Auctus Advisers Research Note, 26th October 2022

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Minor delays to drilling start. Third well in the campaign firmed-up with experienced operator

• The federal drilling permit to start drilling State 36-2 LNW-CC well has not been received yet. This reflects a backlog in issuing drilling permits. Meanwhile Zephyr has already completed construction of the shared pad on which the State 36-2 LNW-CC and the State 36-3 LN-C9 wells will be located. Drilling continues to be expected to start before YE22.
• The extended production test of the State 16-2 LN-CC well drilled in 2021 is expected to start in mid November. The primary aim of the production test is to further demonstrate the well’s flow potential, which the company believes could reach 2,100 boe/d once the well is no longer rate-constrained as it was during the initial testing phase (when the well flowed at 3.6-5.0 mmcf/d plus 160-432 bbl/d of condensate).
• The third well in the programme will be drilled jointly (50/50) with Kirkwood Oil & Gas. Kirkwood operates 500 wells in the Rocky Mountain region, including the Cane Creek oil field, located close to Zephyr’s acreage. The well will target the oil window in the Paradox play, as previously indicated. It will be located in Grand County, immediately to the south of the Cane Creek field and will be drilled from an existing pad with existing infrastructure, resulting in lower cost and a simpler approval process. Depending on permitting and rig availability, it could potentially be drilled earlier than previously expected.
• This will be a 2-mile horizontal well targeting acreage held by both Zephyr and Kirkwood. Cost and revenue will be shared 50/50. This allows Zephyr to derisk the resources associated with its acreage in the area at half the previously expected cost (~US$8 mm).
• We reiterate our target price of £0.16 per share.