Zephyr Energy PLC (ZPHR.L) £12m placing & debt to fund Williston, Paradox & Colin Harrington (CEO) Update

Equity fundraise of £12 million and US$28 million senior debt facility to complete the acquisition of non-operated production assets and associated CAPEX in the Williston Basin;

£1.2 million broker option to enable existing Shareholders to participate in the equity fundraise;

2022 Paradox Basin high impact drilling programme planned;

Notice of General Meeting

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 a placing and subscription of, in aggregate, 240,000,000 new ordinary shares of 0.1 pence (“p”) each in the Company (“Placing Shares”), at a price of 5p per Placing Share (“Issue Price”), to raise £12 million before expenses (together, the “Placing”). A Broker Option to raise up to an additional £1.2 million for the Company has been put in place to allow existing shareholders who are qualifying investors to participate on the same terms as the Placing. Further details of the Broker Option are set out below. Of the funds raised in the Placing, approximately £8.675 million is conditional, inter alia, on approval by the Company’s Shareholders, further details of which are set out below.
 

 
The net proceeds of the Placing, along with a senior debt facility for US$28 million (together the “fundraise”), will be used to complete the US$36 million acquisition of non-operated working interests in currently producing wells in the Williston Basin, North Dakota, U.S. (the “Assets”) (the “Acquisition” or “the Williston”), as well as to fund further near-term production growth in the Williston. Expected cash flow from the Acquisition, in addition to cash flow from Zephyr’s current non-operated portfolio, will be used to accelerate 2022 development in the Company’s flagship Paradox Basin project in Utah, U.S. (“Paradox project”).

Highlights

· The Company is undertaking a conditional fundraise which consists of a £12 million equity Placing, and has received an approved commitment for a US$28 million senior debt facility from a long-established North Dakota-based commercial bank.

· The Board believes that the combined debt and equity proceeds have the potential to deliver substantial near-term value and growth for Shareholders.

· Proceeds will be used for the following operational purposes:

o To fully fund the US$36 million Acquisition:

  • The Acquisition will add a net 2.764 million barrels of oil equivalent (“mmboe”) of Proven Reserves, and includes a growing production stream of approximately 1,105 barrels of oil equivalent per day (“boepd”) net to the Assets in December 2021.

o To fund an estimated US$6 million in near-term drilling capital expenditure (“CAPEX”) which, along with anticipated additional cash flow generated in the coming months, will accelerate drilling and production growth across Zephyr’s asset portfolio.

o To equip the Company’s State 16-2 well for production, and to fund development of the surface infrastructure required to enable the sale of gas via the nearby pipeline and/or to a potential 2-megawatt (“MW”) cryptocurrency mining facility development to be co-located on the well site.

· Once the Acquisition has been completed, the Company plans to hedge a significant portion of its non-operated production to take advantage of the increased commodity prices since the date of the original Acquisition announcement on 22 November 2021, in order to ensure substantial internal funding capacity for its ambitious growth plans.

· The cashflows from the Company’s post-Acquisition non-operated portfolio have the potential to support significant growth in the Company’s existing portfolio and will enable an accelerated drilling programme to be undertaken on the Company’s flagship Paradox Basin asset.

o Zephyr plans to drill three Paradox Basin wells in the second half of 2022. In addition, in the event the 2022 Paradox drilling programme meets expectations, the Company anticipates a significantly larger Paradox drilling programme in 2023.

· The Company has implemented a £1.2 million broker option scheme to enable existing Shareholders to participate in the equity fundraise on the same terms as the Placing.

Colin Harrington, Chief Executive of Zephyr, said: “The fundraise announced today and the associated Acquisition are further huge steps forward for the Company. After closing this highly accretive acquisition, Zephyr will have nearly tripled its existing non-operated production – and pro forma forecast cash flow per fully-diluted share will have more than doubled through the addition of this high-quality, high-margin production base with significant near-term growth potential.

“Most importantly, the Acquisition’s resultant cashflows have the potential to power growth across our broader portfolio. Zephyr plans to financially hedge a substantial portion of the combined non-operated production in order to secure the funding required to accelerate a high impact three-well drilling programme on our operated flagship Paradox project in the second half of 2022 – which in turn, with success, may lead to a significantly larger Paradox drilling programme in 2023. The cash flows from the non-operated portfolio will also allow for Zephyr to complete the infrastructure investment needed to bring the successfully tested State 16-2 well into full production in the coming months, and will also fund further near-term drilling in the enlarged non-operated Williston Basin portfolio.

“The fundraise and the completion of the Acquisition represent a fantastic start for 2022, and we look forward to maintaining our momentum and delivering on our key objective by unlocking significant further upside value from the Paradox project. I would like to thank Turner Pope Investments (“TPI”) and the rest of our adviser team for the successful execution of the Placing in very challenging market conditions, and I would like to take this opportunity to welcome our new Shareholders and institutional investors on board. I am also delighted that we are able to attach a broker option scheme to the Placing which will enable existing Shareholders to participate on the same terms as the Placing.

“The Board looked a number of potential funding options for the Acquisition and concluded that the debt and equity package announced today was by far the optimal way forward, as it maximises the Company’s ability to fast-track the development of the Paradox project. While the Board considered a number of proposals to fully fund the Acquisition by debt, those proposals ultimately came at a significantly higher cost and limited the amount of free cash that would be available over the next twelve months to invest into the Paradox project – and were therefore deemed less attractive alternatives to today’s announced funding.

“Over the coming months, we will be providing regular updates for Shareholders as we progress through this transformational period – and in the coming weeks, we expect to be able to announce details of the independent Competent Persons Report (“CPR”) being prepared on the Paradox project.

“Finally, in line with our core beliefs and public commitment, we intend to ensure that all net hydrocarbons produced from the Acquisition will have a “net-zero” Scope 1 operational carbon impact while under our ownership. This will be achieved largely through our programme of purchasing Verified Emission Reduction credits to mitigate all Scope 1 carbon emissions. As always, we will strive to operate as responsible stewards of our investors’ capital and of the environment in which we work.”

Background to the Placing and the Acquisition and details of General Meeting

Read More

Notice of General Meeting

The Company will publish a Circular to convene the GM to propose Resolutions to enable completion of the Placing, the issue of the Broker Option Shares and the grant of the Investor Warrants, the Broker Warrants and the Additional Broker Warrants.

The general meeting will be held at 10.00 a.m. on 10 February 2022. The circular containing the notice of general meeting will be published and sent to shareholders today and will be available shortly thereafter on the Company’s website, www.zephyrplc.com. Shareholders are strongly urged to vote by proxy in accordance with the instructions set out in the notice of general meeting.

Contacts:

Zephyr Energy plc

Colin Harrington (CEO)

Chris Eadie (CFO)

Tel: +44 (0)20 7225 4590


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