US$30 million of non-operated portfolio revenue now hedged over the next 24 months
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 implementation of a hedging programme related to 328,000 barrels (“bbls”) of oil production from its non-operated asset portfolio in the Williston Basin over the next two years (the “Programme”). The Programme is designed to ensure over US$30 million of forecast revenue during this two-year period and has been implemented with BP Energy Company (“BP”), one of the world’s leading energy trading houses, as the hedge counterparty.
Under the terms of the Programme, Zephyr entered into crude oil commodity swap agreements, which settle on a monthly basis, at the following prices:
· Q2 2022: 64,000 bbls at US$100.80/bbl
· Q3 2022: 57,000 bbls at US$98.00 /bbl
· Q4 2022: 50,000 bbls at US$94.55 /bbl
· 1H 2023: 69,000 bbls at US$90.05 /bbl
· 2H 2023: 61,000 bbls at US$85.40 /bbl
· 1H 2024: 27,000 bbls at US$82.20 / bbl
The Programme has been structured to provide cashflow surety related to the Company’s senior debt obligations, as well as to materially derisk funding requirements for the proposed upcoming drilling campaign at the Company’s flagship Paradox Basin project (the “Paradox project”). The Programme announced today accounts for less than 50% of the Company’s total forecast production from all reserve categories on its non-operated portfolio over the next two years, leaving considerable additional exposure to commodity price fluctuations. Zephyr’s Board of Directors will continue to monitor commodity prices on a regular basis and may layer on additional hedges if and when it deems appropriate.
The Company estimates that the cash operating cost per barrel from its Williston Basin production will average approximately US$16 per barrel over the next 24 months, which implies strong profit margins for barrels hedged under the Programme. Further, when Sproule International completed its Competent Persons Report (“CPR”) on Zephyr’s non-operated portfolio in November 2021 (announced on 22 November 2021), it used an oil price per barrel of oil of US$71 for 2022, US$68 for 2023 and US$66 in 2024 for its valuation. The current implied valuation of Zephyr’s non-operated portfolio has therefore increased materially as a result of the Programme and prevailing commodity prices.
Colin Harrington, Chief Executive of Zephyr, said: “Zephyr successfully completed five acquisitions of producing non-operated assets in the Williston Basin over the last twelve months. The recent and substantial increase in global oil prices has now resulted in prices well above levels expected when we closed those acquisitions, so I’m delighted to be able to announce the implementation of our inaugural hedge programme at this time. The Programme will both protect our balance sheet and provide certainty to enable us to deliver on our key objectives over the next twelve months. We expect all our forecast capital commitments, for at least the next twelve months to be fully funded through a combination of existing cash resources and cash flow from production.
“While balance sheet and capital expenditure protection are the driving forces behind our hedging strategy, it’s important to point out that the majority of our forecast non-operated production, and 100% of our produced natural gas volumes, retain exposure to future changes in commodity prices, and that 100% of our oil and gas production until the end of March 2022 was unhedged and benefited from the strong recent pricing environment.
“I would like to take this opportunity to thank BP, our hedge counterparty, and First International Bank & Trust, our senior lender, for working so diligently to enable us to implement the Programme.
“2022 is shaping up to be another exciting year for the Company with a significant amount of corporate and operational activity in the pipeline – including the release of the key findings of the CPR on the Paradox project which is expected early next week. Planning for the drilling of three additional wells on the Paradox project in the second half of this year is well underway.
“Above all, I would like to reiterate that our mission remains to operate as responsible stewards of investors’ capital and of the environment in which we work. With a substantial portion of our forecast production cashflow now locked in at excellent pricing, we very much look forward to efficiently redeploying that capital over the coming months.”
Zephyr Energy plc
Colin Harrington (CEO)
Chris Eadie (CFO)
Tel: +44 (0)20 7225 4590
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