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 Market Abuse Regulations (EU) No. 596/2014 ("MAR"). With the publication of this announcement, this information is now considered to be in the public domain.

22 October 2020

Zephyr Energy plc

(the "Company" or "Zephyr")

 Initial tranche of grant funds received;

appointment of Drilling Manager; and

further State 16-2 well updates

Zephyr Energy plc (AIM: ZPHR), an oil and gas company focused on responsible resource development in the Rocky Mountain region, provides an update on its project in the Paradox Basin, Utah, U.S. (the "Paradox" or the "Paradox project") where the Company is preparing to spud the 'dual-use' State 16-2 well before the end of the year.

As previously announced, Zephyr is 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, to drill the vertical State 16-2 well. This project is sponsored by the U.S. Department of Energy and its National Energy Technology Laboratory (the "DOE"), with the first US$2 million of well expenditure funded by way of a DOE grant. Up to US$1 million of incremental expenditure in excess of the DOE's grant will be funded by Zephyr, utilising a portion of the proceeds from the Company's recent oversubscribed equity placing.

With the funding of the State 16-2 well secured, Zephyr's team is focused on the operational preparations for the drilling of the well. New milestones achieved include the following:

· A US$600,000 initial tranche of DOE funding has been received by Zephyr. The funds received, equivalent to 30% of the US$2 million grant total, will be partially utilised to cover near-term costs including bonding, permitting and preliminary ground works at the site of the 16-2 well. The balance of the DOE funding will be received by Zephyr in three further tranches once additional routine well development milestones are met.

· Zephyr has bolstered its operations team with the appointment of Bruce Houtchens, a highly experienced Drilling Manager who will assist the Company on the State 16-2 project. Bruce previously served as Manager of Drilling & Completions for Fidelity Exploration & Production, the most active and successful driller in the Paradox Basin over the last decade. At Fidelity, Bruce coordinated all of Fidelity's drilling and completions operations in the Paradox and the Bakken, with direct management of annual drilling budgets of up to US$400 million. He brings a wealth of Paradox Basin drilling experience to the Zephyr team.

· A detailed initial well design is largely completed, which has allowed the Company to commence the tender process for project contracts. Project contracts currently out for bid include the solicitation of major items such as the rig contract. The newly bolstered Zephyr project team has expedited this process in order to award contracts in a timely manner to continue to ensure drilling activities before the end of the year.

Colin Harrington, Zephyr's Chief Executive, said "I am delighted with the progress made to ensure a successful and timely spud of the State 16-2 well.

"In particular, I'm very pleased to welcome Bruce to our project team - I'm not aware of anyone who's drilled more successful horizontal Paradox Basin wells over the last decade. I know he is excited to continue to deliver safe and successful wells within this basin, and to continue the process of overseeing systematic well cost reductions to improve future project profitability.

"Bruce's direct drilling experience in the Paradox Basin will be absolutely invaluable as we move forward with our own drilling activity - activity which we believe will also benefit from our excellent 3D seismic coverage and site selection of a top-ranked location in our portfolio.

"I'd also like to continue to thank the EGI and our other Utah-based partners, all of whom are working very hard to assist Zephyr with the launch of this exciting project. I'm very encouraged by the momentum that we are building.

"We will keep the market updated regularly as we work to unlock the value from our Paradox Basin holdings."

Contacts:

Background to the 16-2 well

As announced on 2nd September 2020, the Company has been working with a project team led by the EGI in collaboration with the UGS and other Utah-based partners. The project is entitled "Improving Production in Utah's Emerging Northern Paradox Unconventional Oil Play" and its 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. This project is sponsored by the DOE.

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.

Since Zephyr's Paradox acreage was selected as the location for the test well, Zephyr has been working with its project partners to construct a project plan that maximises the opportunity for all parties.

A key part of this plan is to design the well in such a way that not only can it be used to obtain all the data required by the research project, but that it can 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 it will also potentially significantly reduce future well costs for the Company.

It is currently expected that the total cost of the vertical well activity is forecast to be between US$2.5 million to US$3 million, of which the first US$2 million will be funded by grant funding from the DOE and up to US$1 million will be funded by Zephyr. Neither party is liable for any costs in excess of the US$3 million combined project limit.

The primary objectives of the initial stratigraphic well are to drill vertically to an approximate true vertical depth ("TVD") of 9,850 feet, and to acquire up to 90 feet of continuous core from the Cane Creek reservoir. The results from the analysis of the core and from other drilling data are expected to be available within three months from the completion of drilling.

Once the vertical well is completed it will be temporarily plugged back to 6,500 feet TVD. Zephyr (or a farm-in partner) will then have the opportunity to re-utilise the vertical wellbore as a sidetrack host from which a horizontal appraisal well can drilled. By re-utilising the vertical portion of the stratigraphic well, the Company estimates the total costs of drilling a future horizontal appraisal well will be reduced from circa US$6.0m to circa US$3.0m.