ZPHR Zephyr Energy Plc

Prior to publication, the information contained within this announcement was deemed by the Company to constitute inside information as stipulated under the UK Market Abuse Regulation. With the publication of this announcement, this information is now considered to be in the public domain.

 

26 September 2024

 

Zephyr Energy plc

("Zephyr", the "Company" or the "Group")

 

Interim Results for the six months ended 30 June 2024

 

Zephyr Energy plc (AIM: ZPHR) (OTCQB: ZPHRF), the Rocky Mountain oil and gas company focused on responsible resource development and carbon-neutral operations, reports its unaudited interim results for the six months ended 30 June 2024 ("H1 2024").

Overview

During H1 2024, and in the period since, Zephyr continued to invest significant capital into the development of its flagship operated project in the Paradox Basin, Utah, U.S. (the "Paradox project") primarily by drilling the State 36-2R LN-CC well (the "State 36-2R well") and conducting the subsequent successful production tests on the well. This investment activity was in line with the Company's strategy of generating and compounding cash flow from its non-operated portfolio in the Williston Basin (the "Williston project"), which fully funds all general and administrative ("G&A") and finance costs and allows for continued investment in its Paradox and Williston projects.

The Company's board of directors (the "Board" or "Directors") is highly encouraged by progress made on the Paradox project during the year to date and remains focused on bringing the Paradox project into commercial production while maximising potential returns for the shareholders of the Company (the "Shareholders"). To accelerate this process, the Company is focused on executing asset-level and/or wellbore investment opportunities with U.S.-based institutional investors, and discussions on this front are now at an advanced stage. The Company will update the market on the progress of these discussions in the near-term.

HIGHLIGHTS

Financial

·   Revenue for H1 2024 increased to US$13.6 million, net to Zephyr, and was driven by the Company's hydrocarbon production from the Williston project:

o  Revenue for H1 2024 was higher than that in the six months ended 30 June 2023 ("H1 2023") of US$13.4 million. The increased revenues reflected the addition of production from the six wells operated by Slawson Exploration Company (the "Slawson wells") and was partially offset by standard production decline rates from the underlying assets.

·    H1 2024 gross profit (including operating and transportation expenses, production taxes and realised gains from hedging contracts, and excluding depreciation, depletion and amortisation ("DD&A")) increased to US$10.0 million (H1 2023: US$9.4 million), demonstrating the strong cashflows and high margins generated by the non-operated production during the period, covering the entirety of the Company's G&A and finance costs and providing net cash for reinvestment.

·    H1 2024 net sales volumes averaged 1,239 barrels of oil equivalent per day ("boepd"), for a total of 225,622 barrels of oil equivalent ("boe") net to Zephyr, over the period.

·    Adjusted earnings before interest, tax, DD&A, unrealised foreign exchange gains, share based payments and unrealised losses on hedging contracts (together "Adjusted EBITDA") for H1 2024 were US$7.1 million.

·    At 30 June 2024, the combined carrying value of the Paradox project and Williston project was US$98.0 million, demonstrating the scale of the Company's asset portfolio.

·    The Company's gross borrowings at 30 June 2024 were US$29.2 million, a reduction from US$33.7 million at the end of H1 2023. By 6 September 2024, gross borrowings had been reduced further to US$27.9 million.

·    During H1 2024, the Company embarked on the drilling of the State 36-2R well which was almost entirely funded by proceeds from its well control insurance policy for the State 36-2 LN-CC well (the "State 36-2 well"). The well control insurance policy requires Zephyr to make payments in advance, prior to making claims for reimbursement. As a result, cash balances during H1 2024 fluctuated considerably depending on the level of operational activity and timing of the reimbursement cycle, including at 30 June 2024 when drilling operations were particularly active. To date, US$15.3 million has been reimbursed to Zephyr in respect of the State 36-2 well control insurance policy, which relates to activity from the well control incident on the State 36-2 well and the State 36-2R well drilling programme.

·    At 24 September 2024 (the most practicable date prior to this statement), the Company had cash balances of US$1.3 million. In addition, the Company expects to receive the following payments over the next few days:

o  Reimbursement of circa US$3.0 million from its insurer. The invoices relating to the US$3.0 million claim have already been paid in full by the Company.

o  A revenue payment of circa US$0.9 million related to a portion of its non-operated portfolio.

·    Over the coming months, Zephyr expects to submit final claims under the well control insurance policy of circa US$1.3 million for which it also expects to be fully reimbursed. 

Paradox project (operated asset)

·    State 36-2R well drilled and all key drilling objectives met:

o  Drilling operations safely and successfully completed to total depth;

o  Well successfully 'twinned' to the State 36-2 well and intersected the same Cane Creek reservoir natural fracture system;

o  Confirmed the presence of flowing hydrocarbons; and

o  Substantially all drilling costs of the State 36-2R well to be recovered though the Company's well control insurance policy.

·    Following the completion of the State 36-2R well, two successful production tests were carried out on the well.

o  Peak production rates achieved during testing were over 2,100 boepd, a significant production rate for an onshore U.S. well with only 130 feet of completed reservoir interval.

o  The acidisation operation used on the well successfully removed near-wellbore formation damage and generated very high reservoir deliverability, with a notable improvement to near-wellbore reservoir permeability. As such, the operation not only removed formation damage caused by the State 36-2 well but also enhanced reservoir productivity.

o  This was the first known example of acidisation stimulation in the Paradox Basin, and the result is highly positive for the development of the play, with the potential for substantially reduced reservoir risk and removal of the need for costly hydraulic stimulation as used in other U.S. onshore resource plays.

o  Higher than expected liquid yields from the State 36-2R well and almost zero water production could also materially enhance the economics of the well and positively impact the future Paradox project development.

o  Given the positive observations, Zephyr has commenced the process of discussing potential well and wider Paradox project development opportunities with U.S. based industry partners to accelerate additional appraisal and development of the Paradox project.

o  The Company is evaluating the potential to lengthen the completed reservoir interval by drilling a lateral from the existing wellbore, which would serve to increase overall estimated ultimate recoveries and drain a larger portion of the reservoir. This analysis is expected to be completed shortly.

Williston project (non-operated assets)

·    Zephyr continues with its strategy of building and developing a portfolio of working interest positions in value accretive, high-quality, high-margin production assets with significant near-term growth potential in the Williston Basin.  

o  The Company has continued to deploy capital into new drilling opportunities on its existing acreage, including two recently drilled wells operated by Continental Resources in the Harms field in North Dakota, U.S.

·    H1 2024 sales volumes averaged 1,239 boepd (or 225,622 boe), net to Zephyr, over the six-month period.

·    H1 2024 revenue, net to Zephyr, totalled US$13.6 million.

·   H1 2024 gross profit (including operating and transportation expenses, production taxes and realised gains from hedging contracts, and excluding DD&A) increased to US$10.0 million (H1 2023: US$9.4 million), demonstrating the strong cashflows and high margins generated by the non-operated production during the period, covering the entirety of the Company's G&A and finance costs and providing net cash for reinvestment.

·    At 30 June 2024, 231 wells in Zephyr's portfolio were available for production. Net working interests across the Company's portfolio now average 7.1% per well, equivalent to 16.3 gross wells in total.

Corporate

·    There were no reported health or safety incidents during H1 2024.

·    In May 2024, the Company retired US$3.88 million of existing debt through the issuance of US$3.88 million of equity comprised of 64,045,768 new Ordinary Shares of 0.1 pence each in the Company ("Ordinary Shares") at a price of 4.85 pence per new Ordinary Share.

·    In May 2024, the Group announced that it had been awarded an additional US$0.25 million of grant funding from the U.S. Department of Energy (the "DOE") for operations on the State 36-2R well. This brings the total DOE grant funding made available to the Group to US$3.65 million in recent years.

·    In April 2024, during its standard semi-annual borrowing base redetermination process, Zephyr's commercial lender (First International Bank and Trust) increased the Company's overall borrowing base by US$5.6 million due to the newly added production from the Slawson wells. The addition to the borrowing base was in the form of a new term loan which will amortise monthly over four years and has an interest rate of 10% per annum. Proceeds from the new term loan were used to fully retire the Company's remaining 12% acquisition credit facility.

Colin Harrington, Chief Executive of Zephyr, said:

"H1 2024 was an active time for Zephyr, during which we invested a significant amount of capital into the Paradox project with the drilling of the State 36-2R well and the subsequent production tests. We were delighted with the results from this activity and over the coming months we will continue with the work required to transform the Paradox project into a revenue generating asset. On a related note, we are in advanced conversations with U.S.-based institutions regarding wellbore and asset-level investment opportunities, and look forward to updating the market in the near-term regarding our proposed next steps for the Paradox project.

 

"Our Williston project continues to perform as a robust cash flowing engine for the Company, funding our G&A and debt service costs in addition to providing capital for the Paradox project and growth in the Williston (where production has increased for four consecutive quarters). We also look forward to progressing the Salt Wash hydrocarbon and helium project located in close proximity to the Paradox project.

 

"I would like to extend my appreciation to the Zephyr team and our contractors on site in Utah for their intensive, safe and successful efforts. I would also like to extend my gratitude to my fellow Board members, advisors and, most importantly, our Shareholders for their continued support.

 

"We have an exciting period ahead of us and I believe, more than ever, that we have the pieces in place to enable us to deliver on our strategic objectives successfully."

 

 

 

Contacts   Zephyr Energy plc Colin Harrington (CEO) Chris Eadie (Group Finance Director and Company Secretary)	Tel: +44 (0)20 7225 4590
Allenby Capital Limited - AIM Nominated Adviser Jeremy Porter / Vivek Bhardwaj	Tel: +44 (0)20 3328 5656
Turner Pope Investments - Joint-Broker James Pope / Andy Thacker    Panmure Liberum Limited - Joint-Broker Mark Murphy / Kieron Hodgson / James Sinclair-Ford    Celicourt Communications - PR Mark Antelme / Felicity Winkles / Ali AlQahtani	Tel: +44 (0)20 3657 0050     Tel: +44 (0) 20 7886 2500       Tel: +44 (0) 20 7770 6424

 

 

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 46,000-acre lease holding 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 270 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.

 

 

 ZEPHYR ENERGY PLC

INTERIM REPORT FOR THE SIX MONTHS TO 30 JUNE 2024

The Board is pleased to present Zephyr's unaudited interim report for the six-month period to 30 June 2024.

REVIEW OF ACTIVITIES

OVERVIEW

During H1 2024, and in the period since, Zephyr continued to invest significant capital into the development of its flagship operated project in the Paradox Basin, Utah, U.S. (the "Paradox project") where it recently drilled the State 36-2R LN-CC well (the "State 36-2R well") and conducted subsequent successful production tests on the well.

This investment activity was in line with the Company's strategy of generating and compounding cash flow from its non-operated portfolio in the Williston Basin (the "Williston project"), which fully funds all G&A and finance costs, and allows for continued investment in its Paradox and Williston projects.

The Company's board of directors (the "Board" or "Directors") is highly encouraged by progress made on the Paradox project during the year to date and is now considering multiple options to bring the Paradox project into commercial production and maximise potential returns for shareholders of the Company ("Shareholders"). Various options are under review to achieve this, and we are in advanced conversations with U.S.-based institutions regarding wellbore and asset-level investment opportunities. We look forward to updating the market in the near-term regarding our proposed next steps for the Paradox project.

The Board remains committed to delivering long-term value to Shareholders, while upholding the Company's core values of being responsible stewards of Shareholders' capital and of the environment in which it operates.

PARADOX PROJECT

The main operational focus in H1 2024 was the drilling of the State 36-2R well and the follow-on production tests on the well.

State 36-2R well

In February 2024, the Company announced that it had received the regulatory approvals and permits required to proceed with the drilling of the State 36-2R well and in March 2024, following a detailed selection process, Zephyr announced that it had signed a rig contract with Helmerich & Payne for its Rig 257 to drill the well.

The key objectives of the State 36-2R well were:

·   To successfully complete drilling operations to total depth safely and without harm to people, the environment or equipment;

·   To successfully twin the State 36-2 well and intersect the same Cane Creek reservoir natural fracture system identified by it;

·    To confirm the presence of hydrocarbons as found by the State 36-2R well, and further appraise the Cane Creek reservoir at Zephyr's federal White Sands Unit ("WSU"); and

·    Should the original well result be replicated, to assess the reservoir productivity by flow testing the new well.

In April 2024, the Company announced that full drilling operations had commenced and in June 2024, Zephyr announced that the State 36-2R well had been completed safely and successfully, with the well drilled to a total depth of 10,290 feet (measured depth) where it intersected the same Cane Creek reservoir within 15 feet of the original well.

Analysis from the drilling indicated that the State 36-2R well, like the State 36-2 well, penetrated a folded and naturally fractured section of the Cane Creek reservoir. The well encountered drilling mud gas shows of a similar magnitude to the State 36-2 well and pore pressure analysis suggested formation pressures estimated at approximately 9,300 pounds per square inch (which is broadly consistent with previously drilled offset wells).

The well further confirmed the presence of hydrocarbons within a large structural compartment, within Zephyr's acreage and 3D seismic coverage.

Following the successful drilling operation, Zephyr then proceeded with the production tests on the well to determine reservoir pressure, fluid composition, well flow rate, bulk reservoir permeability and deliver an early estimate of the overall potential recoverable resources.

The Group has full well control insurance coverage for the State 36-2R drilling operations and expects to recover substantially all costs associated with the drill under the well control insurance policy it had in place for the State 36-2 well. To date, the Company has received US$15.3 million under the State 36-2 well control insurance policy with a further US$3.0 million submitted for approval and reimbursement, and an estimated final US$1.3 million to be paid and submitted for reimbursement over the coming months.

State 36-2R well production tests

On 23 July 2024 the Company announced that it had successfully completed the initial phase of the well production test on the State 36-2R well, in which the well was tested at multiple rates and choke settings to ascertain its production potential.

Initial production test observations are very encouraging, including:

·    High reservoir deliverability and high initial reservoir pressures;

·    Peak production rates achieved during the production test were 1,350 boepd, at which level the well was still choked back and constrained; and

·    Significantly higher condensate-yield than Zephyr's previously drilled Paradox project well (with more than a three-fold increase in condensate rate versus that from the State 16-2LN-CC well).

o  Condensate yield peaked at over 600 barrels of condensate per day. Condensate produced had an average American Petroleum Institute gravity of 58 degrees, making it a highly desirable barrel for Utah's refinery market. The condensate produced from the well to date was sold to a Utah refinery at a price close to current WTI crude oil prices (inclusive of trucking costs).

o  This elevated liquid yield has the potential to be a significant driver of improved economics and may increase recoverable liquid volumes across the Company's WSU.

o   Almost zero evidence of water production, another potential boost to the well's economics by reducing the need for water disposal.

While the initial test was successful on multiple fronts, there was also evidence that the natural fracture network could be partially obstructed from the greater reservoir at this well location. The Company therefore decided to acidise the well to further remove any drilling mud emulsions from the natural fracture network and maximise the well's connectivity with the larger reservoir.  

On 6 September 2024, following the completion of the acidisation process and the follow up testing, the Company announced the following results from the second production test:

·    Peak production rates achieved during the second test were over 2,100 boepd, a significant production rate for an onshore U.S. well with only 130 feet of completed reservoir interval.

·    The acidisation operation successfully removed any remaining near-wellbore formation damage and generated very high reservoir deliverability, with a notable improvement to near-wellbore reservoir permeability after each acid treatment. As such, the operation not only removed damage but also enhanced reservoir productivity.

·    This was the first known example of acidisation stimulation in the Paradox Basin, and the result was highly positive for the development of the play, with the potential for substantially reduced reservoir risk and removal of the need for costly hydraulic stimulation as used in other U.S. onshore resource plays.

·    Variable liquid-yields were observed over the second test, all of which were higher than that at the Company's State 16-2 well. At the peak production rates in the second test, condensate/light volatile oil represented approximately 510 boepd, and these liquid yields were on an increasing trend at the conclusion of the test.

o  The elevated liquid yield has the potential to be a significant driver of improved economics and may increase recoverable liquid volumes across the Company's Paradox project acreage.

o  A detailed fluid laboratory analysis is currently underway, and the results will help the Company further characterise the field's fluid fill and composition.

·    Continued evidence of almost zero water production, another potential boost to the well's economics by material reducing the need for expensive water disposal.

·    Given the highly positive observations, Zephyr has commenced the process of discussing potential well and wider Paradox project development opportunities with U.S. based industry partners in an effort to accelerate additional appraisal and development of the Paradox project.

Results from the second test had multiple positive implications, because in addition to cleaning up any remaining formation damage, the acidisation operation appears to have had the unanticipated benefit of significantly enhancing near-wellbore reservoir quality (by dissolving calcite and dolomite minerals known to exist in the reservoir, creating higher porosity and permeability where those minerals have been dissolved away). The Company has previously observed widespread minor fracturing in the reservoir cores of the State 16-2 well and other Cane Creek wells. Zephyr's initial analysis suggests that acidisation could materially enhance the permeability of the overall reservoir matrix, including the minor fracturing (which may be present across the Company's entire Paradox project acreage position) as well as any major fracture networks encountered.

This implies that acidisation, when utilised across a longer lateral, may offer a cost-effective completion technique compared to the hydraulic stimulation operation used in other U.S. resource plays. This alternative completion technique could also offer a broader and lower risk method for the long-term development of the Paradox project versus solely targeting major natural fracture networks (the historical development approach in this part of the Paradox Basin).

Now that the second test has been completed, the State 36-2R well has been temporarily shut in as per standard operations while the operations team evaluates the new data. A key consideration is whether to produce the well in the short term, or to defer production temporarily to extend the wellbore and increase overall hydrocarbon recovery potential. While the well is capable of considerable production rates in its current form, it would be doing so from only a 130-foot completed interval which could make it more difficult to extend the well in the future due to depletion in the near well bore area.

The well is permitted for up to a 10,000-foot lateral extension, and any future lateral extension would be expected to benefit both from greater connected volumes and the material positive impact acidisation could have on the high deliverability of this play.

Next steps

Given the positive results from the production test and the implications for the Paradox project, the Board has launched a process to identify an industry or asset-level financial partner to accelerate further appraisal and field wide development.

This could come in the form of a farm-in with an industry operator, a joint venture with a non-operator investor, or asset level funding. The Board now believes that the data generated from drilling the State 16-2, State 36-2 and State 36-2R wells, combined with the significant technical analysis developed from the Paradox project over the past four years (including extensive 3D seismic, core samples, log data, stimulation data and the recent production test results) provides a robust dataset for prospective partners to evaluate.

In addition, with the new data generated from the second test and that from the Company's other Paradox wells, Zephyr will move as quickly as possible to produce an updated Competent Person's Report on the Company's Paradox project acreage.

Salt Wash hydrocarbon and helium project

In October 2023, the Group announced that it had opted to farm-in to the neighbouring Salt Wash Field to increase the Group's oil and gas resource potential, and to achieve exposure to the U.S. industrial helium market (the "farm-in"). The farm-in agreement is to a minimum 75% working interest in a 1,047-acre leasehold position which lies three miles to the south of the Group's WSU.

The Board is continually looking at ways to increase the scale, optionality and attractiveness of the Paradox project, and the Board views the farm-in as a natural extension to the Paradox project.

While helium is a new addition to the Company's current resource exposure, many nearby Paradox Basin oil and gas operators are already producing commingled helium in commercial quantities, with an active local offtake market for produced helium.

While Zephyr is not seeking for helium to become the Company's primary focus, the Board is cognisant that it may offer optionality and represent a value-added opportunity for Shareholders.

The field has an already discovered, proven helium resource in the Leadville Formation, with further opportunity for upside through two deeper helium exploration targets.

The Group's management forecasts the Salt Wash project to include:

·    Net helium discovered resource potential of 0.07 to 0.19 bcf (Lower Leadville Formation only);

·    Net helium un-risked, prospective resource of a further 0.04 to 0.66 bcf (including exploration targets); and

·    An estimated net present value at a 10% discount rate ("NPV-10") of circa US$58.0 million with the risked upside case having an NPV-10 of circa US$120.0 million (using US$650 per thousand standard cubic feet ("mscf") and US$750/mscf pricing, respectively).

Under the terms of the farm-in agreement, total payments of US$0.6 million were made to the incumbent leaseholder and it is the Group's intention that the dual-purpose Leadville Formation delineation well (the "Commitment Well") will be drilled. The Commitment Well would also test the two additional helium exploration targets and other potential hydrocarbon bearing reservoirs.

In August 2024, the Company announced that initial operations at the site of the proposed Commitment Well had commenced, including drilling pad preparation and fencing the perimeter of the site and that a spudder drilling rig will be mobilised to the well location and a 30-inch hole will then be drilled to a depth of approximately 100 feet and 20-inch conductor casing will be set.

While activity on the pad has begun, the Company does not expect full drilling operations to commence until the first half of 2025, in line with its operational commitments to the field leaseholders.

Zephyr remains in active conversations with industry and financial investors regarding the potential funding of up to 100% of the costs of the well at the asset level, and the Board continues to appraise the available options with the key objective of maximising value for Shareholders.

WILLISTON PROJECT

Overview

Zephyr's non-operated Williston project was established in 2021 and today, following multiple discrete acquisitions, Zephyr continues to deliver on its strategy to acquire working interest positions in value accretive, high-quality, high-margin production assets with significant near-term growth potential.

The Group's non-operated portfolio continues to perform above the Board's initial expectations, and cashflows generated from the portfolio continue to be recycled into the Paradox project development programme and into additional Williston Basin drilling opportunities, in addition to covering Zephyr's G&A and funding costs.

At 30 June 2024, Zephyr had working interests in 231 wells that were available for production. Net working interests across the Company's portfolio now average 7.1% per well, equivalent to 16.3 gross wells in total, all of which utilise horizontal drilling and modern, hydraulically stimulated completions. The majority of the wells are operated by Chord Energy Corporation and Slawson Exploration Company (the "Slawson wells"), leading Williston Basin producers.

The Company will continue to develop and grow its non-operated portfolio through opportunistic acquisitions.

H1 2024 performance

·    H1 2024 sales volumes averaged 1,239 barrels boepd, or 225,672 boe, net to Zephyr, over the six-month period.

·    H1 2024 revenue, net to Zephyr, totalled US$13.6 million.

·    H1 2024 gross profit (including operating and transportation expenses, production taxes and realised gains from hedging contracts, and excluding DD&A) increased to US$10.0 million (H1 2023: US$9.4 million), demonstrating the strong cashflows and high margins generated by the non-operated production during the period, covering the entirety of the Company's G&A and finance costs and providing net cash for reinvestment.

Slawson wells

In December 2022, Zephyr announced the acquisition of working interests in six Slawson wells (equivalent to 1.1 total wells). Zephyr's working interest in the six wells ranges from 11% to 32% and management estimates 2P Reserves acquired were circa 550,000 boe, net to Zephyr.

The wells initially came online in November 2023, although production from the Slawson wells was temporarily curtailed in mid-December 2023 due to adverse weather conditions and infrastructure constraints. Production resumed in late January 2024.

During H1 2024, production from the Slawson wells continued to be partially impacted by gas export infrastructure constraints. The Slawson wells averaged stable production of approximately 525 boepd in the second quarter of 2024, with minimal signs of decline due to the constrained status of the wells.

While the delays and constraints in production from the Slawson wells did impact sales volumes in early H1 2024, management believes that overall performance from the wells will meet expectations, and the wells have served to increase to the Group's overall production in 2024 to date.

Further production additions

During February 2024, ten wells in which Zephyr invested and which are operated by Continental Resources (Harms Federal and Quale Federal) were placed in production. Early production data shows these wells performing ahead of management expectations, adding initial production rates, net to Zephyr, of circa 75 boepd.  The Company has recently consented to participate in two additional wells which have recently been drilled on the same acreage.

Hedging

In H1 2024 the Company hedged 51,500 barrels of oil.

·    45,500 barrels of oil were hedged at a weighted-average price of US$81.67 per barrel of oil. 

·    6,000 barrels of oil were hedged by way of financial collar options which enabled the Company to lock-in a minimum price for these barrels of oil. These collar options gave the Company a minimum price of US$74.0 per barrel of oil.

The Company will continue to evaluate its commodity price risk management strategy on a regular basis.

Outlook

Zephyr forecasts a range of 1,100-1,300 boepd for its 2024 full year non-operated production forecast, an increase from 1,040 boepd in the previous year.

FINANCIAL REVIEW

The financial information is reported in United States Dollars ("US$").

Income Statement

·    The Company reports revenue for H1 2024 of US$13.6 million, net to Zephyr, (H1 2023: US$13.4 million). Revenue relates to the Company's hydrocarbon production from the non-operated Williston project. The increase in revenue from H1 2023 reflects the impact of the Slawson wells coming online, partially offset by the standard decline rates expected from the Williston assets.

·    H1 2024 gross profit (including operating and transportation expenses, production taxes and realised gains from hedging contracts, and excluding DD&A) increased to US$10.0 million (H1 2023: US$9.4 million), demonstrating the strong cashflows generated by the non-operated production during the period, covering the entirety of the Company's G&A and finance costs and providing net cash for reinvestment.

·    Adjusted earnings before interest, tax, DD&A, unrealised foreign exchange gains, share-based payments and unrealised losses on hedging contracts (together "Adjusted EBITDA") for H1 2024 was US$7.1 million (H1 2023: US$6.5 million).

·    In H1 2024, there was a DD&A charge of US$5.4 million (H1 2023: US$5.6 million), a non-cash accounting charge related to the asset depletion of the Williston project.

·    H1 2024 net loss after tax was US$3.0 million or a loss of 0.18 cents per Ordinary Share (H1 2023: net loss after tax of US$2.3 million or a loss of 0.15 cents per Ordinary Share).

·    Administrative expenses for the six months ended H1 2024 were US$2.9 million (H1 2023: US$3.0 million). Administrative expenses are in line with those in H1 2023. Costs continue to be closely controlled and monitored regularly by executive management and cash management is a continuing priority of the Board.

·    H1 2024 net loss was enhanced by a non-cash share-based payment charge of US$3.2 million which relates to the issue of 61,503,028 options over Ordinary Shares in April 2024. The options were issued to Directors, certain employees and consultants of Zephyr, either to reflect historic awards under the Company's Long-Term Incentive Plan, bonuses for performances achieved in 2021 and 2022, to satisfy employee contractual commitments or commitments in lieu of deferred remuneration and fees from 2020, during the COVID-19 pandemic. Due to legal and regulatory restrictions it was not possible to issue these share options until April 2024 although the majority of these awards were fully disclosed and provided for by the Company in its historical financial statements. No cash or share-based bonuses were awarded to senior management or the Board in respect of the 2023 financial year.

·    Without the non-cash share-based payment charge in H1 2024 of US$3.2 million, the Company would have made a profit before tax for the period of circa US$0.1 million versus a loss of US$3.2 million in H1 2023.

Balance Sheet

·    Exploration and evaluation assets at 30 June 2024 were US$52.2 million (30 June 2023: US$50.8 million) which reflects the Company's ongoing investment into the Paradox project, including some costs for the State 36-2R well. It should be noted that substantially all the costs of the State 36-2R drilling programme were covered under the Company's well control insurance policy for the State 36-2 well.

·    Property and equipment assets at 30 June 2024 were US$45.8 million (30 June 2023: US$52.4 million) which reflects the Company's ongoing investment in its non-operated portfolio of oil and gas properties offset by depletion charges.

·    Cash and cash equivalents as at 30 June 2024 were US$1.1 million (30 June 2023: US$6.2 million). Cash balances during H1 2024 fluctuated considerably primarily due to well control insurance policy for the State 36-2 well. The well control insurance policy, which has almost entirely covered the drilling costs of the State 36-2R well, requires Zephyr to make payments in advance, prior to making claims for reimbursement. As a result, cash levels during H1 2024 were therefore highly dependent on the level of operational activity and timing of the reimbursement cycle, including at 30 June 2024 when drilling operations were particularly active. To date, US$15.3 million has been reimbursed to Zephyr in respect of the State 36-2 well control insurance policy, which relates to activity from the well control incident on the State 36-2 well and the State 36-2R well drilling programme.

·   At 24 September 2024 (the most practicable date prior to this statement), the Company had cash balances of US$1.3 million. In addition, the Company expects to receive the following payments over the next few days:

o  Reimbursement of circa US$3.0 million from its insurer. The invoices relating to the US$3.0 million claim have already been paid in full by the Company.

o  A revenue payment of circa US$0.9 million in relation to a portion of its non-operated portfolio.

·    Over the coming months, Zephyr expects to submit final claims under the well control insurance policy of circa US$1.3 million for which it also expects to be fully reimbursed. 

·    The Company's gross borrowings as at 30 June 2024 were US$29.2 million (30 June 2023: US$33.7 million) During H1 2024 the Company met all its funding obligations in respect of the outstanding borrowings. Gross borrowings on 6 September 2024 were US$27.9 million.

 

 CORPORATE

·    There were no reported health or safety incidents at Zephyr operated assets during the reporting period.

·    In May 2024, the Company retired US$3.88 million of existing debt through the issuance of US$3.88 million of equity comprised of 64,045,768 new Ordinary Shares at a price of 4.85 pence per new Ordinary Share. The issue price of the Ordinary Shares was the undiscounted mid-market closing price of the Company's Ordinary Shares on 2 May 2024. The Ordinary Shares were issued to SGR Investments LLC ("SGRI"), a US-based institutional investor. In December 2022, SGRI provided debt funding to Zephyr Williston LLC, one of the Group's subsidiaries, to enable it to acquire the Slawson wells.

·    In May 2024, the Group announced that it had been awarded an additional US$0.25 million of grant funding from the U.S. DOE for operations on the State 36-2R well. This brings the total DOE grant funding made available to the Group to US$3.65 million in recent years.

·    In June 2024, the Group announced a new US$5.6 million term loan. The new term loan will amortise monthly over four years and has an interest rate of 10% per annum. Proceeds from the new term loan were used to repay the 12% acquisition credit facility, which has now been fully repaid.

OUTLOOK

H1 2024 was an active time for Zephyr, during which we invested significant new capital into the Paradox project with the drilling of the State 36-2R well and the subsequent production tests. We were delighted with the results from this activity and over the coming months we will continue with the work required to transform the Paradox project into a revenue generating development.

The Williston project continues to perform as a robust cash flowing engine for the Company, funding our G&A costs and providing capital for further development of the Paradox and Williston projects. We also look forward to progressing the Salt Wash oil, gas and helium project and securing asset level funding for the initial well.

I would like to extend my appreciation to the Zephyr team and our contractors for their ongoing work, and I would also like to extend my gratitude to my fellow Board members, leadership team, advisors and most importantly, our Shareholders for their continued support.

We have an exciting period ahead of us and I believe, more than ever, that we have the pieces in place to enable us to deliver on our strategic objectives successfully.  

  

Colin Harrington                                              

Chief Executive Officer                                 

26 September 2024

 

 

ZEPHYR ENERGY PLC

CONDENSED CONSOLIDATED INCOME STATEMENT

For the six months ended 30 June 2024

 

		Unaudited six months ended 30 June	Unaudited six months  ended 30 June	Audited year ended 31 December
		2024	2023	2023
	Notes	US$'000	US$'000	US$'000
Revenue		13,591	13,407	25,225
Operating and transportation expenses		(2,622)	(4,085)	(6,964)
Production taxes		(1,110)	(1,065)	(1,878)
Depreciation, depletion and amortisation		(5,364)	(5,608)	(9,607)
(Loss)/gain on derivative contracts	3	(101)	1,305	412
Gross profit		4,394	3,954	7,188
Administrative expenses		(2,897)	(2,969)	(5,997)
Share-based payments		(3,157)	(6)	(6)
Foreign exchange gains/(losses)		360	(2,595)	(2,776)
Finance income		1	-	-
Finance costs		(1,764)	(1,550)	(3,472)
Loss on ordinary activities before taxation		(3,063)	(3,166)	(5,063)
Taxation credit		51	845	1,560
Loss for the period attributable to owners of the parent company		(3,012)	(2,321)	(3,503)
Loss per Ordinary Share
Basic and diluted, cents per share	4	(0.18)	(0.15)	(0.21)

 

 

ZEPHYR ENERGY PLC

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 30 June 2024

 

		Unaudited six months ended 30 June	Unaudited six months ended 30 June	Audited year ended 31 December
		2024	2023	2023
		US$'000	US$'000	US$'000
Loss for the period attributable to owners of the parent company		(3,012)	(2,321)	(3,503)
Other comprehensive (loss)/income Items that may be subsequently reclassified to profit or loss
Foreign currency translation differences on foreign operations		(358)	2,618	2,772
Total comprehensive (loss)/income for the period attributable to owners of the parent company		(3,370)	297	(731)

 

 

ZEPHYR ENERGY PLC

CONDENSED CONSOLIDATED BALANCE SHEET

As at 30 June 2024

 

			Unaudited as at  30 June	Unaudited as at  30 June	Audited  as at 31 December
			2024	2023	2023
		Notes	US$'000	US$'000	US$'000
Non-current assets
Exploration and evaluation assets	5		52,189	50,770	49,941
Property and equipment	6		45,790	52,436	50,840
			97,979	103,206	100,781
Current assets
Trade and other receivables			11,507	7,342	7,897
Cash and cash equivalents			1,093	6,188	3,611
Derivative contracts			83	1,440	278
			12,683	14,970	11,786
Total assets			110,662	118,176	112,567
Current liabilities
Trade and other payables			(7,576)	(12,757)	(6,983)
Borrowings	7		(20,709)	(24,988)	(28,950)
Lease liabilities			(39)	-	(39)
Derivative contracts			(54)	-	-
			(28,378)	(37,745)	(35,972)
Non-current liabilities
Borrowings	7		(8,460)	(8,726)	(6,401)
Lease liabilities			(11)	-	(31)
Deferred tax			(344)	(1,110)	(395)
Provisions			(5,084)	(4,874)	(5,067)
			(13,899)	(14,710)	(11,894)
Total liabilities			(42,277)	(52,455)	(47,866)
Net assets			68,385	65,721	64,701
Equity
Share capital	8		42,648	42,568	42,568
Share premium account			75,292	71,727	71,735
Warrant reserve			1,557	1,557	1,557
Share-based payment reserve			6,489	3,485	3,270
Cumulative translation reserves			(13,570)	(13,366)	(13,212)
Accumulated deficit			(44,031)	(40,250)	(41,217)
Equity attributable to owners of the parent company			68,385	65,721	64,701