REG - Zephyr Energy PLC - Placing & Subscription & Project Update

Zephyr EnergyAnnouncement

06/06/2023 07:00

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RNS Number : 7256B  Zephyr Energy PLC  06 June 2023

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OFFER TO SELL OR ISSUE OR THE SOLICITATION OF AN OFFER TO BUY, SUBSCRIBE FOR
OR OTHERWISE ACQUIRE ANY ORDINARY SHARES OF ZEPHYR ENERGY PLC.

 

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OF INSIDE INFORMATION.

 

6 June 2023

 

Zephyr Energy plc

("Zephyr" or the "Company")

 

£3.15 million raised in a Placing and Subscription

Update on State 36-2 well and operational guidance

 

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 of ("Placing") and subscription
for ("Subscription"), in aggregate, 90,000,000 new ordinary shares of 0.1
pence ("p") each in the Company ("Fundraising Shares"), at a price of 3.5p per
Fundraising Share ("Issue Price"), to raise £3.15 million before
expenses (together, the "Fundraising").

 

The Fundraising was conducted using existing share authorities granted to
directors of Zephyr (the "Directors" or the "Board") at the Company's annual
general meeting held on 21 July 2022 (the "2022 AGM") and has been supported
by a range of existing institutional and other investors, including clients of
Premier Miton. The Placing was conducted by the Company's Joint Broker, Turner
Pope Investments ("TPI"), acting as Placing Agent for the Company.

 

 

Highlights

 

·    The Company is undertaking a fundraise which consists of a £3.15
million equity Placing and Subscription (before expenses).

 

·    The net proceeds of the Fundraising will be used to fund an estimated
US$3.65 million of incremental near-term CAPEX at the Company's flagship
project in the Paradox Basin, Utah, U.S. (the "Paradox project"). This is
expected to include a production test on the Company's State 36-2 LNW-CC well
(the "State 36-2 well") as well as future infrastructure and gas processing
costs.

 

·    In the Paradox Basin, operations to prepare the State 36-2 well for
production test continue at a methodical and expected pace. The Company's goal
is to production test the well prior to the end of June, but the safety of its
team and retaining control of the well dictates the speed at which it works.
Evidence of high pressure and hydrocarbons in the well remain substantial.

 

 

Background

 

Over the past six months, the Company deployed significant organic cash flow
into both the Paradox project and its high impact project in the Williston
Basin, details of which are outlined below.

 

Williston assets

 

On 21 December 2022, the Company announced the acquisition of non-operated
working-interests in six wells (the "Slawson wells"), equivalent to a net 1.1
well, for a total consideration of US$2.9 million. The operator of the wells
is Slawson Exploration ("Slawson"), a top-tier operator and one of the largest
private companies in the Williston Basin. As part of the acquisition, Zephyr
announced that it would pay US$8.9 million of CAPEX associated with the
working-interests to bring the wells into production.

 

Paradox project

 

On 19 January 2023 the Company announced that it had intersected a major,
highly-pressured, natural fracture network while drilling the State 36-2 well
and on 20 March 2023 the Company announced that workover and subsequent
production test operations were set to commence.

 

In early April 2023, a significant well control issue arose in which
hydrocarbons flowed from the well in an uncontrolled manner. The incident was
the result of a failure in a safety valve.

 

At present, the well is static and under control, and Zephyr is in the process
of pulling the 2-7/8-inch production tubing out of the hole, as some joints
were compressed/compromised or stuck due to the high pressures of the well
control incident. To date approximately 6,500 feet of 8,900 feet of tubing has
been pulled and inspected with twenty-six 31-foot joints replaced. The Company
is moving methodically to remove and inspect the remaining joints while
keeping the wellbore static. Once the tubing work is complete, a final cement
squeeze will be performed and then the casing will be perforated across the
reservoir interval prior to production testing the well.

 

Timing of the well test will be dictated by operational conditions to ensure
well control is maintained and working conditions are safe for our team.
Should the operations continue as expected, the production test is expected to
commence in June 2023. Evidence of pressures and hydrocarbons in the well
remain substantial.

 

 

Rationale for the Fundraising and use of proceeds

 

While the Company is pleased to note that the Slawson wells have been drilled
and fully completed (with no remaining drilling or completion risk exposure to
the Company), Slawson recently provided an update to the expected schedule for
related surface facilities build-out. As a result, the Company now expects to
see first production from the wells in October 2023 and first cashflows in
January 2024 (versus earlier forecasts of March 2023 and August 2023,
respectively).

 

In parallel with this, while the State 36-2 well control incident was a
powerful illustration of the high pressures and productivity inherent in
certain Paradox Basin natural fracture networks, resulting well work
operations have subsequently resulted in delays to schedule and an increase in
costs.   While the Company retains well control insurance coverage which is
ultimately expected to cover the vast majority of costs associated with the
well control incident, insurance proceeds are paid on a reimbursement basis
and thereby impact the Company's near-term working capital commitments.

 

Finally, given the pressures and hydrocarbon volumes witnessed during the
four-day well control incident, the Company may require a larger gas
processing facility than initially envisaged.  Ultimate sizing of any
processing facility will be determined post completion of the State 36-2 well
test.

 

Approximately £1.0 million raised pursuant to the Fundraising will be used
towards completing the State 36-2 well production testing, and the balance of
the net funds raised (approximately £1.9 million) will be used for near-term
working capital needs and long term infrastructure and gas processing CAPEX.

 

 

Operational guidance and next steps

 

Production from the Slawson wells is expected to add an initial approximately
750 barrels of oil equivalent a day net to the Company in Q4 2023, and the
Paradox project has the potential to further significantly increase the
Company's production when the Paradox wells come online.  Zephyr will revise
its production guidance for 2023 after the conclusion of the State 36-2 well
production test.

 

The second half of 2023 is expected to be an inflection point for the Paradox
project, as the Company works to turn the project from an exploration and
appraisal play into a cash flowing development project, and future Paradox
drilling is expected to benefit from knowledge gained during the drilling of
the State 36-2 and State 16-2 wells.

 

The Company is committed to advancing the Paradox project drilling programme
as soon as possible, and plans to explore options for partnerships,
joint-ventures, project finance and farm-in opportunities in the second half
of 2023.  In the meantime, the Company looks forward to updating the market
with news flow over the next few months which is expected to include:

 

·    State 36-2 well production test results;

·    Updated CAPEX and drilling plans (dependent on State 36-2 well
production test results);

·    Continued progress on the Dominion Energy 16-inch pipeline, which is
permitted, currently under construction and expected to be available to accept
gas volumes in Q4 2023;

·    Updated Competent Persons Report (post State 36-2 well production
test); and

·    Initial production volumes from the Slawson wells.

 

 

Colin Harrington, Chief Executive of Zephyr, said: "I am grateful for the
support received from shareholders to ensure the successful completion of the
Fundraising. The funds raised will enable the Company to continue delivering
on its key strategic objective of bringing the Paradox project into commercial
production over the coming months, while bridging to the significant revenues
expected from both the Paradox project and the Company's Williston assets.

 

"The Board looked at a number of financing alternatives and felt that given
current market conditions (particularly the cost of debt), and after taking
into account Zephyr's bespoke situation, that an equity raise with circa 5%
dilution was the optimal choice for the Company.

 

"The proceeds raised ensure we remain in a strong position to further advance
the Paradox project development, and the Board believes that the minimal
dilution to shareholders will be outweighed by continued progress and positive
newsflow expected over the coming months, both with regards to the upcoming
well test and with the cash generative Slawson wells coming on stream by Q4
this year.

 

 

Details of the Fundraising

 

In total, 90,000,000 Fundraising Shares are proposed to be allotted and issued
pursuant to the Placing and Subscription, at an Issue Price of 3.5p per
Fundraising Share to raise gross proceeds of £3.15 million (£3.03 million
from the Placing and £0.12 million from the Subscription). The Fundraising
Shares to be issued pursuant to the Placing have been conditionally placed by
TPI, acting as agent and broker of the Company, with certain existing
institutional and other investors pursuant to a Placing Agreement, as detailed
below. The Subscription for £0.12 million has been subscribed for directly
with the Company by an existing shareholder pursuant to a subscription
agreement.

 

The Fundraising Shares will be issued on a non-pre-emptive basis pursuant to
the authorities granted to the Directors at the 2022 AGM.

 

When issued, the Fundraising Shares will represent approximately 5.3 per cent
of the enlarged share capital of the Company as enlarged by the Fundraising
and will rank pari passu with the existing ordinary shares of 0.1 p each in
the Company ("Ordinary Shares").

 

 

Placing Agreement and issue of warrants

 

The Company and TPI have entered into a Placing Agreement pursuant to which
TPI has agreed, subject to certain conditions, to use its respective
reasonable endeavours to procure subscribers for the Placing Shares at the
Issue Price. The Company has given customary warranties and undertakings to
TPI in relation to, inter alia, 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
Admission (as defined below) and, in particular, in the event that there has
been, inter alia, a material breach of any of the warranties. No part of the
Fundraising is being underwritten. The Placing is conditional upon Admission
(as defined below) taking place by no later than 8.00 a.m. on 12 June 2023 (or
such later date as TPI may agree in writing with the Company, being not later
than 8.00 a.m. on 30 June 2023) and the Placing Agreement entered into between
the TPI and the Company not being terminated prior to Admission.

 

Under the terms of the Placing Agreement, TPI will receive a corporate finance
fee from the Company, commission relating to the Placing Shares and warrants
to subscribe for 10,388,571 new Ordinary Shares ("Broker Warrants"). The
Broker Warrants are exercisable at a price of 4.375 pence per Ordinary Share,
representing a 25 per cent. premium to the Issue Price, for a period of three
years from the date of Admission. The Broker Warrants will not be admitted to
trading on AIM or any other stock exchange.

 

 

Admission to AIM

 

Application has been made to London Stock Exchange plc for the Fundraising
Shares to be admitted to trading on AIM ("Admission"). It is currently
anticipated that Admission will become effective and that dealings in the
Fundraising Shares will commence on AIM at 8.00 a.m. on or around 12 June
2023.

 

 

Total voting rights

 

On Admission, the Company will have 1,686,501,823 ordinary shares of 0.1p each
in issue, each with one voting right. There are no shares held in treasury.
Therefore, the Company's total number of ordinary shares in issue and voting
rights will be 1,686,501,823 and this figure may be used by shareholders from
Admission as the denominator for the calculations by which they will determine
if they are required to notify their interest in, or a change to their
interest in, the Company under the FCA's Disclosure Guidance and Transparency
Rules.

 

 

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

 Celicourt Communications - PR

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

 

Qualified Person

 

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.

 

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 45,000-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 240 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.

 

Glossary of Terms

 

The following terms apply throughout this announcement unless the context
requires otherwise:

 

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";

 

CAPEX: capital expenditure; and

 

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

 

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, Turner Pope Investments 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.

 

Forward Looking Statements

 

This announcement includes statements that are, or may be deemed to be,
"forward-looking statements". These forward-looking statements can be
identified by the use of forward-looking terminology, including the terms
"believes", "estimates", "plans", "anticipates", "targets", "aims",
"continues", "expects", "intends", "hopes", "may", "will", "would", "could" or
"should" or, in each case, their negative or other variations or comparable
terminology. These forward-looking statements include matters that are not
facts. They appear in a number of places throughout this announcement and
include statements regarding the Directors' beliefs or current expectations.
By their nature, forward-looking statements involve risk and uncertainty
because they relate to future events and circumstances. Investors should not
place undue reliance on forward-looking statements, which speak only as of the
date of this announcement.

 

Notice to overseas persons

 

This announcement does not constitute, or form part of, a prospectus relating
to the Company, nor does it constitute or contain any invitation or offer to
any person, or any public offer, to subscribe for, purchase or otherwise
acquire any shares in the Company or advise persons to do so in any
jurisdiction, nor shall it, or any part of it form the basis of or be relied
on in connection with any contract or as an inducement to enter into any
contract or commitment with the Company.

 

This announcement is not for release, publication or distribution, in whole or
in part, directly or indirectly, in or into Australia, Canada, Japan or the
Republic of South Africa, Russia or any jurisdiction into which the
publication or distribution would be unlawful. This announcement is for
information purposes only and does not constitute an offer to sell or issue or
the solicitation of an offer to buy or acquire shares in the capital of the
Company in  Australia, Canada, Japan, New Zealand, the Republic of South
Africa, Russia or any jurisdiction in which such offer or solicitation would
be unlawful or require preparation of any prospectus or other offer
documentation or would be unlawful prior to registration, exemption from
registration or qualification under the securities laws of any such
jurisdiction.  Persons into whose possession this announcement comes are
required by the Company to inform themselves about, and to observe, such
restrictions.

 

This announcement is not for publication or distribution, directly or
indirectly, in or into the United States of America.  This announcement is
not an offer of securities for sale into the United States.  The securities
referred to herein have not been and will not be registered under the U.S.
Securities Act of 1933, as amended, and may not be offered or sold in the
United States, except pursuant to an applicable exemption from registration.
No public offering of securities is being made in the United States.

 

General

 

No statement in this announcement is intended to be a profit forecast or
estimate, and no statement in this announcement should be interpreted to mean
that earnings per share of the Company for the current or future financial
years would necessarily match or exceed the historical published earnings per
share of the Company.

 

Neither the content of the Company's website (or any other website) nor any
website accessible by hyperlinks on the Company's website (or any other
website) or any previous announcement made by the Company is incorporated in,
or forms part of, this announcement.

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