying interest. Only the abandonment costs have been included for these wells.

2. Drilled Uncompleted (DUC) wells have been classified as proved undeveloped (PUD) and are drilled wells with a range of remaining capital costs required to complete and bring on production. These have all been classified as PUD  at the request of the Company, for simplicity

Sproule Price Deck

Year	Oil ($/bbl)	Oil Differential ($/bbl)	Oil Realized($/bbl)	Gas($/mmbtu)	NGL ($/bbl)
2021	76.00	-6.50	69.50	5.00	30.40
2022	71.00	-6.50	64.50	4.00	28.40
2023	68.00	-6.50	61.50	3.50	27.20
2024	66.00	-6.50	59.50	3.25	26.40

1.  Prices escalated at 2% per year after 2024 until price doubles, then held flat

2.  Oil differential is the difference in price between an established benchmark and what is actually received at the lease or field (inclusive of adjustments for quality, energy, content, transportation fees and regional / local differentials)

Notice to Distributors

Solely for the purposes of the temporary product intervention rules made under sections S137D and 138M of the FSMA and the FCA Product Intervention and Product Governance Sourcebook (together, the "Product Governance Requirements"), and disclaiming all and any liability, whether arising in tort, contract or otherwise, which any "manufacturer" (for the purposes of the Product Governance Requirements) may otherwise have with respect thereto, the Placing Shares have been subject to a product approval process, which has determined that the Placing Shares are: (i) compatible with an end target market of retail investors and investors who meet the criteria of professional clients and eligible counterparties, as defined under the FCA Conduct of Business Sourcebook COBS 3 Client categorisation, and are eligible for distribution through all distribution channels as are permitted by the FCA Product Intervention and Product Governance Sourcebook (the "Target Market Assessment").

Notwithstanding the Target Market Assessment, distributors should note that: the price of the Placing Shares may decline and investors could lose all or part of their investment; the Placing offer no guaranteed income and no capital protection; and an investment in the Placing is compatible only with investors who do not need a guaranteed income or capital protection, who (either alone or in conjunction with an appropriate financial or other adviser) are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear any losses that may result therefrom. The Target Market Assessment is without prejudice to the requirements of any contractual, legal or regulatory selling restrictions in relation to the Placing. Furthermore, it is noted that, notwithstanding the Target Market Assessment, Allenby Capital Limited will only procure investors who meet the criteria of professional clients and eligible counterparties. For the avoidance of doubt, the Target Market Assessment does not constitute: (a) an assessment of suitability or appropriateness for the purposes of the FCA Conduct of Business Sourcebook COBS 9A and 10A respectively; or (b) a recommendation to any investor or group of investors to invest in, or purchase, or take any other action whatsoever with respect to the Placing Shares.

Each distributor is responsible for undertaking its own target market assessment in respect of the Placing Shares and determining appropriate distribution channels.

 

END

 

 

IOEFIFITLSIRFIF