Zephyr Energy : Turner Pope Research Note, 21st December 2022

Turner Pope Research Note, 21st December 2022

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Zephyr has announced two complementary acquisitions that are expected to be substantially accretive for shareholders. These highly strategic moves comprise, (i) The acquisition of the remaining 25% (not presently owned by Zephyr) non-operated working interest ('WI') across the entirety of its operated federal unit in the Paradox Basin (the 'Paradox'); and (ii) The acquisition of non-operated WIs (holdings ranging from 11% to 32%) in presently non-producing wells in the Williston Basin. The transactions are expected to be immediately accretive to shareholders across all measures, including the Group's reserves and resources. This takes into account the consideration of up to US$3 million, payable by way of new locked-in ordinary shares for the vendor of the former, while also securing an US$8 million non-equity bridge loan ('the Loan') facility on favourable terms to part fund (including associated capital expenditure ('CAPEX')) the latter. Near-term catalysts supporting this move include the anticipated success of the flagship asset's ongoing State 36-2 drilling, with a 10,000-foot horizontal lateral potentially adding significant production which, when combined with State 16-2, could be >2000 boepd, with infrastructure being readied in tandem with the additional Williston WIs coming online. Given that the recently acquired gas infrastructure is seen accepting sales volumes in 2H 2023, while the current three-well drilling programme remains amply funded through c.US$18.5m of liquidity available as of 10 Nov 2022, projected medium term cash flows appear to be sufficient to support exploitation of existing inventory, which includes 2U potential of over 200 million boe across the Paradox. This of course remains key to Zephyr closing in on its ultimate goal of unlocking the next great unconventional onshore resource play in the US. We would draw your attention to the various disclaimers in the document both at the beginning and at the end of the note. Retail clients (as defined by the rules of the FCA) must not rely on the research document. In particular you should note that the research document is a non-independent marketing communication. The analyst who has prepared the research is aware that TPI provides research to Zephyr Energy plc. Accordingly the research has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibitions on dealing ahead of its dissemination. The information in the document is published solely for information purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The material contained in the document is general information intended for recipients who understand the risks associated with equity investment in smaller companies. It does not constitute a personal recommendation as defined by the FCA or take into account the particular investment objectives, financial situation or needs of individual investors nor provide any indication as to whether an investment, a course of action or the associated risks are suitable for the recipient.

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