TIDMZPHR
RNS Number : 7256B
Zephyr Energy PLC
06 June 2023
THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS
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CONSTITUTE AN OFFER TO SELL OR ISSUE OR THE SOLICITATION OF AN
OFFER TO BUY, SUBSCRIBE FOR OR OTHERWISE ACQUIRE ANY ORDINARY
SHARES OF ZEPHYR ENERGY PLC.
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION AS DEFINED IN
ARTICLE 7 OF THE UK VERSION OF THE MARKET ABUSE REGULATION NO.
596/2014 ("MAR"), WHICH IS PART OF ENGLISH LAW BY VIRTUE OF THE
EUROPEAN UNION (WITHDRAWAL) ACT 2018, AS AMED. MARKET SOUNDINGS, AS
DEFINED IN MAR, WERE TAKEN IN RESPECT OF THE MATTERS CONTAINED IN
THIS ANNOUNCEMENT, WITH THE RESULT THAT CERTAIN PERSONS PREVIOUSLY
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THIS ANNOUNCEMENT, THIS INSIDE INFORMATION IS NOW CONSIDERED TO BE
IN THE PUBLIC DOMAIN AND ALL SUCH PERSONS SHALL THEREFORE CEASE TO
BE IN POSSESSION OF INSIDE INFORMATION.
6 June 2023
Zephyr Energy plc
("Zephyr" or the "Company")
GBP3.15 million raised in a Placing and Subscription
Update on State 36-2 well and operational guidance
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 of
("Placing") and subscription for ("Subscription"), in aggregate,
90,000,000 new ordinary shares of 0.1 pence ("p") each in the
Company ("Fundraising Shares"), at a price of 3.5p per Fundraising
Share ("Issue Price"), to raise GBP3.15 million before expenses
(together, the "Fundraising").
The Fundraising was conducted using existing share authorities
granted to directors of Zephyr (the "Directors" or the "Board") at
the Company's annual general meeting held on 21 July 2022 (the
"2022 AGM") and has been supported by a range of existing
institutional and other investors, including clients of Premier
Miton. The Placing was conducted by the Company's Joint Broker,
Turner Pope Investments ("TPI"), acting as Placing Agent for the
Company.
Highlights
-- The Company is undertaking a fundraise which consists of a
GBP3.15 million equity Placing and Subscription (before
expenses).
-- The net proceeds of the Fundraising will be used to fund an
estimated US$3.65 million of incremental near-term CAPEX at the
Company's flagship project in the Paradox Basin, Utah, U.S. (the
"Paradox project"). This is expected to include a production test
on the Company's State 36-2 LNW-CC well (the "State 36-2 well") as
well as future infrastructure and gas processing costs.
-- In the Paradox Basin, operations to prepare the State 36-2
well for production test continue at a methodical and expected
pace. The Company's goal is to production test the well prior to
the end of June, but the safety of its team and retaining control
of the well dictates the speed at which it works. Evidence of high
pressure and hydrocarbons in the well remain substantial.
Background
Over the past six months, the Company deployed significant
organic cash flow into both the Paradox project and its high impact
project in the Williston Basin, details of which are outlined
below.
Williston assets
On 21 December 2022, the Company announced the acquisition of
non-operated working-interests in six wells (the "Slawson wells"),
equivalent to a net 1.1 well, for a total consideration of US$2.9
million. The operator of the wells is Slawson Exploration
("Slawson"), a top-tier operator and one of the largest private
companies in the Williston Basin. As part of the acquisition,
Zephyr announced that it would pay US$8.9 million of CAPEX
associated with the working-interests to bring the wells into
production.
Paradox project
On 19 January 2023 the Company announced that it had intersected
a major, highly-pressured, natural fracture network while drilling
the State 36-2 well and on 20 March 2023 the Company announced that
workover and subsequent production test operations were set to
commence.
In early April 2023, a significant well control issue arose in
which hydrocarbons flowed from the well in an uncontrolled manner.
The incident was the result of a failure in a safety valve.
At present, the well is static and under control, and Zephyr is
in the process of pulling the 2-7/8-inch production tubing out of
the hole, as some joints were compressed/compromised or stuck due
to the high pressures of the well control incident. To date
approximately 6,500 feet of 8,900 feet of tubing has been pulled
and inspected with twenty-six 31-foot joints replaced. The Company
is moving methodically to remove and inspect the remaining joints
while keeping the wellbore static. Once the tubing work is
complete, a final cement squeeze will be performed and then the
casing will be perforated across the reservoir interval prior to
production testing the well.
Timing of the well test will be dictated by operational
conditions to ensure well control is maintained and working
conditions are safe for our team. Should the operations continue as
expected, the production test is expected to commence in June 2023.
Evidence of pressures and hydrocarbons in the well remain
substantial.
Rationale for the Fundraising and use of proceeds
While the Company is pleased to note that the Slawson wells have
been drilled and fully completed (with no remaining drilling or
completion risk exposure to the Company), Slawson recently provided
an update to the expected schedule for related surface facilities
build-out. As a result, the Company now expects to see first
production from the wells in October 2023 and first cashflows in
January 2024 (versus earlier forecasts of March 2023 and August
2023, respectively).
In parallel with this, while the State 36-2 well control
incident was a powerful illustration of the high pressures and
productivity inherent in certain Paradox Basin natural fracture
networks, resulting well work operations have subsequently resulted
in delays to schedule and an increase in costs. While the Company
retains well control insurance coverage which is ultimately
expected to cover the vast majority of costs associated with the
well control incident, insurance proceeds are paid on a
reimbursement basis and thereby impact the Company's near-term
working capital commitments.
Finally, given the pressures and hydrocarbon volumes witnessed
during the four-day well control incident, the Company may require
a larger gas processing facility than initially envisaged. Ultimate
sizing of any processing facility will be determined post
completion of the State 36-2 well test.
Approximately GBP1.0 million raised pursuant to the Fundraising
will be used towards completing the State 36-2 well production
testing, and the balance of the net funds raised (approximately
GBP1.9 million) will be used for near-term working capital needs
and long term infrastructure and gas processing CAPEX.
Operational guidance and next steps
Production from the Slawson wells is expected to add an initial
approximately 750 barrels of oil equivalent a day net to the
Company in Q4 2023, and the Paradox project has the potential to
further significantly increase the Company's production when the
Paradox wells come online. Zephyr will revise its production
guidance for 2023 after the conclusion of the State 36-2 well
production test.
The second half of 2023 is expected to be an inflection point
for the Paradox project, as the Company works to turn the project
from an exploration and appraisal play into a cash flowing
development project, and future Paradox drilling is expected to
benefit from knowledge gained during the drilling of the State 36-2
and State 16-2 wells.
The Company is committed to advancing the Paradox project
drilling programme as soon as possible, and plans to explore
options for partnerships, joint-ventures, project finance and
farm-in opportunities in the second half of 2023. In the meantime,
the Company looks forward to updating the market with news flow
over the next few months which is expected to include:
-- State 36-2 well production test results;
-- Updated CAPEX and drilling plans (dependent on State 36-2 well production test results);
-- Continued progress on the Dominion Energy 16-inch pipeline,
which is permitted, currently under construction and expected to be
available to accept gas volumes in Q4 2023;
-- Updated Competent Persons Report (post State 36-2 well production test); and
-- Initial production volumes from the Slawson wells.
Colin Harrington, Chief Executive of Zephyr, said : "I am
grateful for the support received from shareholders to ensure the
successful completion of the Fundraising. The funds raised will
enable the Company to continue delivering on its key strategic
objective of bringing the Paradox project into commercial
production over the coming months, while bridging to the
significant revenues expected from both the Paradox project and the
Company's Williston assets.
"The Board looked at a number of financing alternatives and felt
that given current market conditions (particularly the cost of
debt), and after taking into account Zephyr's bespoke situation,
that an equity raise with circa 5% dilution was the optimal choice
for the Company.
"The proceeds raised ensure we remain in a strong position to
further advance the Paradox project development, and the Board
believes that the minimal dilution to shareholders will be
outweighed by continued progress and positive newsflow expected
over the coming months, both with regards to the upcoming well test
and with the cash generative Slawson wells coming on stream by Q4
this year.
Details of the Fundraising
In total, 90,000,000 Fundraising Shares are proposed to be
allotted and issued pursuant to the Placing and Subscription, at an
Issue Price of 3.5p per Fundraising Share to raise gross proceeds
of GBP3.15 million (GBP3.03 million from the Placing and GBP0.12
million from the Subscription). The Fundraising Shares to be issued
pursuant to the Placing have been conditionally placed by TPI,
acting as agent and broker of the Company, with certain existing
institutional and other investors pursuant to a Placing Agreement,
as detailed below. The Subscription for GBP0.12 million has been
subscribed for directly with the Company by an existing shareholder
pursuant to a subscription agreement.
The Fundraising Shares will be issued on a non-pre-emptive basis
pursuant to the authorities granted to the Directors at the 2022
AGM .
When issued, the Fundraising Shares will represent approximately
5.3 per cent of the enlarged share capital of the Company as
enlarged by the Fundraising and will rank pari passu with the
existing ordinary shares of 0.1 p each in the Company (" Ordinary
Shares").
Placing Agreement and issue of warrants
The Company and TPI have entered into a Placing Agreement
pursuant to which TPI has agreed, subject to certain conditions, to
use its respective reasonable endeavours to procure subscribers for
the Placing Shares at the Issue Price. The Company has given
customary warranties and undertakings to TPI in relation to, inter
alia, its business and the performance of its duties. In addition,
the Company has agreed to indemnify TPI in relation to certain
liabilities that they may incur in undertaking the Placing. TPI has
the right to terminate the Placing Agreement in certain
circumstances prior to Admission (as defined below) and, in
particular, in the event that there has been, inter alia, a
material breach of any of the warranties. No part of the
Fundraising is being underwritten. The Placing is conditional upon
Admission (as defined below) taking place by no later than 8.00
a.m. on 12 June 2023 (or such later date as TPI may agree in
writing with the Company, being not later than 8.00 a.m. on 30 June
2023) and the Placing Agreement entered into between the TPI and
the Company not being terminated prior to Admission.
Under the terms of the Placing Agreement, TPI will receive a
corporate finance fee from the Company, commission relating to the
Placing Shares and warrants to subscribe for 10,388,571 new
Ordinary Shares ("Broker Warrants"). The Broker Warrants are
exercisable at a price of 4.375 pence per Ordinary Share,
representing a 25 per cent. premium to the Issue Price, for a
period of three years from the date of Admission. The Broker
Warrants will not be admitted to trading on AIM or any other stock
exchange.
Admission to AIM
Application has been made to London Stock Exchange plc for the
Fundraising Shares to be admitted to trading on AIM ("Admission").
It is currently anticipated that Admission will become effective
and that dealings in the Fundraising Shares will commence on AIM at
8.00 a.m. on or around 12 June 2023.
Total voting rights
On Admission, the Company will have 1,686,501,823 ordinary
shares of 0.1p each in issue, each with one voting right. There are
no shares held in treasury. Therefore, the Company's total number
of ordinary shares in issue and voting rights will be 1,686,501,823
and this figure may be used by shareholders from Admission as the
denominator for the calculations by which they will determine if
they are required to notify their interest in, or a change to their
interest in, the Company under the FCA's Disclosure Guidance and
Transparency Rules.
Contacts
Zephyr Energy plc Tel: +44 (0)20 7225 4590
Colin Harrington (CEO)
Chris Eadie (CFO)
Allenby Capital Limited - AIM Nominated Tel: +44 (0)20 3328 5656
Adviser
Jeremy Porter / Vivek Bhardwaj
Turner Pope Investments - Joint Broker Tel: +44 (0)20 3657 0050
James Pope / Andy Thacker
Panmure Gordon (UK) Limited - Joint Broker
John Prior / Hugh Rich / James Sinclair-Ford Tel: +44 (0) 20 7886 2500
Tel: +44 (0) 20 7770 6424
Celicourt Communications - PR
Mark Antelme / Felicity Winkles / Ali
AlQahtani
Qualified Person
Dr Gregor Maxwell, BSc Hons. Geology and Petroleum Geology, PhD,
Technical Adviser to the Board of Zephyr Energy plc, who meets the
criteria of a qualified person under the AIM Note for Mining and
Oil & Gas Companies - June 2009, has reviewed and approved the
technical information contained within this announcement.
Notes to Editors
Zephyr Energy plc (AIM: ZPHR) (OTCQB: ZPHRF) is a technology-led
oil and gas company focused on responsible resource development
from carbon-neutral operations in the Rocky Mountain region of the
United States. The Company's mission is rooted in two core values:
to be responsible stewards of its investors' capital, and to be
responsible stewards of the environment in which it works.
Zephyr's flagship asset is an operated 45,000-acre leaseholding
located in the Paradox Basin, Utah, 25,000 acres of which has been
assessed to hold, net to Zephyr, 2P reserves of 2.6 million barrels
of oil equivalent ("mmboe"), 2C resources of 34 mmboe and 2U
resources 240 mmboe.
In addition to its operated assets, the Company owns working
interests in a broad portfolio of non-operated producing wells
across the Williston Basin in North Dakota and Montana. Cash flow
from the Williston production will be used to fund the planned
Paradox Basin development. In addition, the Board will consider
further opportunistic value-accretive acquisitions.
Glossary of Terms
The following terms apply throughout this announcement unless
the context requires otherwise:
1P proven reserves (both proved developed reserves + proved undeveloped reserves);
2P: 1P (proven reserves) + probable reserves, hence "proved and
probable";
3P: the sum of 2P (proven reserves + probable reserves) +
possible reserves, all 3Ps "proven and probable and possible";
CAPEX: capital expenditure; and
Reserves: Reserves are defined as those quantities of petroleum
which are anticipated to be commercially recovered from known
accumulations from a given date forward.
Notice to Distributors
Solely for the purposes of the temporary product intervention
rules made under sections S137D and 138M of the FSMA and the FCA
Product Intervention and Product Governance Sourcebook (together,
the "Product Governance Requirements"), and disclaiming all and any
liability, whether arising in tort, contract or otherwise, which
any "manufacturer" (for the purposes of the Product Governance
Requirements) may otherwise have with respect thereto, the Placing
Shares have been subject to a product approval process, which has
determined that the Placing Shares are: (i) compatible with an end
target market of retail investors and investors who meet the
criteria of professional clients and eligible counterparties, as
defined under the FCA Conduct of Business Sourcebook COBS 3 Client
categorisation, and are eligible for distribution through all
distribution channels as are permitted by the FCA Product
Intervention and Product Governance Sourcebook (the "Target Market
Assessment").
Notwithstanding the Target Market Assessment, distributors
should note that: the price of the Placing Shares may decline and
investors could lose all or part of their investment; the Placing
offer no guaranteed income and no capital protection; and an
investment in the Placing is compatible only with investors who do
not need a guaranteed income or capital protection, who (either
alone or in conjunction with an appropriate financial or other
adviser) are capable of evaluating the merits and risks of such an
investment and who have sufficient resources to be able to bear any
losses that may result therefrom. The Target Market Assessment is
without prejudice to the requirements of any contractual, legal or
regulatory selling restrictions in relation to the Placing.
Furthermore, it is noted that, notwithstanding the Target Market
Assessment, Turner Pope Investments will only procure investors who
meet the criteria of professional clients and eligible
counterparties. For the avoidance of doubt, the Target Market
Assessment does not constitute: (a) an assessment of suitability or
appropriateness for the purposes of the FCA Conduct of Business
Sourcebook COBS 9A and 10A respectively; or (b) a recommendation to
any investor or group of investors to invest in, or purchase, or
take any other action whatsoever with respect to the Placing
Shares.
Each distributor is responsible for undertaking its own target
market assessment in respect of the Placing Shares and determining
appropriate distribution channels.
Forward Looking Statements
This announcement includes statements that are, or may be deemed
to be, "forward-looking statements". These forward-looking
statements can be identified by the use of forward-looking
terminology, including the terms "believes", "estimates", "plans",
"anticipates", "targets", "aims", "continues", "expects",
"intends", "hopes", "may", "will", "would", "could" or "should" or,
in each case, their negative or other variations or comparable
terminology. These forward-looking statements include matters that
are not facts. They appear in a number of places throughout this
announcement and include statements regarding the Directors'
beliefs or current expectations. By their nature, forward-looking
statements involve risk and uncertainty because they relate to
future events and circumstances. Investors should not place undue
reliance on forward-looking statements, which speak only as of the
date of this announcement.
Notice to overseas persons
This announcement does not constitute, or form part of, a
prospectus relating to the Company, nor does it constitute or
contain any invitation or offer to any person, or any public offer,
to subscribe for, purchase or otherwise acquire any shares in the
Company or advise persons to do so in any jurisdiction, nor shall
it, or any part of it form the basis of or be relied on in
connection with any contract or as an inducement to enter into any
contract or commitment with the Company.
This announcement is not for release, publication or
distribution, in whole or in part, directly or indirectly, in or
into Australia, Canada, Japan or the Republic of South Africa,
Russia or any jurisdiction into which the publication or
distribution would be unlawful. This announcement is for
information purposes only and does not constitute an offer to sell
or issue or the solicitation of an offer to buy or acquire shares
in the capital of the Company in Australia, Canada, Japan, New
Zealand, the Republic of South Africa, Russia or any jurisdiction
in which such offer or solicitation would be unlawful or require
preparation of any prospectus or other offer documentation or would
be unlawful prior to registration, exemption from registration or
qualification under the securities laws of any such jurisdiction.
Persons into whose possession this announcement comes are required
by the Company to inform themselves about, and to observe, such
restrictions.
This announcement is not for publication or distribution,
directly or indirectly, in or into the United States of America.
This announcement is not an offer of securities for sale into the
United States. The securities referred to herein have not been and
will not be registered under the U.S. Securities Act of 1933, as
amended, and may not be offered or sold in the United States,
except pursuant to an applicable exemption from registration. No
public offering of securities is being made in the United
States.
General
No statement in this announcement is intended to be a profit
forecast or estimate, and no statement in this announcement should
be interpreted to mean that earnings per share of the Company for
the current or future financial years would necessarily match or
exceed the historical published earnings per share of the
Company.
Neither the content of the Company's website (or any other
website) nor any website accessible by hyperlinks on the Company's
website (or any other website) or any previous announcement made by
the Company is incorporated in, or forms part of, this
announcement.
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END
UPDKZGGVMKGGFZZ
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