REG - Zephyr Energy PLC - Half-year Report
21/09/2022 07:00
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RNS Number : 0661A Zephyr Energy PLC 21 September 2022
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.
21 September 2022
Zephyr Energy plc
("Zephyr", the "Company" or the "Group")
Interim Results for the six months ended 30 June 2022
Zephyr Energy plc (AIM: ZPHR) (OTCQB: ZPHRF), the Rocky Mountain oil and gas
group focused on responsible resource development from carbon-neutral
operations, is pleased to announce its unaudited interim results for the six
months ended 30 June 2022 ("H1 2022").
HIGHLIGHTS
The first six months of the 2022 financial year, and the period since, were a
time of intense activity during which Zephyr continued to make substantial
progress in the development of its flagship operated project in the Paradox
Basin, Utah, U.S (the "Paradox project") while growing its highly attractive
portfolio of cash-generating non-operated assets in the Williston Basin (the
"Williston assets").
Financial
· Revenues for H1 2022 were US$25.9 million, driven almost entirely by
the Group's hydrocarbon production from the Williston assets
· Adjusted earnings before interest, tax, depreciation, depletion and
amortisation ("DD&A"), unrealised foreign exchange gains and unrealised
losses on hedging contracts (together "Adjusted EBITDA") for the six months
was US$19 million and net profit after tax for the period was US$17.4 million
· The Group's gross borrowings at 30 June 2022 were US$28.6 million and
net borrowings (gross borrowings less cash and cash equivalents) were US$18
million. During H1 2022 the Group met all its financing obligations in respect
of its outstanding borrowings
· In April 2022, in order to lock in cashflow to develop the Paradox
project and meet the Group's financing commitments, the Group hedged just
under half of its forecast 2022 production at more than US$98 per barrel of
oil. In total the hedging programme related to 328,000 barrels ("bbls") of oil
production from the Williston assets over the next two years. At 14
September 2022, the Group had an unrealised gain on its outstanding hedges of
US$1.5 million
· At 3 September 2022, the Group had cash and cash equivalents
of US$12.8 million and gross borrowings of US$24.7 million.
· During H1 2022 capital expenditure ("CAPEX") across the Williston
assets and the Paradox project totalled US$9.6 million.
Paradox project (operated asset)
· A Competent Persons Report ("CPR"), compiled by Sproule International
("Sproule"), highlighted the scale and resource potential of the Paradox
project:
o Net 2P Reserves: Proved Reserves of 2.1 million barrels of oil equivalent
("boe") net to Zephyr, the Group's first proved reserves booked in the Paradox
Basin
o Net 2C Resources: 27 million boe net to Zephyr, more than double the 12.3
million boe in the previous CPR prepared in 2018
o Net Prospective Resources from overlying reservoirs: 203 million net
unrisked boe net to Zephyr (68 million boe risked with a weighted-average 33%
chance of success)
o Sproule's evaluation took place across 30,700 acres of
Zephyr's Utah assets. Inclusive of Zephyr's recently announced acquisition,
Zephyr will operate 45,000 gross acres in the Paradox Basin and further
evaluation is planned for acreage not yet included in the CPR
· Preparations continue for extended production testing of the State
16-2 LN-CC well, designed to show flow potential and shape decision making for
the longer-term development strategy of the asset
o Long lead items ordered and all relevant applications filed
· Liquid volumes from the initial State 16-2 LN-CC production test were
successfully marketed and sold to refineries in Salt Lake City, Utah
· A fully funded, high impact, three-well drilling programme is
expected to commence later this year, and is designed to further delineate the
full potential of the Paradox project:
o The State 36-2 LNW-CC lateral well is set to be the first well in the
upcoming drilling programme, and targets the Cane Creek reservoir in the
southern portion of the Group's operated White Sands Unit (the "WSU")
o All State permits for the State 36-2 LNW-CC have now been received and the
Federal permit is currently being processed, which, when issued, will allow
for the signing of a rig contract and subsequent commencement of drilling
operations
o Recently acquired contiguous acreage allows for the State 36-2 LNW-CC to
be fully completed across a 10,000-foot lateral length
· Additionally, Zephyr has entered into a binding agreement to acquire
a separate package of oil and gas assets located on and around the Paradox
project. Assets being acquired include 21 miles of natural gas gathering
lines, the Powerline Road gas processing plant (not currently in operation),
rights of way for additional gathering lines, active permits, five existing
wellbores and additional acreage partly contiguous to the WSU. The assets
being acquired will allow Zephyr to substantially reduce the capital required
to build the necessary gas export infrastructure for its forecast gas
production from the Paradox project. In addition, one of the acquired lines
passes immediately alongside the site of the planned State 36-2 well (the
first in a series of Paradox wells to be drilled in the upcoming drilling
programme).
o Once the acquisition is completed, Zephyr will operate 45,000 gross acres
in the Paradox Basin, the majority in which the Group holds a 75% or greater
working interest
Williston assets (non-operated assets)
· Zephyr continues to deliver on its strategy to acquire working
interest positions in value accretive, high-quality, high-margin production
assets with significant near-term growth potential in the Williston Basin
· H1 2022 revenues from the portfolio totalled US$25.8 million, net
to Zephyr, up from US$0.9 million in the six months ended 30 June 2021 ("H1
2021")
· H1 2022 sales volumes averaged 1,729 barrels of oil equivalent per
day ("boepd")
· H1 2022 gross profit was US$21.8 million (after taxes, lease
operating expenses, and gathering and marketing fees and excluding DD&A)
demonstrating the high margins realised from the produced barrels
· At the end of H1 2022, 195 wells in Zephyr's portfolio were available
for production
o An estimated 30 additional wells in which Zephyr will have working
interests are forecast to be brought on production by the end of 2022, which
will help to decrease standard portfolio decline rates
· Net working interests across the Williston Basin non-operated
portfolio now average 7.1%, equivalent to approximately 15 gross wells
· Zephyr reiterates its previously released 2022 production and revenue
guidance of an expected US$35-40 million in non-operated revenue, net to
Zephyr, for FY 2022 based on a forecast production range of 500,000 to 550,000
boe for the year
Corporate
· In February 2022, the Company raised US$17.4 million (before
expenses) through the placing of new Ordinary Shares in the Company, and
secured US$28 million of senior bank debt. The net proceeds from these debt
and equity instruments were used to complete the Group's US$36 million
acquisition of non-operated assets in the Williston Basin and to fund further
drilling activity across the portfolio
· Zephyr remains carbon neutral on a Scope 1 basis across its
operations, through the purchase of Verified Emission Reduction credits
("VERs")
· Panmure Gordon was appointed as Joint Broker to the Company in August
2022
Colin Harrington, Chief Executive of Zephyr, said:
"The first half of 2022 and the period since have been another
transformational time for the Company. We continued to make significant
in-roads across both our Williston assets and the Paradox project, serving to
grow the Group and deliver on our self-sustaining strategy of using our
non-operated, cash generative portfolio to enable development of the Paradox
and, by extension, to open up the next prolific onshore U.S. oil and gas play.
"The rest of this year promises to be an equally important time for our
Shareholders as we commence the extended production test on our State
16-2LN-CC well and kick off the proposed three well drill programme on the
Paradox project. In addition, we plan to complete and fully integrate the
acquisition of the infrastructure asset package in order to substantially
reduce the forecast expenditure needed to bring our Paradox gas production to
market. A successful drilling programme will see the Group further define the
project and materially increase its reserve base in the Paradox, and is
expected to deliver significant cashflows once nearby infrastructure
improvements are completed.
"This year started with our major acquisition in the Williston Basin, which we
expect will enable Zephyr to generate revenues of between US$35-40 million
over the course of 2022, with sufficient cash flow generated to fuel all
envisioned upcoming development activity.
"I would like to thank our Shareholders and advisers for their ongoing
support. We are excited about the multiple near-term catalysts in our
investment case as we commence an active period with the drill bit, and we
look forward to keeping the market updated on our progress.
"Our forthcoming activity will be carried out consistent with our core values
of being responsible stewards of investors' capital and responsible stewards
of the environment."
A copy of the interim results report will be available on the Company's
website later today at http://www.zephyrplc.com (http://www.zephyrplc.com) .
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 / Vivek Bhardwaj
Turner Pope Investments - Joint Broker Tel: +44 (0)20 3657 0050
James Pope / Andy Thacker
Panmure Gordon (UK) Limited - Joint-Broker Tel: +44 (0) 20 7886 2500
John Prior / Hugh Rich / James Sinclair-Ford / Harriette Johnson
Celicourt Communications - PR
Mark Antelme / Felicity Winkles Tel: +44 (0) 20 8434 2643
ZEPHYR ENERGY PLC
INTERIM REPORT FOR THE SIX MONTHS TO 30 JUNE 2022
The Board is pleased to present Zephyr's unaudited interim report for the
six-month period to 30 June 2022.
CHIEF EXECUTIVE'S STATEMENT
OVERVIEW
The period under review was an active time for Zephyr as the Group continued
to deliver on its strategic objectives and further consolidate its position as
a cash generative Group with assets across two established oil producing
basins in the U.S.
The Board remains fully committed to the primary goal of opening up the next
prolific onshore U.S. oil and gas play through the systematic development of
our flagship Paradox project.
The remainder of 2022 promises to be an equally exciting time for our
Shareholders as we progress the extended well-test on our State 16-2LN-CC well
and commence our proposed three well drill programme on the Paradox project. A
successful drilling programme will see the Group further define the Paradox
project and has potential to deliver significant cashflows and materially
increase its reserve base.
Our Paradox activity is expected to be funded by cashflows from our Williston
assets, which saw continued growth during the period under review.
A summary of the Group's activity in the period under review is outlined
below.
PARADOX PROJECT
Competent Persons Report ("CPR")
Following the successful completion of the State 16-2LN-CC well in late 2021,
Zephyr commissioned the independent reserve consulting firm Sproule
International ("Sproule") to complete a CPR to assess the Group's reserves
across both the Cane Creek reservoir and the eight overlying reservoirs in
order to help determine and demonstrate the potential size and scale of the
Paradox project.
Sproule audited the crude oil, natural gas, and field condensate reserves and
contingent resources and the associated future net revenue attributable to the
Group's White Sands Unit ("WSU") and Cane Creek DSU ("CC DSU") with an
effective date of March 31, 2022. Sproule also conducted an audit of the
Prospective Resources attributable to the WSU on the same date.
The Board was delighted with the conclusions drawn by Sproule, which both
demonstrate the impact of our recent drilling success and which further
highlight the substantial potential scale and profitability of the Paradox
project.
The key findings from the CPR were as follows:
· Net 2P Reserves: Proved Reserves of 2.1 million barrels
of oil equivalent ("boe") net to Zephyr, the Group's first proved reserves
booked in the Paradox Basin.
· Net 2C Resources: 27 million boe net to Zephyr, more than
double the 12.3 million boe in the previous CPR prepared in 2018.
· Net Prospective Resources from overlying reservoirs: 203
million net unrisked boe net to Zephyr (68 million boe risked with a
weighted-average 33% chance of success).
· Sproule's evaluation took place across 30,700 acres of
Zephyr's Utah assets. Inclusive of Zephyr's recently announced acquisition,
Zephyr will operate 45,000 gross acres in the Paradox Basin and further
evaluation is planned for acreage not yet included in the CPR.
Combined with Zephyr's Williston Basin non-operated portfolio, Zephyr's total
2P Proved Reserves had an estimated net present value at a ten per cent
discount rate ("NPV-10") of over US$111 million with significant additional
upside potential from success cases related to its contingent and prospective
resources.
Due to the early-stage nature of the Paradox Basin resource play, the range of
potential outcomes for Zephyr's Utah assets remains large. Both Zephyr and
Sproule identified uncertainties due to limited data across the areas planned
for development by the Group. These include fluid composition and
compressibility, water production, continuity of geomechanical properties
across the reservoir and their impact on hydraulic fracture characteristics,
and stimulated area around a well (well drainage area). The Group plans to
utilise data from its upcoming three well drilling campaign, in additional to
existing well data from the five wellbores acquired as announced in September
2022, to further quantify both the risks and upside presented by these
uncertainties.
Acquisition of additional acreage
In August 2022, the Group announced the acquisition of an additional 1,920
acres (the "new acreage") in the Paradox Basin. Acquiring this new acreage,
adjacent to WSU, was a critical step in the future development of the Paradox
project and the new acreage is deemed by the Group to have immediate
development potential.
The key benefits of the new acreage are as follows:
· Optimal Location. The new acreage is directly contiguous
to the Zephyr-operated WSU, with the potential to be added to the Unit acreage
subject to approval from the U.S. Bureau of Land Management (the "BLM").
o The acquired acreage is largely covered by Zephyr's existing 3D
seismic, and directly borders the Zephyr lease on which the planned State 36-2
LNW-CC and 36-3 LN-C9 well pad is located.
o The new acreage is close to pre-existing surface infrastructure in the
form of a six-inch gas pipeline which traverses the leasehold, infrastructure
which Zephyr subsequently announced an agreement to acquire in September 2022.
· Immediate drilling benefits. By adding the new acreage,
the proposed State 36-2 LNW-CC can be fully completed across a planned
10,000-foot lateral length, subject to final regulatory approval. This
increased completion length is expected to further enhance the well's forecast
economics and estimated ultimate recovery.
o In conjunction with the acquisition, Zephyr recently amended its BLM
application for a permit to drill (an "APD") for the State 36-2 LNW-CC well to
reflect the enhanced completion design.
· Increased overall resources and drilling locations. Based
on modelling results of the recently drilled State 16-2LN-CC well, modelling
for the upcoming State 36-2 LNW-CC well, and production data from the nearby
vertical Federal 28-11 well, Zephyr's technical team estimates that the
acquisition adds over 4 million barrels of oil equivalent of additional 2C net
Contingent Resources to Zephyr's Paradox Basin position with the following
additional benefits:
o The acquisition substantively increases the Group's Working Interest
in an estimated 4 Cane Creek reservoir well locations, adding an estimated 2.4
net wells assuming 2-mile lateral well lengths.
o It adds unrisked net present value at a ten per cent. discount rate
("NPV-10)", net to Zephyr, of approximately US$40 million from the Cane Creek
reservoir, based on estimated economics for 2-mile laterals. This estimate
assumes success case outcomes from State 16-2 LN-CC flow testing and State
36-2 LNW-CC drilling and testing.
o It delivers access to acreage that may host liquid yields similar to
those observed at the nearby vertical Federal 28-11 well and higher than those
at the recently tested State 16-2 LNW-CC well.
o It provides additional potential in the overlying shallow clastic
zones.
The acquisition of the new acreage is part of the Group's ongoing portfolio
management of its Paradox Basin position. 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.
State 16-2LN-CC production test
Following on the successful drilling, completion and production test of the
State 16-2 LN-CC well in 2021, Zephyr will shortly commence an extended
production test of the same well. The primary aim of the production test is to
further demonstrate the well's flow potential, which internal modelling
suggests could see potential flow rates of 2,100 boepd once the well is no
longer rate-constrained as it was during the initial testing phase. The well
test will also add production data for use in surface infrastructure
development decisions, and will test and develop flow assurance processes for
the well.
Preparations for the extended well test have commenced, with long lead items
ordered and all necessary permit applications filed.
In conjunction with the production test, and as announced in June 2022, Zephyr
considered selling a small portion of gas produced from the State 16-2 LN-CC
to a crypto-mining facility to be co-located on the well pad. Due to continued
volatility in the crypto-currency markets, Zephyr's Board elected to further
monitor pricing of crypto-mining equipment and facilities prior to proceeding
with a co-located facility and prior to committing to any related investment.
To date, no Zephyr funds have been expended on crypto-mining equipment or
facilities. In parallel, Zephyr continues to focus on commercial efforts
regarding the acceleration of gas sales into nearby existing gas
infrastructure.
Forthcoming drilling programme
Following the successful completion of State 16-2LN-CC well test and after
taking into account the conclusions of the CPR, the Board approved a high
impact three-well drilling programme to commence later this year to further
delineate the scale of the project. This will include:
· one delineation/development well targeting the Cane Creek
reservoir in the southern portion of Zephyr's 25,000-acre WSU (the "State 36-2
LNW-CC" well);
· one exploration well, located on the same pad in the WSU,
which is planned to target Clastic 9 - an overlying reservoir which has
previously demonstrated evidence of hydrocarbon presence (the "State 36-3
LN-C9 well); and
· one delineation/development well in the historically
prolific, liquid rich Cane Creek Field (acreage south of the WSU).
The Group continues with its extensive preparatory work related to the
upcoming drilling programme.
The State 36-2 LNW-CC well, with a 10,000-foot lateral well targeting the Cane
Creek reservoir, has been designated as the first of the three wells planned
to be drilled. As previously noted, the Group updated its application to
drill ("APD") with the BLM to reflect the extended lateral.
Zephyr will proceed with drilling operations upon receiving Federal approval
and securing a rig contract. All State level approvals related to the State
36-2 LNW-CC well have been received.
Acquisition of infrastructure assets
In September 2022, the Group announced that it has entered into a binding
agreement (the "Agreement") to acquire a package of oil and gas assets located
on and around the Group's Paradox project.
Under the terms of the Agreement, Zephyr will acquire 21 miles of natural gas
gathering lines, the Powerline Road gas processing plant (not currently in
operation) (the "Plant"), rights of way for additional gathering lines, active
permits, five existing wellbores and additional acreage (the "New Acreage")
which is contiguous to the WSU.
The Agreement will allow Zephyr to substantially reduce the capital required
to build the necessary gas export infrastructure for its forecast gas
production from the Paradox project.
The consideration for the asset package is US$750,000 and will be satisfied by
a payment from Zephyr's existing cash resources. The acquisition is expected
to complete by 7 October 2022.
Once the acquisition is completed, Zephyr will operate 45,000 gross acres in
the Paradox Basin, the majority in which the Group holds a 75% or greater
working interest.
WILLISTON ASSETS
In 2021, Zephyr stated that one of its key objectives was to establish
production and positive cashflow either through its existing portfolio (the
Paradox project), via acquisition, or through a combination of both. In the
period since, the Group has delivered on this goal and following a series of
discrete acquisitions, the Group now has a non-operated portfolio that
delivered sales of over 1,729 boepd, net to Zephyr, in H1 2022, with
corresponding revenues of US$25.8 million for the six months
The establishment of the non-operated portfolio began in March 2021, during a
period of lower commodity prices, and with the integration of a recent US$36
million acquisition (completed in February 2022), the non-operated portfolio
is expected to have a turnover of US$35-40 million in 2022, based on a
forecast production range of 500,000 to 550,000 barrels of oil equivalent
("boe") for the year, providing the Group with free cash flow to support the
Paradox project development plans.
At the end of H1 2022, 195 wells in Zephyr's portfolio were available for
production. An estimated 30 additional wells in which Zephyr will have working
interests are forecast to be brought on production by the end of 2022, which
will help to decrease standard portfolio decline rates.
FINANCIAL REVIEW
The financial information is reported in United States Dollars ("US$").
Income Statement
The Group reports revenues for H1 2022 of US$25.9 million (30 June 2021:
US$0.9 million). Revenues largely relate to the Group's hydrocarbon production
from the non-operated Williston assets.
Adjusted earnings before interest, tax, depreciation, depletion and
amortisation ("DD&A"), unrealised foreign exchange gains and unrealised
losses on hedging contracts (together "Adjusted EBITDA") for the six months
was US$19 million.
In H1 2022, there is a DD&A charge of US$5.4 million (30 June 2021:
US$77,000). This accounting charge is in respect of the resource depletion of
the Williston assets over the period.
In H1 2022, there is an unrealised loss on the Group's outstanding hedging
contracts of US$0.4 million. In April 2022, in order to lock in cashflow to
develop the Paradox project and meet the Group's financing commitments, the
Group hedged just under half of its forecast 2022 production at more than
US$98 per barrel of oil. In total the Company has hedged 328,000 barrels
("bbls") of oil production from the Williston assets over the next two
years. Due to the volatile nature of oil prices, the unrealised position of
the Group's outstanding hedging contracts will fluctuate and on 14 September
2022, the Group had an unrealised gain on its outstanding hedges of US$1.5
million.
Net profit after tax for the period was US$17.4 million or a profit of 1.16
US cents per share for the six months ended 30 June 2022 (30 June 2021: net
loss after tax of US$1.0 million or a loss of 0.1 US cents per share).
Net profit was enhanced by foreign exchange differences which arise on the
restatement of the Company's sterling loans to its subsidiaries and resulted
in an unrealised gain of US$5.4 million for the six months ended 30 June 2022
(30 June 2021: unrealised gain of US$0.5 million). The unrealised gain in this
period is the result of the weakening of sterling against the U.S. dollar.
Administrative expenses for the six months ended 30 June 2022 were US$2.2
million (30 June 2021: US$1.2million). The increase in administrative expenses
mirrors the Group's growth over the last twelve months as it emerged from a
significant corporate retrenchment in response to the global pandemic, in
addition to the increase in its asset portfolio and significantly enhanced
corporate and operational footprint. Costs continue to be closely controlled
and monitored regularly by executive management and is a continuing priority
of the Board. It is recognised by the Board, however, that additional
technical, legal and other costs were justified to help deliver the
acquisitions which the Group has secured over the period under review.
There is no Federal tax charge in the Income Statement for the period. The
Group continues to utilise its historical Federal tax losses to offset profits
realised from its operations. A full-year Federal tax assessment will be
carried out after the year-end and any charges will be reflected in the 2022
Annual Report.
Balance Sheet
Exploration and evaluation assets at 30 June 2022 were US$23.8 million (30
June 2021: US$16 million) which reflects the Group's ongoing investment into
the Paradox project.
Property, plant and equipment at 30 June 2022 were US$52.2 million (30 June
2021: US$6.5 million) which reflects the Group's ongoing investment in its
non-operated portfolio of oil and gas properties.
Cash and cash equivalents at 30 June 2022 were US$10.6 million (30 June 2021:
US$9.2 million). Responsible cash management remains a key priority of the
Board.
During H1 2022 CAPEX across the Williston assets and the Paradox project
totalled US$9.6 million.
At 3 September 2022, the Group had cash and cash equivalents of US$12.8
million and gross borrowings of US$24.7 million.
The Group's gross borrowings at 30 June 2022 were US$28.6m and net borrowings
(total borrowings less cash and cash equivalents) were US$18 million. During
H1 2022 the Group met all its funding obligations in respect of the
outstanding borrowings.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE ("ESG")
The Board is unanimously committed to ensuring that every action and
investment decision the Company makes is in line with our core values. This
includes the following points of focus:
· to protect the Group, safeguard its existing asset base
and position it for attractive growth opportunities;
· to seek creative and beneficial funding opportunities in
an effort to unlock value from our existing asset portfolio;
· to adopt a disciplined focus on growth via the
acquisition of producing or near-term development opportunities in the Rocky
Mountain region. Even in this unusual economic environment, we believe
opportunity exists to acquire additional accretive asset portfolios;
· we will continue with our programme of tight financial
controls and cash preservation which will enable the Group to continue trading
effectively; and
· ensure management and the Board are aligned with our
Shareholders through significant ownership of shares.
CONCLUSION
I am proud of how we have conducted our operations in the period under review
and we will continue to adhere to our core values of being responsible
stewards of investors' capital and being responsible stewards of the
environment in which we work.
Finally, I would like to extend my heartfelt gratitude to the Company's
Shareholders and advisers for their ongoing support. We are delighted to be
invested alongside you, and we look forward to keeping you updated as we
progress through these exciting times.
Colin
Harrington
Chief Executive
Officer
21 September 2022
ZEPHYR ENERGY PLC
CONDENSED CONSOLIDATED INCOME STATEMENT
For the six months ended 30 June 22
Unaudited Unaudited Audited
six months six months year ended
ended 30 June ended 30 June 31 December
2022 2021 2021
Notes US$'000 US$'000 US$'000
Revenue 25,948 917 6,005
Operating and transportation expenses (2,055) (118) (396)
Production taxes (2,048) (75) (543)
Depreciation, depletion and amortisation (5,439) (77) (1,755)
Gross profit 16,406 647 3,311
Administrative expenses (2,193) (1,164) (2,687)
Share-based payments (212) (73) (93)
Foreign exchange gains/(losses) 5,431 (377) 461
Loss on hedging contracts 3 (908) - -
Finance costs (1,110) (1) (144)
Profit/(loss) on ordinary activities before taxation 17,414 (968) 848
Taxation charge - (7) -
Profit/(loss) for the period attributable to owners of the parent company
17,414 (975) 848
Profit/(loss) per Ordinary Share
Basic, cents per share 4 1.16 (0.10) 0.08
Diluted, cents per share 4 1.09 (0.10) 0.07
ZEPHYR ENERGY PLC
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 June 2022
Unaudited Unaudited Audited
six months six months year ended
ended 30 June ended 30 June 31 December
2022 2021 2021
US$'000 US$'000 US$'000
Profit/(loss) for the period attributable to owners of the parent company
17,414 (975) 848
Other comprehensive income
Items that may be subsequently reclassified to profit or loss
Foreign currency translation differences on foreign operations (5,504) 333 (554)
Total comprehensive profit/(loss) for the period attributable to owners of the
parent company
11,910 (642) 294
ZEPHYR ENERGY PLC
CONDENSED CONSOLIDATED BALANCE SHEET
As at 30 June 2022
Unaudited Unaudited Audited
as at as at as at
30 June 30 June 31 December
2022 2021 2021
Notes US$'000 US$'000 US$'000
Non-current assets
Exploration and evaluation assets 5 23,762 15,962 22,773
Property, plant and equipment 6 52,162 6,462 11,156
Hedging contracts 50 - -
75,974 22,424 33,929
Current assets
Trade and other receivables 6,845 392 1,263
Prepayments and deposits 855 469 3,573
Cash and cash equivalents 10,587 9,216 1,811
18,287 10,077 6,647
Total assets 94,261 32,501 40,576
Current liabilities
Trade and other payables (3,837) (3,163) (5,414)
Borrowings 7 (15,740) - (4,060)
Hedging contracts (490) - -
(20,067) (3,163) (9,474)
Non-current liabilities
Provisions (2,321) (67) (508)
Borrowings 7 (12,840) - -
(15,161) (67) (508)
Total liabilities (35,228) (3,230) (9,982)
Net assets 59,033 29,271 30,594
Equity
Share capital 8 42,412 42,045 42,065
Share premium account 66,879 51,787 52,875
Warrant reserve 1,647 136 89
Share-based payment reserve 3,298 4,581 3,065
Cumulative translation reserves (15,283) (8,892) (9,779)
Retained deficit (39,920) (60,386) (57,721)
Equity attributable to owners of the parent company
59,033 29,271 30,594
ZEPHYR ENERGY PLC
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2022 (Unaudited)
Share-based payment reserve
Share premium account Cumulative translation reserve
Share capital Warrant reserve Retained deficit
Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
As at 1 January 2022 42,065 52,875 89 3,065 (9,779) (57,721) 30,594
Transactions with owners in their capacity as owners:
Issue of equity shares 347 15,465 1,558 - - - 17,370
Expenses of issue of equity shares
- (1,461) - 408 - - (1,053)
Transfer to retained deficit in respect of lapsed options
- - - (387) - 387 -
Share-based payments - - - 212 - - 212
Total transactions with owners in their capacity as owners
347 14,004 1,558 233 - 387 16,529
Profit for the period - - - - - 17,414 17,414
Other comprehensive income:
Currency translation differences
- - - - (5,504) - (5,504)
Total other comprehensive income for the period
- - - - (5,504) - (5,504)
Total comprehensive income for the period
- - - - (5,504) 17,414 11,910
As at 30 June 2022 42,412 66,879 1,647 3,298 (15,283) (39,920) 59,033
ZEPHYR ENERGY PLC
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2021 (Audited)
Share-based payment reserve
Share premium account Cumulative translation reserve
Share capital Warrant reserve Retained deficit
Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
As at 1 January 2021 41,221 39,638 227 3,762 (9,225) (60,085) 15,538
Transactions with owners in their capacity as owners:
Issue of equity shares 816 14,679 - - - - 15,495
Expenses of issue of equity shares
- (1,442) - 616 - - (826)
Transfer to retained deficit in respect of exercised warrants
- 767 -
- - (138) (629)
Share-based payments 28 - - 65 - - 93
Transfer to retained deficit in respect of expired options
- - - (749) - 749 -
Total transactions with owners in their capacity as owners
844 13,237 (138) (697) - 1,516 14,762
Profit for the year - - - - - 848 848
Other comprehensive income:
Currency translation differences
- - - - (554) - (554)
Total other comprehensive income for the year
- - - - (554) - (554)
Total comprehensive income for the year
- - - - (554) 848 294
As at 31 December 2021 42,065 52,875 89 3,065 (9,779) (57,721) 30,594
ZEPHYR ENERGY PLC
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2021 (Unaudited)
Share-based payment reserve
Share premium account Cumulative translation reserve
Share capital Warrant reserve Retained deficit
Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
As at 1 January 2021 41,221 39,638 227 3,762 (9,225) (60,085) 15,538
Transactions with owners in their capacity as owners:
Issue of equity shares 824 14,332 - - - - 15,156
Expenses of issue of equity shares
- (2,183) - 1,357 - - (826)
Transfer to retained deficit in respect of exercised warrants
- - (91) (583) - 674 -
Share-based payments - - - 45 - - 45
Total transactions with owners in their capacity as owners
824 12,149 (91) 819 - 674 14,375
Loss for the period - - - - - (975) (975)
Other comprehensive income:
Currency translation differences
- - - - 333 - 333
Total other comprehensive income for the period
- - - - 333 - 333
Total comprehensive income for the period
- - - - 333 (975) (642)
As at 30 June 2021 42,045 51,787 136 4,581 (8,892) (60,386) 29,271
ZEPHYR ENERGY PLC
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
For the six months ended 30 June 2022
Unaudited Unaudited Audited
six months six months year ended
ended 30 June ended 30 June 31 December
2022 2021 2021
US$'000 US$'000 US$'000
Operating activities
Profit/(loss)/profit before taxation from continuing operations 17,414 (968) 848
Adjustments for:
Finance costs 1,110 1 144
Unrealised loss on hedging contracts 440 - -
Depreciation and depletion of property, plant and equipment
5,440 96 1,778
Share-based payments 212 45 93
Unrealised foreign exchange (gain)/loss (5,571) 308 (451)
Operating cash inflow/(outflow) before movements in working capital
19,045 (518) (2,412)
Increase in trade and other receivables (5,631) (616) (1,079)
Increase in prepayments and deposits (286) - (572)
Increase in trade and other payables 628 1,913 172
Cash generated from operating activities 13,756 779 933
Income tax paid - (2) -
Net cash inflow generated from operating activities 13,756 777 933
Investing activities
Additions to exploration and evaluation assets (1,007) (4,116) (9,083)
Acquisition of oil and gas properties (36,000) (5,927) (5,443)
Additions to oil and gas properties (8,640) - (7,031)
Deposits paid 3,000 - (3,000)
(Decrease)/increase in capital expenditure related payables (2,269) - 2,773
Additions to plant and machinery - - (4)
Grant funds received - 200 290
Net cash used in investing activities (44,916) (9,843) (21,498)
Financing activities
Net proceeds from issue of shares 16,317 14,330 14,669
Proceeds from borrowings 28,000 - 4,060
Repayment of borrowings (3,078) - -
Interest and fees paid on borrowings (1,223) - (124)
Repayment of lease liabilities - (8) (8)
Increase in prepayments and deposits 50 - (50)
Net cash inflow generated from financing activities 40,066 14,322 18,547
Net increase/(decrease) in cash and cash equivalents 8,906 5,256 (2,018)
Cash and cash equivalents at beginning of period 1,811 3,940 3,940
Effect of foreign exchange rate changes (130) 20 (111)
Cash and cash equivalents at end of period 10,587 9,216 1,811
ZEPHYR ENERGY PLC
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
For the six months ended 30 June 2022
1. ACCOUNTING POLICIES
Basis of preparation
This report was approved by the Directors on 20 September 2022.
The financial statements have been prepared in accordance with UK-adopted
International Accounting Standards and with the requirements of the Companies
Act 2006 as applicable to companies reporting under those standards.
The condensed consolidated interim financial statements are presented in
United States Dollar ("US$"). All amounts have been rounded to the nearest
thousand unless otherwise indicated.
The Company is domiciled in the United Kingdom. The Company's shares are
admitted to trading on the AIM market in the UK and the OTCQB Venture Market
("OTCQB") in the U.S.
The current and comparative periods to June have been prepared using the
accounting policies and practices consistent with those adopted in the annual
financial statements for the year ended 31 December 2021, and with those
expected to be adopted in the Group's financial statements for the year ending
31 December 2022.
Comparative figures for the year ended 31 December 2021 have been extracted
from the statutory financial statements for that period which carried an
unqualified audit report, did not contain a statement under section 498(2) or
(3) of the Companies Act 2006 and have been delivered to the Registrar of
Companies.
The financial information contained in this report does not constitute
statutory financial statements as defined by section 434 of the Companies Act
2006, and should be read in conjunction with the Group's financial statements
for the year ended 31 December 2021. This report has not been audited or
reviewed by the Group's auditors.
During the first six months of the current financial year there have been no
related party transactions that materially affect the financial position or
performance of the Group and there have been no changes in the related party
transactions described in the last annual financial report.
Having considered the Group's current cash forecast and projections, the
Directors have a reasonable expectation that the Company and the Group have,
or have access to, sufficient resources to continue operating for at least the
next 12 months. Accordingly, the Directors continue to adopt the going concern
basis in preparing the financial statements.
The principal risks and uncertainties of the Group have not changed since the
publication of the last annual financial report where a detailed explanation
of such risks and uncertainties can be found.
2. DIVIDENDS
The Directors do not recommend the payment of a dividend for the period.
3. LOSS ON HEDGING CONTRACTS
During the period, the Group entered into hedging transactions to mitigate its
exposure to fluctuations in commodity prices. The net change in these
contracts resulted in a realised net loss of US$0.5 million and an unrealised
net loss of US$0.4 million for the period to 30 June 2022.
4. PROFIT/(LOSS) PER ORDINARY SHARE
Basic profit/(loss) per Ordinary Share is calculated by dividing the net
profit/(loss) for the period by the weighted average number of Ordinary Shares
in issue during the period. Diluted profit/(loss) per Ordinary Share is
calculated by dividing the net profit/(loss) for the period by the weighted
average number of Ordinary Shares in issue during the period, adjusted for the
dilutive effect of potential Ordinary Shares arising from the Company's share
options and warrants.
Due to the losses incurred in the period ended 30 June 2021, there was no
dilutive effect from the share options or warrants.
At 30 June 2022, 2.8 million share options and 89.6 million warrants were
excluded from the diluted number of shares as they were anti-dilutive.
The calculation of the basic and diluted profit/(loss) per Ordinary Share is
based on the following data:
Unaudited Unaudited Audited
six months six months year ended
ended 30 June ended 30 June 31 December
2022 2021 2021
US$'000 US$'000 US$'000
Profits/(losses)
Profits/(losses) for the purpose of basic and diluted profit/(loss) per
Ordinary Share being net profit/(loss) for the period
17,414 (975) 848
Number Number Number
'000 '000 '000
Number of shares
Weighted average number of shares for the purpose of basic profit/(loss) per
Ordinary Share
1,505,017 939,631 1,116,414
Number of shares
Weighted average number of shares for the purpose of basic profit/(loss) per
Ordinary Share
1,505,017 939,631 1,116,414
Dilutive share options 42,528 - 42,510
Dilutive warrants 55,730 - 100,033
Weighted average number of shares for the purpose of diluted profit/(loss) per
Ordinary Share
1,603,275 939,631 1,258,957
Profit/(loss) per Ordinary Share
Basic, cents per share 1.16 (0.10) 0.08
Diluted, cents per share 1.09 (0.10) 0.07
5. EXPLORATION AND EVALUATION ASSETS
US$'000
Cost
At 1 January 2021 13,914
Additions 2,338
Grant funds (290)
At 30 June 2021 15,962
Additions 6,811
At 31 December 2021 22,773
Additions 989
At 30 June 2022 23,762
Carrying amount
At 30 June 2022 23,762
At 30 June 2021 15,962
At 31 December 2021 22,773
6. PROPERTY, PLANT AND EQUIPMENT
Oil and gas properties Plant and machinery Right-of-use assets
US'000 US'000 US'000 Total
US'000
Cost
At 1 January 2021 - 129 57 186
Additions 6,530 - - 6,530
Exchange differences - 2 1 3
At 30 June 2021 6,530 131 58 6,719
Acquisitions 5,443 - - 5,443
Additions 929 2 - 931
De-recognition - (106) (57) (163)
Exchange differences - - (1) (1)
At 31 December 2021 12,902 27 - 12,929
Acquisitions 36,000 - - 36,000
Additions 10,447 - - 10,447
Exchange differences - (1) - (1)
At 30 June 2022 59,349 26 - 59,375
Accumulated depreciation, depletion and amortisation
At 1 January 2021 - 117 41 158
Charge for the period 77 3 16 96
Exchange differences - 2 1 3
At 30 June 2021 77 122 58 257
Charge for the period 1,678 4 - 1,682
De-recognition - (106) (57) (163)
Exchange differences - (2) (1) (3)
At 31 December 2021 1,755 18 - 1,773
Charge for the period 5,439 1 - 5,440
At 30 June 2022 7,194 19 - 7,213
Carrying amount
At 30 June 2022 52,155 7 - 52,162
At 30 June 2021 6,453 9 - 6,462
At 31 December 2021 11,147 9 - 11,156
7. BORROWINGS
Unaudited Unaudited Audited
six months six months year ended
ended 30 June ended 30 June 31 December
2022 2021 2021
US$'000 US$'000 US$'000
Bridge loan facility 1,687 - 4,060
Term loan 16,937 - -
Revolving credit 9,956 - -
28,580 - 4,060
Maturity analysis
Amounts due within one year* 15,740 - 4,060
Amounts due 1 year to 2 years 4,384 - -
Amounts due 2 years to 4 years 8,456 - -
28,580 - 4,060
In February 2022, the Group signed a bank facility with First International
Bank & Trust ("FIBT") in the U.S., consisting of a Term loan of US$18
million and a Revolving credit facility of US$10 million.
Repayment of the Term loan commenced in April 2022 and is repayable in 48
monthly payments. Interest is charged at a rate of 6.74% per annum. At 20
September 2022, the outstanding balance on the Term Loan was US$16.1 million.
*The Revolving credit facility was structured with an initial term of 8
months, and is thereby classified as short-term debt due for repayment within
one year. However, the facility has provisions for a semi-annual
redetermination process, at which time the bank estimates the value of
Zephyr's reserves used as collateral and renews or revises the amount of
available credit provided by facility. At 20 September 2022, US$8 million of
the US$10 million facility was outstanding, with US$2 million of available
credit. The Group does not expect any changes to the US$10 million in total
availability when the bank's next redetermination process concludes in October
2022. Interest on the Revolving credit facility is charged at a rate of 6.74%
per annum.
Initial loan fees of 1% of the Term loan and the Revolving credit facility
were capitalised against the loans and are being amortised over the life of
the respective loans. FIBT holds security over the Group's oil and gas
properties located in the states of North Dakota and Montana.
Since the period end, the Group has repaid US$0.8 million in respect of the
bridge loan facility.
8. SHARE CAPITAL
Unaudited Unaudited Audited
as at as at as at
30 June 30 June 31 December
2022 2021 2021
Number Number Number
'000 '000 '000
Authorised
Ordinary Shares of 0.1p each 7,779,297 7,779,297 7,779,297
Deferred Shares of 9.9p each 227,753 227,753 227,753
8,007,050 8,007,050 8,007,050
Unaudited Unaudited Audited
as at as at as at
30 June 30 June 31 December
2022 2021 2021
US$'000 US$'000 US$'000
Allotted, issued and fully paid
1,560,746,001 Ordinary Shares of 0.1p each (30 June 2021: 1,290,314,182: 31 2,107 1,740 1,760
December 2021: 1,304,746,001)
227,752,817 Deferred Shares of 9.9p each 40,305 40,305 40,305
42,412 42,045 42,065
The Deferred Shares are not listed on the AIM Market, do not give the holders
any right to receive notice of, or to attend or vote at, any General Meetings,
have no entitlement to receive a dividend or other distribution or any
entitlement to receive a repayment of nominal amount paid up on a return of
assets on winding up nor to receive or participate in any property or assets
of the Company. The Company may, at its option, at any time redeem all of the
Deferred Shares then in issue at a price not exceeding £0.01 from all
Shareholders upon giving not less than 28 days' notice in writing.
As outlined in the Company's 2021 Annual Report it is the Company's intention
to issue nil-cost options to certain Directors and employees to compensate
them for salaries sacrificed during the COVID-19 pandemic. It has not been
possible to issue these nil-cost options to date due to the Company's ongoing
activity over a long period of time which has precluded transactions involving
the Company's securities.
ISSUED ORDINARY SHARE CAPITAL
In February 2022, the Company issued 256,000,000 Ordinary Shares of 0.1p each
at a price of 5p per share, raising gross proceeds of US$17.4 million (£12.8
million).
Ordinary Deferred Shares
Shares Number
Number '000
'000
At 1 January 2021 696,202 227,753
Allotment of shares 594,112 -
At 30 June 2021 1,290,314 227,753
Allotment of shares 14,432 -
At 31 December 2021 1,304,746 227,753
Allotment of shares 256,000 -
At 30 June 2022 1,560,746 227,753
9. POST BALANCE SHEET EVENTS
All matters relating to events occurring since the period end are reported in
the Chief Executive's Statement.
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 are internally generated and subject to third party
review and verification.
Glossary of Terms
Reserves: Reserves are defined as those quantities of petroleum which are
anticipated to be commercially recovered from known accumulations from a given
date forward.
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"
Contingent Resources: Those quantities of petroleum estimated, as of a given
date, to be potentially recoverable from known accumulations by application of
development projects, but which are not currently considered to be
commercially recoverable due to one or more contingencies.
Contingent Resources may include, for example, projects for which there are
currently no viable markets, or where commercial recovery is dependent on
technology under development, or where evaluation of the accumulation is
insufficient to clearly assess commerciality. Contingent Resources are further
categorised in accordance with the level of certainty associated with the
estimates and may be sub-classified based on project maturity and/or
characterised by their economic status.
1C: Low estimate of Contingent Resources
2C: Best estimate of Contingent Resources
3C: High estimate of Contingent Resources
Prospective Resources: Those quantities of petroleum which are estimated, on
a given date, to be potentially recoverable from undiscovered accumulations.
1U: Low estimate of Prospective Resources
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