Zephyr Energy PLC (ZPHR.L) Pledge to achieve 100% carbon-neutral operations

Zephyr pledges to achieve 100% carbon-neutral operations by 30 September 2021

launch of carbon measurement and mitigation initiative with the Prax Group

Zephyr Energy plc (AIM: ZPHR), the Rocky Mountain oil and gas company focused on responsible resource development, is pleased to announce that it intends to achieve carbon-neutrality across its operational footprint by 30 September 2021. This industry-leading pledge is a major first step towards near-term delivery of hydrocarbons produced with an operational “net-zero” carbon impact, and the Company’s Board members are unanimously committed to this initiative.

As an integral part of this undertaking, Zephyr has agreed to collaborate with the Prax Group, a British multinational independent oil refining, trading, storage, distribution and retail conglomerate dealing in crude oil, petroleum products and bio-fuels, headquartered in London, United Kingdom. The Prax Group, which has trading offices in London, Singapore and the United States of America (“US”), will work with Zephyr to measure, reduce and mitigate greenhouse gas (“GHG”) emissions across Zephyr’s businesses, with mitigation efforts primarily focused on the purchase of sustainability/decarbonisation offsets (called Verified Emission Reductions or “VER”) from reputable pre-vetted developers of sustainable projects. This exercise will include Zephyr’s current corporate activity, its non-operated production assets in the Williston Basin, North Dakota, US, and its upcoming appraisal drilling project in the Paradox Basin, Utah, US.

The cost to purchase the appropriate number of VERs to offset Zephyr’s growing operational footprint is expected to average well under $1 per barrel of oil equivalent produced, although the net cost to Zephyr may be considerably less given the potential to sell oil volumes at a premium as a result of the anticipated “net-zero” operational carbon status of those volumes. Purchases of VERs will be staged in increments matching Zephyr’s forecast production profile to facilitate effective cash management. Recent market-based evidence suggests that purchasers and supply chain partners of “net-zero” operated volumes are willing to absorb costs associated with the purchase of VER offsets related to oil and gas production.

Zephyr’s initial efforts will be focused on its Scope 1 GHG impacts1, which cover all direct emissions from Zephyr-owned or controlled sources – from the drilling and production of operated and non-operated hydrocarbons through to transport to the refinery, as well as all other corporate emissions. Over the next few months, Zephyr and the Prax Group will focus on measuring, reducing and mitigating operational GHG emissions across the Company, and Zephyr’s pledge to achieve carbon-neutral operations in a rapid manner is demonstrative of Zephyr’s commitment to achieving sector-leading environmental standards.

Zephyr’s Board also understands that mitigating the Company’s operational CO2 impact is only a first step – emissions from the ultimate end-use of produced volumes have a significant CO2 impact as well. Going forward, Zephyr pledges to work with potential end-users of its products to explore routes to more fully offset its product CO2 (Scope 3 Emissions1) to the greatest extent possible.

In addition to the environmental benefits that will result from Zephyr’s efforts to reach carbon-neutrality, the Company anticipates that this approach will also yield economic benefits – including expanded access to a wider group of potential institutional investors, as total ESG-focused assets under management are currently estimated to be over US$30 trillion globally. Moreover, the average cost of capital for companies with committed ESG and decarbonisation initiatives has been shown to be demonstrably less than that of traditional resource companies. The Board believes that incremental regulatory benefits may also materialise from Zephyr’s actions.

Colin Harrington, Chief Executive of Zephyr, said :

“When we relaunched the Company as Zephyr almost a year ago, the Board unanimously agreed a policy to always operate with two core values in mind: to be responsible stewards of our investors’ capital and to be responsible stewards of the environment in which we work.

“These values are straightforward, fundamental, and at the forefront of every decision we make. It’s why I’m excited that today’s announcement, a pledge to offset 100% of carbon emissions from our operations starting this September, is both a groundbreaking initiative for Zephyr and a major step towards a tangible demonstration of our commitments.

“Zephyr recently entered a new phase of growth – we are now a cash-generating oil producer with plans for near-term development on our flagship Paradox Basin appraisal project. This new phase comes with a corresponding new carbon impact, which is why the timing is right to launch what we believe is an industry-leading environmental commitment. As our existing asset portfolio consists of light, high-quality, low-GHG intensity resource developments, we have confidence that Zephyr is an ideal platform from which to launch this initiative.

“The path forward, albeit nascent and experimental, is grounded in the sentiment that good environmental & operational performance + good governance = superior investor returns. Today’s announcement is illustrative of this thesis. We believe that eliminating our operational carbon footprint is important from an environmental perspective – and we also feel that our shareholders will benefit from the potential for premium commodity pricing, access to a wider pool of institutional investors and cheaper cost of capital, as well as enhanced relations with our regulatory partners.

“We’ve set ourselves an ambitious target to reach carbon neutrality for all operations by the end of September, and I am thankful for our collaboration with Christopher Dillman and his team at the Prax Group for assisting us with this endeavour. Their capabilities in structuring and executing bespoke actionable decarbonisation strategies makes them an excellent fit for Zephyr.

“We look forward to working with the Prax Group team to deliver on this commitment to improve Zephyr’s environmental performance and minimise the impacts of our corporate activity and hydrocarbon production.”

About the Prax Group: Headquartered in the UK, the Prax Group is a British multinational independent oil refining, trading, storage, distribution, and retail conglomerate dealing in petroleum products and biofuels. The Group has established principal offices in London, Houston and Singapore, and additional satellite offices across the world.

Footnotes:

1. Scope 1 emissions are reported as Direct GHG emissions from equipment or other sources owned (partly or wholly) and / or operated by the company. For increased clarity when reporting Direct GHG emissions, those Scope 1 emissions associated with energy sold to others can be reported separately as Direct emissions from exported energy.

Where an operation purchases energy already transformed into electricity, heat or steam, the GHGs emitted to produce this energy are Scope 2 and reported as Indirect GHG emissions from imported energy. The 2015 update of the GHG Protocol distinguishes between two calculation approaches, ‘location’ and ‘market based’ for Scope 2 emissions and it is helpful for companies using this standard to highlight which method is used in their reporting.

You can report Scope 3 emissions as Other indirect emissions, which refer to GHG emissions related to your company’s value chain (see Module 1 Reporting process). The GHG Protocol supplemented its standard with its 2011 publication of the Corporate Value Chain (Scope 3) Accounting and Reporting Standard [10]. Of the 15 categories of Scope 3 emissions defined in this standard, Category 11 ‘Use of sold products’ is the most relevant to the oil and gas industry. There is a growing stakeholder interest related to Scope 3 disclosures. In 2016, IPIECA published Estimating petroleum industry value chain (Scope 3) greenhouse gas emissions [11] to provide additional oil industry methodology guidance for the 15 categories.

Definitions are taken from sustainability reporting guidance for the oil and gas industry. IOGP Report 437. 4th Edition 2020. www.ipieca.org


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