Zephyr Energy Regulatory News (ZPHR)

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.

15 March 2021

Zephyr Energy plc

(the "Company" or "Zephyr")

Initial core analysis from the Cane Creek reservoir provides further evidence of hydrocarbon saturation;

 Board approval to proceed with State 16-2 lateral production well;

updated project economics

Zephyr Energy plc (AIM: ZPHR), the Rocky Mountain oil and gas company focused on responsible resource development, is pleased to provide an update on its project in the Paradox Basin, Utah, U.S. (the "Paradox" or the "Paradox project").

Since the completion of the State 16-2 well, Zephyr and its project partners have been analysing the considerable reservoir data obtained from both the Cane Creek reservoir (the Company's prime reservoir target) and from multiple other shallower reservoir targets. This data included 113 feet of continuous core obtained from the Cane Creek reservoir.

The highlights from that analysis to date, and proposed next steps, are set out below:

· Initial analysis of the Cane Creek continuous core data provides further evidence of hydrocarbon saturation across the Cane Creek reservoir.

· When integrated with the recently acquired log data, existing 3D seismic data, geologic and regional analogue analysis, the Company believes there is a strong justification to proceed to test the Cane Creek reservoir zone with a target to deliver initial oil production.

· Zephyr's Board has therefore elected to proceed with the near-term drilling of a side track lateral off the State 16-2 well (the "State 16-2LN CC" or "the lateral"):

o The lateral will target production from the Cane Creek reservoir and will utilise the pre-existing roads, pad and wellbore from the State 16-2 as a low-cost, low environmental impact sidetrack host.

o The structure to be drilled has comparable geometry and form to other productive structures found within the neighbouring Cane Creek Field, and is characterised by multiple seismic indicators along its length that may represent natural fracture networks within the Cane Creek reservoir.

o The use of the State 16-2 well's top hole enables a substantial well cost reduction and drilling risk mitigation.

· The Board's target is to deliver first oil production - and benefit from the improved commodity price environment - in a rapid and responsible manner:

o Permitting and detailed drill planning efforts for the lateral are underway, and the Company has targeted a spud date of late H1 or early H2 2021, subject to final permitting, funding and internal approvals.

o The Company is in advanced discussions with potential industry and financial partners regarding the funding of the lateral well.

· The Company continues to refine the cost and economic benefits of the lateral. The State 16-2LN CC is forecast by the Company's Board to have strong standalone economics based on its 2C estimate which includes:

o An estimated drilling cost of US$3.5 million;

o A single-well net present value of approximately US$8.2 million at US$60.00 per barrel of oil and at a ten percent discount rate ("NPV-10");

o A breakeven oil price of US$23.00 per barrel of oil; and

o A single-well estimated ultimate recovery of 694,000 barrels of oil equivalent ("mmboe").

· On a project-wide 2C basis, the Cane Creek reservoir on the Company's acreage (which includes the State 16-2LN CC) is estimated by Zephyr to hold:

o Net recoverable resources of over 12mmboe; and

o Net present value of approximately US$156 million using a flat oil price of US$60 per barrel of oil and a ten percent discount rate.

· The above estimates only include forecast resources in the Cane Creek reservoir and do not include the significant potential upside from additional overlying reservoirs which are being evaluated following the drilling of the State 16-2 well. The estimates were calculated in accordance with the Company's Competent Persons Report ("CPR") prepared by Gaffney Cline & Associates ("Gaffney Cline") in June 2018, and will be revised further once all data from the State 16-2 well has been processed.

· In addition, the analysis and interpretation work on the multiple shallower reservoir targets continues to progress. Initial results have provided encouraging evidence for the presence of multiple stacked continuous oil and gas plays, and significant additional data remains to be processed and analysed over the coming months.

Colin Harrington, Zephyr's Chief Executive, said "I am delighted that the initial results obtained from the State 16-2 Cane Creek reservoir core data both corroborate and support the Board's long-held view that the Paradox has the potential to be a project of considerable scale with robust and highly attractive economics.

"Furthermore, I am proud of the team's progressive achievements in the last six months. Over this period, Zephyr drilled a stratigraphic well in record time, obtained and evaluated well logs which show a strong analogue to other productive wells in the Paradox Basin, and acquired significant continuous core data which has now shown evidence of oil saturation across our primary reservoir target. Combined with the securing of the Company's grant funding (which reduced the cost of the wellbore host by $2 million) and an environment in which global commodity prices are rising, the Board feels the timing is excellent to undertake the next step in the careful and responsible development of this project.

"This is fantastic progress, and comes on the back of seven years of substantial time and resource investment in this project. The Board believes the next step - drilling the lateral well - is an ideal catalyst to further unlock the project's value and has the potential to deliver the Company's first production from the Paradox.

"We are well underway with the preparations required for our target to spud the lateral in the middle of this year and I'm confident that we have the right team in place to deliver a safe and responsible well - the same team that delivered the successful State 16-2 vertical well. This well will now be used as a low-cost, low impact sidetrack host for the lateral.

"As well as providing our first opportunity to produce oil from the Paradox, the lateral will also provide us with vital information to further understand the asset and to optimise our future work programme for the project.

"In addition, we remain encouraged by indications that demonstrate the potential for multiple stacked overlying reservoirs across our resource base. Unlike the Cane Creek reservoir, these overlying secondary zones were not targeted historically and therefore require significant evaluation before a resource base assessment can be concluded. We will keep the market updated as this detailed analysis progresses.

"Our goal, as always, is to create maximum economic value with minimum environmental impact, and we believe this next step - the drilling of the State 16-2LN CC - gives us a clear pathway to deliver on these objectives."

Contacts:

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.

Glossary of Terms and Definitions

1C: Low Estimate of Contingent Resources

2C: Best Estimate of Contingent Resources

3C: High Estimate of Contingent Resources

 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 categorized in accordance with the level of certainty associated with the estimates and may be sub-classified based on project maturity and/or characterized by their economic status.