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.

18 December 2020

Zephyr Energy plc

(the "Company" or "Zephyr")

State 16-2 well commencement of drilling

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").

The Board of Zephyr is delighted to announce that it plans to spud the State 16-2 well today, well ahead of the Company's year-end target date for the commencement of drilling. Over the last week, the Cyclone rig mobilised to the well site where it was subsequently assembled and tested. In addition, all ancillary services and service providers are now on site to support drilling operations.

The primary objectives of the well are to drill a mildly deviated well (8 degree maximum inclination) to an approximate true vertical depth ("TVD") of 9,815 feet, so that the Company can acquire up to 100 feet of continuous core from the Cane Creek reservoir. The Company also plans to run a comprehensive well log suite across the entire Paradox Formation, which includes the primary Cane Creek reservoir target and at least five other potential reservoir zones, in order to gain additional insight into the potential of those secondary targets.

Drilling operations are expected to take 30-40 days from this point forward, and the results from the analysis of the core and logs are expected within three months from the completion of drilling.

Once the drilling of the well is completed and the cores and logs acquired, the well will be temporarily plugged back at 6,450 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 be drilled. By re-utilising the vertical portion of the well, the Company estimates the total costs of drilling a future horizontal appraisal well will be reduced from circa US$6 million to circa US$3 million.

The spudding of the State 16-2 well is also the trigger for the Company to draw down the third US$600,000 tranche of the US$2 million grant funds allocated to the project by the U.S Department of Energy and its National Energy Technology Laboratory (the "DOE"). The balance of the DOE funding, a further US$200,000, will be received by Zephyr in one final tranche at the completion of operations.

Colin Harrington, Zephyr's Chief Executive, said "The commencement of drilling the State 16-2 well is a watershed moment for the Company as we begin to unlock the considerable value from our Paradox project.

"There has been significant time, money and effort expended by many people over many years to get to this point - from the original leasing program to the considerable investment in modern 3D seismic to the detailed technical work we've undertaken in conjunction with our world-class project partners. All of this work has been funded by the Company's Shareholders, and - from my vantage point on site at the State 16-2 well - I am delighted to be able to personally witness the tangible results of this historical effort and investment.

"Once again, I would like to thank our partners and contractors, and especially the project team, for their commitment to help Zephyr achieve its ambitious timeline of spudding prior to the end of the year - especially in such difficult conditions. We are now 100% focused on achieving our operational goals in the safest and most effective manner possible. I look forward to keeping the market updated on our progress."

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.

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.