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.

29 January 2021

Zephyr Energy plc

(the "Company" or "Zephyr")

Initial evaluation of State 16-2 well log data:

Positive indications of stacked, continuous oil and gas plays;

hydrocarbon saturation across a majority of potential reservoirs;

update on U.S. Administration Executive Order

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

Over the last two months, Zephyr drilled the State 16-2 well safely, successfully, and in record time to a total depth ("TD") of 9,745 feet. After reaching TD, a significant amount of reservoir data was extracted. The well is currently plugged at 6,435 feet, and is available for re-use as a host from which a future side track lateral could be drilled with the objective of delivering the Company's first oil production from the Paradox project.

Early Observations and Results

The State 16-2 well operations acquired extensive log and core data. While the Company is still awaiting initial core analysis from the laboratory, it is pleased to share the following early observations and analysis from the open hole logs:

· The State 16-2 well penetrated 21 clastic reservoirs ("reservoirs") within the Paradox Formation.

· Substantial drilling gas shows were observed across 5 of the reservoirs, including the prime target Cane Creek reservoir.

· Robust drilling gas shows were observed across a further 10 of the reservoirs.

· Log analysis suggests hydrocarbon saturation across the bulk of these reservoirs. It is worth noting these positive initial results will require further calibration with the acquired core data.

· Core samples were acquired from 12 of the reservoirs, representing the first in situ core data from this part of the Paradox Basin.

· A draft petrophysical facies analysis shows similar reservoir and source facies to offset wells in many of the reservoirs, including the nearby producing Federal 28-11 well and a vertical well from the producing Cane Creek Field, which were also cored in the Cane Creek reservoir.

· These results are consistent with offset wells and suggest the presence of a hydrocarbon-filled reservoir matrix and high Total Organic Carbon ("TOC") source rock intervals. These high TOC source rock intervals may also store hydrocarbons and act as another low permeability reservoir.

· The results provide compelling evidence for the presence of stacked continuous oil and gas plays - plays which could potentially be drained should viable natural fracture networks be identified (as has been demonstrated elsewhere in the Cane Creek Field) or should artificial hydraulic stimulation completion techniques be applied successfully.

· Further evaluation is underway to calibrate the log data to the core data, in order to evaluate which of the additional zones have the volumetric potential to act as viable reservoir targets, and to determine whether hydraulic stimulation can act as a viable reservoir drainage strategy. This work will be integrated with Zephyr's existing 3D seismic data and natural fracture evaluation.

Next steps

The drilling and data acquisition operations of the State 16-2 well provided 113 feet of Cane Creek core, as well as 31 sidewall cores from 11 overlying reservoirs. These core samples are currently under evaluation at a laboratory in Houston where detailed analysis is being conducted. The initial results from that analysis will be available in the coming days.

The decision on whether to drill the side track lateral will be made once the Company has full results from all of the data acquired, and the Board currently expects to be able to make that decision by the end of March.

In order to assist and expedite activity should the Company decide to proceed with the side track lateral, Zephyr's team has already commenced the related detailed well design and planning work. The Company has also contracted to retain the services of the same experienced drilling operations team which successfully completed the vertical portion of the well in record time. In addition, the Company has applied for the necessary permits required to drill the horizontal lateral leg of the well. The State 16-2LN-CC Application to Drill ("APD"), once granted, would allow Zephyr to fully test the commerciality of the Cane Creek reservoir with a goal of achieving near term oil and natural gas production.

Updated outlook regarding the Biden Administration Executive Orders

Further to its announcement on 25 January 2021, the Company notes that on 27 January 2021, the Biden Administration released an Executive Order pausing the sale of new oil and natural gas leases on public lands. This halt on new federal leasing does not impact Zephyr's current leases, as the Company dedicated significant resources over the last eighteen months to solidify all existing federal leases across the 25,353 acres covered by its 3D seismic data.

As importantly, the Executive Order does not impede the issuance of new federal drilling permits. The Company believes the actions dictated in the Executive Order are beneficial for Shareholders, in that substantial undeveloped federal leaseholdings such as Zephyr's may now be even more difficult to replicate.

Colin Harrington, Zephyr's Chief Executive, said "We continue to make excellent progress in the work to unlock value from our Paradox acreage. Although Zephyr is in the earliest phase of its data evaluation process, and there is a significant amount of additional data to come, these initial results provide positive evidence of the presence of multiple stacked continuous oil and gas plays on our Paradox acreage, in addition to the previously outlined potential of the Cane Creek reservoir. Just as importantly, the logs suggest hydrocarbon saturation across a majority of these overlying potential reservoirs.

"These additional zones, if confirmed by further analysis, would generate a much better understanding of the overall scale and value of our prospective resource. Efforts are now underway to calibrate log to core data, in order to evaluate which additional zones have the most volumetric potential to act as viable reservoir targets.

"We are also evaluating multiple alternatives for the future commercial development of these assets. Any additional intervals identified could be targeted using existing natural fracture networks, similar to previous successful developments in the Cane Creek Field. Alternatively, the project may also be developed as a resource play using artificial stimulation completion techniques, and the newly acquired data will also assist in the evaluation of that type of development path. This optionality increases the attractiveness of the project and will be helpful as we discuss development plans with strategic and industry partners.

"Finally, we believe the actions taken this week by the Biden Administration should serve to bring even more interest to our leaseholding, given its scale, potential and undeveloped status.

"It's an exciting time for the Company as we continue our work to unlock the significant potential of our Paradox asset. Further updates will be coming in the near term as results from the core analysis become available."

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.

Background to the 16-2 well

As previously announced, Zephyr has been working with a project team led by the University of Utah's Energy & Geoscience Institute ("EGI"), in collaboration with the Utah Geological Survey (the "UGS") and other Utah-based partners. The project is sponsored by the U.S. Department of Energy and its National Energy Technology Laboratory (the "DOE").

Entitled "Improving Production in Utah's Emerging Northern Paradox Unconventional Oil Play," the project's goal is to assess and perform optimisation analyses for more focused, efficient and less environmentally-impactful oil production strategies in the northern Paradox Basin, particularly in the Pennsylvanian Paradox Formation's Cane Creek shale and adjacent clastic zones.

As part of this study, the EGI and UGS originally planned to drill a vertical stratigraphic test well to gather data to improve the understanding of the Paradox Basin play. It was planned that the proposed well would target the Cane Creek and potentially the C18/19 reservoirs, acquiring both core data and a comprehensive well log suite in order to provide valuable new basin data.

Over a period of several months, the project team analysed multiple potential well locations across the Paradox Basin, and the Company was delighted that the EGI and UGS selected Zephyr's Paradox acreage as the location on which to drill the well.

The Company's location was selected for a number of reasons, including the quality of the Group's underlying 3D seismic data (which can be tied into the well results to build a stronger integrated predictive model) as well as a favourable surface location which will be sited on a pre-existing pad.

After Zephyr's Paradox acreage was selected as the location for the test well, Zephyr worked with its project partners to construct a project plan that maximised opportunity for all parties.

A key part of this plan was to design the well in such a way that it could not only be used to obtain all the data required by the research project, but so that it could also be re-used by the Company in the future as the host for a lateral appraisal well. This approach not only reduces environmental impact but will also significantly reduce future lateral well costs for the Company.