Zephyr Energy cashflows from non-operated portfolio continue to exceed earlier expectations

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Zephyr Energy plc (LON:ZPHR), the Rocky Mountain oil and gas company focused on responsible resource development from carbon-neutral operations, has provided an update on recent activity on its non-operated asset portfolio in the Williston Basin, North Dakota, U.S, including the acquisition of working-interests in a further 11 wells.

Zephyr’s non-operated portfolio now consists of WIs in 219 wells, the vast majority of which are currently in production.

Highlights

· Zephyr’s non-operated portfolio continues to grow, both through drilling on existing Zephyr acreage and through the acquisition of further “bolt-on” WIs in the Williston Basin.

· Over the past two months, Zephyr elected to participate in seven new Sanish Field infill wells to be drilled within drilling and spacing units (“DSUs”) in which Zephyr currently holds WIs.

· Zephyr has also acquired WIs in a further 11 wells (these, together with the seven Sanish Field wells, the “new wells”), a majority of which have already been drilled and are awaiting completion. 

o  Total consideration for the 11 acquired wells is circa US$301,000, which has been paid from existing cash resources

· Zephyr’s average WI across the 18 new wells is circa 1.4% per well, or a total aggregate of circa 24.4% of one net well, and are comprised of two and three-mile hydraulically stimulated horizontal wells.

· In addition to the acquisition price paid for the newly acquired 11 wells, Zephyr will fund the discretionary net capital expenditure (“CAPEX”) relating to the drilling and completion for all 18 of the new wells.  Zephyr’s net CAPEX is forecasted to be circa US$1.8 million which will be payable over the course of 2022, and the Board expects to fund this investment from its existing cash resources.

· The Company expects all 18 of the new wells to be on production by the end 2022, resulting in an estimated 80,000 barrels of oil equivalent (“boe”) reserve addition to Zephyr.

· The 18 new wells are expected to generate an incremental 200-250 barrels of oil equivalent per day (“boepd”), although wells will be brought online at varying points over the second half of 2022.  This incremental production will serve to offset typical decline in Zephyr’s existing producing wells.

· Zephyr now has working interests in 219 gross horizontal, hydraulically stimulated wells (circa 15 net wells) with an average WI of circa 6.7% across its portfolio. 

Further information on the new wells is outlined below.

Colin Harrington, Zephyr’s Chief Executive, said:  “Cashflows from Zephyr’s non-operated portfolio continue to exceed earlier expectations, which allows us to fund additional accretive drilling investments and maintain a strong non-operated production profile without diverting resources from our planned Paradox Basin drilling programme.

“The acquisitions announced today are an excellent incremental addition to our non-operated portfolio, are located in prime acreage and fit nicely alongside the continued infill drilling by Whiting on Zephyr’s existing Sanish Field acreage.

“It remains our intention to fortify our non-operated production through continued drilling participation as well the opportunistic acquisition of quality assets. Today’s announcement demonstrates Zephyr’s continuing capacity to grow our underlying asset value, which will in turn provide more resources for the long-term organic development of our Paradox project.

“We look forward to giving a detailed production update and revised forecasts after second quarter sales figures are received.”

Drilling within the existing non-operated portfolio

Zephyr’s current Williston Basin portfolio continues to provide organic growth opportunities by way of an active drilling programme on acreage in which Zephyr has existing leaseholder interests:

· Over the last two months, Zephyr elected to participate in seven infill well proposals within the Sanish Field, where the operator, Whiting Petroleum Corporation (“Whiting”) continued to pursue an active infill drilling programme.  Production from the new infill wells is expected to be online during the second half of 2022.

Acquisition of additional WIs

· Zephyr recently acquired non-operated WIs in a further 11 wellbores, all located within highly productive areas of the Williston Basin.

o  A majority of these newly acquired wells have been drilled and are awaiting completion, with the remainder to be drilled over the next six months.  They are all expected to add to Zephyr’s non-operated production during the second half of 2022.

o  These “bolt-on interests” are considered by the Board to be highly economic, opportunistic acquisitions, at a time when commodity pricing remains strong but drilling and acquisition costs remain favourable versus market comparables.

o  Total consideration for the new acquisitions is circa US$301,000, which has been paid for from the Company’s existing cash resources

o  Operators in the newly acquired wells include Kraken Oil and Gas LLC and Bowline Energy LLC.

In addition to the acquisition price paid for the newly acquired 11 wells, Zephyr will fund the CAPEX relating to the drilling and completion for all 18 of the new wells.  Zephyr’s net CAPEX is forecast to be circa US$1.8 million and the Board expects to fund this from its existing cash resources.

Overall, Zephyr’s average WI across the 18 new and acquired wells is circa 1.4% per well, or a total aggregate of circa 24.4% of a net well.  Zephyr now has interests in 219 wells, the vast majority of which are currently on production.

Zephyr Energy’s non-operated portfolio averaged 1,600 boepd in the first quarter of 2022.  Updated production and revenue totals, as well as revised forecasts, will be provided after 2Q 2022 revenue totals and pricing data are received from our Operators.

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