Zephyr Energy : Annual Report to 31 December 2023

Zephyr Energy plc

Annual Report and Financial Statements For the year ended 31 December

We are a technology-led producing oil and gas company focused on responsible resource development. We have a balanced portfolio of operated and non-operated assets, located in two established oil producing basins in the Rocky Mountain region of the United States.

We are committed to be responsible stewards

of investors' capital, and the environment in which we work.

Our vision is to open up the next prolific onshore U.S. oil and gas play.

Contents

Strategic report	Page
Business highlights	1
About us	2
Our assets	4
Chairman's statement	6
Our strategy and value proposition	10
CEO report and operating review	12
Environmental, Social and Governance 21
Financial review	23
Principle risks and uncertainties	25
S172 (1) statement	26

Governance	Page	Financial statements	Page
Board of Directors	28	Consolidated income statement	48
Senior management	29	Consolidated statement of
Corporate governance statement	30	comprehensive income	49
Consolidated balance sheet	50
Directors' report	35
Consolidated statement of
Statement of Directors' responsibilities 39
changes in equity	51
Independent auditor's report	40
Consolidated cash flow statement	52
		Company balance sheet	53
		Company statement of changes
		in equity	54
		Company cash flow statement	55
		Notes to the financial statements	56

Other information

Directors, advisers and officers	87
Glossary	88

Zephyr Energy plc Annual Report and Financial Statements 2023

Strategic report

Business highlights

FY 2023 REVENUES	2P RESERVES PARADOX	FY 2023 HYDROCARBON
		SALES VOLUMES
US$25.2million	2.6mmboe	1,116boepd

FY 2023 NET CASH GENERATED	2C RESOURCES PARADOX	PARADOX ACREAGE AT JUNE 2024
FROM OPERATIONS
US$11.6million	34mmboe	46,000+

FY 2023 LOST TIME INJURIES ("LTIs")

2U RESOURCES PARADOX

Nil270mmboe

1

Zephyr Energy plc Annual Report and Financial Statements 2023	Strategic report

About us

Growth & asymmetric upside in the U.S. oil and gas sector

We are a cash generative, producing oil and gas company focused on responsible resource development.

Since 2020, the team has completed 14 acquisitions and increased production from its non-operated assets from zero to a current run rate of 1,200 boepd in under three years. Our Paradox development offers significant potential upside for increased production.

Balanced portfolio

Our balanced asset base provides

portfolio diversification

and asymmetrical

growth potential.

N

P

R

O

O

J

I

T

E

L

S

C

T

L

I

W

Our vision

Open up the next

prolific onshore

U.S. oil and gas play

				OX PR	O
			D	J
		A			E	C
	R
A
P								T

Large-scale

exploration upside

Operational control over organic growth

POTENTIAL

Downside protection through	Long-term development
potential
current production and cashflow
Attractive risk-adjusted returns
in an established basin
Certainty of funding for Paradox and overhead
Each dollar spent generates multiple dollars
available for future investment
Access to prudent levels of lower
cost debt financing
Ability to hedge and dampen
commodity price volatility

COMPOUND GROWTH

2

Zephyr Energy plc Annual Report and Financial Statements 2023	Strategic report

About us

Purpose and values

We recognise we have an important part to play in shaping the future of our industry and a sustainable future.

Our purpose is to drive growth and create long-term value for all stakeholders through responsible oil and gas production.

Central to our purpose are our values.

• Responsible stewards of investors' capital
• Responsible stewards of the environment

R SHAREHOLDE

R

S

O

E

F

U

L

A

V

G

N

I

T

A

R

E

N

E

G

G

E

N

E

R

A

T

I

N

G

V

A

L

U

E

F

O

R

L

S

O

C

T

A

E

R

O

L

L

N

B

C

G

S

I

S

C

S

F

R

N

A

O

I

O

G

N

N

E

O

D

T

M

R

A

I

P

O N

L

S

A

N

M

P

E

L

U

C

P

R

IL

S I

U

A

N

S

O

I

L

T

R

CREATING

I

E

O

S

F

LONG-TERM

E

U

VALUE

G

L

A

D

E

N

V

U

.

E

G

E

O S

R

N

I

.

Y

L

A

I

L O

G

A N

T

T

O

I

A

N

S

N

R

H

L

D

G

E

O

O

V

N

G

R

E

E

A

N

A

H

L

G

S

C

E

U

T

E

F

O

S

R

T

E

N

M

E

P

L

M

O

N

Y

E

R

E

S

E

V

O

G

R

O

F

E

U

L

A

G

V

IN

T

A

R

E

N

GE

3

Zephyr Energy plc Annual Report and Financial Statements 2023	Strategic report

Our assets

We have a balanced portfolio of both operated and non-operated assets located in two established oil producing basins in the U.S.

This strategy provides portfolio diversification and asymmetrical growth potential.

PARADOX PROJECT

UTAH

We hold a 46,000+acre leasehold with 2P reserves of 2.6 mmboe, 2C resources of 34 mmboe and 2U resources 270 mmboe. We continue to grow our land position and develop the project to deliniate the full scale and potential value of the asset

4

Zephyr Energy plc Annual Report and Financial Statements 2023	Strategic report

NORTH DAKOTA

MONTANA

WYOMING

UTAH

COLORADO

Current projects

Areas of interest

WILLISTON PROJECT

NORTH DAKOTA & MONTANA

A growing suite of non-operated production and near-term production assets acquired for their low-risk,high-return cashflow potential. Our non-operated portfolio generated revenue of circa US$25 million in FY 2023.

5

Zephyr Energy plc Annual Report and Financial Statements 2023	Strategic report

Chairman's statement

"The Board is looking to the future with a high degree of confidence as we continue to deliver on our vision of 'opening up the next prolific onshore U.S. oil and gas play'

On behalf of the Company's Board of Directors (the "Board") I am pleased to present the Company's financial and operational results for the 2023 financial year which reflect the ongoing efforts and commitment of the Zephyr team.

Despite facing a significant operational challenge during the 2023 financial year, we continued to deliver as a cash-generating, exploration and production group focused on two established oil producing basins in the Rocky Mountain region of the U.S., and we have made steady progress in the pursuit of our key objective of unlocking the next prolific onshore U.S. oil and gas play.

With a balanced portfolio of non-operated assets and an operated asset with asymmetric growth potential, our strategy is clear. Cashflows generated from non-operated asset production in the Williston Basin, North Dakota, U.S. (the "Williston project") are recycled and reinvested to pursue development of our flagship operated asset in the Paradox Basin, Utah, U.S. (the "Paradox project").

We are supported and driven by our exceptional people and have continued to bolster our team in the U.S. by way of several key hires in operations and finance. Led by an experienced executive leadership team with a proven track record, I believe this will enable us to deliver on our strategy and, in-turn, generate value and responsible growth for all our stakeholders.

BOE
600,000
500,000
300,000
200,000
100,000
$0
2020	2021	2022	2023

and delivering value for all stakeholders."

$50,000,000 $40,000,000 $30,000,000 $20,000,000 $10,000,000

$0

REVENUE (US$)

2020

2021

2022

2023

6

Zephyr Energy plc Annual Report and Financial Statements 2023	Strategic report

Chairman's statement

As always, the health, safety and welfare of the team and contractors is of prime importance. We have a zero-harm safety culture focused on continuous improvement to achieve an injury-free and safe work environment. The Board is pleased to report that during the period there were no Lost Time Injuries ("LTIs").

The Board is also committed to ensuring that the actions and investment decisions it makes are in line with our core values of being responsible stewards of investors' capital and of the environment. This includes our commitment to minimising our environmental impact through positive actions and to protect the surroundings in which we operate.

In this respect, I was incredibly proud of how we responded to the well control issue on the State 36-2LNW-CC well (the "State 36-2 well") in April 2023. The incident was a significant event for our team but the response, in a difficult and fast- moving situation, was well executed despite the challenges faced. There were several important lessons learned from the incident, but a key takeaway for me was the professionalism and commitment of our team in addressing the situation in a responsible manner. It is further credit to the team that the incident was closed-off with no LTIs or long-term environmental damage and that we managed to get our day-to-day operations back on track to the point that drilling operations recommenced on the Paradox project within twelve months of the incident.

After months of meticulous planning, I was delighted that we managed to successfully drill the State 36-2RLNW-CC well (the "State 36-2R well"). Drilling operations delivered on all the key objectives, and we look forward to the commencement of the production test which will soon allow us to understand the full potential of the well. This will hopefully be the catalyst for an exciting and transformational period ahead.

I am pleased to point to several examples of key stakeholders who have worked with and supported the Company over the recent months demonstrating a strong endorsement of the Company and the way in which we operate.

Sturdy and honest relationships, formed over the years of working with multiple state and federal regulators, proved of great benefit during the well control issue and subsequent permitting of the State 36-2R well. The relationship and knowledge-sharing partnership with the U.S. Department of Energy and the University of Utah continues to benefit all parties, and further non-dilutive grant funding has recently been made available to the Company. Further, the supportive relationship with a key debt provider, SGR Investments LLC, as evidenced by the conversion of a sizeable portion of their existing debt into Zephyr's equity at the prevailing market price.

I am proud that the Company is recognised by those with whom we work closely as a professional and quality operator.

7

Zephyr Energy plc Annual Report and Financial Statements 2023	Strategic report

Chairman's statement

Operational activity

Paradox project

During the period under review, Zephyr saw a recalibration at the Paradox project following the discovery of a major and productive natural fracture network and the subsequent well-control incident on the State 36-2 well.

What followed was a period of considerable activity to address the impacts of the well control incident. Once resolved, and after extensive due diligence, workover operations and confirmation that our well control insurance would cover substantially all costs associated with the redrill, the Board concluded that redrilling the State 36-2 well was the optimal path forward to harness the significant discovery made by the well.

Following the Board's decision, Zephyr's team commenced detailed internal well-planning processes (supplemented by multiple high-pressure/high temperature specialist service providers) which resulted in an augmented well plan. Once sundry permit approvals were granted, swift progress was made by our operational team with the award of the drilling permit and securing a rig contract with Helmerich & Payne ("H&P"), to enable full drilling operations to commence in April 2024.

We were delighted to recently announce that drilling operations on the State 36-2R well were completed safely and successfully and that all key objectives had been met. During the upcoming production test, the well will be flowed and production tested to determine reservoir pressure, fluid composition, well flow rate, bulk reservoir permeability and to deliver an early estimate of the overall potential recoverable resources.

The drilling successes achieved to date have given added impetus for the Group to secure an infrastructure solution for the gas produced from the Paradox project, and in September 2023 we noted the commissioning of the Green River pipeline owned by Dominion Energy LLC, Utah ("Dominion"). The pipeline crosses Zephyr's acreage position and has the potential to provide a nearby route for gas export from our Paradox acreage.

We are continually looking at ways to increase the scale, optionality and attractiveness of the Paradox project, and our new farm-in opportunity in the Salt Wash helium field is another exciting development. Our team has studied the potential to redevelop the remaining reserves of the Salt Wash Field, which lies directly to the south of our White Sands Unit (the "WSU"), utilises the same road network, and has similar oil and gas potential in the Paradox Formation as the WSU. While helium is a new addition to our resource exposure, many nearby Paradox Basin oil and gas operators are already producing comingled helium in commercial quantities, with an active local offtake market for produced helium. While the Group is not looking for helium to become a primary focus, the Group is cognisant that it may offer optionality and represent a value-added opportunity for the Paradox project. We expect to partner with industry participants to help appraise and fund the potential of this resource while also taking advantage of our regional knowledge, existing operations and asset platform.

Williston project

Our non-operated assets continue to deliver strong cashflows, allowing us to proceed with our ongoing Paradox project development, and have been of critical importance during the period in which we managed the well control incident.

Our robust and diverse portfolio of non-operated production and near-term production assets were acquired for their low-risk,high-return cashflow potential. Since 2020, we have completed 14 discrete acquisitions with a portfolio of interests taking production from zero to a current run rate of over 1,200 barrels of oil equivalent per day ("boepd").

At 31 March 2024, we had 230 wells in our portfolio available for production and our net working interests now average 7.1% per well (equivalent to 16.3 total wells).

Environmental, Social and Governance ("ESG")

As we grow and transform the Company, we continue to foster a safe working environment and maintain active relations in the communities in which we operate. Sustaining our local communities through environmental stewardship, social responsibility and strong corporate governance is an extension of our mission and reflects our goal to make a lasting and meaningful positive impact in these communities.

I am pleased that we continue to pursue carbon-neutral status as an oil and gas producer. This is achieved through our Verified Emission Reduction credits ("VERs") programme, which aims to offset all Scope 1 carbon emissions from both our operated and non-operated assets, and which is administrated through the Prax Group ("Prax"), a leading UK- based energy trading company.

8