Issue of equity and notice of general meeting

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 OR INTO THE UNITED STATES, REPUBLIC OF IRELAND, AUSTRALIA, CANADA, JAPAN, SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH SUCH RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL.

 

THIS ANNOUNCEMENT IS FOR INFORMATION PURPOSES ONLY AND DOES NOT ITSELF CONSTITUTE AN OFFER FOR SALE OR SUBSCRIPTION OF ANY SECURITIES IN THE COMPANY.  THIS ANNOUNCEMENT DOES NOT CONSTITUTE OR CONTAIN ANY INVITATION, SOLICITATION, RECOMMENDATION, OFFER OR ADVICE TO ANY PERSON TO SUBSCRIBE FOR, OTHERWISE ACQUIRE OR DISPOSE OF ANY SECURITIES OF ZEPHYR ENERGY PLC IN ANY JURISDICTION IN WHICH ANY SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL.

 

Zephyr Energy plc

 

(the "Company" or "Zephyr")

 

Issue of equity and notice of general meeting

 

Zephyr Energy plc (AIM: ZPHR), the Rocky Mountain oil and gas company focused on responsible resource development, is pleased to announce a placing of 409,090,909 new ordinary shares of 0.1 p each in the Company ("Placing Shares"), at a price of 0.55p per Placing Share, to raise £2.25 million before expenses (the "Placing"). The Placing, which was oversubscribed, has been conducted with a range of new, existing and institutional investors and with Turner Pope Investments ("TPI") acting as broker for the Company. 

 

Of the funds raised in the Placing, approximately £1.15 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.

 

Colin Harrington, Chief Executive of Zephyr, said: "We are delighted to announce this Placing, which fully finances the Company's maximum funding obligations for drilling the State 16-2 dual-use well on our acreage in the Paradox Basin, Utah.  With the funding now secured, the Company remains on track to spud the well before the end of the year. We expect the processing and interpretation of the data acquired to take place early in the New Year, following which we hope to be in a position to commence commercial drilling operations utilising the 16-2 wellbore shortly thereafter.

 

"The Board believes that the spudding of the 16-2 well will be the catalyst to finally unlock the significant potential of the Company's Paradox asset - a belief evidenced by the participation of best-in-class research and grant partners, by the dedication and commitment of Zephyr's management team, and by the Board's significant participation in this Placing. While the current management team has only been involved in the Paradox project since the middle of last year, we appreciate that many shareholders have waited a long time for this key moment, and we thank them for their patience to date. 

 

"The net proceeds from the Placing, when combined with the US$2m non-dilutive grant funding previously announced, leaves the Company well-funded to pursue both the proposed Paradox drilling project and other strategic ventures.  In addition to funding the State 16-2 dual-use vertical well, part of the Placing proceeds may be used for future lateral drilling on the Paradox project and/or the funding of potential acquisitions which meet our stringent investment criteria, at a time when there are significant opportunities arising in the Rocky Mountain region of the U.S. upstream oil and gas markets.

 

"I would like to thank TPI and the rest of our adviser team for the successful execution of the Placing, and I would very much like to take this opportunity to welcome our new shareholders and institutional investors on board.  

 

"Our mission, as always, is to act as responsible stewards of our investors' capital and responsible stewards of the environment in which we work.  We look forward to executing on that mission for all shareholders and we will be providing regular updates on our activity as we progress through the next phase of the Company's transformation."

 

Background to the Placing

 

On 5 October 2020, the Company announced that it had entered into a definitive binding agreement (the "Agreement") with a project team led by the University of Utah's Energy & Geoscience Institute ("EGI"). The Agreement sets out the terms on which EGI has agreed to sanction and fund US$2 million towards the drilling of a vertical stratigraphic research well, subject to final funding terms and permitting, from a Zephyr leasehold pad which forms part of the Company's Paradox project.

 

The well's primary objective will be to acquire a comprehensive data set across the Cane Creek reservoir with the aim of developing more efficient and less environmentally-impactful oil production strategies for the northern Paradox Basin.

 

The well has also been designed to facilitate re-use, which will allow the potential for future drilling of a horizontal appraisal lateral from the wellbore after the initial data acquired has been processed and evaluated.  Given the significant commercial benefits of potential well re-use for the Company, Zephyr has agreed to fund up to US$1 million of incremental costs, should the total cost of the well go above EGI's US$2 million committed funding.

 

The spudding of this proposed dual-use well is now only conditional on customary permitting, and with detailed design work already underway, drilling is due to commence by the end of this year.

 

The Board has considered various funding options, including a debt facility with Booner Capital LLC as detailed in the announcement of 5 October 2020, but has concluded that the Placing represents the best outcome to fund this stage of the Paradox project.

 

The net proceeds of the Placing are to be used for the Paradox activities announced on 5 October and general working capital purposes, as well as for future lateral drilling on the Paradox project and/or the funding of potential acquisitions which meet Zephyr's stringent investment criteria.

 

Details of the Placing

 

In total, 409,090,909 Placing Shares are proposed to be issued pursuant to the Placing, at a price of 0.55p per Placing Share. The Placing Shares have been conditionally placed by Turner Pope Investments Limited ("TPI"), as agent and broker of the Company, with certain existing, new and institutional investors pursuant to a Placing 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 £1.1 million, representing the issue of 200,000,000 Placing Shares at the Placing Price (the "First Placing Shares"), has been raised within the Company's existing share allotment authorities which was granted at the Company's annual general meeting held on 29 July 2020 (the "First Placing").  Application will be 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 23 October 2020 ("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 £1.15 million and representing the issue of 209,090,909 Placing Shares at the Placing 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 2 November 2020 (the "GM") to provide authority to the Directors to issue and allot further new ordinary shares on a non-pre-emptive basis, whereby such authority will be utilised by the Directors to enable completion of the Second Placing.  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 3 November 2020 ("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.

 

The Placing as a whole would, if the necessary resolutions are approved at the GM, result in the issue of 409,090,909 Ordinary Shares, representing, in aggregate, approximately 59 per cent. of the Company's issued ordinary share capital as enlarged by the Placing. 

  

The Placing Shares 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 Placing Shares.

 

Director subscriptions

 

Origin Creek Energy LLC ("OCE") has subscribed for 66,000,000 Placing Shares in the Second Placing, equivalent to £363,000 at the Placing Price. Rick Grant, the Chairman of Zephyr, and Colin Harrington, the CEO of Zephyr are both shareholders and directors of OCE, and Colin Harrington is indirectly the controlling shareholder of OCE. Upon First Admission, OCE's interest in Ordinary Shares will remain unchanged at 68,636,364 Ordinary Shares but will represent 14.09% of the then issued share capital. Upon Second Admission, OCE will have an interest in 134,636,364 Ordinary Shares, equivalent to 19.34% of the Company's then issued share capital.  

 

Chris Eadie (CFO of Zephyr) and Gordon Stein (Non-Executive Director of Zephyr) have also each subscribed for 1,850,000 Placing Shares, in the Second Placing, equivalent to a total of £20,350 at the Placing Price. 

 

OCE's, Chris Eadie's and Gordon Stein's aggregated participation in the Placing is a related party transaction pursuant to rule 13 of the AIM Rules for Companies.  Accordingly, Tom Reynolds, being the director independent of the Placing, considers, having consulted with the Company's nominated adviser, that the terms of the transaction are fair and reasonable insofar as the Company's shareholders are concerned.

 

Warrants

 

The Company is proposing to issue TPI with 70,249,091 warrants to subscribe for 70,249,091 new Ordinary Shares ("Broker Warrants") as part of TPI's fees for undertaking the Placing. 19,881,818 of the Broker Warrants will be exercisable at a price of 0.55 pence per Ordinary share, equivalent to the Placing Price, and the remaining 50,367,273 Broker Warrants will be exercisable at a price of 0.6875 pence per Ordinary share, a 25% premium to the Placing price, all for a period of two years from issue.

 

The issue of the 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.  The Broker Warrants will not 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 commission from the Company conditional on First Admission and Second Admission and 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. The Placing is not being underwritten.

 

Total voting rights

 

Following First Admission, the Company's total issued share capital will consist of 487,111,606 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 487,111,606 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.

 

Following Second Admission, the Company's total issued share capital will consist of 696,202,515 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 696,202,515 from Second 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.

 

Notice of General Meeting

 

The Company will publish a Circular to convene the GM to propose resolutions to enable completion of the Placing.

 

The general meeting will be held at 10.00 a.m. on 2 November 2020.  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 will not be able to attend the meeting due to current COVID-19 restrictions and are strongly urged to vote by proxy in accordance with the instructions set out in the notice of general meeting.

 

MAR

 

The Market Abuse Regulation (MAR) became effective from 3 July 2016. Market soundings, as defined in MAR, were taken in respect of the Placing with the result that certain persons became aware of inside information, as permitted by MAR. That inside information is set out in this announcement has been disclosed as soon as possible in accordance with paragraph 7 of article 17 of MAR. Therefore, those persons that received inside information in a market sounding are no longer in possession of inside information relating to the Company and its securities.

 

 

Contacts:

 

Zephyr Energy plc Colin Harrington (CEO) Chris Eadie (CFO)	Tel: +44 (0)20 7225 4590
Allenby Capital Limited - AIM Nominated Adviser Jeremy Porter / Liz Kirchner	Tel: +44 (0)20 3328 5656
Turner Pope Investments - Broker Andy Thacker / Zoe Alexander   Flagstaff Strategic and Investor Communications Tim Thompson / Mark Edwards / Fergus Mellon	Tel: +44 (0)20 3657 0050     Tel: +44 (0) 20 7129 1474

 

 

Information to Distributors

Solely for the purposes of the product governance requirements contained within: (a) EU Directive 2014/65/EU on markets in financial instruments, as amended ("MiFID II"); (b) Articles 9 and 10 of Commission Delegated Directive (EU) 2017/593 supplementing MiFID II; and (c) local implementing measures (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, each as defined in MiFID II; and (ii) eligible for distribution through all distribution channels as are permitted by MiFID II (the "Target Market Assessment"). Notwithstanding the Target Market Assessment, investors should note that: the price of the Placing Shares may decline and investors could lose all or part of their investment; Placing Shares offer no guaranteed income and no capital protection; and an investment in Placing Shares 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, only investors who have met the criteria of professional clients and eligible counterparties have been procured.  For the avoidance of doubt, the Target Market Assessment does not constitute: (a) an assessment of suitability or appropriateness for the purposes of MiFID II; 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 Placing Shares.

 

Notification and public disclosure of transactions by persons discharging managerial responsibilities and persons closely associated with them

 

1.	Details of the person discharging managerial responsibilities / person closely associated
a)	Name	Rick Grant Chairman Colin Harrington CEO Chris Eadie CFO Gordon Stein Non-Executive Director
2.	Reason for the Notification
a)	Position/status	See section 1a) above
b)	Initial notification/Amendment	Initial notification
3.	Details of the issuer, emission allowance market participant, auction platform, auctioneer or auction monitor
a)	Name	Zephyr Energy plc
b)	LEI	254900TAVH3MBZ1EMC29
4.	Details of the transaction(s): section to be repeated for (i) each type of instrument; (ii) each type of transaction; (iii) each date; and (iv) each place where transactions have been conducted
a)	Description of the Financial instrument, type of instrument	Ordinary shares of 0.1p each in Zephyr Energy plc
	Identification code	GB00B013M672
b)	Nature of the transaction	Participation in a placing
c)	Price(s) and volume(s)	Price: 0.55p   Volumes:   Rick Grant 66,000,000 Colin Harrington 66,000,000 Chris Eadie 1,850,000 Gordon Stein 1,850,000
d)	Aggregated information: ·Aggregated volume ·Price	N/A
e)	Date of the transaction	16 October 2020
f)	Place of the transaction	Outside a trading venue