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.

15 February 2023

Zephyr Energy plc

("Zephyr" or the "Company")

Fourth Quarter and FY 2022 results from Williston Basin portfolio

Year-on-year revenue growth in excess of 600%

Year-on-year production growth of over 500%

FY 2023 production guidance reaffirmed

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 initial fourth quarter 2022 ("Q4") and full-year 2022 ("FY 2022") results related to hydrocarbon production and cashflows from its non-operated asset portfolio in the Williston Basin, North Dakota, U.S (the "Williston project").

Q4 2022 and FY 2022 Williston Basin Highlights

·    Q4 revenues totalled US$7.4 million, net to Zephyr, giving the Company total expected revenues for FY 2022 of US$42.9 million (subject to audit) - representing a seven-fold increase over full-year 2021 ("FY 2021") revenues of US$6 million and in excess of Zephyr's initial public guidance for FY 2022 revenues of US$35-US$40 million.

·    Q4 sales volumes averaged 1,192 barrels of oil equivalent per day ("boepd"), giving the Company total sales for FY 2022 of 543,948 barrels of oil equivalent ("boe") - at the high end of the range of Zephyr's guidance for FY 2022 sales and representing more than a six-fold increase from FY 2021 sales of 88,037 boe.

o  FY 2022 sales volumes averaged 1,490 boepd compared to the FY 2021 sales volumes average of 263 boepd.

o  The Company hedged 171,000 barrels of oil in FY 2022 at a weighted-average price of US$98.04 per barrel of oil.

·    Q4 operating income was US$6.3 million (after taxes, lease operating expenses, realised hedging impacts, and gathering and marketing fees). Operating income for FY 2022 was US$35.7 million.

·    At 31 December 2022, 223 wells in the portfolio were available for production, including 17 wells which came online at some point during the quarter.

o  Net working interests across the Williston Basin non-operated portfolio now average 6.3% per well, equivalent to 15 gross wells, all of which utilised horizontal drilling and modern, hydraulically stimulated completions.

o  An estimated eight additional wells in which Zephyr owns a working interest are forecast to be brought on production by the end of June 2023, and these wells are  expected to significantly increase daily production rates from the Williston portfolio.

o  Zephyr reiterates its previously released guidance of 1,550 to 1,750 boepd, net to Zephyr, for its full-year 2023 ("FY 2023") Williston Basin production - an estimate which includes contributions from the six recently acquired Slawson Exploration ("Slawson") operated wellbore interests (as announced to the market on 21 December 2022).

Colin Harrington, Chief Executive of Zephyr, said: "I am delighted with the growth and strong cash flows generated from our Williston portfolio during 2022.  We comfortably exceeded our initial FY 2022 revenue guidance, and production was within the upper end of the forecast range.  Cash flows generated from these operations have been reinvested back into both our operated and non-operated asset portfolios, and we expect continued growth in 2023.  We fully expect this years' Williston project production to exceed last years' once again.

"Our non-operated asset base is a now diverse mix of interests in 223 low-risk, high-margin producing wells with top-tier Williston Basin operators such as Slawson, the operator of 6 newly drilled wellbores in which we acquired working-interests in December 2022 and which will be coming online over the next few months. 

"We have a busy period ahead and we look forward to keeping Shareholders regularly updated on our ongoing activities over the coming weeks."

Q4 Sales Detail

Zephyr's net sales for Q4 were approximately 109,706 boe.

Q4 product mix was 72% crude oil, 14% natural gas, and 14% natural gas liquids. The table below provides sales volumes, product mix, and average sales prices for the quarter:

Oil:                                         79,177 barrels ("bbls") at an average sales price of US$81.55/bbl*

Natural Gas:                       92,952 thousand cubic feet ("mcf") at an average sales price of US$4.73 /mcf

Natural Gas Liquids:        15,037 bbls at an average sales price of US$33.67 per bbl

*not including hedges

(Note: Fourth quarter production volumes and average sales prices figures include field estimates in respect of Dec 2022 natural gas and natural gas liquids sales volumes and are subject to future revision.)

During Q4, a number of Zephyr's existing production wells were temporarily shut-in due to "frac-protect" procedures while new nearby wells were stimulated and completed.  As new infill wells are drilled, existing offset wells may be temporarily shut in to optimise the nearby completion and mitigate offset well production losses. Offset wells are then re-instated for production when the new infill wells are started up for production.

In the Williston Basin, cashflow from non-operated interests in newly drilled wells may lag actual production by up to five months.  Such payments from the operator accrue on a monthly basis and are paid in full prior to the sixth month of production, which may result in impacts to quarterly sales volumes and revenues during times of significant completion activity.  Zephyr expects additional accrued payments from operators in the first six months of 2023 given the Company's interests in 18 newly drilled wells which came online during Q4.

Williston Basin production outlook

Eight additional producing wells from Zephyr's existing portfolio are expected to be brought online during the next six months, which will more than mitigate decline rates typical of Williston Basin production.

The Company reiterates its FY 2023 production forecast of 1,550 to 1,750 boepd from the Williston project (net to Zephyr).

The Company has hedged 157,000 barrels of oil over the next 15 months (starting 1 January 2023) at a weighted-average price of US$86.89 per barrel.  The Company is expecting significant additional production volumes by the end of March 2023 from new wells coming online and will continue to evaluate its commodity price risk management strategy on a regular basis.

Contacts

Qualified Person

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.

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, 25,000 acres of which has been assessed to hold, net to Zephyr, 2P reserves of 2.6 million barrels of oil equivalent ("mmboe"), 2C resources of 34 mmboe and 2U resources 240 mmboe.

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 production of 1,550 - 1,750 barrels of oil equivalent per day, net to Zephyr, in 2023.  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.