Prior to publication, the information contained within this announcement was deemed by the Company to constitute inside information as stipulated under the UK Market Abuse Regulation. With the publication of this announcement, this information is now considered to be in the public domain.

11 November 2021

Zephyr Energy plc

("Zephyr" or the "Company")

First hydrocarbons produced at the State 16-2LN-CC well;

well clean-up phase remains ongoing; and,

Q3 non-operated asset portfolio production update

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 provide an update on the ongoing production testing at the State 16-2LN-CC well in Utah, and to report on third quarter ("Q3") performance from its non-operated portfolio in the Williston Basin, North Dakota.

The Company is delighted to announce the first flowing hydrocarbons from the State 16-2LN-CC well, even as production testing and well clean-up efforts remain ongoing.  The production of hydrocarbons marks a major milestone for Zephyr, particularly as this is the first horizontal well in the wider Paradox Basin to flow hydrocarbons using a modern hydraulically stimulated completion.

Combined with a substantial increase in Q3 production and associated cashflow from Zephyr's non-operated asset portfolio in the Williston Basin, the Company is well positioned to continue in the pursuit of its goal to develop a new hydraulically stimulated resource play in the onshore U.S. oil and gas sector.

 State 16-2LN-CC well update overview

·    The State 16-2LN-CC well was put on flowback on 28 October 2021, under a heavy 7/64 inch choke in order to prevent formation damage during early stages of flowback;

·    The well is now successfully flowing hydrocarbons;

·    Although production rates are facility constrained at present, the well is demonstrating highly encouraging daily average flow rates of 420 barrels of oil equivalent per day ("boepd") with recent hourly rates of over 690 boepd on a slightly less restricted 12/64 inch choke setting;

·    In addition to hydrocarbons, the well continues to flowback completion fluids at approximately 1,200 barrels per day and production testing remains ongoing:

o  Fluid composition is evolving as additional completion fluid is recovered, with ultimate expected gas/oil ratios yet to be determined.

·    The well has demonstrated limited pressure drawdown to date despite the high liquid rate, an additional encouraging sign which may indicate a large connected volume.

·    Results to date suggest the State 16-2LN-CC is a successful proof of concept well with highly positive implications for the utilisation of hydraulic stimulation completions across the multiple reservoir zones and across the Company's 37,613-acre lease position within the Paradox Basin.

While the production testing phase remains ongoing, the results to date mark a major milestone for Zephyr. Over the coming weeks, Zephyr will attempt to address the facility constraints in order to further reduce choke levels and ascertain maximum potential production rates. The Company will make further announcements once the well testing is completed, hydrocarbon mix becomes better understood and well flows become representative of longer-term reservoir performance.

Q3 non-operated asset portfolio production update

The Company is also pleased to provide an update on the Q3 performance from the seven producing non-operated wells in the Williston Basin in which the Company has working-interests.  Several of the wells were brought onto full production during the period, during which time operational production rates increased from 232 boepd in July 2021 to 549 boepd in September 2021, net to Zephyr.

During Q3, Zephyr sold 35,848 barrels of oil equivalent ("boe") and net production for the quarter was as follows:

  Oil:                                      31,604 barrels ("bbls") at an average sales price of $68.62 per bbl

                Natural Gas:                      18,967 million cubic feet ("mcf") at an average sales price of $4.71 per mcf

                Natural Gas Liquids:        1,083 bbls at an average sales price of $38.21 per bbl

Production from the non-operated portfolio is expected to further increase over the coming months as additional wells are brought online.  Going forward, Zephyr plans to report production numbers from its non-operated portfolio on a quarterly basis.

Colin Harrington, Zephyr's Chief Executive, said: "I'm absolutely delighted that, after many years of hard work and investment in the Paradox Basin, we can finally announce the first flowing hydrocarbons from our Paradox project. As this represents the first production generated from a horizontal well in the Paradox Basin using modern hydraulic stimulation, today marks a historic moment and heightens our expectations regarding the future development potential of Zephyr's leaseholding. 

"We've always viewed this first well as a 'proof of concept' for a wider development, and our future wells are expected to benefit from further optimisations such as longer lateral lengths and from additional refinements of completion techniques.  Even without those future enhancements, I'm hugely excited that we're seeing rates of nearly 700 boepd, especially given the substantial level of choke on the well and the fact that we are rate constrained by existing surface facilities.  I fully expect to see production rates increase further should we further resolve facility constraints during the remainder of the production test.

"While these initial results are highly encouraging, it's important to remember that production testing remains ongoing and key parameters such as fluid mix are still variable and volatile.  That said, what we've seen so far lends support to our vision of opening up a new hydraulically stimulated play in the United States, and over the coming months we fully expect to deliver additional wells that target the Cane Creek reservoir as well as the overlying reservoirs.  The increased production from our non-operated portfolio in the Williston Basin, during this time of strong commodity pricing, is expected to generate substantial cashflows to fund future development efforts in the Paradox.

"I would like to once again thank our technical team and dedicated contractors for their ongoing efforts in delivering a successful well.  Having invested so much time and resource into the Paradox project, delivering the first production from our Paradox position is a true landmark event for the Company, and I look forward to providing further updates in the near future.

"Finally, but very importantly, I want to remind Shareholders that all produced hydrocarbons are carefully measured and always subject to our carbon mitigation efforts.  While natural gas volumes are being flared through this testing phase, Zephyr remains committed, at the highest level, to providing carbon-neutral operations through the purchase of Verified Emission Reduction credits to offset our Scope 1 emissions.  Moreover, we are well underway evaluating a number of profitable long-term solutions for the sale of any future natural gas volumes produced, including via interconnection with the nearby pipeline system as well as options to monetise produced gas directly on site.   As always, our goal is to deliver strong Shareholder value while being responsible stewards of investors' capital and responsible stewards of the environment."

Contacts:

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.

Glossary of Terms

Flowback - refers to process fluids that are collected at the surface after hydraulic stimulation operations are completed. The fluids may contain both the hydraulic stimulation fluids and hydrocarbons.