16-2LN-CC drilling update & acreage acquisition

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.

28 July 2021

Zephyr Energy plc

(the "Company" or "Zephyr")

State 16-2LN-CC drilling update and

acquisition of additional acreage in the Paradox Basin

Zephyr Energy plc (AIM: ZPHR) (OTCQB: ZPHRF), the Rocky Mountain oil and gas company focused on responsible resource development and carbon-neutral operations, is pleased to provide an update on the State 16-2LN-CC drilling operations as well as to announce an increase in its operated land position through the acquisition of an additional 12,260 acres (the "new acreage") in the Paradox Basin, Utah, U.S. ("Paradox Basin").

State 16-2LN-CC drilling update

The Company is pleased to report that drilling operations have proceeded in line with Company expectations.  At present, the well has been drilled to a total depth of 10,100 feet and has successfully landed in the Cane Creek reservoir (the "Cane Creek") at an approximate 85 degree angle.  The objective of the next phase of drilling is to safely and successfully drill approximately 5,000 feet of horizontal lateral to intersect with the open natural fracture systems which are believed to exist across this portion of the Cane Creek reservoir.

Acquisition of additional acreage in the Paradox Basin

Zephyr is also pleased to announce an agreement to increase its land position in the Paradox Basin through the targeted acquisition of an additional 12,260 leased acres deemed by the Company to be prospective for mid- to long-term development.

The new acreage is located on Utah School and Institutional Trust Lands Administration ("SITLA") lands -  the acreage position was nominated for auction by Zephyr and was secured during the most recent SITLA auction.  A portion of the new acreage is proximal to the Company's existing Paradox acreage position, with additional new acreage located in both the historically productive Cane Creek Field and Salt Wash Field which lie to the south of Zephyr's existing land position.

Over the past two years, Zephyr's technical team has worked to develop an improved understanding of the potential for additional development of the Paradox Basin.  Results from this work have provided a number of insights, including:

·    The potential for multiple methods to develop reserves in the region - including the proven method involving the targeting of natural fractures, or by a hydraulically stimulated resource play which may facilitate a broader alternative means of asset development;

·    Additional reservoir potential beyond the proven Cane Creek reservoir, including eight high-graded overlying reservoirs which are likely to be hydrocarbon filled and which demonstrate adequate thickness for potential future development; and

·    Improvements in drilling technology, 3D seismic and operational capabilities, as demonstrated during Zephyr's experience drilling the State 16-2 well in the last year, which may lead to faster and more economic future development.

The Company seeks to utilise its unique knowledge base and vantage point to grow its Paradox Basin lease position concurrent with its efforts to test potential commercial development with the State 16-2LN-CC well.

The nomination and acquisition of the new acreage is part of Zephyr's ongoing portfolio management of its Paradox Basin position, in which less prospective acreage has been relinquished and replaced by leases with 5-year terms which the Directors of Zephyr believe have more potential to add value in the medium to long term.  This active land management strategy has resulted in a defensible and growing portfolio of development opportunities which Zephyr's Board believes is increasingly difficult to replicate in today's regulatory and political environment. 

Consideration for the new acreage will be satisfied from the Company's existing cash resources. Following the closing of the acquisition of the new acreage, the Company will operate a total of 37,613 gross acres in the Paradox Basin, the majority of which the Company holds as operator with a 75% working interest.

Colin Harrington, Zephyr's Chief Executive, said: "We are pleased that the State 16-2LN-CC drilling operation is progressing well and according to plan. Drilling continues 24 hours a day, seven days a week, and we look forward to this next phase of horizontal drilling with the utmost anticipation.

In addition, I am thrilled to be able to bolster the scale of our Paradox project at this point in time.  Our team is developing a unique understanding and data set across the Paradox Basin - and we're excited about this timely opportunity to expand our operated asset base.

The opportunity to nominate and acquire, at auction, leasehold positions of our choosing was a key consideration and we're grateful for the opportunity to once again transact with the professionals at SITLA.  In addition, we are always mindful of our core mission to be responsible stewards of the environment in which we operate, and we have taken great care to only acquire leases which we believe can be developed with a minimum of surface and environmental disruption.

It's an exciting time for the Company, filled with short-term operational activity and long-term strategic potential.  Today's news is progress on both fronts, all in the pursuit of delivering significant value creation for our Shareholders for many years to come."

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