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.

10 December 2020

Zephyr Energy plc

(the "Company" or "Zephyr")

State 16-2 well milestones met;

Conductor rig on site;

Main rig mobilisation underway; and,

Second tranche grant funds received

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") where the Company is in the final stages of preparation ahead of the spud of its 'dual-use' State 16-2 well.

The Company initially targeted a spud date by 31 December - and it remains firmly on track to deliver this key corporate objective.

Over the last two months, the Company made significant progress on important milestones to ensure that it can safely deliver a successful well on time and within budget. During this period, the Company:

· Assembled a project drilling team with substantial Paradox Basin drilling expertise; 

· Secured all permits and satisfied all pre-operational conditions;

· Completed remediation works on the road leading to the State 16-2 site;

· Finished all other site preparations, including the completion of work to responsibly plug and permanently abandon an existing inactive well on the pad;

· Awarded the rig contract to Cyclone Drilling Inc. ("Cyclone"), a leading provider of purpose-built rigs in the Rocky Mountain region. The specific rig under contract is Cyclone Rig #34; and,

· Received the first $600,000 tranche of grant funds allocated by the U.S Department of Energy and its National Energy Technology Laboratory (the "DOE") for the drilling of the well.

Today, the Company is pleased to announce that a conductor rig is on-site at the State 16-2 pad, where it has commenced work to drill and set conductor casing. This initial drilling will be completed shortly and will provide a stable base for the main rig, Cyclone Rig #34, as well as provide protections for the surface formations during drilling operations.

Zephyr has also been informed that Cyclone Rig #34, having completed its previous work in Wyoming, has now commenced mobilisation to the State 16-2 site. Once on site next week, the equipment will be rigged up over a period of a week in preparation to drill the stratigraphic well to approximately 9,850-foot true vertical depth. Drilling, once spudded, is expected to take between 30-40 days and will seek to acquire continuous core and electronic log data from the Cane Creek reservoir, as well as a comprehensive log suite across other shallower reservoirs.

In addition, the Company can confirm that it has received the second US$600,000 tranche of the US$2 million grant funds allocated by the DOE for the drilling of the well. A further US$600,000 is due once drilling has commenced and the final balance of US$200,000 will be received by Zephyr once additional routine well development milestones are met.

Colin Harrington, Zephyr's Chief Executive, said "Given these unusual times, I'm particularly proud that our team continues to work through significant hurdles in order to deliver the drilling of this well on the timeline - and in the responsible manner - that we originally promised. It's an exciting moment for the Company and its stakeholders as we begin to unlock the considerable value from our Paradox project."

Contacts:

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. This project is sponsored by the U.S. Department of Energy and its National Energy Technology Laboratory (the "DOE").

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$2million 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.

Cyclone has been selected by the Company to drill the State 16-2 well. Its appointment followed a competitive selection process by Zephyr's team, involving extensive technical and commercial evaluation across multiple potential drilling contractors. Cyclone, based in Gillette, Wyoming, is one of the leading providers of rigs in the Rocky Mountain region (the "Rockies"). Cyclone's fleet of modern rigs was purpose-built for operating in the remote locations and rugged environment of the Rockies, and they hold one of the best drilling safety records in the U.S. oil and gas industry. Additionally, Cyclone has recent experience drilling similar stratigraphic wells, including a 10,200-foot-deep stratigraphic well drilled in 2019 which was also part-funded by the DOE.