REG - Zephyr Energy PLC - Paradox project update - extended lateral funding

Zephyr EnergyAnnouncement

18/12/2024 07:00

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RNS Number : 4889Q  Zephyr Energy PLC  18 December 2024

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.

 

18 December 2024

 

Zephyr Energy plc

("Zephyr" or the "Company")

 

Paradox project update

 

 Completion of funding for the extended lateral; and,

Drilling operations expected to commence in January 2025

 

Zephyr Energy plc (AIM: ZPHR) (OTCQB: ZPHRF), the Rocky Mountain oil and
gas company focused on responsible resource development and carbon-neutral
operations, provides an update on funding and operations on the State 36-2R
LNW-CC well (the "well") at the Company's flagship project in the Paradox
Basin, Utah, U.S. (the "Paradox project").

 

Further to its announcement on 10 October 2024, in which the Company outlined
its intention to drill an extended lateral from the existing wellbore (the
"extended lateral"), the Company is pleased to announce that it has now
entered into binding documentation to fully-fund all expected drilling,
completion and production test costs (the "well costs") (the "funding"). The
funding has increased to US$7.5 million, an increase from the initial
estimated amount of US$7.0 million, and has been secured from a U.S.-based
industry investor (the "wellbore investor") in exchange for a 50% non-operated
working-interest in the single well.

 

There is no issuance of Zephyr's equity or any form of debt as part of the
funding, and the wellbore investor will not receive any further interest or
option in the Paradox project. In addition, Zephyr has retained a right of
first refusal to repurchase the working interest at a discount to fair market
value in the event that the wellbore investor chooses to sell its 50%
non-operated working-interest in the future.

 

Going forward, the wellbore investor will cover its pro rata portion of the
well's operating and overhead costs, and Zephyr will remain the operator of
the well. Net revenues from the well will be split 50:50 between Zephyr and
the wellbore investor from the time of first production, with no catch-up
period or other preferential rights to the investor.

 

Under the terms of the funding, the US$7.5 million will be transferred by the
wellbore investor to Zephyr in full by 31 December 2024, ahead of the
commencement of drilling.

 

With the funding for the extended lateral secured, Zephyr will now undertake
the final operational activity required to ensure that drilling operations can
commence as soon as possible. This activity includes completion of both the
rig contract and agreements with additional service providers. Surface
operations at the site have commenced, and the Company expects full drilling
operations for the extended lateral to begin in early January 2025. Once
drilling operations have been completed, the Company will immediately proceed
to a production test, with results expected in the first quarter of 2025.

 

The Company will provide further details on the timing of drilling operations
and the broader development outlook for 2025 once the rig contract has been
signed.

Colin Harrington, Zephyr's Chief Executive, said:

 

"The U.S. non-operated investment market is growing increasingly active, with
notable recent transactions in proven basins such as the Williston, as well as
in other emerging plays close to our operations in Utah.  We are delighted to
be able to utilise this type of U.S.-specific funding for our Paradox project
and view it as a highly attractive form of growth capital.

 

"With no issue of Zephyr equity or debt, and with no residual upside exposure
in the future development of the Paradox project, this is a strong endorsement
of the projects' single well economics. We are hopeful that the extended
lateral will be the catalyst that ultimately delivers significant value from
many more wells to be developed on our Paradox acreage, and this funding
provides Zephyr with full flexibility for that future development.

 

"We are now moving ahead with all operational activity required ahead of
drilling, including preparations at site and the finalisation of the rig
contract, and I look forward to the commencement of full drilling operations
early in the new year.  We plan to update the market regularly during the
anticipated active start to 2025."

 

Background to the funding of the extended lateral

On 10 October 2024, the Company announced that it had entered into a
non-binding letter of intent with the wellbore investor to fund a projected
US$7.0 million of expected drilling, completion and production testing costs.

Zephyr and the wellbore investor have now completed all required diligence and
binding documentation, and below is a summary of the key terms of the funding:

·    The wellbore investor has acquired a direct 50% non-operated interest
in the State 36-2R wellbore (the "wellbore interest") for US$7.5 million to
fully-fund all expected drilling, completion and production testing costs
(including contingency).

·    Zephyr will retain operatorship of the well and the wellbore investor
will not receive any further interest or option in the Paradox project other
than the individual wellbore interest.

·    There will be no issue of any Zephyr equity or debt as part of the
funding.

·    The US$7.5 million is a forecast of 100% of the well costs and
includes contingency.

·    If costs overruns occur beyond US$7.5 million, additional expense
will be shared 50:50 between Zephyr and the wellbore investor.

 

Contacts:

 

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

 Colin Harrington (CEO)

 Chris Eadie (Group Finance Director and Company Secretary)

 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

 Canaccord Genuity Limited - Joint-Broker                      Tel: +44 (0)20 7523 8000

 Henry Fitzgerald-O'Connor / Charlie Hammond

 Celicourt Communications - PR

 Mark Antelme / Felicity Winkles / Ali AlQahtani               Tel: +44 (0) 20 7770 6424

 

Notes to Editors

Zephyr Energy plc (AIM: ZPHR) (OTCQB: ZPHRF) is a technology-led oil and
gas company focused on responsible resource development from carbon-neutral
operations in the Rocky Mountain region of the United States.  The
Company's mission is rooted in two core values: to be responsible stewards of
its investors' capital, and to be responsible stewards of the environment in
which it works.

 

Zephyr's flagship asset is an operated 46,000-acre leaseholding located in
the Paradox Basin, Utah, 25,000 acres of which has been assessed to hold,
net to Zephyr, 2P reserves of 2.6 million barrels of oil equivalent ("mmboe"),
2C resources of 34 mmboe and 2U resources 270 mmboe.

 

In addition to its operated assets, the Company owns working interests in a
broad portfolio of non-operated producing wells across the Williston
Basin in North Dakota and Montana. Cash flow from
the Williston production will be used to fund the planned Paradox
Basin development. In addition, the Board will consider further opportunistic
value-accretive acquisitions.

 

 

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