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.

24 October 2022

Zephyr Energy plc

("Zephyr" or the "Company")

Drilling programme update;

State 16-2LN-CC production test update;

Cooperation Agreement established with Kirkwood Oil and Gas LLC; and

Investor webinar update

Zephyr Energy plc (AIM: ZPHR) (OTCQB: ZPHRF), the Rocky Mountain oil and gas company focused on responsible resource development from carbon-neutral operations, provides an update on operations and related investor webinar on its project in the Paradox Basin, Utah, U.S. (the "Paradox project") and announces the signing of a Cooperation Agreement with Kirkwood Oil and Gas LLC related to data sharing and planned joint drilling in the Paradox Basin.

Drilling programme update

The Company has completed all preparations needed to commence drilling the fully-funded State 36-2 LNW-CC well, pending receipt of the final Federal drilling permit.  While Federal drilling permit approvals have slowed markedly across the entire U.S. domestic oil and gas industry, the Company remains confident it will be able to commence drilling in the near-term. 

In anticipation of the receipt of the final permit, and in order to be in position to spud the well shortly thereafter, the Company recently completed construction of the shared pad on which the State 36-2 LNW-CC and the State 36-3 LN-C9 wells will be located.  The State 36-2 LNW-CC well will be the initial well drilled and will target the Cane Creek reservoir.  The State 36-3 LN-C9 exploration well (targeting the shallower C9 reservoir) is being permitted in parallel.  The pad for the wells is located in an area with good quality road access and adjacent to the recently acquired 6-inch gas gathering pipeline, providing efficient access to gas export infrastructure. 

With the exception of the final Federal permit, all regulatory approvals required to drill the State 36-2 LNW-CC well have been secured. The Company is in advanced discussions to execute a rig contract shortly after the final permit is approved, details of which will be announced in due course.

The two wells mentioned above are both located within Zephyr's White Sands Unit (the "WSU"), the same Federal unit in which the previously drilled State 16-2LN-CC well is located.   A third well is expected to be drilled outside of the WSU, and will be drilled in partnership with, and operated by, Kirkwood Oil and Gas LLC, the Paradox Basin's largest operator, details of which can be found below.

State 16-2LN-CC well production test update

The State 16-2 LN-CC well was successfully drilled, completed and tested in late 2021, although rates were constrained throughout the production test due to surface equipment limitations. Since then, Zephyr's operations team, working with a team of external consultants, has spent significant time designing surface facilities to re-equip the well pad in order to:

a) test plans for improved flow assurance;

b) prepare for eventual gas export and continual production operations; and,

c) obtain further production data for overall well and field management. 

The Company, which previously announced plans to conduct an additional production test on the well, is pleased to announce that all permits needed for that production test have been approved and operations to construct further surface facilities on the well pad are in progress. 

Multiple service providers are currently active on site, and the wellbore has been re-entered to prepare for the commencement of the additional well test, currently envisioned to begin mid to late November 2022.

Cooperation Agreement with Kirkwood Oil and Gas LLC

The Company is pleased to announce it has entered into an agreement (the "Agreement") with Kirkwood Oil and Gas LLC and its affiliate, Wesco Operating, Inc. ("Wesco") (collectively, "Kirkwood"), in which Zephyr and Kirkwood agree to co-operate and collaborate on the extension and further development of the Cane Creek play in Grand County, Utah - including the drilling of a new, Kirkwood-operated well.

Kirkwood, based in Wyoming, operates over 500 wells across 39 oil fields in the Rocky Mountain region and is currently the operator of the Cane Creek oil field located 12 miles to the south of Zephyr's White Sands Unit in the Paradox Basin. Kirkwood, via its operating subsidiary Wesco, is the most active regional operator in the northern Paradox Basin.

The Agreement allows for the sharing of certain proprietary data in order to assist both companies with the development of their individual acreage positions.  In addition, the Agreement also allows for the planning and drilling of a 2-mile horizontal well targeting both Zephyr and Wesco held acreage.  The planned well will be located in Grand County, Utah immediately to the south of the Wesco-operated Cane Creek Field.  Cooperation on the planned well would involve sharing design and lessons learned from the Zephyr-operated State 16-2LN-CC well and utilising Wesco's considerable experience as operator of the Cane Creek oil field.  Wesco will act as the operator of the planned well, and each party will hold a 50% working interest with all expenses shared pro-rata. 

The objective of the planned well is to test the potential of modern hydraulic stimulation and completion (as recently performed at the State 16-2LN-CC well) on the Cane Creek reservoir within the black oil fairway of the play.  The well will be drilled from an existing pad with existing infrastructure, thereby reducing environmental impact and the need for further gathering line infrastructure. The planned well location is immediately offset by a 2014 vintage horizontal well (with a 4,900-foot lateral) which targeted the productive, highly over-pressured, naturally-fractured Cane Creek reservoir. That well was subsequently recompleted with a small volume diesel stimulation and has produced over 188,000 barrels of oil to date, at very low water cut, and is still in production today.

By applying the latest completion techniques, it is expected that initial oil rate and expected ultimate recovery from the planned well will be increased both by drilling a longer well and improving the overall reservoir drainage. Success at this location would open new play opportunities for both companies on their existing acreage positions.  Drilling operations remain subject to regulatory authority approvals.

Investor Webinar

On 28 September 2022, the Company announced that it would be presenting a live investor webinar on Tuesday 25 October 2022.  At the webinar, the Company intended to present detailed development plans and schedules related to the forthcoming drilling programme.  Given that the Company is still awaiting the final Federal permits for the two wells located in the WSU, it has elected to delay the webinar until the State 36-2 LNW-CC Federal permit is granted and the rig contract awarded, so that the webinar can be as detailed, accurate and informative as possible.

Colin Harrington, Zephyr's Chief Executive, said:  "It's exciting to see activity building across the Paradox project as we prepare for the commencement of our fully-funded drilling programme. With the construction of the State 36-2 LNW-CC drilling pad now complete, our team is prepared to commence drilling operations as soon as possible after the final Federal permit has been granted.

"Based on discussions with the relevant Federal authorities our team is confident that drilling approval has the potential to be granted in the near-term in spite of an industry wide slowdown of Federal drilling permit approvals.  In the meantime, we've worked extremely hard to navigate the challenging rig, labour and supply chain market environment so that we're positioned to spud the well as soon as possible.

"In addition to preparations for drilling, our facilities team has been working on the re-equip and augmentation of the surface facilities at the State 16-2 LN-CC, and we look forward to the seeing the results of the production test over the coming weeks.

"I am further delighted to announce the signing of the Agreement with Kirkwood.  As the most active operator in the northern Paradox Basin, Kirkwood's team has a strong history and service relationships which are second to none in the basin.  Paired with Zephyr's technical understanding and expertise gained from successfully drilling the northern Paradox Basin's first horizontal well using a modern completion, our joint cooperation on the funding and drilling of a new well - at a location where our respective acreage positions are contiguous - has the potential to be highly beneficial for both parties, and with a minimum of surface disruption.  We look forward to the collaboration and are eager to see the application of hydraulic stimulation applied to a long lateral horizontal well in the black oil fairway of the Cane Creek Field.

"Finally, while I'm frustrated with the delay related to our Paradox-focused investor webinar, we look forward to rescheduling as soon as the Federal permit is granted and the drilling contract is finalised - at which point it will be possible to more accurately share details regarding drill timing, service partners and expected completion and testing schedules.

"We expect the next period to be an exciting time in our development of the Paradox project and we look forward to providing further updates when activity on the ground permits."

Contacts:

Notes to Editors

Zephyr Energy plc (AIM: ZPHR) (OTCQB: ZPHRF) is a technology-led oil and gas company focused on responsible resource development from carbon-neutral operations in the Rocky Mountain region of the United States.  The Company's mission is rooted in two core values: to be responsible stewards of its investors' capital, and to be responsible stewards of the environment in which it works.

Zephyr's flagship asset is an operated 45,000-acre leaseholding located in the Paradox Basin, Utah which has been assessed by third party consultants Sproule International to hold, net to Zephyr, 2P reserves of 2.1 million barrels of oil equivalent ("mmboe"), 2C resources of 27 mmboe and 2U resources 203 mmboe. Following the successful initial production testing of the recently drilled and completed State 16-2LN-CC well, Zephyr is planning a three well drilling program commencing later this year to further delineate the scale and value of the project.

In addition to its operated assets, the Company owns working interests in a broad portfolio of non-operated producing wells across the Williston Basin in North Dakota and Montana.  The Williston portfolio currently consists of working-interests in over 200 modern horizontal wells which are expected to provide US$35-40 million of revenue, net to Zephyr, in 2022.  Cash flow from the Williston production will be used to fund the planned Paradox Basin development. In addition, the Board will consider further opportunistic value-accretive acquisitions.