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.

17 February 2022

Zephyr Energy plc

("Zephyr" or the "Company")

Completion of US$36 million Williston Basin acquisition

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 the completion of its US$36 million acquisition of non-operated working interests in currently producing and near-term production wells in the Williston Basin, North Dakota, U.S. (the "Acquisition").

All conditions of the Acquisition have now been satisfied, including the transfer of title of all associated working interests to Zephyr, and all payments due in respect of the Acquisition have been made from proceeds received from the Company's recent equity fundraising and from a newly secured senior debt facility, further details of which are set out below. Details of the Acquisition were originally announced by the Company on 22 November 2021, with subsequent updates on 20 December 2021 and 26 January 2022, and defined terms used in this announcement have the same meaning as those set out in the original announcement.

The Acquisition consists of working interests in 163 currently producing wells with an average working interest of approximately 4%. In addition, a further 18 drilled but uncompleted wells are scheduled to come online by the end of June 2022, with 47 other locations to be drilled in the future. Proved reserves acquired were estimated, by third party consultant Sproule Incorporated, to be 2.7 million barrels of oil equivalent, with an estimated post-tax net present value of US$57.1 million at a ten per cent discount rate and a total estimated undiscounted future cash flow of US$82.0 million at current commodity prices.

The Acquisition has an effective date of 1 December 2021 and cash flows from the producing wells associated with the Acquisition since that date will accrue to Zephyr's benefit. In December 2021, production from the Acquisition's producing wells averaged 1,105 barrels of oil equivalent per day, giving Zephyr's non-operated business (including other well interests already owned) a net pro forma combined run rate of 1,759 barrels of oil equivalent per day at the end of December 2021.

Zephyr has not hedged any production to date. The Company plans to hedge a substantial portion of the combined non-operated production in the near term and will provide an update on this in due course.

Colin Harrington, Chief Executive of Zephyr, said: "The closing of this Acquisition is a landmark moment for the Company. We've acquired an accretive, high-quality, high-margin production base with significant near-term growth potential, and in doing so we have nearly tripled Zephyr's existing non-operated production and more than doubled cash flow per fully diluted share.

"Combined with our recent fundraise, the Acquisition's cashflows will support growth across our broader portfolio, including funding a proposed high impact three-well drilling programme on our operated flagship Paradox project in the second half of 2022.

"I would like to take this opportunity to thank our lenders, both of the new senior debt facilities and of the initial bridge loan, for their proactive involvement in helping us complete the Acquisition. I'd also like to welcome our new equity investors to the Company - we look forward to providing regular updates on progress as we continue through this phase of rapid growth.

"Finally, in line with our core beliefs and public commitment, we intend to ensure that all net hydrocarbons produced from the Acquisition will have a "net-zero" Scope 1 operational carbon impact while under our ownership. This will be achieved largely through our programme of purchasing Verified Emission Reduction credits to mitigate all Scope 1 carbon emissions. As always, we will strive to operate as responsible stewards of investors' capital and of the environment in which we work."

 Acquisition background

The Acquisition was funded through a combination of the issuance of equity and senior debt. The Company completed a £12.8 million equity placing on 11 February 2022 and, in addition, utilised a US$28 million senior debt package (the "debt facility") funded by a long-established regional bank based in North Dakota. As part of the closing process, the Company also restructured the £3.0 million bridge loan (the "bridge loan") that was put in place in November 2021 to fund the initial deposit required to secure the Acquisition.

The US$28 million debt facility consists of a fully amortising four-year US$18 million term loan (the "Term Loan") and a US$10 million revolving credit facility ("RCF"). Principal and interest payments are to be made monthly on the Term Loan and monthly interest payments are payable on the RCF.

Other key terms of the debt facility are as follows:

· Fixed interest rate of 6.74%

· First lien mortgage with an assignment of production and a security agreement covering all current and future mineral interests over Zephyr's 100% subsidiary, Zephyr Bakken LLC which contains the Acquisition assets and Zephyr's other non-operated Williston Basin assets

· Unlimited full recourse corporate guarantee from Zephyr's 100% owned U.S. subsidiary, Rose Petroleum (U.S.) LLC.

Prior to drawdown of the US$28 million debt facility, the Company restructured the bridge loan used to fund the initial deposit required to secure the Acquisition. Key terms of the restructuring are as follows:

· Immediate repayment of £1.615 million of the bridge loan, leaving £1.385 million of the bridge loan in place

· Term extended to 21 November 2022

· 1.25% per month interest rate

· 3% early redemption payment

Certain Directors and their related parties participated in the original bridge loan (as announced on 22 November 2021) and will be fully repaid on the restructuring of the bridge loan.

As a part of the restructuring of the bridge loan, the Company will issue the remaining investors in the bridge loan with 8.5 million warrants to subscribe for 8.5 million new Ordinary Shares in the Company. The warrants will be exercisable at a price of 7. 5 pence per Ordinary Share for a period of three years from the date of issue. No Directors or their related parties will be beneficiaries of the warrants issued as part of the restructuring of the bridge loan.

Zephyr's U.S. legal advisor on the Acquisition was Freeman Mills PC.

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.

Estimates of resources and reserves contained within this announcement have been prepared according to the standards of the Society of Petroleum Engineers. All estimates, unless otherwise noted, are internally generated and subject to third party review and verification.

Glossary of Terms

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"

Proved reserves: Those quantities of petroleum which are anticipated to be commercially recoverable by application of development projects to known accumulations from a given date forward under defined conditions.