REG - Zephyr Energy PLC - £12m placing & debt to fund Williston & Paradox

Zephyr EnergyAnnouncement

26/01/2022 08:10

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RNS Number : 6881Z  Zephyr Energy PLC  26 January 2022

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26 January 2022

 

Zephyr Energy plc

 

("Zephyr" or the "Company")

 

Equity fundraise of £12 million and US$28 million senior debt facility to
complete the acquisition of non-operated production assets and associated
CAPEX in the Williston Basin;

£1.2 million broker option to enable existing Shareholders to participate in
the equity fundraise;

2022 Paradox Basin high impact drilling programme planned;

Notice of General Meeting

 

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 announce a placing and subscription of, in
aggregate, 240,000,000 new ordinary shares of 0.1 pence ("p") each in the
Company ("Placing Shares"), at a price of 5p per Placing Share ("Issue
Price"), to raise £12 million before expenses (together, the "Placing"). A
Broker Option to raise up to an additional £1.2 million for the Company has
been put in place to allow existing shareholders who are qualifying investors
to participate on the same terms as the Placing. Further details of the Broker
Option are set out below. Of the funds raised in the Placing, approximately
£8.675 million is conditional, inter alia, on approval by the Company's
Shareholders, further details of which are set out below.

 

The net proceeds of the Placing, along with a senior debt facility for US$28
million (together the "fundraise"), will be used to complete the US$36 million
acquisition of non-operated working interests in currently producing wells in
the Williston Basin, North Dakota, U.S. (the "Assets") (the "Acquisition" or
"the Williston"), as well as to fund further near-term production growth in
the Williston.  Expected cash flow from the Acquisition, in addition to cash
flow from Zephyr's current non-operated portfolio, will be used to accelerate
2022 development in the Company's flagship Paradox Basin project in Utah, U.S.
("Paradox project").

 

Highlights

 

·    The Company is undertaking a conditional fundraise which consists of
a £12 million equity Placing, and has received an approved commitment for a
US$28 million senior debt facility from a long-established North Dakota-based
commercial bank.

 

·    The Board believes that the combined debt and equity proceeds have
the potential to deliver substantial near-term value and growth for
Shareholders.

 

·    Proceeds will be used for the following operational purposes:

 

o  To fully fund the US$36 million Acquisition:

§ The Acquisition will add a net 2.764 million barrels of oil equivalent
("mmboe") of Proven Reserves, and includes a growing production stream of
approximately 1,105 barrels of oil equivalent per day ("boepd") net to the
Assets in December 2021.

o  To fund an estimated US$6 million in near-term drilling capital
expenditure ("CAPEX") which, along with anticipated additional cash flow
generated in the coming months, will accelerate drilling and production growth
across Zephyr's asset portfolio.

o  To equip the Company's State 16-2 well for production, and to fund
development of the surface infrastructure required to enable the sale of gas
via the nearby pipeline and/or to a potential 2-megawatt ("MW") cryptocurrency
mining facility development to be co-located on the well site.

 

·    Once the Acquisition has been completed, the Company plans to hedge a
significant portion of its non-operated production to take advantage of the
increased commodity prices since the date of the original Acquisition
announcement on 22 November 2021, in order to ensure substantial internal
funding capacity for its ambitious growth plans.

 

·    The cashflows from the Company's post-Acquisition non-operated
portfolio have the potential to support significant growth in the Company's
existing portfolio and will enable an accelerated drilling programme to be
undertaken on the Company's flagship Paradox Basin asset.

o  Zephyr plans to drill three Paradox Basin wells in the second half of
2022.  In addition, in the event the 2022 Paradox drilling programme meets
expectations, the Company anticipates a significantly larger Paradox drilling
programme in 2023.

 

·    The Company has implemented a £1.2 million broker option scheme to
enable existing Shareholders to participate in the equity fundraise on the
same terms as the Placing.

 

Colin Harrington, Chief Executive of Zephyr, said: "The fundraise announced
today and the associated Acquisition are further huge steps forward for the
Company.  After closing this highly accretive acquisition, Zephyr will have
nearly tripled its existing non-operated production - and pro forma forecast
cash flow per fully-diluted share will have more than doubled through the
addition of this high-quality, high-margin production base with significant
near-term growth potential.

"Most importantly, the Acquisition's resultant cashflows have the potential to
power growth across our broader portfolio.  Zephyr plans to financially hedge
a substantial portion of the combined non-operated production in order to
secure the funding required to accelerate a high impact three-well drilling
programme on our operated flagship Paradox project in the second half of 2022
- which in turn, with success, may lead to a significantly larger Paradox
drilling programme in 2023.  The cash flows from the non-operated portfolio
will also allow for Zephyr to complete the infrastructure investment needed to
bring the successfully tested State 16-2 well into full production in the
coming months, and will also fund further near-term drilling in the enlarged
non-operated Williston Basin portfolio.

 

"The fundraise and the completion of the Acquisition represent a fantastic
start for 2022, and we look forward to maintaining our momentum and delivering
on our key objective by unlocking significant further upside value from the
Paradox project.  I would like to thank Turner Pope Investments ("TPI") and
the rest of our adviser team for the successful execution of the Placing in
very challenging market conditions, and I would like to take this opportunity
to welcome our new Shareholders and institutional investors on board.  I am
also delighted that we are able to attach a broker option scheme to the
Placing which will enable existing Shareholders to participate on the same
terms as the Placing.

 

"The Board looked a number of potential funding options for the Acquisition
and concluded that the debt and equity package announced today was by far the
optimal way forward, as it maximises the Company's ability to fast-track the
development of the Paradox project. While the Board considered a number of
proposals to fully fund the Acquisition by debt, those proposals ultimately
came at a significantly higher cost and limited the amount of free cash that
would be available over the next twelve months to invest into the Paradox
project - and were therefore deemed less attractive alternatives to today's
announced funding.

 

"Over the coming months, we will be providing regular updates for Shareholders
as we progress through this transformational period - and in the coming weeks,
we expect to be able to announce details of the independent Competent Persons
Report ("CPR") being prepared on the Paradox project.

 

"Finally, in line with our core beliefs and public commitment, we intend to
ensure that all net hydrocarbons produced from the Acquisition will have a
"net-zero" Scope 1 operational carbon impact while under our ownership. This
will be achieved largely through our programme of purchasing Verified Emission
Reduction credits to mitigate all Scope 1 carbon emissions.  As always, we
will strive to operate as responsible stewards of our investors' capital and
of the environment in which we work."

 

Background to the Placing and the Acquisition and details of General Meeting

 

Details of the Acquisition were announced by the Company on 22 November 2021,
with an update announcement made on 20 December 2021. The Directors of Zephyr
(the "Directors" or the "Board") believe that the Acquisition will be an ideal
addition to Zephyr's existing asset portfolio and that the cashflows generated
from the Assets will enable the Company to proceed with, amongst other things,
the fast-track development of its Paradox project.

 

The Placing has been supported by a range of new and existing institutional
investors, family offices and other investors, and was conducted by TPI acting
as sole broker for the Company.

 

Of the funds raised in the Placing, approximately £8.675 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
ordinary shares of 0.1p each ("Ordinary Shares") on a non-pre-emptive basis,
which will be sought at a General Meeting to be held on 10 February 2022,
further details of which are set out below.

 

The Company is also launching the Broker Option to enable existing
shareholders to participate on the same terms as the Placing. The Broker
Option will potentially enable the Company to raise up to an additional
£1.20 million through the issue of new ordinary shares at the Issue Price.
The Broker Option will be open for 24 hours following the release of this
announcement and details on how to participate in the scheme are outlined
below.

 

 

Acquisition overview

 

On 22 November 2021, the Company announced to the market that it had entered
into binding terms for the Acquisition. The Acquisition has an effective date
of 1 December 2021 (the "Effective Date").

 

Under the terms the Acquisition, Zephyr is acquiring working interests in 163
currently producing wells (the "PDP wells") with net production of
approximately 1,105 barrels of oil equivalent per day ("boepd") in December
2021.

 

·    In addition to the PDP wells, the Acquisition includes:

o  18 proved not producing ("PNP") and drilled but uncompleted ("DUC") wells,
all of which have been drilled and are expected to come online in 2022; and

o  o   47 proved but undeveloped ("PUD") locations for future drilling
demonstrating the long-term potential growth of the Assets.

 

·    The Assets are spread across 22 separate drilling pads in Mountrail
County, North Dakota and are estimated, by the independent reserve consulting
firm Sproule Incorporated ("Sproule"), to hold a net 2.764 million barrels of
oil equivalent ("mmboe") of Proven Reserves.

 

·   The Acquisition has robust economics which, along with Zephyr's
existing Williston Basin production, is expected to generate substantial low
risk cashflow which can be redeployed into the Company's growing Paradox Basin
development. The Company estimates:

·    The Acquisition cost equates to 2.1x the Assets' 2022 forecasted
earnings before interest, tax, depreciation and amortisation ("EBITDA")

·    Low operating expense of approximately US$13.91 per barrel of oil
equivalent ("boe") which provides high cash margins of over 75%, as forecasted
over the next three years

·    When combined with Zephyr's current Williston Basin assets, the
Company's pro forma non-operated portfolio is expected to generate
approximately US$24 million of EBITDA in 2022 as forecast by the Board

·    When combined with Zephyr's current Williston Basin assets, the
Company's pro forma non-operated portfolio is expected to generate production
of approximately 2,250 boepd in Q1 2022 reducing to approximately 1,250 boepd
in Q4 2022 based on Sproule's forecasts. Production is expected to rise again
in Q1 2023 as further DUCs are brought online.

·    The Board estimates the post-tax net present value of the Acquisition
is US$46.3 million, using Sproule's pricing (outlined in Appendix A) at a ten
per cent discount rate ("NPV-10")

·    Cashflows generated by the PDP wells acquired are expected to utilise
the Company's historical tax losses of more than US$16 million

 

Note: Estimates using Sproule pricing as shown in Appendix A to this
announcement

 

 

The key details of the Acquisition are as follows:

 

·    Acquisition of 1,960 net acres of non-operated working interests
in Williston Basin

·    Purchase price of US$36 million, subject to various customary closing
adjustments

o  US$4 million in non-refundable deposits has been paid to date

o  Closing adjustments will include US$3.8 million payable in respect of the
balance of CAPEX due and will be further adjusted for the net income generated
since the Effective Date

·    The working interests across the Assets average approximately 4%

·    The wells are operated by Whiting Petroleum ("Whiting"), an active
and highly experienced operator in the Williston Basin, which currently serves
as the operator of a number of Zephyr's existing non-operated wells

 

The key benefits of the Acquisition are as follows:

 

·    A diversified, low-decline production base with established history
and stable cash flows

·    Near term growth from DUC wells currently being brought online

·    Potential to hedge a significant portion of the existing production
at attractive prices to lock in returns and provide downside protection

·    Excellent complement to (and funding source for) the less mature,
higher upside Paradox Basin development

 

The economics on the Acquisition are extremely attractive. Once the DUC wells
are online, the Company estimates that the Acquisition will provide:

 

·   Up to US$13.8 million of undiscounted free cash flow after CAPEX, net
to Zephyr, in 2022 to deploy into the Paradox development or into additional
projects, and over the life of the project, a total US$73.6 million of
undiscounted cash flow

·   2P net present value at a ten per cent discount rate
("NPV-10"): US$46.3 million

·   Well-level operating expenses forecast to average approximately
US$13.91 per boe produced over the next three years

·   Acquisition price of 2.1x forecast 2022 EBITDA

Note: Estimates using Sproule pricing as shown in Appendix A to this
announcement

 

Completion of the Acquisition

 

Once the Placing has been completed, and funds received (which, in relation to
approximately £8.675 million of the Placing proceeds, remains subject to the
requisite resolutions (the "Resolutions") being passed by shareholders of the
Company at a general meeting ("GM") (details of which are set out below)), the
Company will draw down on the senior debt facility and complete the
Acquisition.

 

It is anticipated that, subject to, inter alia, the Resolutions being passed,
the Acquisition will complete on or before 18 February 2022.

 

Details of the US$28 million senior debt facility

 

The Company has received credit committee approval from a North Dakota based
commercial bank for a US$28 million senior debt facility, consisting of a
fully amortising US$18 million term loan for a period of 48 months ("Term
Loan") and a $10 million revolving credit facility ("RCF"). Principal and
interest payments are to be made monthly on the Term Loan and monthly interest
payments are payable on the RCF.

 

Other key terms of the Term Loan and the RCF are as follows:

 

·    Fixed interest rate of 6.74%

·    First lien mortgage, assignment of production, security agreement and
financing covering all current and future mineral interests

·    Unlimited full recourse corporate guarantee from Zephyr

 

 

Paradox project update

 

It is anticipated that cashflows generated by the Acquisition will be deployed
into the Paradox project and the Company intends to commence a high impact
three-well drilling programme in the second half of 2022 to further delineate
the scale of the project. This will include:

 

·    one delineation/development well targeting the Cane Creek reservoir
in Zephyr's 25,000-acre White Sands Unit ("WSU");

·    one exploration well targeting the WSU's shallow Paradox formation;
and

·    one delineation/development well in the historically prolific Cane
Creek Field (new acreage south of the WSU)

 

 

150 additional drill target locations across nine reservoir targets have been
identified to date, with significant additional scope and scale to be unlocked
in the next three years upon delineation and exploration success. The Board
estimates a potential 1 billion boe of hydrocarbon in place across its acreage
position, with recoverable rates of between 5% and 15% based on current
assumptions and mitigation of risk factors, and Zephyr will consider joint
venture and strategic partnerships for further expedited development of the
project.

 

An estimated US$10.0 million of funds raised from the Placing will be used to
fund near-term CAPEX across Zephyr's asset portfolio and, along with cash flow
generated, will also accelerate infrastructure construction on the Paradox
project.

 

Following the recent successful production testing at the State 16-2 well, the
Company will now commence with work to equip the well for production, with
initial liquid volumes sold to Utah-based refineries and initial gas volumes
potentially sold to a co-located cryptocurrency mining facility development.
 While Zephyr will consider providing a small portion of seed funding for any
co-located cryptocurrency mining development, it is currently envisaged that
the potential cryptocurrency mining facility and any future such development
projects would likely be spun out into a new entity for the benefit of
Zephyr's shareholders, thereby limiting Zephyr's exposure to CAPEX associated
with such a development.

 

Further infrastructure buildout at the State 16-2 well is expected to
facilitate additional gas sales via a nearby pipeline. Work for a pipeline
tie-in is expected to commence in the second half of 2022 for sales in 2023.

 

Zephyr has commissioned the independent reserve consulting firm Sproule to
complete a CPR to assess the Company's reserves across both the Cane Creek
reservoir and eight high-graded overlying reservoirs. The CPR is expected to
be published in coming weeks once Sproule has completed their review.

 

 

Details of the Placing

 

In total, 240,000,000 Placing Shares are proposed to be allotted and issued
pursuant to the Placing, at an Issue Price of 5p per Placing Share to raise
gross proceeds of £12 million. The Placing Shares, excluding in relation to
the subscription as detailed below, have been conditionally placed by TPI
acting as agent and broker of the Company, with certain new and existing
institutional and other investors pursuant to a Placing Agreement, as detailed
below. Placing Shares have also been subscribed for directly with the Company
("Subscription Shares") by subscribers pursuant to a subscription 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 approximately £3.325 million, representing the issue
of 66,500,000 Placing Shares at the Issue Price (the "First Placing Shares"),
has been raised within the Company's existing share allotment
authorities which were granted at the Company's annual general meeting held
on 30 June 2021 (the "First Placing"). Application has been 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 1 February 2022 ("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 approximately £8.675 million and
representing the issue of 173,500,000 Placing Shares at the Issue 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 10 February 2022 to provide authority to the
Directors to issue and allot further new Ordinary Shares for cash on a
non-pre-emptive basis, whereby such authority will be utilised by the
Directors to enable  completion of the Second Placing (amongst other things,
as detailed below). 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 11 February
2022 ("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.

 

If the necessary resolutions are approved at the GM, the Placing would result
in the allotment and issue of an aggregate of 240,000,000 new Ordinary
Shares, representing approximately 16 per cent. of the Company's issued
ordinary share capital as enlarged by the Placing.

 

The Placing Shares and the Broker Option shares (as defined below) 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 relevant Placing Shares.

 

Broker Option

 

The Company has also granted an option to TPI under the Placing Agreement in
order to deal with additional demand under the Placing in the event that
requests to participate in the Placing from existing shareholders who are
qualifying investors are received during the period of 24 hours following the
release of this announcement (the "Broker Option"). To participate in the
Broker Option, qualifying investors should communicate their interest to TPI
via their independent financial adviser, stockbroker or other firm authorised
by the Financial Conduct Authority (all of whom will be required to confirm to
TPI that their client is an existing shareholder), as TPI cannot take direct
orders from individual private investors. TPI should be contacted by telephone
on (020) 3657 0050 or by email at info@turnerpope.com. The broker Option is
conditional on the Resolutions being passed at the GM.

TPI may choose not to accept bids and/or to accept bids, either in whole or in
part, on the basis of allocations determined at their discretion (after
consultation with the Company) and may scale down any bids for this purpose on
such basis as TPI may determine. A separate announcement will be made
regarding the results of the Broker Option.

Any Ordinary Shares issued pursuant to the exercise of the Broker Option
("Broker Option Shares") will be issued on the same terms and conditions as
the Placing Shares. The Broker Option may be exercised by TPI, following
consultation with the Company, but there is no obligation on them to exercise
the Broker Option or to seek to procure subscribers for Broker Option Shares
pursuant to the Broker Option. The maximum number of Broker Option Shares that
may be issued pursuant to the exercise of the Broker Option is 24,000,000. The
maximum aggregate number of new Ordinary Shares (including both the Placing
Shares and Broker Option Shares) that may be issued is 264,000,000.

The Broker Option Shares are not being made available to the public, only to
existing Shareholders, and none of the Broker Option Shares are being offered
or sold in any jurisdiction where it would be unlawful to do so. No Prospectus
will be issued in connection with the Broker Option.

If the Broker Option is exercised, settlement for the Broker Option Shares and
admission of the Broker Option Shares to trading on AIM is expected to take
place on Second Admission. Assuming the Broker Option is fully subscribed, the
Placing and Broker Option combined would result in the issue, in aggregate, of
264,000,000 new Ordinary Shares, representing approximately 17 per cent. of
the Company's issued ordinary share capital as enlarged by the Placing and
Broker Option.

 

 

Warrants

 

The Company will issue investors in the Placing and the Broker Option with one
warrant for every four Placing Shares or Broker Option Shares subscribed,
meaning that a total of up to 66,000,000 warrants will be issued to subscribe
for 66,000,000 new Ordinary Shares ("Investor Warrants"), assuming the Broker
Option is taken up in full. The Investor Warrants will be exercisable at a
price of 7. 5 pence per Ordinary Share for a period of three years from the
date of issue.

 

The Company is proposing to issue TPI with up to 17,600,000 warrants to
subscribe for 17,600,000 new Ordinary Shares ("Broker Warrants"), subject to
full subscription under the Broker Option. The Broker Warrants are exercisable
at a price of 7. 5 pence per Ordinary share for a period of three years from
the date of the GM. TPI shall also receive commission on the exercise of the
Investor Warrants and additional warrants equivalent to ten per cent. of the
aggregate value of Investor Warrants exercised, such figure to be divided by
the exercise price of 11.25 pence ("Additional Broker Warrants"). Up to
4,400,000 Additional Broker Warrants to subscribe for 4,400,000 new Ordinary
Shares will be granted, assuming the Broker Option is taken up in full and
that all Investor Warrants are validly exercised. The Additional Broker
Warrants will be issued in tranches and will be exercisable at a price
of 11.25 pence per Ordinary share for a period of three years from the date
of issue.

 

The issue of the Investor Warrants, the Broker Warrants and the Additional
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.
None of the warrants will 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 a corporate finance fee from the Company, commission relating to the
Placing Shares and Broker Option Shares conditional on First Admission and
Second Admission and commission in respect of the exercise of Investor
Warrants.  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. No part of
the Placing is being underwritten.

 

Total voting rights

 

Following First Admission, the Company's total issued share capital will
consist of 1,371,246,001 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 1,371,246,001 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.

 

 

Placing - General Meeting requirement

 

Of the funds raised in the Placing, approximately £8.675 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.

 

 

Notice of General Meeting

 

The Company will publish a Circular to convene the GM to propose Resolutions
to enable completion of the Placing, the issue of the Broker Option Shares and
the grant of the Investor Warrants, the Broker Warrants and the Additional
Broker Warrants.

 

The general meeting will be held at 10.00 a.m. on 10 February 2022.  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 are strongly urged to
vote by proxy in accordance with the instructions set out in the notice of
general meeting.

 

 

 

 

Contacts:

 

 Zephyr Energy plc                                  Tel: +44 (0)20 7225 4590

 Colin Harrington (CEO)

 Chris Eadie (CFO)

 Allenby Capital Limited - AIM Nominated Adviser    Tel: +44 (0)20 3328 5656

 Jeremy Porter / Liz Kirchner

 Turner Pope Investments - Broker                   Tel: +44 (0)20 3657 0050

 James Pope / Andy Thacker

 Flagstaff Strategic and Investor Communications   Tel: +44 (0) 20 7129 1474

 Tim Thompson / Mark Edwards / Fergus Mellon

 

 

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.

 

Estimates of resources and reserves contained within this announcement have
been prepared according to the standards of the Society of Petroleum
Engineers. All estimates, unless otherwise noted, are internally generated and
subject to third party review and verification.

 

 

Glossary of Terms

 

1P: proven reserves (both proved developed reserves + proved undeveloped
reserves)

 

2P: 1P (proven reserves) + probable reserves, hence "proved and probable"

 

3P: the sum of 2P (proven reserves + probable reserves) + possible reserves,
all 3Ps "proven and probable and possible"

 

Reserves: Reserves are defined as those quantities of petroleum which are
anticipated to be commercially recovered from known accumulations from a given
date forward

 

 

 

 

 

Appendix A

 

Sproule Proven Reserves Summary

 

 Reserves Category  Well    Net Oil Reserves  Net Gas Reserves  Net NGL Reserves  Discounted Cash Flow

                    Count   (Mbbl)            (MMcf)            (Mbbl)            10%(M$)
 PDP                179(1)  1,097             1,823             281               30,458
 PNP                5       48                71                11                1,213
 DUC/PUD(1)         13      325               372               57                7,504
 PUD                47      415               473               73                7,173
 Total              244     1,885             2,739             423               46,349

*Note: Some columns may not add due to rounding

1.  PDP well count includes 163 PDP wells and 16 After Payout (APO) wells.
The APO are classified as proved developed producing, but do not convert to a
paying interest. Only the abandonment costs have been included for these
wells.

2.  Drilled Uncompleted (DUC) wells have been classified as proved
undeveloped (PUD) and are drilled wells with a range of remaining capital
costs required to complete and bring on production. These have all been
classified as PUD   at the request of the Company, for simplicity

 

 

 

Sproule Price Deck

 Year  Oil ($/bbl)  Oil Differential  Oil Realized($/bbl)  Gas($/mmbtu)  NGL

                    ($/bbl)                                              ($/bbl)
 2021  76.00        -6.50             69.50                5.00          30.40
 2022  71.00        -6.50             64.50                4.00          28.40
 2023  68.00        -6.50             61.50                3.50          27.20
 2024  66.00        -6.50             59.50                3.25          26.40

 

1.  Prices escalated at 2% per year after
2024 until price doubles, then held flat

2.  Oil differential is the difference in price between an established
benchmark and what is actually received at the lease or field (inclusive of
adjustments for quality, energy, content, transportation fees and regional /
local differentials)

 

 

 

Notice to Distributors

 

Solely for the purposes of the temporary product intervention rules made under
sections S137D and 138M of the FSMA and the FCA Product Intervention and
Product Governance Sourcebook (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, as defined under the FCA Conduct of
Business Sourcebook COBS 3 Client categorisation, and are eligible for
distribution through all distribution channels as are permitted by the FCA
Product Intervention and Product Governance Sourcebook (the "Target Market
Assessment").

 

Notwithstanding the Target Market Assessment, distributors should note that:
the price of the Placing Shares may decline and investors could lose all or
part of their investment; the Placing offer no guaranteed income and no
capital protection; and an investment in the Placing 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, Allenby Capital Limited will only procure investors
who meet the criteria of professional clients and eligible counterparties. For
the avoidance of doubt, the Target Market Assessment does not constitute: (a)
an assessment of suitability or appropriateness for the purposes of the FCA
Conduct of Business Sourcebook COBS 9A and 10A respectively; 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 the Placing
Shares.

 

Each distributor is responsible for undertaking its own target market
assessment in respect of the Placing Shares and determining appropriate
distribution channels.

 

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