TIDMZPHR
RNS Number : 0474T
Zephyr Energy PLC
22 November 2021
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.
22 November 2021
Zephyr Energy plc
("Zephyr" or the "Company")
Transformational US$36 million acquisition of non-operated
production assets in the Williston Basin
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 that it has
entered into a binding agreement (the "Agreement") to acquire
further non-operated working interests in currently producing and
near-term production wells in the Williston Basin, North Dakota,
USA (the "Assets") (the "Acquisition").
The Directors of Zephyr (the "Directors" or "Board") believe
that the Assets will be an ideal addition to Zephyr's existing
asset portfolio and that the cashflows generated from the
Acquisition will enable the Company to proceed with, amongst other
things, the fast-track development of its flagship Paradox
project.
Summary
Zephyr has entered into a binding agreement with Kaiser
Acquisition and Development - Sanish Non-op, LLC, a privately owned
exploration and production company based in the USA (the "Seller")
to acquire a portfolio of non-operated working-interests in wells
located in the same Williston Basin field as a number of Zephyr's
existing non-operated assets. The assets being acquired are
operated by Whiting Petroleum Corporation ("Whiting"), one of the
largest and most experienced operators in the Williston Basin and
which already serves as the operator of a number of Zephyr's
existing non-operated wells. The Acquisition has an effective date
of 1 October 2021 (the "Effective Date").
-- Under the terms of the Acquisition, which is expected to
close by 22 December 2021, Zephyr will acquire working interests in
163 currently producing wells (the "PDP wells") with approximately
871 barrels of oil equivalent per day ("boepd") net to the Assets
being produced in September 2021.
-- In addition to the PDP wells, the Acquisition includes:
o 18 proved not producing ("PNP") and drilled but uncompleted
("DUC") wells, all of which have been drilled and are expected to
come online in the coming months. When online, which is expected to
be in 2022, the PNP and DUC wells are expected to increase net
production of the Assets above 1,100 boepd; and
o 47 proved but undeveloped ("PUD") locations for future
drilling demonstrating the long-term potential of the Assets.
-- The Assets are spread across 22 separate drilling pads in
Mountrail County, North Dakota and are estimated, by the
independent reserve consulting firm Sproule Incorporated
("Sproule"), to hold a net 2.764 million barrels of oil equivalent
("mmboe") of Proven Reserves.
-- Consideration for the Acquisition, which is subject to
various customary closing adjustments, is US$36 million, of which
US$3 million will be paid immediately as a non-refundable deposit.
Zephyr is currently evaluating a range of financing alternatives to
fund the remainder of the consideration via structured debt,
including alternatives which would be non-dilutive to equity
holders. In the event the Acquisition is completely funded by debt,
pro forma net debt as a multiple of 2022 forecast adjusted earnings
before interest, tax, depreciation and amortisation ("EBITDA") for
the Company post acquisition is expected to be approximately 1.6x,
a level which the Board deems to be suitably conservative.
-- The Acquisition has robust economics which, along with
Zephyr's existing Williston Basin production assets, is expected to
generate substantial low risk cashflow which can be redeployed into
the Company's growing Paradox Basin development. The Company
estimates:
-- The Acquisition cost equates to 2.1x the Assets' 2022 forecasted EBITDA
-- Low operating expense of approximately US$13.91 per barrel of
oil equivalent ("boe") which provides high cash margins of over
75%, as forecasted over the next three years
-- When combined with Zephyr's current Williston Basin assets,
the Company's pro forma non-operated portfolio is expected to
generate approximately US$22.9 million of EBITDA in 2022 and
US$19.3 million of free cash flow after expected capital
expenditure ("CAPEX"), as forecast by the Board
-- The Board estimates the post-tax net present value of the
Acquisition is US$46.3 million, using Sproule's pricing (outlined
in Appendix A) at a ten per cent discount rate ("NPV-10")
-- Cashflows generated by the PDP wells acquired are expected to
utilise the Company's historical tax losses of more than US$16
million
Note: Estimates using Sproule pricing as shown in Appendix A
-- Zephyr has completed its financial, technical and commercial
due diligence on the Assets, a process undertaken over the past six
months. As part of its due diligence process, the Company
commissioned Sproule to produce a Competent Persons Report ("CPR")
on the assets being acquired. This CPR is now available for
inspection on the Company's website www.zephyrplc.com or can be
accessed by clicking on the following link:
https://www.zephyrplc.com/investors/reports-presentations/
-- The Company has drawn down on a short-term bridge loan
facility of GBP3.0m (the "Loan") to fund the deposit to secure the
Acquisition. The Loan, which has favourable commercial terms and no
dilutive equity component to Zephyr, has been provided by a group
including existing Shareholders and members of the Board.
Colin Harrington, Chief Executive of Zephyr, said : "The
Acquisition announced today is another landmark deal for Zephyr and
will further transform the Company by adding a significant,
low-decline, low-risk, high margin production base - with both near
and long-term upside exposure into a further 65 wells, thirteen of
which have already been drilled and are expected to be online
soon.
"The Assets are located in the same core Williston Basin field
as many of our existing non-operated wells and will be a
significant complement to our current non-operated portfolio.
" As we outlined to Shareholders in January 2021, our goal for
the year was to establish production and positive cash flow for the
Company either through our existing portfolio, via acquisition, or
through a combination of both. Assuming we complete the Acquisition
by the end of the year, we will end 2021 having outperformed even
my most optimistic expectations, having grown a considerable
non-operated portfolio during the year and having achieved a huge
milestone with first production from our Paradox project, where
production testing data from the State 16-2LN-CC well remains
highly encouraging.
"Upon closing, the Acquisition is expected to more than double
Zephyr's non-operated production levels and related cashflow over
the next twelve months. The Acquisition will provide Zephyr with
significantly more resources with which to accelerate the
development of its Paradox Basin project. This year, cashflows
generated by our existing non-operated portfolio have already been
utilised on our Paradox project, have enabled us to acquire
additional leases, and have allowed us to acquire further
non-operated assets with production coming online shortly. We are
firm in our intention to continue with this successful strategy as
we position the Company for further growth and increased
profitability.
"In addition, in line with our previously stated commitment, we
intend to ensure that all hydrocarbons produced from the
Acquisition, net to Zephyr, will have a "net-zero" 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.
"The Acquisition assets are situated in a prime location in the
Sanish Field in the Williston Basin and all wells are operated by
Whiting, a top basin producer already serving as operator of a
number of our existing wells. I look forward to further developing
our relationship with Whiting as we grow our asset base in the
Williston Basin.
"I would like to extend a sincere thank you to our Shareholders
and Board members who participated in the bridge loan funding which
enabled us to proceed with the Acquisition. The funding, secured on
highly favourable terms, and with no dilutive equity component,
demonstrates the faith that these parties have in both the Company
and the Acquisition. I am also highly encouraged by our discussions
to date with a diverse range of potential lenders in respect of the
remainder of our Acquisition funding.
"It's important to note that, to date, Zephyr has delivered
multiple acquisitions and significant progress on its Paradox asset
without utilising any debt, as the Board did not consider appraisal
and development assets to have a suitable risk profile for
leveraging at the time. However, the Acquisition assets have a long
production history and have reached a lower decline phase. Combined
with appropriate hedging and with our success in delivering
production from our existing non-operated portfolio, the result
means we believe we can now safely utilise conservative levels of
leverage.
" In conclusion, I'd like to reiterate that we are operating in
particularly exciting and unusual times - times which
simultaneously offer strengthening commodity prices as well
potential to complete opportunistic acquisitions at highly
compelling valuations. Zephyr's Board has unanimously agreed to be
aggressive in these times in order to fortify our ability to
deliver an accelerated development schedule on our Paradox asset,
which in turn is expected to position the Company for significant
long-term growth. The value already delivered from this year's
progress now means that additional growth has the potential to be
delivered with minimal dilution to Shareholders.
"We will be providing regular updates as we progress through
this transformational period in both our operated and non-operated
portfolio - and in the meantime, we will continue to operate in
line with our core values of being responsible stewards of both our
investors' capital and of the environment in which we work."
Details of and reasons for the Acquisition
The Acquisition will be transformative for the Company,
providing a stable foundation of low-decline production and cash
flows from 163 gross producing wells. In addition, 18 PNP and DUC
wells are expected to be brought online in the near term and 47
additional gross undeveloped locations are expected to provide
meaningful upside for many years to come. The acreage is highly
complementary to the Company's existing interests in the Williston
Basin.
The key details of the Acquisition are as follows:
-- Acquisition of 1,960 net acres of non-operated working interests in Williston Basin
-- The working interests across the acreage average approximately 5.9%
-- 1 63 gross producing wells
-- 5 gross PNP wells
-- 13 gross DUCs expected to be placed on production by 30 June 2022
-- 47 gross proved undeveloped wells
-- The wells are operated by Whiting, an active and highly
experienced operator in the Williston Basin, which currently serves
as the operator of a number of Zephyr's existing non-operated
wells
-- Production from the Assets averaged 871 boepd in September
2021, a 30% increase from the average daily production in August
2021 of 671 boepd
-- The Assets delivered 290,730 boe production in the twelve months prior to the Effective Date
-- The Assets generated US$12.7 million of revenues in the
twelve months prior to the Effective Date
-- The Assets generated US$9.0 million of net income in the 12
months prior to the Effective Date
-- 2P Reserves being acquired are estimated at 2.764 million boe to Zephyr (Sproule estimate)
-- The Acquisition acreage is spread across 22 separate drilling
pads, creating production diversification
The key benefits of the Acquisition are as follows:
-- A diversified, low-decline production base with established history and stable cash flows
-- Near term growth from DUC wells currently being brought online
-- Potential to hedge a significant portion of the existing
production at attractive prices to lock in returns and provide
downside protection
-- Excellent complement to (and funding source for) the less
mature, higher upside Paradox Basin development
The economics on the Acquisition are extremely attractive. Once
the DUC wells are online, the Company estimates that the
Acquisition will provide:
-- Up to US$13.8 million of undiscounted free cash flow after
CAPEX, net to Zephyr, in 2022 to deploy into the Paradox
development or into additional projects, and over the life of the
project, a total US$73.6 million of undiscounted cash flow (using
Sproule price estimates outlined in Appendix A)
-- 2P NPV-10: US$46.3 million
-- Well-level operating expenses forecast to average
approximately US$13.91 per boe produced over the next three
years
-- Forecast 2022 production: approximately 550 boepd average
production anticipated from existing producing wells and an
additional 615 boepd from wells in progress
-- Acquisition price of 2.1x forecast 2022 EBITDA
Note: Estimates using Sproule pricing as shown in Appendix A
Terms of the Acquisition
Zephyr has entered into the Agreement to acquire a newly formed
entity that holds the Assets for a purchase price of US$36 million,
subject to various customary closing adjustments.
Zephyr will pay the Seller a non-refundable deposit of US$3
million on or around 22 November 2021, funded by a bridge loan as
detailed below.
The targeted closing date for the Acquisition is 22 December
2021, at which time the balance of US$33 million, less customary
closing adjustments, will be due. The only outstanding action
required for completion is for Zephyr to arrange the necessary
funding for the US$33 million purchase consideration. There are no
other closing conditions.
Zephyr is currently evaluating a number of structured debt
financing alternatives to fund the Acquisition and has already
received term sheets which include options for funding the entire
remaining balance on a non-dilutive basis. If the Acquisition is
completely funded by debt, pro forma net debt / adjusted EBITDA for
the Company post Acquisition would be approximately 1.6x, a level
which the Board deems to be suitably conservative.
Status of the Acquisition process
-- Definitive documents signed 19 November 2021
-- Financial, technical and commercial due diligence completed
-- Land and lease checks completed
-- Financial modelling completed
-- Technical evaluation and asset review completed
-- Third party CPR completed
-- Assignments and closing documentation drafted
As part of its due diligence process the Company commissioned
Sproule to produce a CPR on the assets being acquired. This report
is now available for inspection on the Company's website
www.zephyrplc.com or can be accessed by clicking on the following
link:
https://www.zephyrplc.com/investors/reports-presentations/
A summary of Sproule's reserve estimates from their CPR are
outlined in Appendix A.
Bridge Loan
To fund the Acquisition deposit of US$3 million, the Company has
drawn down on a GBP3.0 million bridge loan provided by a group
including existing Shareholders and Board members.
The key terms of the Loan are as follows:
-- Loan secured by current assets
-- Six-month term
-- 2% drawdown fee
-- 1% per month interest rate
-- 3% early redemption payment
It is proposed that the Loan will be repaid from revenues
generated by the Company's non-operated asset portfolio.
There is no dilutive equity component attached to the Loan.
Certain Directors and their related parties have participated in
the Loan as follows:
-- Rick Grant (Chairman of Zephyr) and spouse - GBP125,000
-- Origin Creek Energy LLC ("OCE") - GBP75,000
o The shareholders and directors of OCE are Rick Grant, the
Chairman of Zephyr, and Colin Harrington, the CEO of Zephyr. Colin
Harrington is indirectly the controlling shareholder of OCE.
-- Chris Eadie (Chief Financial Officer of Zephyr) - GBP30,000
The participation in the Loan by these Directors and their
related parties is deemed to be a related party transaction
pursuant to rule 13 of the AIM Rules for Companies. Accordingly,
the Independent Directors of Zephyr (Gordon Stein and Tom Reynolds)
consider, having consulted with the Company's nominated adviser,
that the terms of the transaction are fair and reasonable insofar
as the Company's Shareholders are concerned.
Extension of warrants
In November 2019, certain Directors were issued with warrants to
subscribe for Ordinary Shares in the Company at a price of 2 pence
per Ordinary Shares ("Warrants"). These Warrants were issued in
connection with the equity placing that was carried out by the
Company and announced on 4 November 2019 (the "Placing").
In the Placing, OCE invested GBP480,000 and was issued with
21,818,182 Warrants. The shareholders and directors of OCE are Rick
Grant, the Chairman of Zephyr, and Colin Harrington, the CEO of
Zephyr. Colin Harrington is indirectly the controlling shareholder
of OCE.
Chris Eadie (Finance Director of Zephyr) invested GBP10,000, and
in accordance with the terms of the Placing, he was issued 454,545
Warrants.
These Warrants were issued to OCE and Chris Eadie with a two
year-term which expires on 22 November 2021.
Due to the fact that the Board has not been able to exercise
warrants for at least the last four months (due to the Company
being in a "closed period" and therefore prohibiting the Directors
from dealing in the Company's securities), the Independent
Directors (Gordon Stein and Tom Reynolds) have agreed to a limited
extension of the exercise period for these Warrants.
The Independent Directors have agreed that the Warrants should
be exercised by the other Directors as soon as they reasonably can
be and have agreed that if the Warrants are not exercised by 30
June 2022, then they will lapse.
The agreement to extend the exercise date of the Warrants held
by OCE and Chris Eadie is a related party transaction pursuant to
rule 13 of the AIM Rules for Companies. Accordingly, the
Independent Directors of Zephyr (Gordon Stein and Tom Reynolds)
consider, having consulted with the Company's nominated adviser,
that the terms of the transaction are fair and reasonable insofar
as the Company's shareholders are concerned.
Contacts:
Zephyr Energy plc Tel: +44 (0)20 7225
Colin Harrington (CEO) 4590
Chris Eadie (CFO)
Allenby Capital Limited - AIM Nominated Tel: +44 (0)20 3328
Adviser 5656
Jeremy Porter / Liz Kirchner
Turner Pope Investments - Broker Tel: +44 (0)20 3657
James Pope / Andy Thacker 0050
Flagstaff Strategic and Investor Communications
Tim Thompson / Mark Edwards / Fergus Tel: +44 (0) 20 7129
Mellon 1474
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.
Estimates of resources and reserves contained within this
announcement have been prepared according to the standards of the
Society of Petroleum Engineers. All estimates are internally
generated and subject to third party review and verification.
Glossary of Terms
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"
bbl: barrels of oil
mbbl: thousand barrels of oil
mmbtu: metric million British thermal unit
mmcf: million cubic feet
NGL: natural gas liquids
Reserves: Reserves are defined as those quantities of petroleum
which are anticipated to be commercially recovered from known
accumulations from a given date forward
Appendix A
Sproule Proven Reserves Summary
Reserves Well Count Net Oil Net Gas Net NGL Discounted
Category Reserves Reserves Reserves Cash Flow
(Mbbl) (MMcf) (Mbbl) 10% (M$)
PDP 179(1) 1,097 1,823 281 30,458
PNP 5 48 71 11 1,213
DUC/PUD(1) 13 325 372 57 7,504
PUD 47 415 473 73 7,173
Total 244 1,885 2,739 423 46,349
*Note: Some columns may not add due to rounding
1. PDP well count includes 163 PDP wells and 16 After Payout
(APO) wells. The APO are classified as proved developed producing,
but do not convert to a paying interest. Only the abandonment costs
have been included for these wells.
2. Drilled Uncompleted (DUC) wells have been classified as
proved undeveloped (PUD) and are drilled wells with a range of
remaining capital costs required to complete and bring on
production. These have all been classified as PUD at the request of
the Company, for simplicity
Sproule Price Deck
Year Oil ($/bbl) Oil Differential Oil Realized Gas ($/mmbtu) NGL
($/bbl) ($/bbl) ($/bbl)
2021 76.00 -6.50 69.50 5.00 30.40
2022 71.00 -6.50 64.50 4.00 28.40
2023 68.00 -6.50 61.50 3.50 27.20
2024 66.00 -6.50 59.50 3.25 26.40
1. Prices escalated at 2% per year after 2024 until price doubles, then held flat
2. Oil differential is the difference in price between an
established benchmark and what is actually received at the lease or
field (inclusive of adjustments for quality, energy, content,
transportation fees and regional / local differentials)
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
ACQGZMZMFMRGMZZ
(END) Dow Jones Newswires
November 22, 2021 02:00 ET (07:00 GMT)
Rose Petroleum (LSE:ROSE)
Gráfica de Acción Histórica
De Mar 2024 a Abr 2024
Rose Petroleum (LSE:ROSE)
Gráfica de Acción Histórica
De Abr 2023 a Abr 2024