Zephyr Energy : Interim Results for the six months ended 30 June 2020

Prior to publication, the information contained within this announcement was deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR"). With the publication of this announcement, this information is now considered to be in the public domain.

17 September 2020

Zephyr Energy plc

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

Interim Results for the six months ended 30 June 2020

Zephyr Energy plc (AIM: ZPHR), the Rocky Mountain oil and gas company focused on responsible resource development, is pleased to announce its unaudited interim results for the six months ending 30 June 2020.

A copy of the interim results report will shortly be available on the Company's website http://www.zephyrplc.com.

Colin Harrington, Chief Executive Officer, said:

"In the Company's recent Annual Report, we outlined that following the completion of its restructuring, Zephyr is a clean, low-overhead, unlevered and value-focused vehicle from which to build, with a strategy and value set designed to deliver responsible growth for all stakeholders.

"Over the coming months, we expect to see further exciting developments on our existing project in the Paradox Basin, Utah (the "Paradox project") as well as the expansion of the Group's asset portfolio through acquisitions or partnerships.

"I would like to thank our shareholders and advisers for their continued support at this pivotal time for the Company."

Contacts:
Zephyr Energy plc	Tel: [phone]
Colin Harrington (CEO)
Chris Eadie (CFO)
Allenby Capital Limited - AIM Nominated Adviser	Tel: [phone]
Jeremy Porter / Liz Kirchner
Turner Pope Investments - Broker	Tel: [phone]
Andy Thacker / Zoe Alexander
Flagstaff Strategic and Investor Communications - PR	Tel: [phone]
Tim Thompson / Mark Edwards / Fergus Mellon

ZEPHYR ENERGY PLC

INTERIM REPORT FOR THE SIX MONTHS TO 30 JUNE 2020

The Board of Zephyr Energy plc ("Zephyr", the "Company" or the "Group") is pleased to present its unaudited interim report for the six-month period to 30 June 2020.

CHIEF EXECUTIVE'S STATEMENT

OVERVIEW AND OUTLOOK

As we all know, the first six months of 2020 were extraordinarily turbulent on both a global and sector basis which resulted in extreme volatility in the oil and gas markets.

As Zephyr's CEO, I am proud of the steps the Company has taken over the last twelve months, which have enabled us to weather these storms and to emerge well positioned for the future. The restructuring of both the Group's legacy asset base and our Paradox project have, in particular, been critical steps in helping us achieve this. In addition, the willingness of our Board, management and select partners to sacrifice compensation in order to provide the Company with financial flexibility, has demonstrated the team's alignment with the broader shareholder base and signifies a unified belief in the growth potential of the Zephyr platform.

We know there are significant challenges ahead, but with no debt, very low fixed costs and overheads, the untapped potential of the Paradox project and our exciting potential growth opportunities in the Rocky Mountain region, we are optimistic about our future prospects.

Our continued focus has remained the same since my tenure began last year. Every action and investment decision is weighed up against our core values - we always strive to be responsible stewards of both our investors' capital and of the environment and communities in which we work. This includes the following points of focus:

• We will continue to protect the Group, safeguard its existing asset base and to position it for attractive growth opportunities;
• We will continue to seek creative and beneficial funding opportunities in an effort to unlock value from the current Paradox Basin asset, as evidenced by the recent selection of our acreage for a U.S. Government funded research well;
• We will continue to adopt a disciplined focus on growth via the acquisition of producing or near-term development opportunities in the Rocky Mountain region. Even in this challenging environment we believe that attractive, value-additive acquisitions are available and may be acquired using non-traditional funding structures;
• We will continue with our programme of tight financial control and cash preservation which will enable the Group to continue trading effectively; and
• We will continue to ensure management and the Board are aligned with shareholders through significant ownership of shares - the Board currently controls over 25% of the Company's issued share capital.

As we recently announced, I am delighted by the current progress on the Paradox project and excited at the prospect of spudding a research focused well before the end of this calendar year. We are working with our partners on the project to ensure that this initial well can be planned to maximise value to all stakeholders, and I believe this activity will act as a catalyst for the long-awaited unlocking of value from the project.

Over the last few weeks, we have also completed the rebranding of the Company, capped by the change of Company name from Rose Petroleum plc to Zephyr Energy plc. However, the rebranding is about very much more than just a change of name - I want Zephyr to be a Company of which all its stakeholders can be proud, one focused on delivering strong economic returns as well as being a responsible steward of its surrounding environment. I want Zephyr to stand for excellence not only in its operations but also in its pursuit of responsible growth.

ACQUISITION RATIONALE AND CRITERIA

The Board believes that strong financial returns can be generated from the highly fragmented smaller end of the U.S.A. oil exploration and production sector, and we have restructured the Group so that it can be a stable public growth vehicle targeting this part of the market. The Board also believes that the construction of a balanced portfolio, exhibiting both free cash flow and long-term development opportunities, is core to successful growth.

The Board's vision for a balanced portfolio includes:

• production assets acquired at compelling valuations using non-traditional funding structures;
• near-term,lower-risk yet highly economic development opportunities located in core acreage positions in established basins. In particular, we will target infill horizontal development drilling opportunities in basins long established through vertical production; and
• longer-term,high-potential appraisal and exploration projects designed to add significant scale.

The Board believes that the Group already has significant long-term appraisal and exploration exposure through its restructured Paradox Basin asset, and as such we are focusing our acquisition efforts on near-term development and production opportunities. We continue to appraise a number of potential opportunities with our high-level methodology based on the following factors, and all acquisitions will need to be consistent with the criteria listed below:

Geographic criteria:	Utah, Colorado or Wyoming (the "Rocky Mountain Region")
Portfolio criteria:	Near-term development ("PUD") or accretive producing ("PDP") opportunities
Expertise criteria:	Prior management experience of operating such an asset or similar assets
Cash flow criteria:	Cash flow generative within 12 months of acquisition
Entry criteria:	Proprietary acquisition angle (such as via land strategy, relationship, or unique
	view on upside opportunity) or uncommonly good value
Partner validation:	Strategic financial or industry partner validation
Running room:	Growth potential for future development on the asset acquired or via options
	for additional acreage acquisition

In addition to this screening criteria, and in an effort to build increased predictability, accuracy and efficiency into our project screening and valuation process, management has developed a series of proprietary tools for use in evaluating assets in our region of focus.

Led by the Group's technical team, and building from datasets compiled by independent analytics providers, we are creating a comprehensive geological basin model which allows the Group to quickly review and rank operators, locations and wells in order to focus on targets perceived as having the highest value. This technology-led strategy has already proven useful, both as a deal identification and rapid screening tool, and in demonstrating the value which the Group brings to potential investor and industry partnerships. It is an initiative that will add significant value to the Group as we move forward.

The Board also believes that this technology-led approach gives the Group an advantage over other local market participants, and we have already seen the benefits while appraising new opportunities. Our technological edge, combined with the network and experience of the Board, has allowed us to find and screen many potential investment opportunities in a highly efficient manner. Our combined technology and relationship approach are encompassed within the proposed investment in the McCoy project.

McCOY UPDATE

In November 2019, the Group announced that it had entered into a Letter of Intent ("LOI") with Captiva Energy Holdings II, LLC ("CEH") for the proposed acquisition of an initial 10% of CEH's 89.5% net working interest in the 317-acre McCoy lease located in the Denver-Julesburg Basin ("DJ Basin") in Weld County, Colorado, U.S.A. In

addition, the Group has an option to acquire, at its sole discretion, up to a further 80% of CEH's 89.5% working interest in the McCoy lease ("Option"). This Option will expire at the end of December 2020.

Our proposed McCoy acquisition will provide the Group with near-term,low-risk horizontal development drilling exposure in the prolific Niobrara shale play, and on acreage contiguous to other major DJ Basin operators including Occidental Petroleum Corporation, Great Western Operating Company LLC, (a subsidiary of Great Western Petroleum), and Crestone Peak Resources. The DJ Basin is a mature oil basin currently undergoing a resurgence as vertical production is replaced with successful one and two-mile horizontal well developments. The McCoy lease is located in an active part of the DJ Basin and a horizontal redevelopment of the existing productive lease is proposed.

Due to the economic crisis related to coronavirus and the associated downturn in the oil price since the Group signed the McCoy deal, the McCoy project was not drilled in the first half of 2020 as originally planned. However, the Board has been able to extend the Group's Option to proceed with the acquisition until the end of December 2020. This is expected to give time for a recovery in the oil price and in market sentiment. In addition, capital costs to drill two-mile wells in the DJ Basin have been reduced by over 30% over the last three months, significantly lowering break even prices on horizontal developments. The Group believes that in the current market with lowered capital costs, the breakeven oil price at McCoy will be below US$30 per barrel of oil equivalent ("BOE").

The current expectation is a forecast drilling commencement date in the first half of 2021, for an initial 12 well drilling programme with two-mile long laterals.

PARADOX UPDATE

Over the last twelve months, the Board completed a comprehensive review of the Paradox project and elected to pursue a strategy for the Paradox which included the following steps:

• Focusing on the most prospective acreage (as identified by the 3D seismic acquisition undertaken by the Group and from the subsequent verification work carried out by Schlumberger);
• Releasing acreage that the Group believes to be non-prospective or on too short a lease to merit further exploration work and / or expenditure; and
• Actively acquiring further contiguous acreage in areas we consider most prospective.

Investors should expect a continued reshaping of the Paradox position as the Company remains an active manager of its leasehold position, and the work to secure longer lease terms and contiguous acreage in areas we consider most prospective remains ongoing.

This 'high-grading' process has enabled Zephyr to secure the project for the long-term while at the same time reducing carrying costs while a farm-in partner is sought. The Board believes that a concentrated focus on the most highly prospective acreage will increase the appeal of the project to potential funding partners.

In the Board's view, the high-grading of the Paradox project acreage will create a long-term sustainable future for the project, one which meets the Board's selection criteria and which will positively complement the Group's future balanced asset portfolio.

The positive recent news that a research well will be drilled on the Paradox project acreage before the end of the year is an extremely exciting development for the Group, and one which will hopefully act as a catalyst for the Group to be able to unlock the value from the Paradox project while minimising asset level and corporate level dilution.

Paradox research well

As announced on 2 September 2020, the Company has been working with a project team led by the University of Utah's Energy & Geoscience Institute ("EGI") in collaboration with the Utah Geological Survey (the "UGS") and other