Zephyr Energy plc
Annual Report and Financial Statements
For t(cid:159)e (cid:234)ear ended (cid:259)(cid:257) (cid:20)ecem(cid:133)er
2022
We are a technology-led producing oil and gas
company focused on responsible resource
development from carbon-neutral operations.
We have a balanced portfolio of both operated
and non-operated assets, located in two
established oil-producing basins in the
Rocky Mountain region of the U.S.
Our vision is to open up the next prolific onshore
U.S. oil and gas play.
Contents
Strategic Report
(cid:13)usiness (cid:159)i(cid:154)(cid:159)li(cid:154)(cid:159)ts
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(cid:68)ur Str(cid:121)te(cid:154)(cid:234) (cid:121)nd (cid:105)(cid:121)lue (cid:78)roposition
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Fin(cid:121)nci(cid:121)l Re(cid:227)ie(cid:228)
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Governance
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Financial Statements
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(cid:14)ompre(cid:159)ensi(cid:227)e (cid:42)ncome
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(cid:14)(cid:159)(cid:121)n(cid:154)es in (cid:24)(cid:202)uit(cid:234)
(cid:14)onsolid(cid:121)ted (cid:14)(cid:121)s(cid:159) Flo(cid:228) St(cid:121)tement
(cid:14)omp(cid:121)n(cid:234) (cid:13)(cid:121)l(cid:121)nce S(cid:159)eet
(cid:14)omp(cid:121)n(cid:234) St(cid:121)tement o(cid:153) (cid:14)(cid:159)(cid:121)n(cid:154)es
in (cid:24)(cid:202)uit(cid:234)
(cid:14)omp(cid:121)n(cid:234) (cid:14)(cid:121)s(cid:159) Flo(cid:228) St(cid:121)tement
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Other Information
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Zephyr Energy plc Annual Report and Financial Statements 2022
Strategic Report
Zephyr Energy plc Annual Report and Financial Statements 2022
Strategic
Report
Business highlights
FY 2022 REVENUES
US$41.1 million
FY 2021 US$6 million
2P RESERVES
PARADOX
2.57 mmboe
FY 2022 NET CASH
GENERATED FROM
OPERATIONS
US$27.2million
FY 2021 US$1 million
2C RESOURCES
PARADOX
34 mmboe
2U RESOURCES
PARADOX
270 mmboe
CASH AND CASH
EQUIVALENTS AT
31 DEC 2022
US$9 million
FY 2021 US$1.8 million
FY 2022 NON-OP
PRODUCTION
1,410 boepd
FY 2021 263 boepd
PARADOX ACREAGE
AT JUNE 2023
45,000 acres
FY 2022 HEALTH AND
SAFETY INCIDENTS
Nil
FY 2021 Nil
Zephyr Energy plc Annual Report and Financial Statements 2022
1
Strategic Report
Balanced growth & asymmetric upside
in the U.S. Oil and Gas sector
At a glance
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 an asymmetrical growth potential.
The Paradox project
Creating value through responsible oil
and gas development and production
As an oil and gas producer, 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
Our values guide our actions and define
everything that we do.
RESPONSIBLE
OIL AND GAS
STRONG
FINANCIAL
CONTROLS
Williston Basin
(cid:14)R(cid:24)A(cid:92)(cid:42)(cid:62)(cid:34)
(cid:56)(cid:68)(cid:62)(cid:34)(cid:344)(cid:92)(cid:24)R(cid:61) (cid:105)A(cid:56)(cid:95)(cid:24)
F(cid:68)R A(cid:56)(cid:56)
S(cid:92)A(cid:54)(cid:24)(cid:39)(cid:68)(cid:56)(cid:20)(cid:24)RS
U.S. ONSHORE
OPERATIONS
TECHNOLOGY-
LED
2
Zephyr Energy plc (cid:1)nnual Report and Financial Statements (cid:258)(cid:256)(cid:258)(cid:258)
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 an asymmetrical growth potential.
Strategic Report At a (cid:154)lance continued
Why the U.S.?
The U.S. possesses vast reserves of oil and natural gas offering significant opportunities
for high-margin exploration and production. The country boasts a well-developed energy
infrastructure, including pipelines, refineries, and export terminals, facilitating efficient
operations and market access with a favourable regulatory framework and investment
climate. Furthermore, the country(cid:360)s advanced technology and skilled workforce contribute
to operational excellence and innovation.
MONTANA
NORTH DAKOTA
WYOMING
UTAH
COLORADO
Current projects
Areas of interest
PARADOX
(cid:56)(cid:121)r(cid:154)e(cid:344)sc(cid:121)le
e(cid:233)plor(cid:121)tion upside
(cid:68)per(cid:121)tion(cid:121)l control
o(cid:227)er or(cid:154)(cid:121)nic (cid:154)ro(cid:228)t(cid:159)
(cid:56)on(cid:154)(cid:344)term de(cid:227)elopment
potenti(cid:121)l
WILLISTON
(cid:20)o(cid:228)nside protection t(cid:159)rou(cid:154)(cid:159) current
production (cid:121)nd c(cid:121)s(cid:159)(cid:153)lo(cid:228)
Attr(cid:121)cti(cid:227)e ris(cid:176)(cid:344)(cid:121)d(cid:172)usted returns in (cid:121)n
est(cid:121)(cid:133)lis(cid:159)ed (cid:133)(cid:121)sin
(cid:14)ert(cid:121)int(cid:234) o(cid:153) (cid:153)undin(cid:154) (cid:153)or (cid:78)(cid:121)r(cid:121)do(cid:233) (cid:121)nd o(cid:227)er(cid:159)e(cid:121)d
(cid:24)(cid:121)c(cid:159) doll(cid:121)r spent (cid:154)ener(cid:121)tes multiple doll(cid:121)rs (cid:121)(cid:227)(cid:121)il(cid:121)(cid:133)le (cid:153)or
(cid:153)uture in(cid:227)estment
Access to prudent le(cid:227)els o(cid:153) lo(cid:228)er cost de(cid:133)t (cid:153)in(cid:121)ncin(cid:154)
A(cid:133)ilit(cid:234) to (cid:159)ed(cid:154)e (cid:121)nd d(cid:121)mpen commodit(cid:234) price (cid:227)ol(cid:121)tilit(cid:234)
L
A
I
T
N
E
T
O
P
H
T
W
O
R
G
D
N
U
O
P
M
O
C
PARADOX PROJECT
UTAH
WILLISTON BASIN
NORTH DAKOTA & MONTANA
(cid:68)ur (cid:153)l(cid:121)(cid:154)s(cid:159)ip (cid:121)sset is in t(cid:159)e (cid:78)(cid:121)r(cid:121)do(cid:233) (cid:13)(cid:121)sin(cid:328)
(cid:95)t(cid:121)(cid:159)(cid:328) (cid:228)(cid:159)ere (cid:228)e (cid:159)old (cid:121) (cid:260)(cid:261)(cid:328)000(cid:344)(cid:121)cre
le(cid:121)se(cid:159)old (cid:228)it(cid:159) 2(cid:78) reser(cid:227)es o(cid:153) 2(cid:327)(cid:262) mm(cid:133)oe(cid:328)
2(cid:14) resources o(cid:153) (cid:259)(cid:260) mm(cid:133)oe (cid:121)nd 2(cid:95)
resources 2(cid:263)0 mm(cid:133)oe(cid:327) (cid:106)e (cid:121)re de(cid:227)elopin(cid:154)
(cid:78)(cid:121)r(cid:121)do(cid:233) to deline(cid:121)te t(cid:159)e sc(cid:121)le (cid:121)nd (cid:227)(cid:121)lue
o(cid:153) t(cid:159)e (cid:121)sset(cid:327)
(cid:106)e o(cid:228)n (cid:121) (cid:154)ro(cid:228)in(cid:154) suite o(cid:153) non(cid:344)oper(cid:121)ted
production (cid:121)nd ne(cid:121)r(cid:344)term production
(cid:121)ssets in (cid:62)ort(cid:159) (cid:20)(cid:121)(cid:176)ot(cid:121) (cid:121)nd (cid:61)ont(cid:121)n(cid:121)(cid:328)
(cid:121)c(cid:202)uired (cid:153)or t(cid:159)eir lo(cid:228) ris(cid:176)(cid:328) (cid:159)i(cid:154)(cid:159) return
c(cid:121)s(cid:159)(cid:153)lo(cid:228) potenti(cid:121)l(cid:327) (cid:68)ur (cid:106)illiston port(cid:153)olio
currentl(cid:234) consists o(cid:153) (cid:228)or(cid:176)in(cid:154) interests in
o(cid:227)er 200 modern (cid:159)ori(cid:239)ont(cid:121)l (cid:228)ells (cid:121)nd (cid:159)(cid:121)d
(cid:121) turno(cid:227)er o(cid:153) (cid:95)S(cid:381)(cid:260)(cid:257)(cid:327)(cid:257) million in F(cid:112) 2022(cid:327)
(cid:14)(cid:121)s(cid:159)(cid:153)lo(cid:228) (cid:153)rom t(cid:159)e (cid:106)illiston production
(cid:228)ill (cid:133)e used to (cid:153)und t(cid:159)e pl(cid:121)nned (cid:78)(cid:121)r(cid:121)do(cid:233)
pro(cid:172)ect de(cid:227)elopment(cid:327)
Our balanced asset base
provides portfolio
diversification and an
asymmetrical growth
potential.
Find out more about our
assets and operations on
pages 8-14
Zephyr Energy plc (cid:1)nnual Report and Financial Statements (cid:258)(cid:256)(cid:258)(cid:258)
3
Strategic Report
Chairman’s Statement
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 2022 financial
year which reflect the hard work, dedication and focus of the Zephyr team.
The team’s execution of our strategy and focused initiatives has
driven another year of excellent environmental, financial and
operational performance. Zephyr continues to be well positioned
as a profitable, cash-generating exploration and production
group focused on responsible resource development from
carbon-neutral operations in two established oil producing
basins in the Rocky Mountain region of the U.S.
The Group reports a near seven-fold increase in revenues from
the prior year to US$41.1 million (2021: US$6 million), and profit
before tax of US$21.2 million (2021:US$1 million), highlighting
the extent of the Group’s growth during the year.
Our balanced portfolio of operated and non-operated assets is
expected to continue to yield strong results for Zephyr in the
future, with cashflows generated from our non-operated
portfolio primarily used for the continued development of our
flagship project in the Paradox Basin, Utah, U.S. (the “Paradox
project”), as we pursue our strategic objective of opening up the
next prolific onshore U.S. oil and gas play, while focusing on the
delivery of safe, reliable, and responsibly produced hydrocarbons.
REVENUE
PROFIT BEFORE TAX
$50,000,000
$40,000,000
$30,000,000
$20,000,000
$10,000,000
$0
$25,000,000
$20,000,000
$15,000,000
$10,000,000
$5,000,000
$0
2020
2021
2022
2020
2021
2022
We continue to make
sustained progress with our
primary goal of opening up
the next prolific onshore
U.S. oil and gas play
4
Operational activity
Paradox project
During the period under review Zephyr continued to make material
progress towards unlocking what the Board believes to be the
significant potential value from our Paradox project. From a lease
holding perspective, and due to an opportunist acquisition, our
working interest in the Paradox project has now increased to one
hundred percent (“%”) and covers over 45,000 acres with maiden
reserves and a large contingent resource base - significant
increases from 2021.
Despite a number of challenges, (from historically harsh climatic
conditions, supply chain issues and operational challenges
associated with the targeting of a highly pressured reservoir),
we are pleased that drilling results have demonstrated flowing
hydrocarbons in both wells that have been drilled to date and
both of which appear capable of commercial production.
Zephyr Energy plc Annual Report and Financial Statements 2022 Strategic Report Chairman’s Statement continued
Of importance to Zephyr is that drilling success to date has
been achieved utilising both hydraulic stimulation and
production via natural fractures, indicating significant optionality
for the large-scale development of the project.
The updated Competent Person Report (the “CPR”) for the
project, which was completed during the period, further
highlighted the substantial potential scale and profitability of the
Paradox project. Following the acquisition of the remaining 25%
working interest in the project (completed in early 2023), the
CPR reports net to Zephyr, 2P reserves of 2.57 million barrels of
oil equivalent (“mmboe”), 2C contingent resources of circa 34
mmboe and 2U unrisked prospective resources of 270 mmboe.
Our key focus for the next year involves getting our two
newly-drilled wells into full commercial production. After many
years of committing significant resources and investment to the
project this is expected to be a landmark period for the Group
and one which I hope will see the patience of the Shareholders
of the Company (the “Shareholders”) rewarded.
A special word of thanks to our team for how it dealt with the
well control incident that we experienced in April 2023. It was a
testament to the experience, depth and hard work of our
operations team that the incident was managed with no injuries
and minimal environmental impact.
Williston Basin
In 2021, the Group stated that one of its key objectives was to
establish production and positive cashflow via acquisition. The
growth achieved since then through the development of our
non-operated asset portfolio has been exceptional.
From a standing start in 2021, the Group has built a portfolio of
interests in more than 220 wells operated by top-tier operators
in one of the most active and prolific basins in the U.S., and
these interests have generated high margin cashflows which
provided funding for our Paradox project and further investment
in the non-operated portfolio.
The growth of our non-operated asset portfolio resulted in
revenues of US$41.1 million during the year ended 31 December
2022, with production of over half a million barrels of oil
equivalent (“boe”). We expect to see further growth from our
non-operated portfolio in 2023.
During the year, we also implemented an inaugural hedging
programme which had the effect of locking in over US$30
million of forecasted Williston Basin revenue over a two-year
period. This hedging programme allowed us to provide cashflow
surety related to our debt obligations, as well as to de-risk
funding requirements for our ongoing activity in the Paradox, while
still allowing for additional exposure to future price fluctuations.
Environmental, Social and Governance (“ESG”)
Followers of Zephyr will be familiar with our commitment to
stewardship of both the natural environment and shareholder
capital being at the core of all our activities. Prudent and careful
cash management and environmental focus are central tenets
of our philosophy and remained our key operating principles
during the period. The Board firmly believes this is not only the
proper way to operate the Group but an approach that will
ensure our ongoing success on behalf of all stakeholders.
We believe good environmental and operational performance,
supported by the appropriate levels of governance, is the
optimal way to drive superior investor returns.
As we grow, we will continue to foster a safe working
environment and be active participants 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 proud that we continue to achieve 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.
As the recent well-control incident demonstrated, the delivery
of our near and longer-term ambitions and strategy would not
be possible without a clear focus on mitigating and managing
day-to-day risks, including costs, safety and the wider operating
environment. We have a zero-harm safety culture focused on
continuous improvement to achieve an injury-free and safe
work environment.
Outlook
Looking ahead, with a diverse portfolio of cash-flowing assets,
potential for substantial future organic growth, a solid financial
footing and a talented and dedicated team of employees, we
continue to be extremely optimistic about Zephyr’s future.
Our key goals for 2023 are to move the Paradox project into full
commercial production while continuing to grow our non-
operated asset portfolio.
We remain firmly committed to delivering long-term value to
our Shareholders, while upholding our core values of being
responsible stewards of our Shareholders’ capital and
responsible stewards of the environment in which we operate.
Conclusion
I would like to thank our employees and contractors for their hard
work in 2022, especially those on site who worked tirelessly
through historically difficult conditions last winter.
I also wish to express gratitude to our Shareholders, lenders, advisers
and other stakeholders for their ongoing support to the Group.
The Board is looking to the future with a high degree of confidence
as we continue in our pursuit of building a group of which all our
stakeholders can be proud.
RL Grant
Chairman
23 June 2023
5
Zephyr Energy plc Annual Report and Financial Statements 2022 (cid:68)ur Str(cid:121)te(cid:154)(cid:234) (cid:121)nd
(cid:105)(cid:121)lue (cid:78)roposition
Strategic Report
(cid:68)ur Str(cid:121)te(cid:154)(cid:234) (cid:121)nd
(cid:105)(cid:121)lue (cid:78)roposition
Our strategy
Our corporate strategy remains consistent and
clear - deliver long-term stakeholder returns by
maximising cashflow generation from our
non-operated, cash-generative portfolio to
systematically develop our flagship Paradox
project, with the primary goal of opening up
the next prolific onshore U.S. oil and gas play.
We are focused on long-term production of
profitable volumes of oil and gas across our
portfolio. Stringent cost management and
disciplined capital allocation will provide Zephyr
the financial flexibility to promote further growth
both organically and through value-accretive
opportunities.
This will be achieved through our three strategic pillars:
ACQUIRE
REINVEST
(cid:39)i(cid:154)(cid:159)(cid:344)m(cid:121)r(cid:154)in
production (cid:121)ssets
(cid:78)(cid:121)r(cid:121)do(cid:233)
pro(cid:172)ect
MAINTAIN
VALUES
Responsi(cid:133)le ste(cid:228)(cid:121)rds
o(cid:153) c(cid:121)pit(cid:121)l (cid:121)nd
en(cid:227)ironment
Cash generation
Development for future production and cash generation
VISION
(cid:68)pen up t(cid:159)e
ne(cid:233)t proli(cid:153)ic
ons(cid:159)ore (cid:95)(cid:327)S(cid:327) oil
(cid:121)nd (cid:154)(cid:121)s pl(cid:121)(cid:234)
ACQUIRE VALUE ACCRETIVE
PRODUCTION ASSETS
REINVEST IN THE
PARADOX PROJECT
MAINTAIN VALUES
Working interest positions in (cid:227)(cid:121)lue
(cid:121)ccreti(cid:227)e(cid:328) (cid:159)i(cid:154)(cid:159)(cid:344)(cid:202)u(cid:121)lit(cid:234)(cid:328) (cid:159)i(cid:154)(cid:159)(cid:344)m(cid:121)r(cid:154)in
production (cid:121)ssets (cid:228)it(cid:159) si(cid:154)ni(cid:153)ic(cid:121)nt
ne(cid:121)r(cid:344)term (cid:154)ro(cid:228)t(cid:159) potenti(cid:121)l
in t(cid:159)e (cid:106)illiston (cid:13)(cid:121)sin
Utilise cash generation (cid:153)rom port(cid:153)olio
to de(cid:227)elop (cid:153)l(cid:121)(cid:154)s(cid:159)ip (cid:78)(cid:121)r(cid:121)do(cid:233) pro(cid:172)ect
Continue to develop our Paradox
acreage (cid:344) (cid:153)urt(cid:159)er de(cid:153)ine t(cid:159)e pro(cid:172)ect (cid:121)nd
m(cid:121)teri(cid:121)ll(cid:234) incre(cid:121)se reser(cid:227)e (cid:133)(cid:121)se
Increase land position (cid:121)nd (cid:121)c(cid:202)uisition
o(cid:153) in(cid:153)r(cid:121)structure to optimise
de(cid:227)elopment (cid:121)nd m(cid:121)teri(cid:121)ll(cid:234) reduce
(cid:153)orec(cid:121)st up(cid:153)ront e(cid:233)penditure
Company activity to (cid:133)e c(cid:121)rried out
consistentl(cid:234) (cid:228)it(cid:159) our core (cid:227)(cid:121)lues
o(cid:153) (cid:133)ein(cid:154) responsi(cid:133)le ste(cid:228)(cid:121)rds o(cid:153)
in(cid:227)estors(cid:360) c(cid:121)pit(cid:121)l (cid:121)nd responsi(cid:133)le
ste(cid:228)(cid:121)rds o(cid:153) t(cid:159)e en(cid:227)ironment(cid:327)
Move to c(cid:121)s(cid:159) (cid:154)ener(cid:121)ti(cid:227)e
production
6
Zephyr Energy plc Annual Report and Financial Statements 2022
Strategic Report Our Strategy and Value Proposition continued
During the period, the Group achieved multiple
operational milestones, most notably with the first
flowing hydrocarbons from the Paradox project and
with the rapid growth of our highly profitable cash
generating non-operated portfolio
Value proposition
REVENUE
GENERATION
& CASHFLOW
SIGNIFICANT
DEVELOPMENT
OPPORTUNITY
PRODUCTION
GROWTH
PIPELINE
Williston: Interests in circa 220 non-
operated wells available for production
offering strong margins and rapid
investment payback – US$41.1 million
in revenue F(cid:112) (cid:258)(cid:256)(cid:258)(cid:258) from production
of over 500,000 boe
Gross profit from Williston production
of US(cid:381)(cid:258)(cid:258).(cid:264) million for F(cid:112) (cid:258)(cid:256)(cid:258)(cid:258)
Paradox Project: 45,000-acre position
with significant inventory in an
emerging basin where modern drilling
and completions have not been used
prior to Zephyr
Significant inventory across the
Paradox, with 2U potential of over
270 mmboe
Further resource(cid:340)reserve upside at
Paradox
Additional producing wells at
Williston to be brought online in
2023 and beyond
2H 2023 Paradox project moving
from appraisal into development
project – flush production when
36-2 and 16-2 come online
FINANCED
FOR GROWTH
RESPONSIBLE
OPERATIONS
F(cid:112) (cid:258)(cid:256)(cid:258)(cid:258) net profit after tax of
US$19.3 million
Solid cash position
Hedging policy to lock-in revenues
from production
Carbon-neutral operations
Zero harm safety culture
Utilise existing roads and
infrastructure to create minimal
surface disruption
Minimise community impact
Zephyr Energy plc Annual Report and Financial Statements 2022
7
Strategic Report
(cid:14)(cid:159)ie(cid:153) (cid:24)(cid:233)ecuti(cid:227)e (cid:68)(cid:153)(cid:153)icer(cid:360)s Report
(cid:121)nd (cid:68)per(cid:121)tin(cid:154) Re(cid:227)ie(cid:228)
Principal objectives and strategies
Zephyr Energy plc is an oil and gas exploration and production
group operating in the Rocky Mountain region of the U.S.
The Group’s stated mission is to open up the next prolific
onshore U.S. oil and gas play through the development of its
flagship Paradox project. The two core values of the Group are
to be responsible stewards of investors’ capital and responsible
stewards of the environment.
To achieve this mission, the Group has prioritised:
• Constructing a team with significant experience in the U.S.
oil and gas sector, with a particular focus on operations,
development, governance, finance, merger, acquisition and
turnaround experience;
• A sharpening of focus - we are wholly focused on responsible
exploration and production investment in the Rocky Mountain
region and have exited all other legacy sectors and geographies;
• The development of a non-operated asset portfolio that
provides cashflow to be reinvested in the Paradox project;
• A continued focus on meaningful ESG efforts, including
corporate governance compliance, ensuring carbon-neutrality
across our operations, and proactive engagement with the
communities in which we operate;
• The leveraging of partnerships (such as the U.S. Department
of Energy, experienced operators in the basins in which we
operate, and relationships with alternative capital providers);
• The design and build of a technology-led acquisition process
which can rapidly assess opportunities of further interests
through acquisition, farm-in agreements or joint venture
arrangements; and
• Tight financial control and cash conservation.
Review of operations and future
developments
Background
The 2022 financial year, and the period since, were a time of
intense operational activity during which Zephyr continued to
build on the momentum gained in 2021. During the period under
review, the Group achieved multiple operational milestones,
most notably with the first flowing hydrocarbons from the
Paradox project and with the rapid growth of our highly
profitable cash generating non-operated portfolio.
As outlined in the Chairman’s Statement, the Board remains
fully committed to the primary goal of opening up the next
prolific onshore U.S. oil and gas play through the systematic
development of the Paradox project and our key goal for the next
period is to establish commercial production from the project.
The Paradox project is located in the Paradox Basin, Utah, U.S.
where Zephyr operates a now 45,000 acre leasehold position
with demonstrable scale and impressive upside potential. The
drilling success achieved during the period was a significant
appraisal milestone, and the Board are both optimistic and
excited about unlocking additional value from the project by
progressing to commercial hydrocarbon production over the
coming months.
The Group’s non-operated production comes from working
interests in wells across the Middle Bakken and (cid:92)hree Forks
reservoirs in the Williston Basin (in both North Dakota and
Montana). By the end of March 2023, Zephyr had working
interests in 223 wells that were available for production. 2022
sales volumes from the portfolio averaged 1,410 barrels of oil
equivalent per day (“boepd”) (2021: 263 boepd).
The Board’s strategy is to utilise the majority of the considerable
cashflows generated from the non-operated Williston Basin
portfolio in the Paradox project development programme,
and this organic growth strategy will continue.
8
Zephyr Energy plc Annual Report and Financial Statements 2022
Strategic Report Chief Executive Officer’s Report and Operating Review continued
Paradox project – operated asset
Overview
The period under review was highlighted by the drilling of two
successful wells, the State 16-2 LN-CC well (the “State 16-2
well”) and the State 36-2 LNW-CC well (the “State 36-2 well”),
a production test of the State 16-2 well and increases in both
acreage and working interest percentages across our Paradox
project land position. In addition, we acquired surface assets
and infrastructure that will facilitate us in bringing the project
into production.
The Board believes that the Paradox project has substantial
potential upside. Of significance, our main geological target, the
Cane Creek reservoir has two demonstrable methods of
development (via the targeting of natural fractures and through
hydraulic stimulation). Both wells drilled to date have discovered
hydrocarbons, and both appear capable of commercial
production when ultimately tied into natural gas infrastructure.
In addition, eight overlying reservoirs have been high graded as
suitable for future exploration and potential development.
The second half of 2023 is expected to be a major inflection
point for the Paradox project, one in which the project moves
from its current appraisal status into a cash-flowing
development asset. The Group expects to see flush production
when the State 36-2 and State 16-2 wells come online.
The drilling of the two wells has provided the Group with a
wealth of new geological information which has in turn resulted
in a far greater geological understanding of our acreage position.
This information includes strong evidence of:
• A continuous resource play (tight oil and tight gas);
• Repeatable petrophysics across a large area;
• Geology which correlates with the seismic;
• Consistent reservoir thickness within a sub area;
• High reservoir pressures;
• High matrix permeability for a resource play;
• A reservoir which can be stimulated (with favourable rock
mechanics albeit under high stress); and
• The presence of productive natural fractures
Competent Persons Report (“CPR”)
Following the successful completion of the State 1(cid:262)-(cid:258) well in
late 2021, Zephyr commissioned the independent reserve
consulting firm Sproule International (“Sproule”) to complete a
CPR to assess the Group’s reserves across both the Cane Creek
reservoir and the eight overlying reservoirs.
Sproule audited the crude oil, natural gas, and field condensate
reserves and contingent resources and the associated future net
revenue attributable to the Group’s White Sands Unit (“WSU”) and
Cane Creek Drilling Spacing Unit (“DSU”) with an effective date
of 31 March 2022. Sproule also conducted an audit of the
Prospective Resources attributable to the WSU on the same date.
The Board was delighted with the conclusions drawn by Sproule,
which demonstrated the impact of Zephyr’s drilling success of
the State 16-2 well and further highlighted the substantial
potential scale and profitability of the Paradox project.
The key findings from the CPR were as follows:
• Net 2P Proved Reserves: Proved Reserves of 2.1 million barrels
of oil equivalent (“mmboe”) net to Zephyr, the Group’s first
proved reserves booked in the Paradox project (following the
Group’s acquisition of the remaining 25% non-operated
interests Proved Reserves increased to 2.6 mmboe).
• Net 2C Contingent Resources: 27 mmboe net to Zephyr,
more than double the 12.3 mmboe in the previous CPR
prepared in 2018 (following the Group’s acquisition of the
remaining 25% non-operated interests Net 2C Contingent
Resources increased to 34 mmboe).
• Net 2U Prospective Resources from overlying reservoirs:
203 net unrisked mmboe net to Zephyr (68 mmboe risked
with a weighted-average 33% chance of success) (following
the Group’s acquisition of the remaining 25% non-operated
interests Net 2U Prospective Resources increased to
270 mmboe).
Sproule’s evaluation took place across 30,700 acres of Zephyr’s
Utah assets. Zephyr now operate 45,000 gross acres in the
Paradox Basin and further evaluation is planned for the acreage
not yet included in the CPR.
Zephyr Energy plc Annual Report and Financial Statements 2022
9
Strategic Report Chief Executive Officer’s Report and Operating Review continued
The acquisition provided an immediate opportunity for Zephyr
to consolidate its working interest in the core acreage of the
Paradox project and includes the following assets:
• The remaining 25% interest in the State 16-2 well (with an
estimated NPV-10 of US$3.1 million);
• The remaining 25% interest in the State 36-2 well; and
• Zephyr retains its 100% ownership in the infrastructure assets
acquired in 2022.
The acquisition was also immediately accretive across all reserve
and resource categories. Zephyr’s technical team estimated that
the acquisition adds:
• Over 450,000 boe in 2P Reserves;
• Over 7 million boe in 2C Contingent Resources; and
• Over 67 million boe of 2U unrisked Prospective Resources.
As of today, and following activity in the period, the tenure of
the Paradox project is strong and the land position is stable. This
security and right to operate provides the Board with the
confidence to further invest in the drilling activity on the project.
The period under review began with the drilling of the State 16-2
well and ended with the spud of the State 36-2 well and both
were successfully drilled and demonstrated the ability to flow
commercial volumes of hydrocarbons.
State 36-2 well drilling
In November 2022 the Group announced that drilling on the
State 36-2 well had commenced with the prime objective being
to target potential production from the Cane Creek reservoir.
After a complex drilling operation hampered by extreme
weather conditions and, having reached the Cane Creek
reservoir at a depth of 9,598 feet true vertical depth, the well
experienced a significant influx of hydrocarbons which
consequently led to suspension of drilling operations while the
well was stabilised. The influx was caused by the well
intersecting an apparent major natural fracture network in the
reservoir, and the resultant flowing hydrocarbons were diverted
safely at surface through the drilling rig flare stack whereby they
were subsequently flared. Throughout this period, Zephyr’s
operations team followed appropriate well control procedure
and stabilised the well without incident.
This influx was managed and safely controlled, which
subsequently allowed for the drilling of an additional 132 feet
into the Cane Creek reservoir, at which point the Group elected
to run production casing down the total depth of the well.
Operations to run 7-inch production casing were successful and
the well was made fully safe and the drilling rig was released. The
Group then planned to commence production testing and
potential completion of the fractured Cane Creek reservoir interval.
Project development and consolidation
Having completed a comprehensive restructuring of the
Paradox acreage position in 2021, the Group continued with
the consolidation of the project during the period. This was
spearheaded by the acquisition of additional project acreage,
the acquisition of a number of infrastructure assets and through
the acquisition of the remaining 25% working interest in the
core acreage of the project.
Acquisition of additional acreage
(cid:42)n October (cid:258)(cid:256)(cid:258)1, the Group announced U.S. Federal Government
approval for the formation of a new federal unit, the WSU,
which enables Zephyr to proceed with an optimal long-term
development plan for the acreage. In August 2022, Zephyr
announced the acquisition of an additional 1,920 acres (the
“new acreage”) in the Paradox Basin, directly adjacent to the
WSU. The new acreage has been approved for inclusion into
the federal unit by removing less prospective acreage that
had yet to have 3D seismic acquisition acquired across it.
The acreage is largely covered by Zephyr’s existing 3D seismic,
and directly borders the Zephyr lease on which the State
36-2 well is located.
This opportunistic new acreage acquisition was part of the
Group’s ongoing portfolio management of its Paradox acreage.
This active land management strategy has resulted in a growing
portfolio of development opportunities which the Board
believes is increasingly difficult to replicate in today’s regulatory
and political environment.
(cid:42)n February (cid:258)(cid:256)(cid:258)(cid:259), the Group completed the ac(cid:202)uisition of the
remaining 25% working interest in the core acreage of the
Paradox project. This acquisition increased Zephyr’s net acreage
in the project to circa 45,000 acres, further details of which are
outlined below.
Working interest acquisition
In December 2022, Zephyr announced that it had agreed to
acquire the remaining 25% working interest in the core acreage
of the Paradox project from Rockies Standard Oil Company LLC
(cid:349)(cid:357)RSO(cid:14)(cid:358)(cid:350). (cid:92)he ac(cid:202)uisition completed in February (cid:258)(cid:256)(cid:258)(cid:259).
The total consideration payable for the working interest is up
to US$3 million, payable by way of the issue of new Ordinary
Shares of 0.1 pence each in the capital of the Company
(“Ordinary Shares”) at a price of 6.05 pence per Ordinary Share,
representing a circa 11% premium to the Company’s mid-
market closing share price on the prevailing share price on
20 December 2022.
• A first tranche of 13,483,095 new Ordinary Shares was issued
to RSOC on the completion of the acquisition;
• A second tranche of 26,966,189 new Ordinary Shares will be
issued upon Zephyr’s final investment decision with respect to
the contract award to a primary contractor to commence
construction activities to make the Powerline Road gas
processing plant operational; and
• All equity issued to the vendor will be subject to a lock-up
period which expires at the earlier of the date that first gas
from the State 36-2 well is sold via the Dominion Energy Utah,
LLC (“Dominion Energy”) 16-inch gas export pipeline; or
15 December 2023.
10 Zephyr Energy plc Annual Report and Financial Statements 2022
Strategic Report Chief Executive Officer’s Report and Operating Review continued
In addition to near-term testing, the running of the 7-inch
casing string provided the Group with the option to return to
the well (should it elect to do so) to drill an extended lateral at a
later date. A subsequent lateral would enable the Group to test
for further natural fracture presence at this location within the
Cane Creek reservoir, and also enable the well to be completed
by hydraulic stimulation across a longer lateral should Zephyr
seek to increase well productivity in the future.
Results from the drilling operations indicated that the well
penetrated a folded and naturally fractured Cane Creek
reservoir, features which have been highly productive in other
Cane Creek wells. Pore pressure analysis suggested that the well
encountered very high reservoir overpressure, with formation
pressures estimated at around 9,300 pounds per square inch
(which is broadly consistent with previously drilled offset wells).
The well further delineated the presence of natural gas and
condensate within a large structural compartment, and at a new
location within Zephyr’s acreage and 3D seismic coverage,
which provided additional confirmation of Zephyr’s model for
hydrocarbons in place across the acreage position.
State 36-2 well production test and well control incident
On 8 March 2023, the Group announced that planning for the
production test had been completed and that all services for
the test had been procured. A Zephyr-contracted service rig
was mobilised to the well-site and operations on the ground
commenced. This was achieved despite the ongoing difficult
winter weather conditions encountered in Utah this year.
Workover operations (which were to include perforating the well
in the productive portion of the Cane Creek reservoir) and
subsequent production testing were estimated to take four to
six weeks. As the well was expected to flow from natural fractures,
no hydraulic stimulation was expected as part of this test.
On 7 April 2023, as workover operations were being completed,
the well experienced a significant control issue despite multiple
attempts to secure the well by the rig crew. The incident was
initially caused by the failure in a safety valve, and subsequently
resulted in hydrocarbons being released from the well in an
uncontrolled manner.
In keeping with safety procedures, all personnel were safely
evacuated without injury. All relevant authorities were notified
and a specialist well control team (recommended by the
Group’s insurers) was deployed to bring the well under control
as quickly as possible.
Ultimately, well control efforts were successful and remediation
and clean-up operations have commenced. A third-party
confirmatory environmental survey was subsequently
completed and the initial results found no evidence of lingering
environmental impact.
At present, the well is static and under control, and Zephyr is in
the process of completing well work necessary to commence a
production test. This work included a methodical process to
remove and inspect the (cid:258)-(cid:263)(cid:340)(cid:264)-inch production casing. Once
that work is completed, the Group plans to undertake a final
cement squeeze and then perforate the casing across the
reservoir interval prior to production testing the well.
Timing of the well test will be dictated by operational conditions to
ensure well control is maintained and working conditions are safe
for our team. Evidence of pressures and hydrocarbons in the well
remain substantial.
State 16-2 well
Following on from the successful drilling, completion and
production test of the State 16-2 well in 2021, the first phase of
the extended production testing on the well was completed
within the flare consent limit set by the regulatory bodies, and
Zephyr subsequently tested the well a second time to
commission surface facilities, improve flow assurance and to
gather more production data.
Unfortunately, the second well test was hampered by severe
weather and initial surface facility commissioning issues which
resulted in delays to the programme and, at times, intermittent
operational activity.
Once the start-up commissioning issues had been successfully
resolved the well was initially brought online at choked-back,
moderate rates to test for flow assurance at varying levels of
production. At a controlled rate of 2 million cubic feet of gas per
day and 100 barrels of oil per day (an average of 433 boepd) the
well flowed continuously and surface flow assurance efforts
proved successful.
As flow rates were increased above those levels, well
performance became limited by freshwater pumping capacity
and was subsequently impacted by the formation of down hole
salt precipitate, a not uncommon issue. The precipitate, which
blocked and subsequently cleared multiple times, impacted the
well’s flow capacity to achieve extended higher rates. The Group
was in early stages of testing higher rates when its mandated
flaring limits were reached.
The Group is now assessing whether the precipitate issue is a
function of continued flow back of injected completion fluids or
a function of normal flowing conditions. If it is a result of normal
flowing conditions, a series of mitigation solutions that have
been successful with other wells in the Paradox in the past can
be applied, and the Group will likely test these solutions in the
coming months (subject to regulatory approvals) to fully
determine the potential of the reservoir.
Zephyr Energy plc Annual Report and Financial Statements 2022
11
Strategic Report Chief Executive Officer’s Report and Operating Review continued
Acquisition of infrastructure assets
In September 2022, Zephyr announced that it had entered into
an agreement to acquire a package of oil and gas assets located
on and around the Paradox project.
Zephyr acquired 21 miles of natural gas gathering lines, the
Powerline Road gas processing plant (not currently in operation),
rights of way for additional gathering lines, active permits, five
existing wellbores and additional acreage which is contiguous to
the WSU.
The assets acquired will enable Zephyr to substantially reduce
the capital required to build the necessary gas export
infrastructure for its forecast gas production from the Paradox
project. The consideration for the asset package was
US$750,000.
Next steps
The immediate next steps on the Paradox project are as follows:
• To complete the production tests on the State 36-2 well;
• The completed production test, when combined with data
from the State 16-2 production test, will provide information
related to the sizing of the gas processing infrastructure
required for commercial roll-out of the project. The
infrastructure will then be constructed and commissioned;
and
• Once the infrastructure is in place and the Dominion pipeline
take-away is completed export of hydrocarbons from the
project will commence.
Williston project – non-operated asset
Overview
In 2021, Zephyr stated that one of its key goals was to establish
production and positive cashflow either through its existing
portfolio (the Paradox project), via acquisition, or through a
combination of both. Since then, the Group has delivered on
this goal and the Board is pleased to report that, following
twelve discrete acquisitions, the Group now has a non-operated
asset portfolio that delivered sales of over 1,410 boepd, net to
Zephyr, in 2022, with corresponding revenues of US$41.1 million
for the year.
As at 31 December 2022, Zephyr had working interests in 223
wells that were available for production. The working interests
are in prime locations, and the majority of the wells are operated
by Chord Energy Corporation, a leading Williston Basin producer.
The Group’s non-operated portfolio continues to perform above
the Board’s expectations, in part due to the high commodity
price environment in 2022. In April 2022, in order to lock in
cashflow to develop our Paradox asset and meet the Group’s
funding commitments, the Group hedged just under half of its
forecast 2022 production at more than US$98 per barrel of oil.
The hedging programme was structured to provide cashflow
surety related to the Group’s debt obligations, as well as to
de-risk funding requirements for the Paradox project, while
allowing for additional exposure to future fluctuations in prices.
The Group announced an extension to this hedging programme
in May 2023.
The Group will continue to develop and grow its non-operated
portfolio through opportunistic acquisitions.
12
Zephyr Energy plc Annual Report and Financial Statements 2022
Strategic Report Chief Executive Officer’s Report and Operating Review continued
Acquisitions
The non-operated portfolio has been carefully crafted and
achieved through twelve discrete acquisitions, the most
important one being the transformative acquisition of the Kaiser
assets completed in February (cid:258)(cid:256)(cid:258)(cid:258) (cid:349)the (cid:357)(cid:54)aiser ac(cid:202)uisition(cid:358)(cid:350)
which nearly tripled the Group’s non-operated production from
its four previous acquisitions. The Kaiser acquisition was the
driver of the impressive performance of the non-operated
portfolio in 2022.
The Kaiser acquisition provides a stable foundation of low-
decline production and cashflows from 163 gross producing
wells. In addition, 18 drilled but uncompleted wells (“DUCs”)
have been brought online since and 47 additional gross
undeveloped locations are expected to provide meaningful
upside for years to come.
The key benefits of the Kaiser acquisition were as follows:
• A diversified, low-decline base of mature production with
established history and stable cashflows;
• Near term growth from DUCs currently being brought online;
• Mid to longer term infill drilling opportunities on Zephyr
acreage;
• Potential to hedge a significant portion of the existing
production at attractive prices to lock in returns and provide
downside protection; and
• Excellent complement to (and funding source for) the less
mature, higher upside Paradox Basin development
In order to fund the acquisition, the Group undertook an equity
fundraise of US(cid:381)1(cid:263).4 million (cid:349)(cid:383)1(cid:258).(cid:264) million(cid:350) in February (cid:258)(cid:256)(cid:258)(cid:258)
and secured a US$28 million senior debt facility from a long-
established North Dakota-based commercial bank, First
(cid:42)nternational Bank (cid:368) (cid:92)rust (cid:349)(cid:357)F(cid:42)B(cid:92)(cid:358)(cid:350). See note (cid:258)(cid:258).
On 21 December 2022, Zephyr announced the acquisition of
working interests in six further wells, equivalent to a net 1.1 wells,
near to Zephyr’s current non-operated working interests for a total
consideration of US$2.9 million. In addition, Zephyr is paying the
US$8.9 million CAPEX associated with the working interests to
bring the wells into production.
These new wells are expected to provide a Q4 2023 production
boost, having been spud in November 2022, and first sales
volumes are expected in autumn 2023. The operator of these
new wells is Slawson Exploration Company (“Slawson”), a
top-tier operator and one of the largest private companies in
the Williston Basin. Slawson was an early pioneer of horizontal
development in the Williston Basin and has excellent access to
oilfield service companies and infrastructure.
Zephyr’s working interest in the six new wells ranges from 11% to
32% and management currently estimates 2P Reserves being
acquired are circa 550,000 boe net to Zephyr.
Zephyr secured a US$8 million bridge loan facility, on favourable
terms, to part fund the acquisition and associated CAPEX. There
was no equity component to the US$8 million bridge loan
facility. See note 22.
Zephyr Energy plc Annual Report and Financial Statements 2022
13
Strategic Report Chief Executive Officer’s Report and Operating Review continued
2022 Production summary
F(cid:112) (cid:258)(cid:256)(cid:258)(cid:258) sales volume from the non-operated portfolio averaged
circa 1,41(cid:256) boepd, net to (cid:117)ephyr, up from (cid:258)(cid:262)(cid:259) boepd in F(cid:112) (cid:258)(cid:256)(cid:258)1.
F(cid:112) (cid:258)(cid:256)(cid:258)(cid:258) revenues were US(cid:381)41.1 million, compared to US(cid:381)(cid:262)
million in F(cid:112) (cid:258)(cid:256)(cid:258)1.
At 31 December 2022, 223 wells in the portfolio were available
for production, including 17 wells which came online at some
point during the quarter. Net working interests across the Williston
Basin non-operated portfolio now average 6.3% per well, equivalent
to 15 total wells net to Zephyr, all of which utilised horizontal
drilling and modern, hydraulically stimulated completions.
Hedging
In April 2022, the Group hedged just under half of its forecast
non-operated production for the following two years, with an
average hedged production price of US$98 for the remainder
of 2022 and US$87 thereafter.
In May 2023, the Board elected to enter into additional oil hedge
agreements given that most of the hedges acquired in 2022
had since crystallised. Volumes hedged for the nine months
ending 31 December 2023 have now been increased from
94,000 barrels (“bbls”) to 137,000 bbls, at an average hedged
production price of US$85, with BP Energy Company (“BP”),
one of the world’s leading energy trading houses, continuing
to serve as the counterparty.
Significant decisions made
During the year under review, the Directors approved multiple
discrete acquisitions of non-operated assets. The decisions to
proceed with the acquisitions and the corresponding debt and
equity funding were logical decisions made to ensure the
continued growth of the business and the advancement of the
Paradox project. All acquisitions were unanimously deemed by
Board members to be in the best interests of the Company.
Details of the acquisitions can be found in the relevant sections
of this Annual Report.
On the Paradox project, the Board approved the acquisition of
further project acreage and infrastructure assets. In addition, the
Board approved the acquisition of the remaining 25% working
interest in the project and the drilling of the State 36-2 well.
These were all funded by cashflows generated from the
non-operated portfolio. In arriving at the decision to proceed
with this activity the Directors considered the cash position
of the Group and the importance of progressing the Paradox
project. After due consideration, the Directors unanimously
considered the activity to be in the best interests of the
Company and its Shareholders.
We would like to thank all Shareholders for their continued
support.
On behalf of the Board,
JC Harrington
Chief Executive Officer
23 June 2023
14
Zephyr Energy plc Annual Report and Financial Statements 2022
Strategic Report
(cid:24)n(cid:227)ironment(cid:121)l(cid:328) Soci(cid:121)l (cid:121)nd
(cid:34)o(cid:227)ern(cid:121)nce (cid:349)(cid:357)(cid:24)S(cid:34)(cid:358)(cid:350)
Robust management of ESG matters is at the core of what we
do and how we work. The Board is unanimously committed to
ensuring that every action and investment decision the Group
makes is in line with our core values of being responsible
stewards of investors’ capital and responsible stewards of the
environment. This includes the following points of focus:
• Protecting the Group, safeguarding its existing asset base
and positioning it for attractive growth opportunities;
• Seeking creative and beneficial funding opportunities in an
effort to unlock value from our existing asset portfolio, as
evidenced by the U.S. Government funding we received for
our recent drilling programme on the Paradox project;
• Adopting a disciplined focus on growth via the acquisition
of producing or near-term development opportunities in the
Rocky Mountain region. In the current economic climate, we
believe that attractive, value-additive acquisitions are available
and may be acquired using non-traditional funding structures;
• Tight financial controls and cash preservation which will
enable the Group to continue trading effectively; and
• Continuing to ensure management and the Board are aligned
with our Shareholders through significant ownership of shares.
Environmental
Protection of the environment and robust environmental
management are of primary importance to the Board. The
Company is committed to minimising its environmental impact
through positive actions and to protect the surroundings in
which we operate.
We are committed to:
• Limit our own carbon emissions through our VER credit
programme with a goal to mitigate all Scope 1 carbon emissions;
• Comply with applicable environmental laws, regulations and
standards of the U.S. where we operate;
• Operate in a safe manner to avoid spills, leaks or accidental
discharges of polluting materials;
• Evaluate and utilise new technologies, such as continuous
emissions monitoring and solar and battery powered control
systems at our operated projects;
• Minimise our land footprint by utilising efficient pad design
and co-location of wells;
• Promote efficiency in our use of energy and water with the
aim of conserving natural resources;
• Ensure that environmental accidents, incidents, near misses
and non-compliances are reported and investigated, and that
corrective and preventive actions are implemented as rapidly
as possible;
• Monitor and evaluate our own and contractor proficiency and
conduct periodic audits to ensure our controls are effective
and that environmental standards are being achieved; and
• Reporting transparently on our environmental performance
and the status of our environmental objectives and targets
The Board is proud of how Zephyr conducted its operations in
the period under review and we will always strive to adhere to
our core values.
A major milestone was achieved when Zephyr announced
an intention to achieve carbon-neutrality across its Scope 1
operational footprint in 2021 and the Group continued to
maintain this throughout the 2022 financial year.
As an integral part of this undertaking, Zephyr is collaborating
with Prax a British multinational independent oil refining, trading,
storage, distribution and retail conglomerate dealing in crude oil,
petroleum products and bio-fuels, headquartered in London.
Prax, which has trading offices in London, Singapore and the
U.S., worked with Zephyr to measure, reduce and mitigate
greenhouse gas emissions across Zephyr’s businesses, with
mitigation efforts primarily focused on the purchase of VERs
from reputable pre-vetted developers of sustainable projects.
This exercise includes Zephyr’s current corporate activity, its
non-operated production assets in the Williston Basin, North
Dakota, U.S., and Paradox project activity.
The cost of the VER credit programme to the Group was
circa US$0.2 million in the 2022 financial year.
In addition to the environmental benefits that will result from
Zephyr’s efforts to reach carbon-neutrality, the Group anticipates
that this approach will also yield economic benefits including
expanded access to a wider group of potential institutional
investors, as total ESG-focused assets under management are
currently estimated to be over US$30 trillion globally. Moreover,
the average cost of capital for companies with committed ESG
and decarbonisation initiatives has been shown to be demonstrably
less than that of traditional resource companies. The Board
believes that incremental regulatory benefits may also
materialise from Zephyr’s actions.
Social
Contributing to the communities in which we work is important
to the Board. It is essential that the Company conducts its
operations in such a way as to minimise the potential impact
from our activities and deliver positive outcomes in the
communities in which we operate.
We are committed to:
• Comply with applicable social laws, regulations, and good
international industry practices;
• Be active participants in our local communities and, in
particular, to be supporters of land and grassland conservation
projects in those communities;
• Establish suitable platforms to share all requisite information
regarding our operations with different stakeholders, including
local communities, and promote dialogue and constructive
engagement;
• Devise and implement transparent and fair grievance
mechanisms for the communities in which we operate and for
our workforce. Ensure that grievances are recorded,
investigated and responded to in a timely manner; and
• Supporting our colleagues in creating an inclusive and
safe environment for them to work
Health and safety
Zephyr has a zero-harm safety culture focused on continuous
improvement to achieve an injury-free and safe work environment.
It is the Group’s policy to provide working environments which
are safe and without risk to health and provide information,
instruction, training and supervision to ensure the health and
safety of its employees. The Board is pleased to report that
during the period there were no Lost Time Injuries (“LTIs”).
Zephyr Energy plc Annual Report and Financial Statements 2022
15
Balance sheet
Total investment in the Group’s exploration and evaluation
assets as at 31 December 2022 was US$38 million (2021:
US$22.8 million) reflecting the ongoing investment in the
Paradox project.
Total investment in property, plant and equipment as at 31
December 2022 was US$51.8 million (2021: US$11.2 million)
reflecting the further acquisition of non-operated assets in the
Williston Basin, recurring capital expenditure and
decommissioning obligations on the non-operated assets.
At 31 December 2022, the Group has recognised US$1.3 million
outstanding derivative contracts in respect of its hedging
programme at fair value, of which US$0.2 million (2021: nil) has
been recognised in non-current assets and a further US$1.1
million (2021: nil) in current assets.
Cash and cash equivalents as at 31 December 2022 were US$9
million (2021: US$1.8 million). During the year, the Company
raised gross proceeds of US$17.4 million (2021: US$15.5 million)
through the placing of new Ordinary Shares in the Company.
(cid:42)n February (cid:258)(cid:256)(cid:258)(cid:258), the Group secured debt funding of US(cid:381)(cid:258)(cid:264)
million and in December 2022 entered into a further 12-month
revolving credit facility of up to US$8 million, of which US$2.5
million had been drawn down at 31 December 2022. The proceeds
from these debt instruments were used to complete the Group’s
acquisition of non-operated assets in the Williston Basin.
Subsequent developments
In June 2023, the Company announced that it had raised a
further US$3.9 million (before expenses) through the placing
of new Ordinary Shares in the Company.
At 16 June 2023, the Group had cash and cash equivalents of
US$7.5 million.
Strategic Report
Fin(cid:121)nci(cid:121)l Re(cid:227)ie(cid:228)
The 2022 financial year saw a transformation
in the Group’s financial position and
performance from the prior year. This was
primarily due to the full-year impact of
strong performance from the Group’s non-
operated asset portfolio and the continued
investment into both the Paradox and
Williston projects.
Income statement
During the year ended 31 December 2022, the Group generated
revenue of US$41.1 million (2021: US$6 million) from its
non-operated asset portfolio, and reported a gross profit of
US$22.4 million (2021: US$3.3 million), which includes a gain
of US$1.8 million (2021: nil) in respect of the Group’s hedging
programme. The revenue in the income statement of US$41.1
million is US$1.8 million less than the full-year revenue figure
provided in the Group(cid:360)s market update of 15 February (cid:258)(cid:256)(cid:258)(cid:259) of
US$42.9 million. The market update included US$1.8 million
revenue from the final settlement of the Kaiser acquisition.
Under (cid:42)FRS these revenues form part of the ac(cid:202)uisition price
and therefore do not appear within the Income Statement in
these financial statements.
Administrative expenses for the year were US$4.8 million
(2021: US$2.7 million). The increase from the 2021 financial year
highlights the expansion of the Group’s operational footprint to
provide it with the capacity and capability to develop, manage
and grow its operated and non-operated asset portfolios. The
increase also reflects expenditure incurred in appraising new
opportunities and other business development costs.
The Group reports a foreign exchange gain of US$6.1 million
for the year (2021: US$0.5 million) which is predominantly in
respect of unrealised gains on the restatement of intercompany
loans between the Company and its subsidiaries. These gains
arise due to the weakness of sterling against the U.S. dollar at
the end of 2022.
Finance charges of US(cid:381)(cid:258).(cid:258) million (cid:349)(cid:258)(cid:256)(cid:258)1(cid:329) US(cid:381)(cid:256).1 million(cid:350) have
been charged in respect of interest charges and associated
costs relating to the Group’s borrowings and unwinding of
discount on decommissioning. See note 7.
During the year ended 31 December 2022, the Group has
recognised a deferred tax charge and a corresponding net
deferred tax liability of US$2 million relating to unrelieved
tax losses and temporary timing differences arising in the
U.S. businesses.
The Group reports a net profit after tax of US$19.3 million
or a profit of 1.26 cents per Ordinary Share for the year
ended 31 December 2022 (2021: US$0.8 million or
0.08 cents per Ordinary Share).
16
Zephyr Energy plc Annual Report and Financial Statements 2022
Strategic Report Financial Review continued
Key performance indicators
As part of Zephyr’s ongoing development of the Paradox project and the build-out of the non-operated portfolio in the Williston
Basin, the Board tracks its performance against indicators that reflect the strategic, operational and financial progress, as well as our
impact on society and the environment. These indicators allow the Board, management and stakeholders to compare Zephyr’s
performance to its goals.
Why we measure
Performance
Safety performance
Adjusted EBIDA
(EBITDA adjusted for unrealised
foreign exchange and hedge gains)
Net production
•
•
•
•
•
•
There we no reported LTIs during the 2022
financial year (2021: nil)
The Group has a zero-harm safety culture
focused on continuous improvement to
achieve an injury-free and safe work
environment
We require employees and contractors to
work in a safe and responsible manner and
provide them with the training and
equipment to do so
Indicator of the Group’s cash generation to
fund expenditures and(cid:340)or return capital to
Shareholders
•
2022 Adjusted EBITDA was US$28.2
million
• 2021 Adjusted EBITDA was US$2.3 million
Indicator of revenue generation potential
Measure of progress towards achieving
production forecasts and driving profitable
production growth
•
•
•
•
•
•
F(cid:112) (cid:258)(cid:256)(cid:258)(cid:258) production of 514,(cid:262)5(cid:256) barrels
of oil equivalent (“boe”)
4(cid:264)4(cid:401) increase in production from F(cid:112) (cid:258)(cid:256)(cid:258)1
production of 88,037 boe from non-
operated Williston Basin
During the year the Group booked its first
reserves on the Paradox project and
increased the reserve(cid:340)resource base by
acquiring the remaining 25% working
interest in the project post-year end
At 31 December 2022, the Group had
Paradox Basin 2P reserves of 2.57 million
barrels of oil equivalent (“mmboe”), 2C
resources of circa 34 mmboe and 2U
resources of 270 mmboe
Recorded Scope 1 carbon-neutrality from
both operated and non-operated assets
VER credit partnership with Prax which aims
to mitigate all Scope 1 carbon emissions.
The cost of the scheme was circa
US$0.2 million in the 2022 financial year.
Growth of Paradox project
reserve resource play
•
Indicator of economic viability and
long-term production potential of projects
Carbon emissions
•
Zephyr Energy is committed to
sustainable and responsible oil and gas
production
CJ Eadie
Finance Director
23 June 2023
Zephyr Energy plc Annual Report and Financial Statements 2022
17
Strategic Report
Principal Risks and Uncertainties
There are a number of key potential risks
and uncertainties which the Board believes
could have a material impact on Zephyr’s
long-term performance and could cause
actual results to differ from expected and
historical results. The Board considers these
risks during its regular meetings and
discussions.
The principal risks and uncertainties that the Group faces are:
Non-financial risks
•• Changes in government law or regulatory policy in the U.S.
could materially affect the rights and title to the interests held
by the Group, and the operations and financial condition of
the Group could be adversely affected. The Group is in
continual proactive dialogue with both its UK and U.S.
regulators to ensure ongoing compliance with its obligations.
•• Climate related issues remain at the forefront of Board
conversations and decisions. While climate-related
opportunities continue to emerge in this rapidly evolving area,
the Board recognises that these issues also present a risk to
Zephyr that environmental regulations, climate change
concerns, and investor driven change may result in (i)
increases to the cost of doing business, (ii) hinder our ability
to continue executing our strategy, or (iii) restrict access to
certain markets or investors.
•• Zephyr is dependent on the continued services and
performances of its core management team. The loss of key
personnel could have an impact on our ability to meet our
strategic objectives. The Remuneration Committee reviews
the employment terms for executives and key operational
management with the aim of attracting, motivating and
retaining key personnel for the Group. The Committee has
also engaged an external, independent consultant to
benchmark compensation against similarly sized industry
group peers.
•• Potential impacts from a lack of adherence to health and
safety policies may result in fines and penalties, serious injury
or death, environmental impacts, statutory liability for
environmental redemption and other financial and
reputational consequences that could be significant.
Effectively managing Health and Safety Risk exposure is the
top priority for the Board and management team which
regularly review health and safety programmes and
mitigations. Health and safety training is included as part of all
staff and contractor inductions. Detailed training on our field
manual procedures has been provided to key stakeholders to
ensure processes and procedures are embedded throughout
the organisation and all operations.
18
•• The results from the ongoing drilling campaign and
production testing on the Paradox project will have a
significant impact for the Group. Poor results from the wells
could have wider implications on the future development of
the project. The Board is ensuring that all activities are
appropriately planned and the technical team has undertaken
a thorough review of geological and technical risks.
•• There is execution and geological risk on the Paradox wells.
The wells are deep, drilled in over pressure reservoirs, and
potentially have to be hydraulically stimulated to deliver
commercial production. The Group’s technical team has
considerable experience of working on this project and has
achieved good results to date in identifying and mitigating
geological and execution risks. In addition, the service industry
is very well developed in the U.S. and the Group will only
engage with experienced contractors and service providers
with detailed knowledge of relevant hydraulic stimulation
techniques.
•• Cybersecurity risks for companies have increased
significantly in recent years due to the mounting threat and
increased sophistication of cybercrime. A cybersecurity
breach, incident or failure of our IT systems could disrupt our
businesses, put employees at risk, result in the disclosure of
confidential information, damage our reputation and create
significant financial and legal exposure. Employees are our
first line of defence against these attacks and we promote
secure behaviours to help mitigate this growing risk. We
engage with key technology partners and suppliers to ensure
potentially vulnerable systems are identified and secured.
Financial risks
•• There is a risk that the carrying value of the Group’s assets
will not be recovered through future revenues, leading to
impairment losses. The Group manages the recoverability of
its assets and assesses the economic viability throughout the
exploration, development and production phases.
•• Commodity risk – The activities of the Group are subject to
fluctuations in prices and demand for commodities, which are
volatile and cannot be controlled. Fluctuating commodity prices
could have a significant impact on the Group’s operations.
During 2022, the Group implemented a hedging programme
to manage the potential downside risks in fluctuating
commodity pricing. This hedging programme is expected to
enable the Group to meet its ongoing funding obligations.
•• Currency risk – Funds are maintained by the Group in Great
Britain Pounds sterling (“GBP”) and United States Dollar
(“US$”). There is a risk that purchasing power in the U.S. is lost
through foreign exchange translation. The Group considers its
foreign exchange risk to be a normal and acceptable business
exposure and does not hedge against the risk at present.
•• Funding risk – There is a risk that there will be insufficient
access to funding to meet all corporate, development and
production obligations and activities. The Group manages
liquidity risk by maintaining adequate cash reserves and
monitoring forecast and actual cashflows. The Board
reviews the Group’s cashflow projections and forecasts
on a monthly basis.
Zephyr Energy plc Annual Report and Financial Statements 2022 Strategic Report
Statement by the Directors in
Performance of their Statutory
Duties in accordance with S172(1)
and 414CZA of the UK Companies
Act 2006
The Board of Directors of Zephyr Energy plc,
both individually and together, have acted in
good faith, in a way they consider would be
most likely to promote the success of the
Company for the benefit of its members as
a whole (having regard to the stakeholders
and matters set out in S172 of Companies
Act 2006).
The Board defines its stakeholders as the many individuals and
organisations that are affected by our operations and with
whom we seek to proactively and positively engage on a regular
basis. We strive to maintain productive, mutually beneficial
relationships with each stakeholder group by treating all
stakeholders with fairness and respect and by providing timely
and effective responses and information.
Engaging our stakeholders informs our decision-making,
including consideration of our long-term strategic objectives
and the activities that support these aims.
Our engagement with stakeholders includes personal contact
via face-to-face or telephone conversation, email exchange,
company reports, press releases, investor presentations or
conference participation and other company engagement.
As the operator of long-life assets, we naturally make decisions
that consider the long-term success of Zephyr and value
creation for our stakeholders.
The following is a summary of stakeholder engagements
from 2022.
Stakeholder engagement
Equity and debt investors
The Board seeks to understand and meet investor needs and
expectations. It has established a strategy and business model
which it believes will promote long term value to investors. The
Company’s details are displayed on its website allowing
investors to contact the Company if they so wish. The Board
attaches great importance to providing investors with clear and
transparent information on the Group’s activities and strategy.
Details of all communications are provided on the Company’s
website, including historical annual reports, press releases,
company presentations and governance related material.
The major interests in the Company’s Ordinary Shares are set
out in the Directors’ Report. Through our regulatory updates and
the publication of our half and full year financial reports, we
inform Shareholders regarding the status of their Company.
Further Shareholder engagement includes the Annual General
Meeting (“AGM”) (although attendance may be affected due to
restrictions imposed as a result of the pandemic) and
discussions with investors when questions are asked.
On a monthly basis we provide financial and operational updates
to our commercial lender.
Employees
Our employees are essential to the Group’s success and growth.
We recognise that we need a skilled and committed workforce,
with a diverse range of experience and perspectives, and we
value the diversity and the contribution that it affords
The Board believes that the Group’s success is reliant on the
commitment of our employees. We pride ourselves on our
friendly and safe working environment. Employee feedback is
sought through formal review processes and via the head of
each department. Training is provided where necessary.
19
Zephyr Energy plc Annual Report and Financial Statements 2022 Strategic Report Statement by the Directors in Performance of their Statutory Duties in accordance with S172(1)
and 414CZA of the UK Companies Act 2006 continued
Governments and regulators
Executive and operational management engage with federal,
state and local regulators to address legislative, regulatory and
operational matters important to our business and our industry.
We also proactively engage with regulatory agencies throughout
the year to keep them appraised of our operational and well
retirement activities and to provide objective and measurable
progress indicators.
Our transparency in engagement and delivering on expectations
were two key considerations in the state of Utah when dealing
with the well control incident that we experienced in April 2023.
Joint operating partners
As an operator of assets, Zephyr works on behalf of our industry
partners to safely and efficiently manage our assets.
We fulfil our duties as operator by carefully managing our
responsibilities including prompt payment of expenses and
keeping leases in good standing.
Communities
We actively seek to support sustainable socio-economic
development in the communities in which we live and work and
aim to minimise any potential negative impacts from our
operations.
Environment
The Group fully recognises its obligation to minimise its impact
on the environment and to be responsible in all its activities. This
is currently achieved by complying with the IS014001 quality
standard and support of certain environmentally focussed
charities.
More information on how the Company considers and
discharges its obligations in respect of S172 Companies Act
2006 in respect of its stakeholders can be found in the
Corporate Governance section of this document (page 21) and
in respect of the environment at the relevant section above
The Strategic Report on pages 1 to 20 was approved by the
Board on 23 June 2023.
On behalf of the Board,
JC Harrington
Chief Executive Officer
23 June 2023
20 Zephyr Energy plc Annual Report and Financial Statements 2022
Governance
Zephyr Energy plc Annual Report and Financial Statements 2022
Governance
Zephyr Energy plc Annual Report and Financial Statements 2022
21
Governance
(cid:13)o(cid:121)rd o(cid:153) (cid:20)irectors
Rick Grant
NON-EXECUTIVE CHAIRMAN
Colin Harrington
(cid:14)H(cid:42)(cid:24)F (cid:24)(cid:111)(cid:24)(cid:14)U(cid:92)(cid:42)(cid:105)(cid:24) OFF(cid:42)(cid:14)(cid:24)R
Chris Eadie
(cid:14)H(cid:42)(cid:24)F F(cid:42)N(cid:1)N(cid:14)(cid:42)(cid:1)(cid:56) OFF(cid:42)(cid:14)(cid:24)R
Rick has a 40-year track record of success in
the oil and gas industry. Rick is co-founder and
Chairman of Origin Creek Energy LLC (“OCE”).
OCE makes US$2-US$20 million foundational
investments in the domestic U.S. energy
sector. The firm’s capital is provided by its
partners and two affiliated family offices.
Prior to OCE, Rick was CEO of Suez North
America LNG and then served as CEO of Suez
Global LNG. During his career, Rick has had
significant success managing multi-billion
dollar organisations and developments, and
has been involved in a number of profitable
corporate exits.
Colin began his career in energy finance in
1998, and previously worked in New York,
(cid:56)ondon, Washington D(cid:14) and San Francisco.
Over the course of his investment banking and
investment management career, he has had
significant experience executing recapitalisations
and turnarounds at natural resource companies.
Prior to Zephyr, Colin served as CEO of Origin
Creek Energy, a special situations investor in
the onshore US oil and gas sector. Prior to that,
Colin was Managing Partner of the Wellford
Energy Group and former CEO of Wellford
(cid:14)apital Markets, a F(cid:42)NR(cid:1)-registered broker
dealer boutique which specialised in the
energy markets.
(cid:14)hris is an experienced Finance Director with
extensive corporate finance experience within
both public and private companies in the
natural resources sector.
Chris qualified as a Chartered Accountant with
PricewaterhouseCoopers after which he held
a number of senior finance positions at Cable
and Wireless PLC.
Prior to joining Zephyr, Chris was, amongst
other things, Finance Director of (cid:1)(cid:42)M listed
Aurum Mining PLC, and was involved in the
wholesale restructuring of the Company into
Shearwater Group PLC, the AIM listed
cybersecurity and risk management company.
Gordon Stein
NON-EXECUTIVE DIRECTOR
Tom Reynolds
NON-EXECUTIVE DIRECTOR
Gordon Stein is a commercial (cid:14)FO with over (cid:259)(cid:256) years of expertise
in the energy, natural resources and other sectors. A member of the
(cid:14)hartered (cid:42)nstitute of Public Finance (cid:368) (cid:1)ccountancy, Gordon is
currently (cid:14)FO of (cid:14)lean(cid:92)ech (cid:56)ithium plc, an exploration and
development company advancing the next generation of
sustainable lithium projects in Chile.
Previously, Gordon was the (cid:14)FO and an (cid:24)xecutive Director of
Columbus Energy Resources plc, an AIM-traded oil and gas company,
(cid:14)FO of (cid:1)(cid:42)M-traded Madagascar Oil (cid:56)imited and has also been (cid:14)FO
of Cadogan Petroleum plc an independent oil and gas exploration,
development and production company with onshore gas and
condensate assets in Ukraine. Prior to that, Gordon held a number
of other roles in the energy sector at start-ups to major companies.
Tom is a chartered Chemical Engineer with 25
years’ experience in the energy sector spanning
executive management of private and public
E&P companies, private equity investment and
advising early stage companies. He is currently
the CEO of Scirocco Energy.
Tom led two public E&P companies between
2008-2016 – Bridge Energy ASA and Iona
Energy Inc. – providing him with a broad range
of North Sea experience including cross border
mergers, IPOs, acquisitions & disposals, the
Nordic bond market, debt restructuring and
investor relations in London, Oslo and Toronto.
22
Zephyr Energy plc Annual Report and Financial Statements 2022
Governance
Senior (cid:61)(cid:121)n(cid:121)(cid:154)ement
Gregor Maxwell
(cid:14)H(cid:42)(cid:24)F OP(cid:24)R(cid:1)(cid:92)(cid:42)NG OFF(cid:42)(cid:14)(cid:24)R
• PhD in Reservoir Geology, 25 years
experience spanning production to new
ventures roles.
• Previous roles with Apache, Rocksource and
Chevron. Now responsible for spearheading
ZPHR analytics and technical approach.
James Lee
F(cid:42)N(cid:1)N(cid:14)(cid:24) (cid:368) (cid:14)ORPOR(cid:1)(cid:92)(cid:24)
DEVELOPMENT
• 21 years of energy finance experience
including 17 years in natural resources
investment banking, most recently as
a Managing Director at Stifel.
• Co-founder of a PE backed upstream
company focused on the Williston Basin.
Kaleb Dasinger
LAND AND CORPORATE DEVELOPMENT
• Second generation landman with 17 years of
experience.
(cid:337) Founder of multiple companies focused on
oil and gas minerals and non-operated
working interests.
Ryan Walter
OPERATIONS MANAGER
Jorge Gutierrez
GENERAL COUNSEL
• Ryan holds a Bachelor of Science in
• Jorge has oversight of the Company’s
Mechanical Engineering from Purdue
University and has over a decade of
experience in the oil and gas industry.
• Prior to Zephyr, Ryan served as a Senior
Operations Engineer & Joint Interest
Supervisor at Whiting Petroleum, where he
supported operations in both the Williston
Basin & DJ Basin.
legal affairs.
• He previously worked for over 15 years in
private practice in Dallas, Texas with an
emphasis in representing private and
publicly traded companies operating in the
upstream and midstream sectors of the
energy industry. He is admitted to practice
law in the State of Texas.
Zephyr Energy plc Annual Report and Financial Statements 2022
23
Governance
(cid:14)orpor(cid:121)te (cid:34)o(cid:227)ern(cid:121)nce St(cid:121)tement
The corporate governance framework which the Group
operates, including Board leadership and effectiveness, Board
remuneration, and internal control is based upon practices
which the Board believes are proportional to the size, risks,
complexity and operations of the business and is reflective of
the Group’s values.
The Board continually assesses its corporate governance
processes to ensure that Zephyr continues to comply with best
practice as outlined in the Code. No major corporate
governance issues arose during the year under review.
The Code is constructed around ten broad principles and a set
of disclosures. The Code states what it considers to be
appropriate arrangements for growing companies and asks
companies to provide an explanation about how they are
meeting the principles through the prescribed disclosures. We
have considered how we apply each principle to the extent that
the Board judges these to be appropriate in the circumstances,
and we provide an explanation of the approach taken in relation
to each principle on our website and a summary is set out below.
RL Grant
Non-Executive Chairman
As a Board we have been driving our
governance standards towards meeting
best practice, and it has been my privilege
to work with this Board which is committed
to maintaining high standards of corporate
governance. As Chairman of Zephyr, my role
is to provide leadership, ensuring that the
Board performs its role effectively and has
the capacity, ability, structure, corporate
governance systems and support to enable
it to continue to do so.
The Group’s success is directly linked to sound and effective
governance and we remain committed to achieving high
standards in everything we do.
The Directors recognise the importance of strong corporate
governance and have developed a corporate governance
framework and policies appropriate to the size of the Group. As
the Group grows, the Directors and management will continue
to review and adjust our approach and make ongoing
improvements to the Group’s corporate governance framework
and policies and procedures as part of building a successful and
sustainable company. Good governance creates the opportunity
for appropriate decisions to be made by the right people at the
right time to support the delivery of our strategy and manage
any risks associated with delivery of that strategy.
Zephyr follows the requirements of the QCA Corporate
Governance Code (the “Code”) published by the Quoted
Companies Alliance in April 2018, a full version of which is
available at http(cid:329)(cid:340)(cid:340)www.the(cid:202)ca.com.
All members of the Board believe strongly in the value and
importance of good corporate governance and in our
accountability to all of Zephyr stakeholders, including
Shareholders, staff, clients, suppliers and the Governments and
regulators of the countries in which we operate.
24 Zephyr Energy plc Annual Report and Financial Statements 2022
Governance Corporate Governance Statement continued
The Board and its committees
The Board is responsible for the direction and overall
performance of the Group with an emphasis on policy and
strategy, financial results and major operational issues.
Formal Board meetings are scheduled, on average, every four
to six weeks with regular contact between meetings as required.
During the year there were nine formal Board meetings, in addition
to regular informal Board discussions, and each of the formal
meetings was attended by every Director. The meetings are
held to monitor and implement strategy, to review performance
(including cash forecasts, ESG compliance), potential acquisitions,
fundraising activity and to consider communications to the
London Stock Exchange and Shareholders.
During the year, the matters reserved for the Board’s decision
have been reviewed and reaffirmed. Specific matters for the
Board’s consideration include:
• Approval of the Group’s strategic plan;
• Review of the performance of the Group’s strategy,
objectives, business plans and budgets;
• Review and assess the Group’s sustainability and ESG goals,
including the Group’s carbon neutrality programme
• Approval of the Group’s operating and capital expenditure
budgets and any material changes to them;
• Review of material changes to the Group’s corporate structure
and management and control structure;
• Review of changes to governance and business policies;
• Monitoring efforts related to community and stakeholder
engagement;
Details of Directors who served during the year are set out in
the Directors’ Report. The Board is currently comprised of two
Executive Directors and three Non-Executive Directors, one
of whom acts as Chairman. There are separate roles for the
Chairman and the Chief Executive Officer.
The Board has established an Audit Committee, which
comprises of two Non-Executive Directors. The Audit
Committee meets two or three times a year and the Group’s
external auditor is invited to meetings where appropriate. The
main responsibilities of the Audit Committee are to review
and report to the Board on matters relating to:
• The integrity of the financial statements of the Group,
including its annual and interim accounts;
• The effectiveness of the Group’s internal controls and
risk management systems;
• The accounting policies and practices of the Group;
• Audit plans and auditor’s report, including any significant
concerns the external auditor may have arising from their
audit work; and
• The terms of appointment, remuneration and independence
of the auditor.
The Board also has an established Remuneration Committee,
which comprises the Non-Executive Chairman and one Non-
Executive Director. The Remuneration Committee meets at
least twice a year and reviews the performance of the Executive
Directors and the scale and structure of their remuneration
having due regard to the interests of our Shareholders. The
Committee is also responsible for awards under the Group’s
share option plans. No Director is involved in any decision
relating to their own remuneration.
• Ensuring an effective system of internal control and
risk management;
The remuneration of the Non-Executive Directors is determined
by the Board.
• Ensure that appropriate succession planning procedures
are in-place;
• Approval of annual and interim reports and accounts, and
preliminary announcements of year-end results; and
• Review of the effectiveness of the Board and its committees.
There is also an established procedure for all Directors to take
independent professional advice, if necessary, at the Group’s
expense. Additionally, all Directors have access to the advice of
the Group’s advisers. The Group maintains Directors’ and
Officers’ liability insurance.
The Board members are mindful of the need to keep skills and
experience up to date which is done through a combination of
training, continuing professional development through
professional bodies, reading and on the job experience.
All Directors are expected to devote such time as is necessary
for the proper performance of their duties. Directors are
expected to prioritise and attend Board meetings and any
additional meetings wherever possible.
Communication with shareholders
The Board encourages regular and transparent dialogue with the
Group’s Shareholders. All Shareholders are invited to the Annual
General Meeting at which Directors are available for questioning.
The notice of AGM is sent to all Shareholders at least 21 clear
days before the meeting. The number of proxy votes received
for and against each resolution is disclosed at the AGM and a
separate resolution is proposed on each item. Financial and
other information about the Group is available on the Group’s
website www.zephyrplc.com.
Internal controls
The Board is responsible for establishing the Group’s system of
internal controls and for reviewing its effectiveness. Reflecting
the size of the Group, a key control procedure is the close
day-to-day supervision of the business by the Executive
Directors, supported by the senior management with
responsibility for key tasks and operations.
Zephyr Energy plc Annual Report and Financial Statements 2022
25
Governance Corporate Governance Statement continued
The key procedures that have been established, and which are
designed to provide effective internal control are as follows:
•• Each of the Group’s subsidiaries is managed by an Executive
Director and there is a management reporting process in
place to enable the Board to monitor the performance of
the Group on a regular basis;
•• Monthly cash forecasts are prepared and formally adopted
by the Board;
•• The Board reviews the major business risks faced by the
Group and determines the appropriate course of actions
required to manage those risks;
•• The Board approves proposals for the acquisition of assets or
new businesses and sets guidelines for the development of
new properties. Capital expenditure is regulated and written
proposals must be submitted to the Board for any expenditure
above specified levels;
•• Consolidated management information is prepared on a
regular basis; and
•• The Board has regular briefing from the Company’s
Nominated Adviser and Legal Counsel.
The Board reviews the effectiveness of the system of internal
controls and the control environment. No significant control
deficiencies were reported during the year and no weaknesses
in internal controls have resulted in any material losses,
contingencies or uncertainty which would require disclosure as
recommended by the guidance for Directors on reporting on
internal controls. The Board has reviewed the need for an
independent internal audit function and has concluded that, at the
current time, the Group is not yet large enough to warrant this.
As outlined above, the Board adopted the Code in April 2018.
An overview of the extent of the Group’s compliance with the
ten principles that comprise the Code, are set out below.
Extent of
current
compliance Commentary
Fully
Compliant
A summary of the Group’s business model and strategy can be found in
the Strategic Report within this Annual Report.
Key risks and mitigating actions are detailed in the Principal risks section
of the Strategic Report within this Annual Report.
Further
disclosure(s)
Strategic Report
Fully
Compliant
The Group remains committed to listening and communicating openly
with its Shareholders to ensure that its strategy, business model and
performance are clearly understood. Understanding what stakeholders
think about the Group, and in turn, helping these audiences understand
our business, is a key part of driving our business forward and we actively
seek dialogue with all stakeholders. We do so via regular reporting, investor
roadshows, presenting at investor conferences/webinars and at the Group’s
Annual General Meeting. The Group also makes regular operational
announcements to keep Shareholders and the market updated on
operational activity and progress. The Group also makes available
corporate presentations on the ‘corporate documents’ page on the
‘investors’ area on the Group’s website. The CEO is responsible for
shareholder liaison.
www.zephyrplc.
com;
Regulatory
updates, Annual
General Meeting,
Investor
presentations and
full contact details
on the Group’s
website.
Fully
Compliant
Directors and employees adopt a broad view during decision making to
take meaningful account on of the impact of the business on all key
stakeholder groups. The Board recognises that Zephyr’s long-term
success is reliant on good relationships with its key stakeholders.
See section on
Stakeholder
engagement in the
Strategic Report
Principle
Establish a
strategy and
business model
which promote
long-term value
for
Shareholders
Seek to
understand and
meet
Shareholder
needs and
expectations
Take into
account wider
stakeholder and
social
responsibilities
and their
implications for
long-term
success
26
Zephyr Energy plc Annual Report and Financial Statements 2022 Governance Corporate Governance Statement continued
Extent of
current
compliance Commentary
Fully
Compliant
The Board operates a comprehensive system of internal controls designed
(to the extent considered appropriate) to safeguard the Group’s assets and
protect the business from identified risks, including reputational risk.
As well as tight oversight exercised by the Executive Directors, and
appropriately trained and qualified staff, the Board engages appropriate
auditors and consultants to assist in identifying and managing risk.
Fully
Compliant
The Board comprises the Non-Executive Chairman, two Executive
Directors and two Non-Executive Directors (both of which are considered
by the Board to be independent). One of the Non-Executive Directors,
GB Stein acts as the Group’s Senior Independent Director.
Principle
Embed
effective risk
management,
considering
both
opportunities
and threats,
throughout the
organisation
Maintain the
Board as a
well-
functioning,
balanced team
led by the Chair
Fully
Compliant
Ensure that
between them
the Directors
have the
necessary
up-to-date
experience,
skills and
capabilities
The Board is constantly reviewing its make up to ensure that it has a
sufficient blend between independence on the one hand, and knowledge
of the Group on the other, to enable it to discharge its duties and
responsibilities effectively.
All Directors are encouraged to use their independent judgement and to
challenge all matters, whether strategic or operational. The Chairman holds
regular update meetings with each Director to ensure they are performing
as they are required. Board meetings take place, on average, every 4 to 6
weeks, normally held by telephone conference owing to the diverse
geographic locations of the Board members.
The Board is satisfied that, between the Directors, it has an effective and
appropriate balance of skills and experience, including in the areas of
exploration, development and production of oil and gas assets. All
Directors receive regular and timely information on the Group’s operational
and financial performance. Relevant information is circulated to the
Directors in advance of meetings. All Directors retire by rotation at regular
intervals in accordance with the Group’s Articles of Association.
The Board makes decisions regarding the appointment and removal of
Directors, and there is a formal, rigorous procedure for appointments. The
Group’s Articles of Association require that one-third of the Directors must
stand for re-election by Shareholders annually in rotation; that all Directors
must stand for re-election at least once every three years; and that any
new Directors appointed during the year must stand for election at the
AGM immediately following their appointment.
All Directors are able to take independent professional advice in the
furtherance of their duties, if necessary, at the Group’s expense. In
addition, the Directors have direct access to the advice and services of the
Company Secretary and Finance Director.
Further
disclosure(s)
Principal risk
section of the
Strategic Report
within the Annual
Report.
See Corporate
Governance
section of Annual
Report for full
details on the
Board structure
See Corporate
Governance
section of Annual
Report for full
details on the
Board structure
Evaluate Board
performance
based on clear
and relevant
objectives,
seeking
continuous
improvement
Fully
Compliant
The Chairman continually assesses the contribution of each member of
the Board to ensure that:
••
••
Their contribution is relevant and effective
That they have a commitment to progressing the Group’s objectives in
order to increase Shareholder value
••
Where relevant, they have maintained their independence
Given the Group’s ongoing expansion, the Board (led by the Chair) is
constantly reviewing the performance and structure of the team as a unit
and to ensure that the members of the Board collectively function in an
efficient and productive manner.
Key Performance
indicators in the
Strategic Report
27
Zephyr Energy plc Annual Report and Financial Statements 2022 Governance Corporate Governance Statement continued
Principle
Promote a
culture that is
based on
ethical values
and behaviours
Maintain
governance
structures and
processes that
are fit for
purpose and
support good
decision-
making by the
Board
Extent of
current
compliance Commentary
Further
disclosure(s)
Fully
Compliant
The Board aims to lead by example and do what is in the best interests of
the Group.
Chairman’s
Statement,
The Board spends a significant amount of time formulating and agreeing
on the core principles and values under which Zephyr will operate. In short,
Zephyr’s team will always strive to be responsible stewards of its investors’
capital and responsible stewards of the environment in which we work. We
believe that good environmental performance, together with good
governance practices, will translate into good business performance and
therefore are focused on delivering strong economic returns in the most
environmentally responsible manner practical.
Strategic Report
Corporate
Governance
Statement
Corporate
Governance
Statement
Fully
Compliant
The Board meets regularly for both formal Board meetings and for
informal discussions.
The Board sets direction for the Group through a schedule of matters
reserved for its decision. The Board and its Committees receive appropriate
and timely information prior to each meeting; a formal agenda is produced
for each meeting, and Board and Committee papers are distributed several
days before meetings take place. Any Director may challenge the Group’s
proposals and decisions are taken democratically after discussion. Any
Director who feels that any concern remains unresolved after discussion
may ask for that concern to be noted in the minutes of the meeting, which
are then circulated to all Directors. Any specific actions arising from such
meetings are agreed by the Board or relevant Committee and then
followed up by the Group’s management.
The Executive Team consists of the Chief Executive Officer and the
Financial Director with input from the other Directors. (cid:92)hey are responsible
for formulation of the proposed strategic focus for submission to the
Board, the day-to-day management of the Group’s businesses and its
overall trading, operational and financial performance in fulfilment of that
strategy, as well as plans and budgets approved by the Board of Directors.
It also manages and oversees key risks, management development and
corporate responsibility programmes. The Chief Executive Officer reports
to the plc Board on issues, progress and recommendations for change.
The controls applied by the Executive Team to financial and non-financial
matters are set out earlier in this document, and the effectiveness of these
controls is regularly reported to the Audit Committee and the Board.
The Board is supported by the Audit and Remuneration Committees. Each
Committee has access to such resources, information and advice as it
deems necessary, at the cost of the Group, to enable the committee to
discharge its duties.
The Audit Committee is Chaired by the Senior Independent Director,
GB Stein. The Non-Executive Director, TH Reynolds, is the other member
of the Committee.
The Remuneration Committee is Chaired by the Senior Independent
Director, TH Reynolds. The Non-Executive Chairman, RL Grant, is the other
member of the Committee.
28 Zephyr Energy plc Annual Report and Financial Statements 2022
Governance Corporate Governance Statement continued
Further
disclosure(s)
www.zephyrplc.
com
Principle
Communicate
how the Group
is governed and
is performing
by maintaining
a dialogue with
Shareholders
and other
relevant
stakeholders
Extent of
current
compliance Commentary
Fully
Compliant
The Group communicates with Shareholders through the Annual Report
and Accounts, full-year and half-year announcements, the AGM and
one-to-one meetings with large existing or potential new Shareholders.
The Group also keeps Shareholders updated on progress and
developments through its regular market announcements. The CEO
remains a key part of encouraging Shareholder interaction and listening to
feedback. A range of corporate information (including all group
announcements and presentations) is also available to Shareholders,
investors and the public on the Company’s website;www.zephyrplc.com.
The Board receives regular updates on the views of Shareholders through
briefings and reports from the (cid:14)hief (cid:24)xecutive Officer, Finance Director
and the Group’s brokers. The Group communicates with institutional
investors frequently through briefings with management. In addition,
analysts’ notes and brokers’ briefings are reviewed to achieve a wide
understanding of investors’ views.
The Group’s website includes the following:
•
Disclosure of any instances where a significant proportion of votes
(e.g. 20% of independent votes) have been cast against a resolution at
any general meeting, an explanation of what actions the Group intends
to take to understand the reasons behind that vote result, and, where
appropriate, any different action it has taken, or will take, as a result
of the vote
•
Historical annual reports and other governance-related material,
including notices of all general meetings over the last five years
JC Harrington
Chief Executive Officer
23 June 2023
Zephyr Energy plc Annual Report and Financial Statements 2022
29
The key conclusions of the independent third-party review
were that:
• The levels of total remuneration for the Executive Directors,
specifically with respect to the (cid:14)(cid:24)O and (cid:14)FO, were
competitive with industry market peers (of the same size)
in the UK, but were below the lowest quartile in talent
markets in the U.S.; and
• Market base salary levels in the UK and U.S. are broadly
comparable and so the key differentiator is levels of variable
pay opportunity, which is higher in the U.S.
In addition to the review, the Independent Directors also
noted that whilst there is no intention to match U.S. levels of
remuneration for our Executive Directors, the compensation
structure may prevent us from being able to attract candidates
with the skills and experience necessary to continue the Group’s
success in the U.S. in the future. Continuing efforts will be made
to ensure the remuneration of our Executive Directors remains
competitive with market peers in the U.S. while meeting the
expectations of our UK investor base and, if future increases
in total remuneration are warranted, those increases should
be primarily delivered through long-term incentive structures.
The Executive Directors also recently undertook a review of
Non-(cid:24)xecutive Director (cid:349)(cid:357)N(cid:24)D(cid:358)(cid:350) fees in con(cid:172)unction with F(cid:42)(cid:92).
F(cid:42)(cid:92) compared the fees paid at other peer group companies
recognising the time incurred by Zephyr’s NEDs who were
involved in a significant number of Board Meetings and Board
update calls, the many Merger & Acquisition (“M&A”)
transactions which the Board reviewed and approved in 2022,
as well as the Committee Meetings required to address various
matters. NED fees were therefore amended in early 2023 to
reflect the findings of the study and the extra time involvement
for the NEDs in carrying out their duties on the Zephyr Board.
Governance
(cid:20)irectors(cid:360) Report
The Directors present the Annual Report
and Financial Statements of the Group for
the year ended 31 December 2022.
Dividends
The Directors do not recommend the payment of a dividend
for the year ended 31 December 2022 (2021: nil).
Directors
The Directors who held office during the year, and since the year
end are as follows:
JC Harrington
RL Grant
TH Reynolds
GB Stein
CJ Eadie
Directors’ remuneration
In late 2021 and into early 2022, Zephyr’s independent Directors
commissioned an independent third-party review of Executive
Directors’ compensation. The purpose of engaging an
independent subject matter expert was to conduct a detailed
review of the remuneration arrangements to ensure that they
are appropriate in light of the performance of the business and
our current strategy. The Remuneration Committee therefore
engaged Focussed (cid:42)ndependent (cid:92)ailored Remuneration
(cid:14)onsultants (cid:349)(cid:357)F(cid:42)(cid:92)(cid:358)(cid:350) to advise on the (cid:14)ompany(cid:360)s remuneration
strategy and make any recommendations on any changes to
the previous practices.
Of particular importance was the need to ensure that
compensation structures are capable of delivering competitive
rewards in the U.S., where the majority of Zephyr’s executives
and employees are based, whilst meeting the expectations of
our UK investor base in terms of the design and structure of the
arrangements and ensuring the interests of our Shareholders
and executives are aligned.
F(cid:42)(cid:92) compared (cid:117)ephyr(cid:360)s (cid:24)xecutive Director remuneration policies
with around a dozen peer group oil and gas companies (as
agreed by the Remuneration Committee) in each of the UK and
U.S., reviewing base salary, pensions, medical expenses, bonuses
and other long term incentivisation schemes. This was then
presented to the Remuneration Committee who discussed
and agreed to implement various recommendations to address
differences between current remuneration practices at Zephyr
and the relevant peer group companies.
30 Zephyr Energy plc Annual Report and Financial Statements 2022
Governance Directors’ Report continued
Remuneration paid to Directors during the year was as follows:
Executive Directors
JC Harrington
CJ Eadie
Non-Executive Directors
RL Grant
TH Reynolds
GB Stein
1 Salaries include benefits-in-kind
Executive Directors
JC Harrington
CJ Eadie
Non-Executive Directors
RL Grant
TH Reynolds
GB Stein
1 Salaries include benefits-in-kind
As outlined in the Company’s 2021 Annual Report and in the
Interim results for the period to 30 June 2022, it remains the
Company’s intention to issue 31 million nil-cost options to
certain Directors and employees to compensate them for
salaries sacrificed during the Covid-19 pandemic. The options
will be issued when the Board is permitted to do so and in line
with its regulatory responsibilities. It has not been possible to
issue these nil-cost options to date due to the Company’s
activity which has precluded transactions involving the
Company’s securities.
The remuneration of Directors and key executives is decided by
the Remuneration Committee having regard to comparable
market statistics and with support from a third-party
organisation.
2022
Salaries1
taken
US$’000
Bonus
US$’000
Pension
US$’000
Total
US$’000
500
217
65
44
44
870
207
93
25
25
25
375
2021
34
13
1
-
-
48
741
323
91
69
69
1,293
Salaries1
taken
US$’000
Bonus
US$’000
Pension
US$’000
Total
US$’000
(cid:270)(cid:266)(cid:272)
(cid:267)(cid:274)(cid:270)
(cid:272)(cid:271)
(cid:271)(cid:266)
(cid:271)(cid:266)
(cid:273)(cid:271)(cid:271)
(cid:274)(cid:274)
(cid:270)(cid:267)
-
-
-
(cid:267)(cid:268)(cid:275)
(cid:268)(cid:270)
(cid:267)(cid:273)
-
-
-
(cid:270)(cid:267)
(cid:271)(cid:267)(cid:274)
(cid:268)(cid:270)(cid:268)
(cid:272)(cid:271)
(cid:271)(cid:266)
(cid:271)(cid:266)
(cid:275)(cid:268)(cid:271)
Directors’ interests in shares and share
options
The Directors who held office at 31 December 2022 had the
following interests, including family interests, in the Ordinary
Shares of the Company as follows:
CJ Eadie
JC Harrington
TH Reynolds
GB Stein
RL Grant
Number of Ordinary Shares
31 December
2022
1 January
2022
6,775,095
(cid:272),(cid:273)(cid:273)(cid:271),(cid:266)(cid:275)(cid:271)
138,590,3001
(cid:267)(cid:269)(cid:274),(cid:271)(cid:275)(cid:266),(cid:269)(cid:266)(cid:266)(cid:267)
1,000,000
2,350,000
1,500,0001
(cid:267),(cid:266)(cid:266)(cid:266),(cid:266)(cid:266)(cid:266)
(cid:268),(cid:269)(cid:271)(cid:266),(cid:266)(cid:266)(cid:266)
(cid:267),(cid:271)(cid:266)(cid:266),(cid:266)(cid:266)(cid:266)(cid:267)
1 JC Harrington is indirectly the controlling shareholder of Origin Creek Energy
LLC (“OCE”) which was the beneficial owner of 137,136,364 shares at
31 December 2022. RL Grant is a 19% shareholder of OCE.
Zephyr Energy plc Annual Report and Financial Statements 2022
31
Governance Directors’ Report continued
Directors’ interests in share options of the Company, including family interests, as at 31 December 2022 were as follows:
CJ Eadie
CJ Eadie
CJ Eadie
CJ Eadie
JC Harrington
TH Reynolds
TH Reynolds
RL Grant
RL Grant
GB Stein
GB Stein
Date of grant
No. of shares
Exercise price
Option exercise period
(cid:267)(cid:269) Feb (cid:268)(cid:266)(cid:267)(cid:271)
(cid:268)(cid:270) Mar (cid:268)(cid:266)(cid:267)(cid:273)
(cid:272) (cid:1)pril (cid:268)(cid:266)(cid:267)(cid:274)
(cid:268)(cid:275) May (cid:268)(cid:266)(cid:268)(cid:266)
(cid:268)(cid:275) May (cid:268)(cid:266)(cid:268)(cid:266)
(cid:268)(cid:275) May (cid:268)(cid:266)(cid:268)(cid:266)
(cid:268)(cid:275) May (cid:268)(cid:266)(cid:268)(cid:266)
(cid:268)(cid:275) May (cid:268)(cid:266)(cid:268)(cid:266)
(cid:268)(cid:275) May (cid:268)(cid:266)(cid:268)(cid:266)
(cid:268)(cid:275) May (cid:268)(cid:266)(cid:268)(cid:266)
(cid:268)(cid:275) May (cid:268)(cid:266)(cid:268)(cid:266)
(cid:267)(cid:266)(cid:266),(cid:266)(cid:266)(cid:266)
(cid:271)(cid:266)(cid:266),(cid:266)(cid:266)(cid:266)
(cid:267),(cid:269)(cid:266)(cid:266),(cid:266)(cid:266)(cid:266)
(cid:272),(cid:266)(cid:266)(cid:266),(cid:266)(cid:266)(cid:266)
(cid:267)(cid:268),(cid:266)(cid:266)(cid:266),(cid:266)(cid:266)(cid:266)
(cid:268),(cid:266)(cid:266)(cid:266),(cid:266)(cid:266)(cid:266)
(cid:274)(cid:267)(cid:274),(cid:267)(cid:274)(cid:267)
(cid:269),(cid:266)(cid:266)(cid:266),(cid:266)(cid:266)(cid:266)
(cid:267),(cid:269)(cid:271)(cid:269),(cid:269)(cid:272)(cid:269)
(cid:268),(cid:266)(cid:266)(cid:266),(cid:266)(cid:266)(cid:266)
(cid:271)(cid:270)(cid:271),(cid:270)(cid:271)(cid:271)
(cid:267)(cid:274)(cid:268).(cid:271)p
(cid:267)(cid:270).(cid:266)p
(cid:269).(cid:271)p
(cid:266).(cid:272)p
(cid:266).(cid:272)p
(cid:266).(cid:272)p
(cid:266).(cid:267)p
(cid:266).(cid:272)p
(cid:266).(cid:267)p
(cid:266).(cid:272)p
(cid:266).(cid:267)p
(cid:267)(cid:269)(cid:340)(cid:266)(cid:269)(cid:340)(cid:267)(cid:272) to (cid:267)(cid:268)(cid:340)(cid:266)(cid:269)(cid:340)(cid:268)(cid:271)
(cid:268)(cid:270)(cid:340)(cid:266)(cid:270)(cid:340)(cid:267)(cid:273) to (cid:268)(cid:269)(cid:340)(cid:266)(cid:270)(cid:340)(cid:268)(cid:273)
(cid:266)(cid:272)(cid:340)(cid:266)(cid:270)(cid:340)(cid:267)(cid:275) to (cid:266)(cid:271)(cid:340)(cid:266)(cid:270)(cid:340)(cid:268)(cid:274)
(cid:268)(cid:275)(cid:340)(cid:266)(cid:271)(cid:340)(cid:268)(cid:267) to (cid:268)(cid:274)(cid:340)(cid:266)(cid:271)(cid:340)(cid:269)(cid:267)
(cid:268)(cid:275)(cid:340)(cid:266)(cid:271)(cid:340)(cid:268)(cid:267) to (cid:268)(cid:274)(cid:340)(cid:266)(cid:271)(cid:340)(cid:269)(cid:267)
(cid:268)(cid:275)(cid:340)(cid:266)(cid:271)(cid:340)(cid:268)(cid:267) to (cid:268)(cid:274)(cid:340)(cid:266)(cid:271)(cid:340)(cid:269)(cid:267)
(cid:268)(cid:275)(cid:340)(cid:266)(cid:271)(cid:340)(cid:268)(cid:267) to (cid:268)(cid:274)(cid:340)(cid:271)(cid:340)(cid:268)(cid:273)
(cid:268)(cid:275)(cid:340)(cid:266)(cid:271)(cid:340)(cid:268)(cid:267) to (cid:268)(cid:274)(cid:340)(cid:266)(cid:271)(cid:340)(cid:269)(cid:267)
(cid:268)(cid:275)(cid:340)(cid:266)(cid:271)(cid:340)(cid:268)(cid:267) to (cid:268)(cid:274)(cid:340)(cid:271)(cid:340)(cid:268)(cid:273)
(cid:268)(cid:275)(cid:340)(cid:266)(cid:271)(cid:340)(cid:268)(cid:267) to (cid:268)(cid:274)(cid:340)(cid:266)(cid:271)(cid:340)(cid:269)(cid:267)
(cid:268)(cid:275)(cid:340)(cid:266)(cid:271)(cid:340)(cid:268)(cid:267) to (cid:268)(cid:274)(cid:340)(cid:271)(cid:340)(cid:268)(cid:273)
Third party indemnity provision for
Directors
The Company currently has in place, and had for the year ended
31 December 2022, Directors and Officers liability insurance for
the benefit of all Directors of the Company.
Corporate governance
Corporate governance matters are set out on pages 21 to 40.
Substantial shareholdings
Other than the Directors’ interests shown above, the Company
has been notified of the following substantial interests as at
23 June 20231:
Number
of shares
Percentage
of issued
share capital
Tyndall Investment Management (cid:267)(cid:273)(cid:270),(cid:268)(cid:266)(cid:273),(cid:274)(cid:275)(cid:266)
Origin Creek Energy LLC
(cid:267)(cid:271)(cid:274),(cid:275)(cid:271)(cid:270),(cid:271)(cid:270)(cid:272)
(cid:267)(cid:266).(cid:269)(cid:401)
(cid:275).(cid:270)(cid:401)
1 as per most recent notification to the Company.
Going concern
The Directors have prepared cashflow forecasts for the Group
and Parent Company for the period to 31 December 2024 based
on their assessment of both the discretionary and the non-
discretionary cash requirements of the Group during this period
and based on a range of sensitivities and scenarios.
These cashflow forecasts include the forecast revenues from,
and the operating costs of, the Group’s operations, together
with all committed development expenditure and cashflows
related to the well control incident on the State 36-2 well. The
Board has also incorporated its best current estimates on the
timing of first cashflows from the six Slawson operated wells
that were acquired in December 2022. The wells are currently
expected to come online in autumn 2023 with first cashflows
received by the Group in January 2024.
The cashflows reflect the Board’s current best estimates on
quantum and timings in respect of expected insurance
recoveries in relation to the well control incident. While the
Board expect the insurance proceeds to be received in
accordance with the forecast, these proceeds have not been
received at the date of this report. Should the insurance
proceeds be delayed or lower than expected, the Group could
require further funding to meet its commitments within the
going concern assessment period.
32
Zephyr Energy plc Annual Report and Financial Statements 2022
Governance Directors’ Report continued
Following detailed discussions, the Directors are confident that
the Group and the Parent Company have, or will be able to
secure insurance recoveries as per above, or additional funding
to enable it to continue in operation for at least the next twelve
months, however, the Group and Parent Company’s ability to
secure such proceeds or funding cannot be guaranteed, which
leads to material uncertainty which may cast significant doubt
over the Group and Parent Company’s ability to continue as a
going concern, and that it may be unable to realise its assets
and discharge its liabilities in the normal course of business.
The Directors have extensive experience in raising capital for
projects and ventures and remain confident in the Group’s
ability to raise the capital needed to maintain and deliver on
its commitments and continue as a going concern.
The Directors continue to adopt the going concern basis
in preparing the consolidated financial statements. The
financial statements do not include any adjustments that
would be required should the going concern basis of
preparation no longer be appropriate.
Post balance sheet events
Events after the balance sheet date have been disclosed in
note 31 to the financial statements.
Financial instruments
During the year the Company and its subsidiary undertakings
applied financial risk management policies as disclosed in
note 29 to the financial statements.
Disclosure of information to the auditor
The Directors who held office at the date of approval of this
Directors’ Report confirm that, so far as they are each aware,
there is no relevant audit information of which the Company’s
auditor is unaware; and each Director has taken all the steps
that he ought to have taken as a Director in order to make
himself aware of any relevant audit information and to establish
that the Company’s auditor is aware of that information.
Auditor
BDO LLP served as the Group’s external auditor throughout the
year under review.
The Directors resolved that BDO LLP be re-appointed as auditor.
BDO LLP has indicated its willingness to continue in office.
On behalf of the Board,
CJ Eadie
Finance Director
23 June 2023
Zephyr Energy plc Annual Report and Financial Statements 2022
33
Governance
St(cid:121)tement o(cid:153) (cid:20)irectors(cid:360) Responsi(cid:133)ilities
in respect o(cid:153) t(cid:159)e Str(cid:121)te(cid:154)ic Report(cid:328)
t(cid:159)e (cid:20)irectors(cid:360) Report (cid:121)nd t(cid:159)e
Fin(cid:121)nci(cid:121)l St(cid:121)tements
The Directors are responsible for preparing
the Strategic Report and the Directors’
Report and the Financial Statements in
accordance with applicable law and
regulations.
Company law requires the Directors to prepare group and
company financial statements for each financial year. The
Directors have elected under company law and the AIM Rules
of the London Stock Exchange to prepare group financial
statements in accordance with UK-adopted International
Accounting Standards in conformity with the requirements of
the Companies Act 2006 and have elected under company law
to prepare the Company financial statements in accordance
with UK-adopted International Accounting Standards in
conformity with the requirements of the Companies Act 2006
and applicable law.
The Group and the Company financial statements are required
by law and International Accounting Standards in conformity
with the requirements of the Companies Act 2006 to present
fairly the financial position of the Group and the Company and
the financial performance of the Group. The Companies Act
2006 provides in relation to such financial statements that
references in the relevant part of that Act to financial statements
giving a true and fair view are references to their achieving a
fair presentation.
Under company law the Directors must not approve the
financial statements unless they are satisfied that they give
a true and fair view of the state of affairs of the Group and the
Company and of the profit or loss of the Group for that period.
In preparing each of the Group and Company financial
statements, the Directors are required to:
a. Select suitable accounting policies and then apply them
consistently;
b. Make judgements and accounting estimates that are
reasonable and prudent;
c. State whether they have been prepared in accordance with
UK-adopted International Accounting Standards in conformity
with the requirements of the Companies Act 2006; and
d. Prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and the
Company will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group’s and
the Company’s transactions and disclose with reasonable
accuracy at any time the financial position of the Group and
the Company and enable them to ensure that the financial
statements comply with the Companies Act 2006. They are
also responsible for safeguarding the assets of the Group and
the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Zephyr Energy plc website. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
34 Zephyr Energy plc Annual Report and Financial Statements 2022
Governance
(cid:42)ndependent Auditor(cid:360)s Report
to t(cid:159)e (cid:61)em(cid:133)ers o(cid:153) (cid:117)ep(cid:159)(cid:234)r (cid:24)ner(cid:154)(cid:234) plc
Opinion on the financial statements
Independence
In our opinion:
• The financial statements give a true and fair view of the state
of the Group’s and of the Parent Company’s affairs as at 31
December 2022 and of the Group’s profit for the year then
ended;
• The Group financial statements have been properly prepared
in accordance with UK-adopted international accounting
standards;
• The Parent Company financial statements have been properly
prepared in accordance with UK-adopted international
accounting standards and as applied in accordance with the
provisions of the Companies Act 2006; and
• The financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
We have audited the financial statements of Zephyr Energy plc
(the “Parent Company”) and its subsidiaries (the “Group”) for the
year ended 31 December 2022 which comprise the
Consolidated Income Statement, the Consolidated Statement
of Comprehensive Income, the Consolidated Balance Sheet, the
Consolidated Statement of Changes in Equity, the Consolidated
(cid:14)ash Flow Statement, the (cid:14)ompany Balance Sheet, the
Company Statement of Changes in Equity, the Company Cash
Flow Statement and the Notes to the Financial Statements,
including a summary of significant accounting policies. The
financial reporting framework that has been applied in their
preparation is applicable law and UK adopted international
accounting standards and, as regards the Parent Company
financial statements, as applied in accordance with the
provisions of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in
the Auditor’s responsibilities for the audit of the financial
statements section of our report. We believe that the audit
evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
We remain independent of the Group and the Parent Company
in accordance with the ethical requirements that are relevant to
our audit of the financial statements in the UK, including the
FR(cid:14)(cid:360)s (cid:24)thical Standard as applied to listed entities, and we have
fulfilled our other ethical responsibilities in accordance with
these requirements.
Material uncertainty related to
going concern
We draw your attention to note 3 of the financial statements,
which explains that the Parent Company’s and Group’s ability to
continue as a going concern is dependent on securing forecast
insurance recoveries relating to the well control incident or
raising additional funding in order to meet its expected liabilities
and commitments as they fall due. These events or conditions,
along with other matters as set out in note 3 indicate that a
material uncertainty exists, which may cast significant doubt
over the Group’s and Parent Company’s ability to continue as a
going concern. Our opinion is not modified in respect of this
matter.
We have determined going concern to be a key audit matter as
a result of the judgements and estimates made by the Directors
and significance of this area.
Our evaluation of the Directors’ assessment of the Group and
the Parent Company’s ability to continue to adopt the going
concern basis of accounting and our response to this key audit
matter is set out below:
• Obtaining and evaluating the Board papers assessing going
concern and viability for the forecast period, the assessment
of risks and uncertainties and the supporting cashflow
forecasts prepared by Directors. We formed our own
assessment of risks and uncertainties based on our
understanding of the business and oil and gas sector;
• Performing a detailed review of the cashflow forecasts
prepared by Directors and assessing the appropriateness of
the period over which going concern is being assessed;
Zephyr Energy plc Annual Report and Financial Statements 2022
35
Governance Independent Auditor’s Report to the Members of Zephyr Energy plc continued
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of
the Group and its environment, including the Group’s system of
internal control, and assessing the risks of material
misstatement in the financial statements. We also addressed
the risk of management override of internal controls, including
assessing whether there was evidence of bias by the Directors
that may have represented a risk of material misstatement.
Identification of significant components
The Group’s exploration and producing assets are based in the
states of North Dakota and Montana, U.S. Our Group audit scope
focused on the Group’s producing and exploration assets to gain
sufficient coverage over the Group’s total assets, total revenue
and profit before tax while considering the audit risks identified.
As a result, we determined two significant components which
were subjected to a full scope audit by the Group audit team:
Zephyr Energy plc and the US based subsidiary Rose Petroleum
(US) LLC.
The financial information of the remaining non-significant
components was principally subject to analytical review
procedures performed by the Group audit team.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the
financial statements of the current year and include the most
significant assessed risks of material misstatement (whether or
not due to fraud) that we identified, including those which had
the greatest effect on the overall audit strategy, the allocation
of resources in the audit, and directing the efforts of the
engagement team. These matters were addressed in the
context of our audit of the financial statements as a whole, and
in forming our opinion thereon, and we do not provide a
separate opinion on these matters. In addition to the matter
described in the material uncertainty related to going concern
section of our report, we determined the matter below to be a
key audit matter.
• Assessing Directors’ base case cashflow forecast and
the underlying key assumptions which have been approved
by the Board and the mathematical accuracy of such. In doing
so, we considered metrics affecting the future cashflows,
such as operating costs, production, forecast oil prices and
capital expenditure commitments approved by the Board
against actual performance for the year 2022 and the
forecasts presented in the CPR both for the assets of the
Group as of year-end as well as the CPR for the Williston
Basin fields ac(cid:202)uired in February (cid:258)(cid:256)(cid:258)(cid:258)(cid:330)
• Obtaining supporting documents for the funding secured
subsequent to year end;
• Assessing the accuracy of debt repayment schedule against
the underlying loan agreement and amortisation schedules;
• Agreeing the recent available cash position to bank
statements;
• Obtaining and reviewing the sensitivity analysis reflecting
adverse scenarios by applying a lower than forecast oil price
or lower than forecast production;
• Reviewing correspondence regarding insurance related to
the well 36-2 incident taking place after the reporting date
to validate the existence of the insurance arrangement and
obtaining the evidence of claim submitted to date;
• Reviewing post year end press releases, RNS announcements
and board minutes for any indicators of obligations or
significant adverse issues; and
• Reviewing and evaluating the adequacy and completeness
of disclosures in the financial statements in respect of going
concern based on the evidence obtained through the
procedures as per above.
In auditing the financial statements, we have concluded that the
Directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our responsibilities and the responsibilities of the Directors with
respect to going concern are described in the relevant sections
of this report.
Overview
Coverage1
100% of Group profit before tax
100% of Group revenue
100% of Group total assets
Key audit
matters
Carrying value of oil
and gas properties
2022
2021
3
3
Going concern
3
3
1 These are areas which have been subject to a full scope audit by the group
engagement team.
Materiality
Group financial statements as a whole
US$1.5 million based on 1.5% of total assets as
at year end (2021: US$0.6 million based on
1.5% of total assets
36
Zephyr Energy plc Annual Report and Financial Statements 2022
Governance Independent Auditor’s Report to the Members of Zephyr Energy plc continued
Key audit matter
Carrying value of oil
and gas properties
Refer to notes 3 and 16.
The oil and gas development and
producing assets form a significant part
of the Group’s statement of financial
position. Management is required to
consider if there are any facts or
circumstances (potential impairment
indicators) that would suggest that the
oil and gas producing properties would
be impaired in accordance with IAS 36,
“Impairment of assets”. Where indicators
of impairment are identified, impairment
testing is required to ensure that the
Group’s assets are carried at no more
than their recoverable amount. Following
their assessment, management have not
identified any impairment indicators on
its oil and gas properties.
How the scope of our audit addressed the key audit matter
Our audit procedures in this regard included:
•
•
•
•
•
•
Reviewing and assessing management’s allocation of
assets to the cash generating unit (“CGU”) for the
purpose of the impairment indicators assessment;
Examining management’s assessment of impairment
indicators against the requirements of the applicable
accounting standards.
Assessing performance since acquisition in the financial
year 2022 for the oil and gas properties, included in the
CGU by reviewing the production volumes, operating
and transportation costs against the forecasts prepared
as part of CPR.
Performing a review of management’s economic model
assumptions, challenging the appropriateness of
estimates with reference to historical data and external
evidence where available and assessing the related key
estimates for potential management bias..
Checking the consistency of the reserves and related
future cashflows with the economic forecasts as per
the latest CPR and assessing whether the discounted
cashflow forecast as per the CPR is consistent with the
management’s impairment indicators assessment.
Assessing the management’s experts preparing the CPR
on the oil and gas reserves, particularly focused on the
competency of the expert and the scope of their work
to check the CPR was prepared under the required
guidelines and is appropriate for its intended purpose.
Key observations
Based on procedures performed we found the judgements
and estimates applied by management in assessing the oil
and gas properties for indicators of impairment were
appropriate and that their conclusion that there was no
impairment as of 31 December 2022 to be reasonable.
Zephyr Energy plc Annual Report and Financial Statements 2022
37
Governance Independent Auditor’s Report to the Members of Zephyr Energy plc continued
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We
consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of
reasonable users that are taken on the basis of the financial statements.
In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality
level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not
necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular
circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.
Materiality
Basis for determining
materiality
Rationale for the
benchmark applied
Performance
materiality
Basis for determining
performance
materiality
Group financial statements
Parent Company financial statements
2022
US$ million
1.5
2021
US$ million
0.6
2022
US$ million
0.8
2021
US$ million
0.4
1.5% of total assets
1.5% of total assets
1.8% of total assets
1.1% of total assets
Given the asset-based
focus of the business
with its significant
exploration asset base
we considered it
appropriate to adopt a
total assets-based
measure of materiality.
Given the asset-based
focus of the business
with its significant
exploration asset base
we considered it
appropriate to adopt a
total assets-based
measure of materiality.
Given the asset-based
focus of the business
as a holding company
we considered it
appropriate to adopt a
total assets-based
measure of materiality.
Given the asset-based
focus of the business
as a holding company
we considered it
appropriate to adopt a
total assets-based
measure of materiality.
0.7
0.45
0.6
0.3
70% of materiality (2021: 65%).
Performance materiality was set at 70% based on consideration of factors including the level of historical
errors and nature of activities.
Component materiality
Component materiality for the U.S. based component Rose
Petroleum (US) LLC, which represented the only component
other than the Parent Company, was set at US$1.3 million (2021:
US$0.47 million) based on 1.5% of the component’s total assets.
In the audit of the component, we further applied performance
materiality levels of 70% of the component materiality to our
testing to ensure that the risk of errors exceeding component
materiality was appropriately mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to
them all individual audit differences in excess of US$30,000
(2021: US$12,000). We also agreed to report differences below
this threshold that, in our view, warranted reporting on
qualitative grounds.
Other information
The Directors are responsible for the other information. The
other information comprises the information included in the
(cid:1)nnual Report and Financial Statements other than the financial
statements and our auditor’s report thereon. Our opinion on the
financial statements does not cover the other information and,
except to the extent otherwise explicitly stated in our report, we
do not express any form of assurance conclusion thereon. Our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
course of the audit, or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether
this gives rise to a material misstatement in the financial
statements themselves. If, based on the work we have performed,
we conclude that there is a material misstatement of this other
information, we are required to report that fact.
We have nothing to report in this regard.
38 Zephyr Energy plc Annual Report and Financial Statements 2022
Governance Independent Auditor’s Report to the Members of Zephyr Energy plc continued
Other Companies Act 2006 reporting
Responsibilities of Directors
Based on the responsibilities described below and our work
performed during the course of the audit, we are required by the
Companies Act 2006 and ISAs (UK) to report on certain
opinions and matters as described below.
Strategic
Report and
Directors’
Report
Matters on
which we are
required to
report by
exception
In our opinion, based on the work undertaken
in the course of the audit:
• the information given in the Strategic
Report and the Directors’ Report for the
financial year for which the financial
statements are prepared is consistent with
the financial statements; and
• the Strategic Report and the Directors’
Report have been prepared in accordance
with applicable legal requirements.
In the light of the knowledge and
understanding of the Group and the Parent
Company and its environment obtained in the
course of the audit, we have not identified
material misstatement in the Strategic Report
or the Directors’ Report.
We have nothing to report in respect of the
following matters in relation to which the
Companies Act 2006 requires us to report to
you if, in our opinion:
• adequate accounting records have not been
kept by the Parent Company, or returns
adequate for our audit have not been
received from branches not visited by us; or
• the Parent Company financial statements
are not in agreement with the accounting
records and returns; or
• certain disclosures of Directors’
remuneration specified by law are not
made; or
• we have not received all the information and
explanations we require for our audit.
As explained more fully in the statement of Directors’
responsibilities, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give
a true and fair view, and for such internal control as the Directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether
due to fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Group’s and the Parent Company’s
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern
basis of accounting unless the Directors either intend to
liquidate the Group or the Parent Company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of
the financial statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of
users taken on the basis of these financial statements.
Extent to which the audit was capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with
our responsibilities, outlined above, to detect material
misstatements in respect of irregularities, including fraud.
The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below:
Non-compliance with laws and regulations
We obtained an understanding of the legal and regulatory
frameworks that are applicable to the Group. We determined
that the most significant which are directly relevant to specific
assertions in the financial statements are those related to the
reporting framework (UK-adopted international accounting
standards, the Companies Act 2006, the AIM rules and the
QCA Corporate Governance Code), local taxation legislation
in the countries where the Group operates, and the terms
and requirements included in the Group’s operating and
exploration licences.
Zephyr Energy plc Annual Report and Financial Statements 2022
39
Governance Independent Auditor’s Report to the Members of Zephyr Energy plc continued
• Communicating relevant identified laws and regulations and
identified fraud risks to all engagement team members and
remained alert to any indications of fraud or non-compliance
with laws and regulations throughout the audit.
Our audit procedures were designed to respond to risks of
material misstatement in the financial statements, recognising
that the risk of not detecting a material misstatement due to
fraud is higher than the risk of not detecting one resulting from
error, as fraud may involve deliberate concealment by, for
example, forgery, misrepresentations or through collusion. There
are inherent limitations in the audit procedures performed and
the further removed non-compliance with laws and regulations
is from the events and transactions reflected in the financial
statements, the less likely we are to become aware of it.
A further description of our responsibilities is available on
the Financial Reporting (cid:14)ouncil(cid:360)s website at(cid:329) www.frc.org.uk(cid:340)
auditorsresponsibilities. This description forms part of our
auditor’s report.
Use of our report
This report is made solely to the Parent Company’s members,
as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so
that we might state to the Parent Company’s members those
matters we are required to state to them in an auditor’s report
and for no other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than
the Parent Company and the Parent Company’s members as a
body, for our audit work, for this report, or for the opinions we
have formed.
Jack Draycott (Senior Statutory Auditor)
For and on behalf of BDO (cid:56)(cid:56)P
Statutory Auditor London
United Kingdom
23 June 2023
BDO LLP is a limited liability partnership registered
in England and Wales
(with registered number OC305127).
Our procedures included the following:
• We gained an understanding of how the Group is complying
with those legal and regulatory frameworks by making
inquiries of management, and those responsible for legal and
compliance procedures. We corroborated our inquires through
our review of board minutes and other supporting
documentation; and
• We reviewed the financial statement disclosures and tested to
supporting documentation to assess compliance with relevant
laws and regulations noted above.
Fraud
We assessed the susceptibility of the financial statements to
material misstatement, including fraud and considered the fraud
risk area to be management override of controls and revenue
recognition.
Our procedures included:
• Holding discussions with the audit engagement team as to
how and where fraud might occur in the financial statements
and where any potential indicators of fraud may arise in the
Group in order to consider how our audit strategy should
reflect our considerations;
• Testing the appropriateness of journal entries made
throughout the year, to supporting documentation, by
applying specific criteria to detect possible irregularities
or fraud;
• In addition to the key audit matters as per above we assessed
and challenged key areas of judgement and estimation
made by management to identify potential management’s
bias, including:
i)
Management’s assumptions and key estimates related to
decommissioning liabilities;
ii) Assumptions and key estimates related to determining
fair value of net assets acquired (“Kaiser acquisition”) in
February (cid:258)(cid:256)(cid:258)(cid:258).
• Agreeing revenue to supporting documentation of monthly
operators(cid:360) revenue statements(cid:340)(cid:172)oint interest billings to
confirm volume and pricing, together with evidence regarding
the receipt of cash;
• Performing cut-off testing on revenue around the year-end to
ensure that revenue is recognised in the correct period. This
included obtaining revenue statements from the operator
post year-end and verifying the related revenue was recorded
in the correct period;
• Inquiring of management and the Audit Committee of known
or suspected instances of fraud, potential litigation and
claims. We read minutes of meetings of those charged with
governance, and reviewed correspondence with local tax and
regulatory authorities;
• Obtaining an understanding of the design and implementation
of relevant controls surrounding the financial reporting close
process such as controls over the posting of journals and the
consolidation process and obtained an understanding of the
segregation of duties in these processes; and
40 Zephyr Energy plc Annual Report and Financial Statements 2022
Zephyr Energy plc Annual Report and Financial Statements 2022
Financial
Statements
Zephyr Energy plc Annual Report and Financial Statements 2022
41
Financial Statements
(cid:14)onsolid(cid:121)ted (cid:42)ncome St(cid:121)tement
For t(cid:159)e (cid:234)e(cid:121)r ended (cid:259)(cid:257) (cid:20)ecem(cid:133)er 2022
Revenue
Operating and transportation expenses
Production taxes
Depreciation, depletion and amortisation
Gains on derivative contracts
Gross profit
Administrative expenses
Share-based payments
Foreign exchange gains
Finance income
Finance costs
Profit on ordinary activities before taxation
Taxation charge
Profit for the year attributable to owners of the parent company
Profit per Ordinary Share
Basic, cents per share
Diluted, cents per share
The notes on pages 50 to 82 form part of the financial statements.
Notes
(cid:272)
(cid:267)(cid:272)
(cid:274)
(cid:273)
(cid:274)
(cid:267)(cid:267)
(cid:267)(cid:268)
(cid:267)(cid:268)
2022
US$’000
41,062
(4,458)
(3,318)
2021
US$’000
(cid:272),(cid:266)(cid:266)(cid:271)
(cid:349)(cid:269)(cid:275)(cid:272)(cid:350)
(cid:349)(cid:271)(cid:270)(cid:269)(cid:350)
(12,666)
(cid:349)(cid:267),(cid:273)(cid:271)(cid:271)(cid:350)
1,781
22,401
(4,834)
(210)
6,102
3
(2,236)
21,226
(1,955)
19,271
1.26
1.18
-
(cid:269),(cid:269)(cid:267)(cid:267)
(cid:349)(cid:268),(cid:272)(cid:274)(cid:273)(cid:350)
(cid:349)(cid:275)(cid:269)(cid:350)
(cid:270)(cid:272)(cid:267)
-
(cid:349)(cid:267)(cid:270)(cid:270)(cid:350)
(cid:274)(cid:270)(cid:274)
-
(cid:274)(cid:270)(cid:274)
(cid:266).(cid:266)(cid:274)
(cid:266).(cid:266)(cid:273)
42 Zephyr Energy plc Annual Report and Financial Statements 2022
Financial Statements
Financial Statements
(cid:14)onsolid(cid:121)ted St(cid:121)tement o(cid:153)
(cid:14)ompre(cid:159)ensi(cid:227)e (cid:42)ncome
For t(cid:159)e (cid:234)e(cid:121)r ended (cid:259)(cid:257) (cid:20)ecem(cid:133)er 2022
Profit for the year attributable to owners of the parent company
Other comprehensive income
Items that may be subsequently reclassified to profit or loss
Foreign currency translation differences on foreign operations
Total comprehensive profit for the year attributable to owners of the parent company
The notes on pages 50 to 82 form part of the financial statements.
2022
US$’000
19,271
2021
US$’000
(cid:274)(cid:270)(cid:274)
(6,205)
13,066
(cid:349)(cid:271)(cid:271)(cid:270)(cid:350)
(cid:268)(cid:275)(cid:270)
Zephyr Energy plc Annual Report and Financial Statements 2022
43
Financial Statements
(cid:14)onsolid(cid:121)ted (cid:13)(cid:121)l(cid:121)nce S(cid:159)eet
As (cid:121)t (cid:259)(cid:257) (cid:20)ecem(cid:133)er 2022
(cid:14)omp(cid:121)n(cid:234) (cid:62)o 0(cid:260)(cid:261)(cid:263)(cid:259)(cid:262)(cid:262)(cid:259)
Non-current assets
Exploration and evaluation assets
Property, plant and equipment
Derivative contracts
Current assets
Trade and other receivables
Prepayments and deposits
Cash and cash equivalents
Derivative contracts
Total assets
Current liabilities
Trade and other payables
Borrowings
Non-current liabilities
Borrowings
Deferred tax
Provisions
Total liabilities
Net assets
Equity
Share capital
Share premium account
Shares to be issued
Warrant reserve
Share-based payment reserve
Cumulative translation reserve
Retained deficit
Equity attributable to owners of the parent company
Notes
2022
US$’000
2021
US$’000
(cid:267)(cid:269)
(cid:267)(cid:270)
(cid:267)(cid:272)
(cid:267)(cid:274)
(cid:267)(cid:275)
(cid:268)(cid:266)
(cid:267)(cid:272)
(cid:268)(cid:267)
(cid:268)(cid:268)
(cid:268)(cid:268)
(cid:268)(cid:269)
(cid:268)(cid:270)
(cid:268)(cid:271)
(cid:268)(cid:273)
(cid:268)(cid:273)
(cid:268)(cid:272)
(cid:268)(cid:273)
(cid:268)(cid:273)
(cid:268)(cid:273)
37,986
51,805
175
(cid:268)(cid:268),(cid:273)(cid:273)(cid:269)
(cid:267)(cid:267),(cid:267)(cid:271)(cid:272)
-
89,966
(cid:269)(cid:269),(cid:275)(cid:268)(cid:275)
4,290
347
8,996
1,133
14,766
104,732
(12,520)
(14,572)
(27,092)
(10,821)
(1,955)
(4,138)
(16,914)
(44,006)
60,726
42,412
66,847
539
1,557
3,284
(15,984)
(37,929)
60,726
(cid:267),(cid:268)(cid:272)(cid:269)
(cid:269),(cid:271)(cid:273)(cid:269)
(cid:267),(cid:274)(cid:267)(cid:267)
-
(cid:272),(cid:272)(cid:270)(cid:273)
(cid:270)(cid:266),(cid:271)(cid:273)(cid:272)
(cid:349)(cid:271),(cid:270)(cid:267)(cid:270)(cid:350)
(cid:349)(cid:270),(cid:266)(cid:272)(cid:266)(cid:350)
(cid:349)(cid:275),(cid:270)(cid:273)(cid:270)(cid:350)
-
-
(cid:349)(cid:271)(cid:266)(cid:274)(cid:350)
(cid:349)(cid:271)(cid:266)(cid:274)(cid:350)
(cid:349)(cid:275),(cid:275)(cid:274)(cid:268)(cid:350)
(cid:269)(cid:266),(cid:271)(cid:275)(cid:270)
(cid:270)(cid:268),(cid:266)(cid:272)(cid:271)
(cid:271)(cid:268),(cid:274)(cid:273)(cid:271)
-
(cid:274)(cid:275)
(cid:269),(cid:266)(cid:272)(cid:271)
(cid:349)(cid:275),(cid:273)(cid:273)(cid:275)(cid:350)
(cid:349)(cid:271)(cid:273),(cid:273)(cid:268)(cid:267)(cid:350)
(cid:269)(cid:266),(cid:271)(cid:275)(cid:270)
The financial statements on pages 42 to 49 were approved by the Directors and authorised for issue on 23 June 2023 and are signed
on its behalf by:
CJ Eadie
Finance Director
The notes on pages 50 to 82 form part of the financial statements.
44 Zephyr Energy plc Annual Report and Financial Statements 2022
Financial Statements
(cid:14)onsolid(cid:121)ted St(cid:121)tement o(cid:153)
(cid:14)(cid:159)(cid:121)n(cid:154)es in (cid:24)(cid:202)uit(cid:234)
For t(cid:159)e (cid:234)e(cid:121)r ended (cid:259)(cid:257) (cid:20)ecem(cid:133)er 2022
Share
capital
US$’000
Share
premium
account
US$’000
Shares to
be issued
US$’000
Warrant
reserve
US$’000
Share-based
payment
reserve
US$’000
Cumulative
translation
reserve
US$’000
Retained
deficit
US$’000
Total
US$’000
As at 1 January 2021
(cid:270)(cid:267),(cid:268)(cid:268)(cid:267)
(cid:269)(cid:275),(cid:272)(cid:269)(cid:274)
Transactions with owners in their
capacity as owners:
Issue of equity shares
(cid:274)(cid:267)(cid:272)
(cid:267)(cid:270),(cid:272)(cid:273)(cid:275)
Expenses of issue of equity shares
Transfer to retained deficit in respect of
exercised warrants
Share-based payments
Transfer to retained deficit in respect of
expired options
Total transactions with owners in their
capacity as owner
Profit for the year
Other comprehensive income:
Currency translation differences
Total other comprehensive income for
the year
Total comprehensive income for the year
-
-
(cid:268)(cid:274)
-
(cid:349)(cid:267),(cid:270)(cid:270)(cid:268)(cid:350)
-
-
-
(cid:274)(cid:270)(cid:270)
(cid:267)(cid:269),(cid:268)(cid:269)(cid:273)
-
-
-
-
-
-
-
-
As at 31 December 2021
(cid:270)(cid:268),(cid:266)(cid:272)(cid:271)
(cid:271)(cid:268),(cid:274)(cid:273)(cid:271)
(cid:268)(cid:268)(cid:273)
(cid:269),(cid:273)(cid:272)(cid:268)
(cid:349)(cid:275),(cid:268)(cid:268)(cid:271)(cid:350)
(cid:349)(cid:272)(cid:266),(cid:266)(cid:274)(cid:271)(cid:350)
(cid:267)(cid:271),(cid:271)(cid:269)(cid:274)
-
-
-
(cid:272)(cid:267)(cid:272)
(cid:349)(cid:267)(cid:269)(cid:274)(cid:350)
(cid:349)(cid:272)(cid:268)(cid:275)(cid:350)
-
-
(cid:272)(cid:271)
(cid:349)(cid:273)(cid:270)(cid:275)(cid:350)
(cid:349)(cid:267)(cid:269)(cid:274)(cid:350)
(cid:349)(cid:272)(cid:275)(cid:273)(cid:350)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(cid:267)(cid:271),(cid:270)(cid:275)(cid:271)
(cid:349)(cid:274)(cid:268)(cid:272)(cid:350)
(cid:273)(cid:272)(cid:273)
-
(cid:273)(cid:270)(cid:275)
-
(cid:275)(cid:269)
-
(cid:267),(cid:271)(cid:267)(cid:272)
(cid:267)(cid:270),(cid:273)(cid:272)(cid:268)
(cid:274)(cid:270)(cid:274)
(cid:274)(cid:270)(cid:274)
(cid:349)(cid:271)(cid:271)(cid:270)(cid:350)
(cid:349)(cid:271)(cid:271)(cid:270)(cid:350)
(cid:349)(cid:271)(cid:271)(cid:270)(cid:350)
-
-
(cid:274)(cid:270)(cid:274)
(cid:349)(cid:271)(cid:271)(cid:270)(cid:350)
(cid:349)(cid:271)(cid:271)(cid:270)(cid:350)
(cid:268)(cid:275)(cid:270)
(cid:274)(cid:275)
(cid:269),(cid:266)(cid:272)(cid:271)
(cid:349)(cid:275),(cid:273)(cid:273)(cid:275)(cid:350)
(cid:349)(cid:271)(cid:273),(cid:273)(cid:268)(cid:267)(cid:350)
(cid:269)(cid:266),(cid:271)(cid:275)(cid:270)
-
-
-
-
-
-
-
-
-
-
-
-
-
Transactions with owners in their
capacity as owners:
Issue of equity shares
Exercise of warrants
Expenses of issue of equity shares
Warrant exercise extension
Grant of warrants
Share-based payments
Transfer to retained deficit in respect of
lapsed options
Transfer to retained deficit in respect of
expired warrants
Total transactions with owners in their
capacity as owner
Profit for the year
Other comprehensive income:
Currency translation differences
Total other comprehensive income for
the year
Total comprehensive income for the year
347
17,023
-
-
-
-
-
-
-
-
-
539
(122)
(1,461)
(33)
(1,557)
-
-
-
-
-
-
-
-
-
-
33
1,557
-
-
-
-
-
408
-
-
210
(387)
(12)
347
13,972
539
1,468
219
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
17,370
122
539
-
-
-
-
(1,053)
-
-
210
387
12
-
-
521
17,066
19,271
19,271
(6,205)
(6,205)
-
-
(6,205)
(6,205)
(6,205)
19,271
13,066
As at 31 December 2022
42,412
66,847
539
1,557
3,284
(15,984)
(37,929)
60,726
The notes on pages 50 to 82 form part of the financial statements.
Zephyr Energy plc Annual Report and Financial Statements 2022
45
Financial Statements
(cid:14)onsolid(cid:121)ted (cid:14)(cid:121)s(cid:159) Flo(cid:228) St(cid:121)tement
For t(cid:159)e (cid:234)e(cid:121)r ended (cid:259)(cid:257) (cid:20)ecem(cid:133)er 2022
Operating activities
Profit for the year from continuing operations
Adjustments for:
Finance income
Finance costs
Unrealised gain on derivative contracts
Depreciation and depletion of property, plant and equipment
Share-based payments
Unrealised foreign exchange gain
Operating cash inflow before movements in working capital
Increase in trade and other receivables
Decrease(cid:340)(cid:349)increase(cid:350) in prepayments and deposits
Increase in trade and other payables
Cash generated from operations
Income tax paid
Net cash generated from operating activities
Investing activities
Additions to exploration and evaluations assets
Business combination
Acquisition of oil and gas properties
Additions to oil and gas properties
Deposits paid
Increase in capital expenditures related payables
Additions to plant and machinery
Grant funds received
Interest received
Net cash used in investing activities
Financing activities
Net proceeds from issue of shares
Exercise of warrants
Repayment of lease liabilities
Proceeds from borrowings
Repayment of borrowings
Interest and fees paid on borrowings
Increase in prepayments and deposits
Net cash generated from financing activities
Net increase/ (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of foreign exchange rate changes
Cash and cash equivalents at end of year
The notes on pages 50 to 82 form part of the financial statements.
46 Zephyr Energy plc Annual Report and Financial Statements 2022
2022
US$’000
2021
US$’000
21,226
(3)
2,236
(1,308)
12,668
210
(5,672)
29,357
(3,028)
178
723
27,230
-
27,230
(13,297)
(37,880)
(3,362)
(10,482)
-
9,300
-
-
3
(cid:274)(cid:270)(cid:274)
-
(cid:267)(cid:270)(cid:270)
-
(cid:267),(cid:273)(cid:273)(cid:274)
(cid:275)(cid:269)
(cid:349)(cid:270)(cid:271)(cid:267)(cid:350)
(cid:268),(cid:270)(cid:267)(cid:268)
(cid:349)(cid:267),(cid:266)(cid:273)(cid:275)(cid:350)
(cid:349)(cid:271)(cid:273)(cid:268)(cid:350)
(cid:267)(cid:273)(cid:268)
(cid:275)(cid:269)(cid:269)
-
(cid:275)(cid:269)(cid:269)
(cid:349)(cid:275),(cid:266)(cid:274)(cid:269)(cid:350)
-
(cid:349)(cid:271),(cid:270)(cid:270)(cid:269)(cid:350)
(cid:349)(cid:273),(cid:266)(cid:269)(cid:267)(cid:350)
(cid:349)(cid:269),(cid:266)(cid:266)(cid:266)(cid:350)
(cid:268),(cid:273)(cid:273)(cid:269)
(cid:349)(cid:270)(cid:350)
(cid:268)(cid:275)(cid:266)
-
(55,718)
(cid:349)(cid:268)(cid:267),(cid:270)(cid:275)(cid:274)(cid:350)
16,317
(cid:267)(cid:270),(cid:272)(cid:272)(cid:275)
539
-
30,500
(8,931)
(2,218)
-
36,207
7,719
1,811
(534)
8,996
-
(cid:349)(cid:274)(cid:350)
(cid:270),(cid:266)(cid:272)(cid:266)
-
(cid:349)(cid:267)(cid:268)(cid:270)(cid:350)
(cid:349)(cid:271)(cid:266)(cid:350)
(cid:267)(cid:274),(cid:271)(cid:270)(cid:273)
(cid:349)(cid:268),(cid:266)(cid:267)(cid:274)(cid:350)
(cid:269),(cid:275)(cid:270)(cid:266)
(cid:349)(cid:267)(cid:267)(cid:267)(cid:350)
(cid:267),(cid:274)(cid:267)(cid:267)
Financial Statements
(cid:14)omp(cid:121)n(cid:234) (cid:13)(cid:121)l(cid:121)nce S(cid:159)eet
As (cid:121)t (cid:259)(cid:257) (cid:20)ecem(cid:133)er 2022
(cid:14)omp(cid:121)n(cid:234) (cid:62)o 0(cid:260)(cid:261)(cid:263)(cid:259)(cid:262)(cid:262)(cid:259)
Non-current assets
Investments
Property, plant and equipment
Current assets
Trade and other receivables
Prepayments and deposits
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Borrowings
Total liabilities
Net assets
Equity
Share capital
Share premium account
Shares to be issued
Warrant reserve
Share-based payment reserve
Cumulative translation reserve
Retained deficit
Total equity
Notes
2022
US$’000
2021
US$’000
(cid:267)(cid:273)
(cid:267)(cid:270)
(cid:267)(cid:274)
(cid:267)(cid:275)
(cid:268)(cid:266)
(cid:268)(cid:267)
(cid:268)(cid:268)
(cid:268)(cid:271)
(cid:268)(cid:273)
(cid:268)(cid:273)
(cid:268)(cid:272)
(cid:268)(cid:273)
(cid:268)(cid:273)
(cid:268)(cid:273)
43,850
(cid:269)(cid:271),(cid:266)(cid:272)(cid:269)
6
(cid:275)
43,856
(cid:269)(cid:271),(cid:266)(cid:273)(cid:268)
41
41
118
200
(cid:269)(cid:269)
(cid:269)(cid:267)
(cid:267),(cid:271)(cid:273)(cid:270)
(cid:267),(cid:272)(cid:269)(cid:274)
44,056
(cid:269)(cid:272),(cid:273)(cid:267)(cid:266)
(459)
-
(459)
(459)
(cid:349)(cid:270)(cid:271)(cid:273)(cid:350)
(cid:349)(cid:270),(cid:266)(cid:272)(cid:266)(cid:350)
(cid:349)(cid:270),(cid:271)(cid:267)(cid:273)(cid:350)
(cid:349)(cid:270),(cid:271)(cid:267)(cid:273)(cid:350)
43,597
(cid:269)(cid:268),(cid:267)(cid:275)(cid:269)
42,412
66,847
539
1,557
3,284
(13,427)
(57,615)
43,597
(cid:270)(cid:268),(cid:266)(cid:272)(cid:271)
(cid:271)(cid:268),(cid:274)(cid:273)(cid:271)
-
(cid:274)(cid:275)
(cid:269),(cid:266)(cid:272)(cid:271)
(cid:349)(cid:274),(cid:268)(cid:270)(cid:273)(cid:350)
(cid:349)(cid:271)(cid:273),(cid:272)(cid:271)(cid:270)(cid:350)
(cid:269)(cid:268),(cid:267)(cid:275)(cid:269)
As permitted by section 408 of the Companies Act 2006, the Parent Company’s Income Statement and Statement of
Comprehensive Income have not been included in these financial statements.
The loss for the Company for the year ended 31 December 2022 is US$0.5 million (2021: US$1 million).
The financial statements on pages 42 to 49 were approved by the Directors and authorised for issue on 23 June 2023 and are signed
on its behalf by:
CJ Eadie
Finance Director
The notes on pages 50 to 82 form part of the financial statements.
Zephyr Energy plc Annual Report and Financial Statements 2022
47
Financial Statements Company Statement of Changes in Equity continued
(cid:14)omp(cid:121)n(cid:234) St(cid:121)tement o(cid:153)
(cid:14)(cid:159)(cid:121)n(cid:154)es in (cid:24)(cid:202)uit(cid:234)
For t(cid:159)e (cid:234)e(cid:121)r ended (cid:259)(cid:257) (cid:20)ecem(cid:133)er 2022
Share
capital
US$’000
Share
premium
account
US$’000
Shares to
be issued
US$’000
Warrant
reserve
US$’000
Share-
based
payment
reserve
US$’000
Cumulative
translation
reserve
US$’000
Retained
deficit
US$’000
Total
US$’000
As at 1 January 2021
(cid:270)(cid:267),(cid:268)(cid:268)(cid:267)
(cid:269)(cid:275),(cid:272)(cid:269)(cid:274)
Transactions with owners in their
capacity as owners:
Issue of equity shares
(cid:274)(cid:267)(cid:272)
(cid:267)(cid:270),(cid:272)(cid:273)(cid:275)
Expenses of issue of equity shares
Transfer to retained deficit in
respect of exercised warrants
Share-based payments
Transfer to retained deficit in
respect of expired options
-
-
(cid:268)(cid:274)
-
(cid:349)(cid:267),(cid:270)(cid:270)(cid:268)(cid:350)
-
-
-
Total transactions with owners in
their capacity as owner
(cid:274)(cid:270)(cid:270)
(cid:267)(cid:269),(cid:268)(cid:269)(cid:273)
Loss for the year
Other comprehensive income:
Currency translation differences
Total other comprehensive income
for the year
Total comprehensive income for
the year
-
-
-
-
-
-
-
-
As at 31 December 2021
(cid:270)(cid:268),(cid:266)(cid:272)(cid:271)
(cid:271)(cid:268),(cid:274)(cid:273)(cid:271)
(cid:268)(cid:268)(cid:273)
(cid:269),(cid:273)(cid:272)(cid:268)
(cid:349)(cid:273),(cid:273)(cid:270)(cid:269)(cid:350)
(cid:349)(cid:271)(cid:274),(cid:267)(cid:275)(cid:274)(cid:350)
(cid:267)(cid:274),(cid:275)(cid:266)(cid:273)
-
-
(cid:349)(cid:267)(cid:269)(cid:274)(cid:350)
-
-
-
(cid:272)(cid:267)(cid:272)
(cid:349)(cid:272)(cid:268)(cid:275)(cid:350)
(cid:272)(cid:271)
(cid:349)(cid:273)(cid:270)(cid:275)(cid:350)
(cid:349)(cid:267)(cid:269)(cid:274)(cid:350)
(cid:349)(cid:272)(cid:275)(cid:273)(cid:350)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(cid:267)(cid:271),(cid:270)(cid:275)(cid:271)
(cid:349)(cid:274)(cid:268)(cid:272)(cid:350)
(cid:273)(cid:272)(cid:273)
-
(cid:273)(cid:270)(cid:275)
-
(cid:275)(cid:269)
-
(cid:267),(cid:271)(cid:267)(cid:272)
(cid:267)(cid:270),(cid:273)(cid:272)(cid:268)
(cid:349)(cid:275)(cid:273)(cid:268)(cid:350)
(cid:349)(cid:275)(cid:273)(cid:268)(cid:350)
(cid:349)(cid:271)(cid:266)(cid:270)(cid:350)
(cid:349)(cid:271)(cid:266)(cid:270)(cid:350)
-
-
(cid:349)(cid:271)(cid:266)(cid:270)(cid:350)
(cid:349)(cid:271)(cid:266)(cid:270)(cid:350)
(cid:349)(cid:271)(cid:266)(cid:270)(cid:350)
(cid:349)(cid:275)(cid:273)(cid:268)(cid:350)
(cid:349)(cid:267),(cid:270)(cid:273)(cid:272)(cid:350)
(cid:274)(cid:275)
(cid:269),(cid:266)(cid:272)(cid:271)
(cid:349)(cid:274),(cid:268)(cid:270)(cid:273)(cid:350)
(cid:349)(cid:271)(cid:273),(cid:272)(cid:271)(cid:270)(cid:350)
(cid:269)(cid:268),(cid:267)(cid:275)(cid:269)
-
-
-
-
-
-
-
-
-
-
-
-
-
Transactions with owners in their
capacity as owners:
Issue of equity shares
Exercise of warrants
Expenses of issue of equity shares
Warrant exercise extension
Grant of warrants
Share-based payments
Transfer to retained deficit in
respect of lapsed options
Transfer to retained deficit in
respect of expired warrants
Total transactions with owners in
their capacity as owner
Loss for the year
Other comprehensive income:
Currency translation differences
Total other comprehensive income
for the year
Total comprehensive income for
the year
347
17,023
-
-
-
-
-
-
-
-
-
539
(122)
(1,461)
(33)
(1,557)
-
-
-
-
-
-
-
-
-
-
33
1,557
-
-
-
-
-
408
-
-
210
(387)
(12)
347
13,972
539
1,468
219
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
17,370
122
539
-
-
-
-
387
12
(1,053)
-
-
210
-
-
521
17,066
(482)
(482)
(5,180)
(5,180)
-
-
(5,180)
(5,180)
(5,180)
(482)
(5,662)
As at 31 December 2022
42,412
66,847
539
1,557
3,284
(13,427)
(57,615)
43,597
The notes on pages 50 to 82 form part of the financial statements.
48 Zephyr Energy plc Annual Report and Financial Statements 2022
Financial Statements
(cid:14)omp(cid:121)n(cid:234) (cid:14)(cid:121)s(cid:159) Flo(cid:228) St(cid:121)tement
For t(cid:159)e (cid:234)e(cid:121)r ended (cid:259)(cid:257) (cid:20)ecem(cid:133)er 2022
Operating activities
Loss before taxation
Adjustments for:
Finance income
Finance costs
Depreciation of property, plant and equipment
Share-based payments
Unrealised foreign exchange
Operating cash outflow before movements in working capital
Increase in trade and other receivables
Increase in prepayments
Increase in trade and other payables
Net cash used in operating activities
Investing activities
Loans to subsidiary undertakings
Purchase of property, plant and equipment
Net cash used in investing activities
Financing activities
Net proceeds from the issue of shares
Proceeds from exercise of warrant
Repayment of lease liabilities
Proceeds from borrowings
Repayment of borrowings
Interest paid on borrowings
Net cash generated from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of foreign exchange rate changes
Cash and cash equivalents at end of year
The notes on pages 50 to 82 form part of the financial statements.
2022
US$’000
2021
US$’000
(482)
(cid:349)(cid:275)(cid:273)(cid:268)(cid:350)
(1,215)
272
2
210
(1,407)
(2,620)
(8)
(9)
16
(cid:349)(cid:269)(cid:273)(cid:266)(cid:350)
(cid:267)(cid:269)(cid:273)
(cid:268)(cid:269)
(cid:275)(cid:269)
(cid:349)(cid:269)(cid:269)(cid:268)(cid:350)
(cid:349)(cid:267),(cid:270)(cid:268)(cid:267)(cid:350)
(cid:349)(cid:267)(cid:267)(cid:350)
(cid:349)(cid:267)(cid:274)(cid:350)
(cid:267)(cid:268)(cid:274)
(2,621)
(cid:349)(cid:267),(cid:269)(cid:268)(cid:268)(cid:350)
(11,330)
(cid:349)(cid:267)(cid:273),(cid:275)(cid:269)(cid:266)(cid:350)
-
(cid:349)(cid:270)(cid:350)
(11,330)
(cid:349)(cid:267)(cid:273),(cid:275)(cid:269)(cid:270)(cid:350)
16,317
(cid:267)(cid:270),(cid:272)(cid:272)(cid:275)
539
-
-
(4,060)
(287)
12,509
(1,442)
1,574
(14)
118
-
(cid:349)(cid:274)(cid:350)
(cid:270),(cid:266)(cid:272)(cid:266)
-
(cid:349)(cid:267)(cid:268)(cid:270)(cid:350)
(cid:267)(cid:274),(cid:271)(cid:275)(cid:273)
(cid:349)(cid:272)(cid:271)(cid:275)(cid:350)
(cid:268),(cid:268)(cid:270)(cid:271)
(cid:349)(cid:267)(cid:268)(cid:350)
(cid:267),(cid:271)(cid:273)(cid:270)
Zephyr Energy plc Annual Report and Financial Statements 2022
49
Financial Statements
(cid:62)otes to t(cid:159)e Fin(cid:121)nci(cid:121)l St(cid:121)tements
For t(cid:159)e (cid:234)e(cid:121)r ended (cid:259)(cid:257) (cid:20)ecem(cid:133)er 2022
1. Corporate information
Zephyr Energy plc (the “Company” and, together with its
subsidiaries, the “Group”) is a public company limited by shares,
domiciled and incorporated in the United Kingdom under the
Companies Act 2006. The address of the registered office is
20-22 Wenlock Road, London, N1 7GU.
The Company’s Ordinary Shares are approved to trade on the
OTCQB Venture Market (“OTCQB”) in the U.S. under the ticker
(cid:117)PHRF. (cid:92)he ability to trade in the (cid:14)ompany(cid:360)s Ordinary Shares
on AIM is not affected by the OTCQB facility.
Zephyr Energy plc is a technology-led Evaluation & Production
(“E&P”) company focused on the delivery of superior economic
returns through responsible resource development from its
carbon-neutral portfolio of operated and non-operated assets
in the Rocky Mountain region of the U.S.
2. Adoption of new and revised standards
Standards adopted during the year
The Group has adopted all of the new or amended Accounting
Standards and interpretations issued by the International
Accounting Standards Board (“IASB”) that are mandatory and
relevant to the Group’s activities for the current reporting period.
The following new and revised Standards have been adopted
but have not had any material impact on the amounts reported
in these financial statements:
• Amendments to IAS 16 – Property, plant and equipment
– proceeds before intended use
• (cid:1)nnual improvements to (cid:42)FRS standards (cid:258)(cid:256)1(cid:264)-(cid:258)(cid:256)(cid:258)(cid:256)
• (cid:1)mendments to (cid:42)FRS (cid:259) (cid:346) Reference to the conceptual
framework
• Amendments to IAS 37 – Onerous contracts – cost of
fulfilling a contract
Standards issued but not yet effective
Any new or amended Accounting Standards or interpretations
that are not yet mandatory (and in some cases, had not yet
been endorsed by the UK Endorsement Board) have not been
early adopted by the Group for the year ended 31 December
2022. They are as follows:
• Amendments to IAS 1 – Classification of liabilities as current
or non-current
• (cid:1)mendments to (cid:42)FRS 1(cid:263) (cid:346) Insurance contracts
• (cid:1)mendments to (cid:42)FRS 1(cid:263) (cid:346) Initial application of IFRS 17 and
IFRS 9 – comparative information
• Amendments to IAS 12 – Deferred tax related assets and
liabilities arising from a single transaction
• (cid:1)mendments to (cid:42)(cid:1)S 1 and (cid:42)FRS practice statement (cid:258) -
Disclosure of accounting policies
• Amendments to IAS 8 – Definition of accounting estimates
• (cid:1)mendments to (cid:42)FRS 1(cid:262) (cid:346) Lease liability in a sale and
leaseback
• Amendments to IAS 1 – Non-current liabilities with
covenants
The Directors do not expect that the adoption of these Standards
or Interpretations in future periods will have a material impact on
the financial statements of the Company or the Group.
3. Significant accounting policies
Basis of preparation
The financial statements have been prepared in accordance
with UK-adopted International Accounting Standards and with
the requirements of the Companies Act 2006 as applicable to
companies reporting under those standards.
The financial statements have been prepared on the historical
cost basis, other than certain financial assets and liabilities,
which are stated at fair value. Historical cost is generally based
on the fair value of the consideration given in exchange for assets.
The financial statements are presented in United States dollars
(“US$”). All amounts have been rounded to the nearest
thousand, unless otherwise indicated.
As described below, the Directors continue to adopt the going
concern basis in preparing the consolidated and the Company
financial statements.
The accounting policies set out below have, unless otherwise
stated, been applied consistently to all periods presented in
these financial statements.
The preparation of the financial statements in compliance
with UK-adopted international accounting standards requires
management to make estimates and exercise judgement in
applying the Group’s accounting policies. The significant
judgments made by the Directors in the application of these
accounting policies that have significant impact on the financial
statements and the key sources of estimation uncertainty are
disclosed in note 4.
50 Zephyr Energy plc Annual Report and Financial Statements 2022
Financial Statements Notes to the Financial Statements continued
3. Significant accounting policies continued
Going concern
The Directors have prepared cashflow forecasts for the Group
and Parent Company for the period to 31 December 2024 based
on their assessment of both the discretionary and the non-
discretionary cash requirements of the Group during this period
and based on a range of sensitivities and scenarios.
These cashflow forecasts include the forecast revenues from,
and the operating costs of, the Group’s operations, together
with all committed development expenditure and cashflows
related to the well control incident on the State 36-2 well. The
Board has also incorporated its best current estimates on the
timing of first cashflows from the six Slawson operated wells
that were acquired in December 2022. The wells are currently
expected to come online in autumn 2023 with first cashflows
received by the Group in January 2024.
The cashflows reflect the Board’s current best estimates on
quantum and timings in respect of expected insurance
recoveries in relation to the well control incident. While the
Board expects the insurance proceeds to be received in
accordance with the forecast, these proceeds have not been
received at the date of this report. Should the insurance
proceeds be delayed or lower than expected, the Group could
require further funding to meet its commitments within the
going concern assessment period.
Following detailed discussions, the Directors are confident that
the Group and the Parent Company have, or will be able to
secure insurance recoveries as per above, or additional funding
to enable it to continue in operation for at least the next twelve
months, however, the Group and Parent Company’s ability to
secure such proceeds or funding cannot be guaranteed, which
leads to material uncertainty which may cast significant doubt
over the Group and Parent Company’s ability to continue as a
going concern, and that it may be unable to realise its assets
and discharge its liabilities in the normal course of business.
The Directors have extensive experience in raising capital for
projects and ventures and remain confident in the Group’s
ability to raise the capital needed to maintain and deliver on
its commitments and continue as a going concern, and that it
may be unable to realise its assets and discharge its liabilities
in the normal course of business.
The Directors continue to adopt the going concern basis in
preparing the consolidated financial statements. The financial
statements do not include any adjustments that would be
required should the going concern basis of preparation no
longer be appropriate.
Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and its subsidiary undertakings
(together, “the Group”) made up to 31 December each year.
Subsidiary undertakings are those entities controlled directly
or indirectly by the Company. Control is achieved when the
Company is exposed to, or has rights to, variable returns from
its involvement with the entity and has the ability to affect
those returns through its power over the entity.
The results of subsidiaries acquired or disposed of during the
year are included in the income statement from the date on
which control is transferred to the Group or, up to the date that
control ceases, as appropriate. Where necessary, adjustments
are made to the financial statements of subsidiaries to bring
accounting policies used into line with those used by the Group.
The Group applies the acquisition method to account for
business combinations. The consideration for each acquisition
is measured at the aggregate of the fair values (at the date of
exchange) of assets given, liabilities incurred or assumed, and
equity instruments issued by the Group in exchange for control
of the acquire.
All intra-group transactions, balances, income and expenses
are eliminated on consolidation.
Business combinations and asset acquisitions
(cid:42)n accordance with the re(cid:202)uirements of (cid:42)FRS (cid:259) Business
combinations, the Group performs an assessment of each
acquisition to determine whether the acquisition should be
accounted for as an asset acquisition or a business combination.
For each transaction, the Group may elect to apply the
concentration test as permitted by the amendment to (cid:42)FRS (cid:259)
to determine if the fair value of assets acquired is substantially
concentrated in a single asset (or a group of similar assets). If this
concentration test is met, the acquisition qualifies as an acquisition
of a group of assets and liabilities, and not of a business.
(cid:92)he re(cid:202)uirements of (cid:42)FRS (cid:259) are applied once it is determined
that a business has been ac(cid:202)uired. Under (cid:42)FRS (cid:259), a business is
defined as an integrated set of activities and assets conducted
and managed for the purpose of providing a return to investors.
A business generally consists of inputs, processes applied to
those inputs, and resulting outputs that are, or will be, used to
generate revenues.
When less than the entire interest of an entity is acquired, the
choice of measurement of the non-controlling interest, either at
fair value or at the proportionate share of the acquiree’s identifiable
net assets, is determined on a transaction by transaction basis.
Investments in subsidiary undertakings
Long-term investments representing interests in subsidiary
undertakings are stated at cost less any provision for
impairment in the value of the non-current investment.
Zephyr Energy plc Annual Report and Financial Statements 2022
51
Financial Statements Notes to the Financial Statements continued
3. Significant accounting policies continued
Exploration and evaluation assets
The Group applies the full cost method of accounting for
Exploration and Evaluation (“E&E”) costs, having regard to
the re(cid:202)uirements of (cid:42)FRS (cid:262) Exploration for and Evaluation of
Mineral Resources. Under the full cost method of accounting,
costs of exploring for and evaluating mineral resources are
accumulated by reference to appropriate cost centres being
the appropriate licence area but are tested for impairment
on a cost pool basis as described below.
E&E assets comprise costs of (i) E&E activities that are on-
going at the balance sheet date, pending determination of
whether or not commercial reserves exist and (ii) costs of E&E
that, whilst representing part of the E&E activities associated
with adding to the commercial reserves of an established cost
pool, did not result in the discovery of commercial reserves.
Costs incurred prior to having obtained the legal rights to
explore an area are expensed directly to the income statement
as they are incurred.
All costs of E&E are initially capitalised as E&E assets. Payments
to acquire the legal right to explore, costs of technical services
and studies, seismic acquisition, exploratory drilling and testing
are capitalised as intangible E&E assets.
Intangible costs include directly attributable overheads together
with the cost of other materials consumed during the
exploration and evaluation phases.
Treatment of E&E assets at conclusion of appraisal activities
(cid:42)ntangible (cid:24)(cid:368)(cid:24) assets related to each exploration licence(cid:340)
project are carried forward until the existence (or otherwise)
of commercial reserves has been determined. If commercial
reserves have been discovered, the related E&E asset are
assessed for impairment on a cost pool basis as set out below
and any impairment is recognised in the income statement. The
carrying value, after any impairment loss, of the relevant E&E
assets is then reclassified as development and production assets.
Intangible E&E assets that related to E&E activities that are
determined not to have resulted in the discovery of commercial
reserves remain capitalised as intangible E&E assets at cost, subject
to meeting a pool-wide impairment test in accordance with the
accounting policy for impairment of E&E assets set out below.
Impairment of exploration and evaluation assets
E&E assets are assessed for impairment when facts and
circumstances suggest that the carrying amount may exceed
its recoverable amount. Such indicators include, but are not
limited to, those situations outlined in paragraph (cid:258)(cid:256) of (cid:42)FRS (cid:262)
Exploration for and Evaluation of Mineral Resources and include
the point at which a determination is made as to whether or not
commercial reserves exist.
Where there are indications of impairment, the E&E assets
concerned are tested for impairment. Where the E&E assets
concerned fall within the scope of an established full cost pool,
the E&E assets are tested for impairment together with all
development and production assets associated with that cost
pool, as a single cash generating unit.
The aggregate carrying value is compared against the expected
recoverable amount of the pool, generally by reference to the
present value of the future net cashflow expected to be derived
from production of commercial reserves. Where the E&E assets
to be tested fall outside the scope of any established cost pool,
there will generally be no commercial reserves and the E&E
assets concerned will generally be written off in full.
If the recoverable amount of a cash-generating unit is estimated
to be less than its carrying amount, the carrying amount of the
cash-generating unit is reduced to its recoverable amount. An
impairment loss is recognised immediately in profit or loss.
When an impairment loss subsequently reverses, the carrying
amount of the cash-generating unit is increased to the revised
estimate of its recoverable amount, but so that the increased
carrying amount does not exceed the carrying amount that
would have been determined had no impairment loss been
recognised for the cash-generating unit in prior years. A reversal
of an impairment loss is recognised immediately in profit or loss.
The Group considers each area of oil and gas exploration, on a
geographical basis to be a separate cost pool and therefore
aggregates all specific assets for the purposes of determining
whether impairment of E&E assets has occurred.
Grant income
Government grants are recognised only when there is a
reasonable assurance that the Group will comply with any
conditions attached to the grant, and that the grant will be
received.
Claims under government grant programmes related to income
are deducted in reporting the related expense. If the grants are
specific to exploration projects, the Group records grants
receivable by deducting the funds received from the carrying
value of the Group’s exploration and evaluation assets.
Property, plant and equipment
Oil and gas properties
Oil and gas properties are stated at cost, less accumulated
depreciation and any accumulated impairment losses. The initial
cost of an asset comprises its purchase price or construction
cost, any costs directly attributable to bringing the asset into
operation, and the initial estimate of the asset retirement
obligation. The purchase price or construction cost is the
aggregate amount paid and the fair value of any consideration
given to acquire the asset.
52
Zephyr Energy plc Annual Report and Financial Statements 2022
Financial Statements Notes to the Financial Statements continued
3. Significant accounting policies continued
Production and development assets are depleted using
the unit-of-production method based on production for the
period divided by the Group’s estimated total proved and
probable reserve volumes (before royalties) of the geographic
region concerned.
Production and reserves volumes for natural gas are converted
at the energy equivalent of six thousand cubic feet of natural
gas to one barrel of oil. Estimates of future development costs
for developing the proved and probable reserves are included in
the depletion base.
Plant and machinery and right-of-use assets
Plant and machinery and right-of-use assets are stated at
cost less accumulated depreciation and any accumulated
impairment losses. The cost of an item of property, plant and
equipment comprises its purchase price and any costs directly
attributable to bringing the asset into use.
Depreciation is recognised so as to write off the cost of assets less
their residual values over their useful lives at the following rates:
Plant and machinery
straight-line over 5 years
Right-of-use assets
straight-line over the shorter of the
lease term and the useful life of the
underlying asset
The estimated useful lives, residual value and depreciation method
are reviewed at the end of each reporting period, with the effect
of any changes in estimate accounted for on a prospective basis.
An item of property, plant and equipment is derecognised upon
disposal or when no future economic benefits are expected to
arise from the continued use of the asset. Any gain or loss
arising on the disposal or retirement of an item of property,
plant and equipment is determined as the difference between
the sales proceeds and the carrying amount of the asset and is
recognised in profit or loss.
Impairment of property, plant and equipment
In accordance with the requirements of IAS 16 Impairment of
assets at each reporting date, the Directors assess whether
indications exist that the carrying value of an asset may be
impaired. If there are indicators of impairment the Directors
estimate the asset’s recoverable amount. An assets recoverable
amount is the higher of an asset’s, or cash-generating unit’s, fair
value less costs to sell and its value-in-use, and is determined
on a portfolio basis, based on geographical location.
Where the carrying amount of an asset or cash-generating unit
exceeds its recoverable amount, the Directors consider the
asset impaired and writes it down to its recoverable amount.
In assessing value-in-use, the Directors discount the estimated
future cashflows to their present value using a pre-tax discount
rate that reflects current market assessments of the time value
of money and the risks specific to the asset. In determining fair
value less costs to sell, the Directors consider recent market
transactions, if available. If no such transactions can be identified,
the Directors will utilise an appropriate valuation model.
Joint arrangements
The Company is party to a joint arrangement when there is
a contractual agreement that sets out the terms of the
relationship over the relevant activities of the Company
and at least one other party.
Management has a legal degree of control over these joint
operating arrangements through Joint Operating Agreements.
The Company classifies its interests in joint arrangements as
joint operations where the Company has both the right to
assets and obligations for the liabilities of the joint arrangement.
It accounts for its interests in joint operations by recognising its
The Company accounts for its own assets, liabilities and
cashflows measured in accordance with the terms of the Joint
Operating agreement and the accounting treatment reflects
the agreement’s commercial effect.
Where the percentage ownership in joint arrangements changes
during a reporting period, the arrangement is reassessed to ensure
it is still appropriately classified, and the Company’s share of income
and expenses is adjusted prospectively from the date of change.
Foreign currencies
For the purpose of the consolidated financial statements, the
results and financial position are expressed in United States
dollar, which is the presentation currency for both company
and consolidated financial statements.
In preparing the financial statements of the individual
companies, transactions in currencies other than the functional
currency of each group company (“foreign currencies”) are
translated into the functional currency at the rates of exchange
prevailing on the dates of the transactions. At each reporting
date, monetary assets and liabilities that are denominated in
foreign currencies are retranslated into the functional currency
at the rates prevailing on the reporting date. Non-monetary
assets and liabilities carried at fair value that are denominated
in foreign currencies are translated at the rates prevailing at the
date when the fair value was determined. Non-monetary items
that are measured in terms of historical cost in a foreign
currency are not retranslated.
Foreign exchange differences are recognised in the profit or
loss in the period in which they arise, except for foreign exchange
differences on monetary items receivable from or payable to a
foreign operation for which settlement is neither planned nor likely
to occur and which, therefore, form part of the net investment in
the foreign operation. Foreign exchange differences arising on the
translation of the Group’s net investment in foreign operations are
recognised as a separate component of Shareholders’ equity via
the statement of other comprehensive income. On disposal of
foreign operations and foreign entities, the cumulative translation
differences are recognised in the income statement as part of
the gain or loss on disposal.
Zephyr Energy plc Annual Report and Financial Statements 2022
53
Financial Statements Notes to the Financial Statements continued
3. Significant accounting policies continued
For the purpose of presenting company and consolidated
financial statements, the assets and liabilities of the Company,
and the Group’s subsidiaries, which have a functional currency
other than United States dollar, are translated using exchange
rates prevailing at the end of each reporting period. Income and
expense items are translated at the average exchange rates for
the period, unless exchange rates fluctuate significantly during
that period, in which case the exchange rates at the date of
transactions are used. Foreign exchange differences arising are
recognised in other comprehensive income and accumulated in
equity. Equity items are translated at the exchange rates at the
date of transactions and foreign exchange differences arising
are accumulated directly in equity.
On the disposal of a foreign operation (i.e. a disposal of the
Group’s entire interest in a foreign operation, a disposal involving
loss of control over a subsidiary that includes a foreign operation
or loss of joint control over a jointly controlled entity that
includes a foreign operation), all of the accumulated exchange
differences in respect of that operation attributable to the
Group are reclassified to profit or loss. Where there is no change
in the proportionate percentage interest in an entity then there
has been no disposal or partial disposal and accumulated
exchange differences attributable to the Group are not
reclassified to profit or loss.
Fair value ad(cid:172)ustments arising on the ac(cid:202)uisition of a foreign
operation are treated as assets and liabilities of the foreign
operation and translated at the rate of exchange prevailing at
the end of each reporting period. Exchange differences arising
are recognised in equity.
Retirement benefits
The Group makes contributions to the personal pension
schemes for some of its employees and Directors. Payments
to these schemes are charged as an expense in the income
statement in respect of pension costs payable in the year.
Taxation
The tax expense represents the sum of the tax currently payable
for the year and deferred tax.
The tax currently payable is based on taxable profit for the year.
Taxable profit differs from profit as reported in the income
statement because it excludes items of income or expense that
are taxable or deductible in other years and items that are never
taxable or deductible. The Group’s liability for current tax is
calculated using tax rates that have been enacted or
substantively enacted by the reporting date.
Deferred tax is recognised on temporary differences between
the carrying amounts of assets and liabilities in the consolidated
financial statements and the corresponding tax bases used in
the computation of taxable profit. Deferred tax liabilities are
generally recognised for all taxable temporary differences and
deferred tax assets are generally recognised for all deductible
temporary differences to the extent that it is probable that
taxable profits will be available against which those deductible
temporary differences can be utilised. Such deferred tax assets
and liabilities are not recognised if the temporary difference
arises from goodwill or from the initial recognition (other than
in a business combination) of other assets and liabilities in a
transaction which affects neither the taxable profit nor the
accounting profit.
Deferred tax liabilities are recognised for taxable temporary
differences associated with investments in subsidiaries and
interests in joint ventures, except where the Group is able to
control the reversal of the temporary difference and it is
probable that the temporary difference will not reverse in the
foreseeable future. Deferred tax assets arising from deductible
temporary differences associated with such investments and
interest are only recognised to the extent that it is probable that
there will be sufficient taxable profits against which to utilise the
benefits of the temporary differences and they are expected to
reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each
reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the assets to be recovered. Deferred tax liabilities
and assets are measured at the tax rates that are expected to
apply in the period in which the liability is settled or the asset
realised, based on tax rates that have been enacted or
substantively enacted at the reporting date.
Current and deferred tax are recognised in profit or loss,
except when they relate to items that are recognised in other
comprehensive income or directly in equity, in which case,
the current and deferred tax are also recognised in other
comprehensive income or directly in equity respectively.
Where current tax or deferred tax arises from the initial
accounting for a business combination, the tax effect is
included in the accounting for the business combination.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes
levied by the same taxation authority and the Group intends
to settle its current tax assets and liabilities on a net basis.
54 Zephyr Energy plc Annual Report and Financial Statements 2022
Financial Statements Notes to the Financial Statements continued
3. Significant accounting policies continued
Investments and other financial instruments
Recognition of financial assets and financial liabilities
Financial assets and financial liabilities are recognised on the Group(cid:360)s
balance sheet when the Group becomes a party to the contractual
provisions of the instrument, and are initially measured at fair value.
Transaction costs are included as part of the initial measurement,
except for financial assets at fair value through profit or loss.
Investments and other financial assets are subsequently
measured at either amortised cost or fair value depending on
their classification. Classification is determined based on both
the business model within which such assets are held and the
contractual cashflow characteristics of the financial asset unless
an accounting mismatch is being avoided.
Financial liabilities are subse(cid:202)uently measured at either
amortised cost or fair value.
Fair value measurement
Assets and liabilities recognised at fair value through the income
statement are measured at the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The fair
value is based on assumptions that market participants would
use when pricing an asset or liability, including assumptions
about risk and risk inherent in valuation techniques and the
inputs to valuations. Fair value measurements are classified
and disclosed in one of the following categories:
(cid:56)evel 1(cid:329) Fair value is based on actively (cid:202)uoted market prices,
if available.
Level 2: In the absence of actively quoted market prices, the
Group seeks price information from external sources including
broker quotes and industry publications. Substantially all of
these inputs are observable in the market place during the
entire term of the instrument, can be derived from observable
data, or supported by observable levels at which transactions
are executed in the market place.
Level 3: If valuations require inputs that are both significant to
be fair value measurement and less observable from objective
sources, we must estimate prices based on available historical
and near-term future price information and certain statistical
methods that reflect the Group’s market assumptions.
Derecognition of financial assets and financial liabilities
The Group derecognises a financial asset only when the
contractual rights to cashflows from the asset expire, or it
transfers the financial asset and substantially all the risks and
rewards of ownership of the asset to another entity. If the
Group neither transfers nor retains substantially all the risks and
rewards of ownership and continues to control the transferred
asset, the Group recognises its retained interest in the asset
and an associated liability for the amount it may have to pay.
If the Group retains substantially all the risks and rewards of
ownership of a transferred financial asset, the Group continues
to recognise the financial asset and also recognises
a collateralised borrowing for the proceeds received.
On derecognition of a financial asset and financial liability
a gain or loss is recognised in profit or loss.
Impairment of financial assets
The Group recognises a loss allowance for expected credit losses
on financial assets which are measured at amortised cost. The
measurement of the loss allowance depends upon the Group’s
assessment at the end of each reporting period as to whether
the financial instrument’s credit risk has increased significantly
since initial recognition, based on reasonable and supportable
information that is available without undue cost or effort to obtain.
Where there has not been a significant increase in exposure to
credit risk since initial recognition, a 12-month expected credit
loss allowance is estimated. This represents a portion of the
asset’s lifetime expected credit losses that is attributable to
a default event that is possible within the next 12 months.
Where a financial asset has become credit impaired or where
it is determined that credit risk has increased significantly, the
loss allowance is based on the asset’s lifetime expected credit
losses. The amount of expected credit loss recognised is
measured on the basis of the probability weighted present
value of anticipated cash shortfalls over the life of the
instrument discounted at the original effective interest rate.
Trade and other receivables and trade and other deposits
Trade and other receivables and trade and other deposits are
measured at initial recognition at fair value, and are
subsequently measured at amortised cost using the effective
interest method, less any allowance for expected credit losses.
The Group has applied the simplified approach to measuring
expected credit losses which uses a lifetime expected loss
allowance. To measure the expected credit losses, trade
receivables are grouped on the basis of days overdue.
Cash and cash equivalents
Cash and cash equivalents comprise cash-in-hand and
on-demand deposits.
Derivative contracts
The Group uses forward commodity contracts to hedge its
commodity price risks. The Group has not applied hedge
accounting and as a result, such derivative contracts are initially
recognised at fair value on the date on which a derivative contract
is entered into and are subsequently remeasured at fair value.
Derivative contracts are presented as financial assets when the
fair value is positive and as financial liability when the fair value is
negative. Net changes in fair value are recognised in profit or loss.
Trade and other payables
Trade and other payables are initially measured at their fair value,
and are subsequently measured at amortised cost using the
effective interest rate method.
Zephyr Energy plc Annual Report and Financial Statements 2022
55
Provisions
Provisions are recognised when the Group has a legal or
constructive obligation, as a result of past events, for which
it is probable that an outflow of economic resources will result
and that outflow can be reliably measured.
The amount recognised as a provision is the best estimate of the
consideration required to settle the present obligation at the end
of the reporting period, considering the risks and uncertainties
surrounding the obligation. When a provision is measured using
the cashflow estimated to settle the present obligation, its
carrying amount is the present value of those cashflows.
Decommissioning
Where a liability for the retirement of a well, removal of
production equipment and site restoration at the end of the
production life of a well exists, the Group recognises a liability
for asset retirement. Provision for asset retirement is recognised
in full when the related assets are installed or acquired, and are
then reassessed at the end of each reporting period.
The provision recognised is calculated as the net present value
of the Group’s share of the expenditure expected to be incurred
at the end of the life of the asset. The cost of recognising the
decommissioning provision is included as part of the cost of the
relevant asset and is, therefore, charged to the income statement
in accordance with the Group’s policy for depreciation of property,
plant and equipment or for impairment of exploration and
evaluation assets, depending upon the stage of the assets
at the time of retirement.
The unwinding of the discount on the decommissioning liability
is included as accretion of the provision and is presented in
finance costs in the income statement.
The Group recognises changes in estimates prospectively, with
corresponding adjustments to the liability and the associated
non-current asset.
Financial Statements Notes to the Financial Statements continued
3. Significant accounting policies continued
Borrowings
Borrowings are recognised initially at fair value, net of any
transaction costs incurred. Borrowings are subsequently
measured at amortised cost. Any difference between the
proceeds (net of transaction costs) and the redemption value
is recognised in the income statement over the period of the
borrowings using the effective interest method, if applicable.
Amortised cost is calculated by taking into account any fees or
costs that are an integral part of the effective interest rate. The
effective interest rate amortisation is included as finance costs
in the income statement.
Interest on borrowing is accrued as applicable to each class
of borrowing.
Equity instruments
An equity instrument is any contract that evidences a residual
interest in the assets of the Group after deducting all of its
liabilities. Equity instruments issued by the Group are recognised
at the proceeds received, net of direct issue costs.
The costs of an equity transaction are accounted for as a
deduction from equity to the extent they are incremental
costs directly attributable to the equity transaction that would
otherwise have been avoided.
Warrants
Warrants issued are classified within Shareholders’ equity and
are valued at fair value on issuance. The Group uses the Black-
Scholes model to estimate fair value. Upon exercise, the
consideration received is recorded as an increase in share capital.
Leases
The Group assesses whether a contract is or contains a lease, at
inception of the contract. The Group recognises a right-of-use
asset and a corresponding lease liability with respect to all lease
agreements in which it is the lessee, except for short-term
leases (defined as leases with a lease term of 12 months or less)
and leases of low value assets. For these leases, the Group
recognises the lease payments as an operating expense on
a straight-line basis over the term of the lease.
The lease liability is presented as a separate line in the balance
sheet and is subsequently measured by reducing the carrying
amount to reflect the lease payments made.
The right-of-use assets comprise the initial measurement of the
corresponding lease liability, lease payments made at or before
the commencement day and any initial direct costs. They are
subsequently measured at cost less accumulated depreciation
and impairment losses.
Right-of-use assets are depreciated over the shorter of the period
of the lease term and the useful life of the underlying asset.
The right-of-use assets are presented within property, plant
and equipment in the consolidated and company Balance Sheet.
The Group applies IAS 36 Impairment of assets to determine
whether a right-of-use asset is impaired.
56 Zephyr Energy plc Annual Report and Financial Statements 2022
Financial Statements Notes to the Financial Statements continued
3. Significant accounting policies continued
Share-based payments
(cid:92)he Group has applied the re(cid:202)uirements of (cid:42)FRS (cid:258) Share-based
Payment for all grants of equity instruments.
The Group operates an equity-settled share option plan and a
share-based compensation plan in respect of certain Directors,
employees and consultants. The Group also issues warrants to
certain advisors which are classed as share-based payments.
Equity-settled share-based payments are measured at fair value
(excluding the effect of non-market based vesting conditions)
at the date of grant. The fair value of the service received in
exchange for the grant of options(cid:340)warrants and e(cid:202)uity is
recognised as an expense. The fair value determined at the grant
date of equity-settled share-based payment is expensed on a
straight-line basis over the vesting period, based on the Group’s
estimate of shares that will eventually vest and adjusted for the
effect of non-market based vesting conditions.
The fair value of option and warrant grants are measured using
the Black Scholes model for non-performance-based options.
The expected life used in the model has been adjusted, based on
management’s best estimate, for the effect of non-transferability,
exercise restrictions and behavioural considerations.
The grant by the Company of options and share-based
compensation plans over its equity instruments to the employees
of subsidiary undertakings in the Group is treated as a capital
contribution. The fair value of employee services received,
measured by reference to the grant date fair value, is recognised
over the vesting period as an increase to investment in subsidiary
undertakings, with a corresponding credit to equity in the parent
entity accounts.
Revenue recognition
Natural Gas, NGLs and Oil
Revenue is comprised of the fair value of the consideration
received or receivable from the sale of natural gas and crude oil
products in the ordinary course of the Group’s activities and is
recognized when control is transferred to the purchaser. This is
generally met when title passes from the Group to its customer.
Revenue from oil and gas production represents the Group’s share.
The Group sells its petroleum and natural gas revenue pursuant to
variable-price contracts with terms of generally one year or less.
The transaction price is based on the commodity index price at
the point of title transfer and may include adjustments for quality,
location or other factors depending on the contract terms. The
Group delivers volumes of petroleum and natural gas product to
the respective counterparty throughout the contract period. The
Group evaluates its arrangements with third parties and partners
to determine if the Group acts as the principal or as an agent. In
making this evaluation and concluding that it acts as a principal,
management considers if the Group obtains control of the
product delivered, which is indicated by the Group having the
primary responsibility for the delivery of the product, having the
ability to establish prices or having inventory risk.
Revenue is recognized when a customer obtains legal title to
the product, which is when volumes are physically transferred
to the contract counterparty at a point of sale.
Verified Emission Reductions (“VERs”)
VERs are purchased in increments corresponding to the Groups
estimated production forecasts and are subsequently retired in
accordance with actual monthly production levels. Once retired
the VERs are recognised in the Group’s income statement and
presented within cost of sales.
Segmental reporting
Operating segments are reported in a manner consistent with
the internal reporting provided to the chief operating decision
maker. The chief operating decision maker, who is responsible
for allocating resources and assessing performance of the
operating segments and making strategic decisions, has been
identified as the Board of Directors.
4. Critical accounting judgements and key
sources of estimation uncertainty
In the application of the Group’s accounting policies, which are
described in note 3, the Directors are required to make judgements,
estimates and assumptions about the carrying amounts of the
assets and liabilities that are not readily apparent from other
sources. The estimates and associated assumptions are based
on historical experience and other factors that are considered to
be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised
in the period in which the estimate is revised if the revision
affects only that period or in the period of the revision and future
periods if the revision affects both the current and future periods.
The following are the critical judgements and estimations that the
Directors have made in the process of applying the Group’s and
Company’s accounting policies and that have the most significant
effect on the amounts recognised in the financial statements:
Critical judgements
Exploration and evaluation assets - Group
The decision to transfer assets from exploration and evaluation
assets to property, plant and equipment is based on the estimated
proved and probable reserves which are in part, used to determine
a project’s technical feasibility and commercial viability.
There has been no transfer of exploration and evaluation assets
during the year ended 31 December 2022.
Business combination and asset acquisitions - Group
The determination of whether a transaction is a business
combination or an asset acquisition is based on management’s
assessment of each individual transaction based on the criteria
of (cid:42)FRS (cid:259) Business combinations.
Zephyr Energy plc Annual Report and Financial Statements 2022
57
Financial Statements Notes to the Financial Statements continued
4. Critical accounting judgements and key
sources of estimation uncertainty
continued
If the initial concentration test is met, then the acquisition is
accounted for as an asset acquisition and no further analysis is
required. If the initial test is not met, the acquisition is further
analysed to determine whether the acquisition meets the
definition of a business under (cid:42)FRS (cid:259). (cid:42)f the ac(cid:202)uisition meets
the criteria and is, therefore, considered to be a business
combination, the Group applies the acquisition method to
account for the recognition and measurement of identifiable
assets acquired, the liabilities assumed, any non-controlling
interest and, if applicable, goodwill or a gain on the transaction.
During the year ended 31 December 2022, the Group acquired
non-operated working interests in a number of wells in the
Williston Basin, North Dakota, U.S. by means of a number of
separate acquisitions. When analysed individually, the Directors
consider that the Slawson and Williston basin accretive
acquisitions meet the requirements of the concentration test
under (cid:42)FRS (cid:259) based on the risks associated with categories of
reserves acquired, and have therefore, been accounted for as an
acquisition of assets and are presented within property, plant
and equipment.
With regard to the Kaiser acquisition which completed in
February (cid:258)(cid:256)(cid:258)(cid:258), the Directors consider that the ac(cid:202)uisition does
not meet the requirements of the concentration test and, on
further analysis determined that it meets the definition of
a business under (cid:42)FRS (cid:259). (cid:1)s a result, the transaction has been
accounted for as a business combination.
Estimations
Business combination - Group
Estimates are required when determining the fair value of
assets and liabilities acquired in a business combination.
The Board calculated the fair value of the assets acquired
using discounted cashflows, in which they estimated the
appropriate oil price and discount rate to be applied in those
calculations. When calculating the fair value of the liabilities
acquired, estimates were made in respect of the risk adjusted
rate and the inflation factor to be applied at the date
of acquisition.
The fair value was deemed to equal the consideration given
in exchange for the assets and the Group has, therefore, not
recognised goodwill or a bargain purchase on acquisition.
The assets acquired are presented within property, plant and
equipment and the liabilities acquired are disclosed within
provisions. See notes 15 and 24 respectively.
Impairment and impairment reversals - Group
The recoverable amounts of CGUs and individual assets
have been determined based on the higher of value-in-use
calculations and fair values less costs to dispose. These
calculations require the use of estimates and assumptions
including information on forecasted oil and gas commodity
prices, expected production volumes, quantity of reserves,
discount rates, as well as future development costs, operating
costs and royalty costs. Key assumptions in the determination
of cashflows from reserves include reserves estimated by the
Group’s independent third party reserve evaluators. It is possible
that any or all of these key assumptions may change, which may
then impact the estimated values of the oil and gas properties
and then require a material adjustment to the carrying value of
E&E assets and property, plant and equipment. Significant
management judgement is required
to analyse internal and external indicators of impairment
or historical impairment reversals. The Group monitors
internal and external indicators of impairment relating
to its non-current assets.
58 Zephyr Energy plc Annual Report and Financial Statements 2022
Financial Statements Notes to the Financial Statements continued
Recoverability of loans to subsidiary undertakings - Company
only
The Company has outstanding loans from its directly held
subsidiaries which have then made a number of loans to
indirectly held subsidiaries as the primary method of financing
the activity of those subsidiaries. The principal loans are shown
in the Company balance sheet on the basis that the loans incur
interest at a commercial rate according to the Group’s inter-
company loan policy, which is being rolled up until such time as
the subsidiaries are in a position to settle.
(cid:42)n accordance with (cid:42)FRS (cid:265) Financial instruments, as the
subsidiary undertakings cannot repay the loans at the reporting
date, the Board has made an assessment of expected credit
losses (“ECL”). The Group has not made any provision for
impairment of its U.S. non-current assets and is expecting
to generate profits in the future. As a result, the Board do not
consider that any further provision for ECL is required and,
therefore, subject to the recognition of exchange differences,
a cumulative lifetime ECL of US$28.4 million has been
recognised at 31 December 2022 (2021: US$31.8 million).
At 31 December 2022, the Company has total loans in its
directly held subsidiaries of US$72.3 million (2021: US$66.9
million). See note 17.
Reserve estimates
Reserves are estimates of the amount of natural gas, NGLs and
oil product that can be economically and legally extracted from
the Group’s properties. To calculate the reserves, significant
estimates and assumptions are required about a range of
geological, technical and economic factors, including quantities,
production techniques, recovery rates, production costs,
transport costs, commodity demand, commodity prices and
exchange rates.
(cid:24)stimating the (cid:202)uantity and(cid:340)or grade of reserves re(cid:202)uires the
size, shape and depth of fields to be determined by analysing
geological data, such as drilling samples. This process may
require complex and difficult geological judgments and
calculations to interpret the data.
Given the economics used to estimate reserve changes from
year to year and, because additional geological data is
generated during the course of operations, estimates of
reserves may change from time to time.
Decommissioning
Decommissioning costs will be incurred by the Group at the
end of the operating life of certain facilities and properties.
The ultimate decommissioning costs are uncertain and cost
estimates can vary in response to many factors including
changes to relevant regulatory requirements, the emergence
of new restoration techniques or experience at other production
sites. The expected timing and amount of expenditures can also
change, for example in response to changes in reserves or
changes in laws and regulations or their interpretation. In
addition, the Group determines the appropriate discount rate at
the end of each reporting period. The Group uses a risk-free
discount rate to determine the present value of the estimated
future cash outflows to settle the obligation and this may
change in response to numerous market factors. As a result,
there could be significant adjustments to the provisions
established which would affect future financial results. See note
24.
Derivative contracts
Derivative contracts are presented as financial assets when the
fair value is positive and as financial liability when the fair value is
negative. Net changes in fair value are recognised in profit or loss.
The fair value of derivative contracts is based on published
market prices as at 31 December and the actual gains and losses
realised on eventual cash settlement can vary due to
subsequent fluctuations in commodity prices.
5. Segmental information
When considering the re(cid:202)uirements of (cid:42)FRS (cid:264) Operating
segments, the Board of Directors have determined that the
Group has one main operating segment, the exploration,
development and production of oil and gas resources based
in the U.S. As a result, no segmental information is presented.
Zephyr Energy plc Annual Report and Financial Statements 2022
59
Financial Statements Notes to the Financial Statements continued
6. Revenue
Petroleum and natural gas revenue earned by the Group in the U.S. is disaggregated by commodity, as follows:
Crude oil
Natural gas liquids
Natural gas
7. Finance Costs
Loan interest and fees
Amortisation of debt cost
Unwinding of discount on decommissioning
8. Profit on ordinary activities before taxation
(cid:92)he profit before taxation for the year has been arrived at after charging(cid:340)(cid:349)crediting(cid:350)(cid:329)
Gains on derivative contracts
Depreciation and depletion of property, plant and equipment
Staff costs excluding share-based payments
Share-based payments
Expense relating to short-term leases
Foreign exchange gains(cid:267)
2022
US$’000
35,257
3,040
2,765
41,062
2021
US$’000
(cid:271),(cid:269)(cid:271)(cid:275)
(cid:269)(cid:275)(cid:267)
(cid:268)(cid:271)(cid:271)
(cid:272),(cid:266)(cid:266)(cid:271)
2022
US$’000
2021
US$’000
1,880
236
120
2,236
(cid:267)(cid:269)(cid:273)
-
(cid:273)
(cid:267)(cid:270)(cid:270)
2022
US$’000
(1,781)
12,668
1,830
210
31
2021
US$’000
-
(cid:267),(cid:273)(cid:273)(cid:274)
(cid:274)(cid:275)(cid:268)
(cid:275)(cid:269)
(cid:273)
(6,102)
(cid:349)(cid:270)(cid:272)(cid:267)(cid:350)
1 Foreign exchange gains include a gain of US(cid:381)5.(cid:262) million in respect of the translation of GBP designated loans between the (cid:14)ompany and its U.S. subsidiary entities at (cid:259)1
December 2022. See note 17.
60 Zephyr Energy plc Annual Report and Financial Statements 2022
Financial Statements Notes to the Financial Statements continued
9. Auditor’s remuneration
Amounts payable to the external auditors and their associates in respect of audit services:
Audit of these financial statements
10. Staff costs
The average monthly number of employees (including Executive Directors) was:
2022
US$’000
2021
US$’000
161
(cid:267)(cid:266)(cid:269)
Office and management
Operations
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Other pension costs
Share-based payments
Group
Company
2022
Number
2021
Number
2022
Number
2021
Number
2
1
3
(cid:268)
(cid:267)
(cid:269)
1
1
2
(cid:267)
(cid:267)
(cid:268)
Group
Company
2021
US$’000
2022
US$’000
2021
US$’000
(cid:275)(cid:270)(cid:271)
(cid:272)(cid:266)
(cid:271)(cid:269)
(cid:270)(cid:275)
640
81
44
10
775
(cid:270)(cid:271)(cid:268)
(cid:271)(cid:269)
(cid:268)(cid:274)
(cid:268)(cid:272)
(cid:271)(cid:271)(cid:275)
1,596
(cid:267),(cid:267)(cid:266)(cid:273)
2022
US$’000
1,380
91
106
19
Included within group wages and salaries is US$ nil (2021: US$0.15 million) capitalised to exploration and evaluation assets, and
US$ nil (2021: US$0.02 million) capitalised to property, plant and equipment.
Included within Company wages and salaries is US$0.4 million (2021: US$0.27 million) which relates to the activities of its
subsidiary entities.
Refer to the Directors’ Report for details regarding the remuneration of the highest paid Director and the total amounts for
Directors’ remuneration in accordance with Schedule 5 to the Accounting Regulations.
Zephyr Energy plc Annual Report and Financial Statements 2022
61
Financial Statements Notes to the Financial Statements continued
11. Taxation
Current tax:
Current year
Deferred tax:
Deferred tax
Tax charge on profit for the year
The charge for the year can be reconciled to the profit per the income statement as follows:
Profit before tax
Profit multiplied by applicable tax rate - 25% U.S. (2021: 25% U.S.)
Effects of:
Share-based payments
Prior year U.S. tax losses now recognised
Profits not deductible for tax purposes
Unrelieved tax losses carried forward
Tax charge on profit for the year
2022
US$’000
2021
US$’000
-
1,955
1,955
2022
US$’000
21,226
5,307
52
(3,400)
(85)
81
1,955
-
-
-
2021
US$’000
(cid:274)(cid:270)(cid:274)
(cid:268)(cid:267)(cid:268)
(cid:268)(cid:268)
(cid:349)(cid:270)(cid:271)(cid:271)(cid:350)
-
(cid:268)(cid:268)(cid:267)
-
62
Zephyr Energy plc Annual Report and Financial Statements 2022
Financial Statements Notes to the Financial Statements continued
12. Profit per ordinary share
Basic profit per Ordinary Share is calculated by dividing the net profit for the year by the weighted average number of Ordinary
Shares in issue during the year. Diluted profit per Ordinary Share is calculated by dividing the net profit for the year by the weighted
average number of Ordinary Shares in issue during the year adjusted for the dilutive effect of potential Ordinary Shares arising from
the Company’s share options and warrants.
At 31 December 2022, 2.4 million share options and 89.6 million warrants were excluded from the diluted number of shares based on
their market share price and exercise price.
The calculation of the basic and diluted profit per Ordinary Share is based on the following data:
Profits
Profits for the purpose of basic and diluted profit per Ordinary Share being net profit for the year
19,271
(cid:274)(cid:270)(cid:274)
2022
US$’000
2021
US$’000
Number of shares
Weighted average number of shares for the purpose of basic profit per Ordinary Share
1,533,110
(cid:267),(cid:267)(cid:267)(cid:272),(cid:270)(cid:267)(cid:270)
Weighted average number of shares for the purpose of basic profit per Ordinary Share
1,533,110
(cid:267),(cid:267)(cid:267)(cid:272),(cid:270)(cid:267)(cid:270)
Dilutive share options
Dilutive warrants
42,526
55,721
(cid:270)(cid:268),(cid:271)(cid:267)(cid:266)
(cid:267)(cid:266)(cid:266),(cid:266)(cid:269)(cid:269)
Weighted average number of shares for the purpose of diluted profit per Ordinary Share
1,631,357
(cid:267),(cid:268)(cid:271)(cid:274),(cid:275)(cid:271)(cid:273)
2022
Number
’000
2021
Number
’000
Profit per ordinary share
Basic, cents per share
Diluted, cents per share
13. Exploration and evaluation assets
Cost
At 1 January 2021
Additions
Grant funds received
At 1 January 2022
Additions
At 31 December 2022
1.26
1.18
(cid:266).(cid:266)(cid:274)
(cid:266).(cid:266)(cid:273)
US$’000
(cid:267)(cid:269),(cid:275)(cid:267)(cid:270)
(cid:275),(cid:267)(cid:270)(cid:275)
(cid:349)(cid:268)(cid:275)(cid:266)(cid:350)
(cid:268)(cid:268),(cid:273)(cid:273)(cid:269)
(cid:267)(cid:271),(cid:268)(cid:267)(cid:269)
37,986
In October 2021, the Group announced that the U.S. Bureau of Land Management (“BLM”) had approved the formation of a new
(cid:258)5,(cid:256)(cid:256)(cid:256)-acre Federal Unit to be operated by the Group. (cid:92)he new unit, the White Sands Federal Unit (cid:349)(cid:357)WSU(cid:358)(cid:350) incorporates many of the
Group’s existing leases, including the lease on which the State 16-2 and State 36-2 wells are situated. The entire 25,000-acre land
position will now be held for a minimum of 36 months from 25 October 2021, without any lease expiry.
Zephyr Energy plc Annual Report and Financial Statements 2022
63
Financial Statements Notes to the Financial Statements continued
13. Exploration and evaluation assets continued
Acquisition of infrastructure and additional acreage
In August 2022, the Group announced that it had acquired an additional 1,920 acres in the Paradox Basin at a cost of US$0.2 million,
following which, the Group operated a total of 39,533 gross acres in the Paradox Basin, the majority of which the Group holds as operator.
In October 2022, the Group announced that it had acquired an additional package of oil and gas assets located in the Paradox Basin.
The assets acquired included:
• The Powerline Road gas processing plant which, while not currently in operation, contains useable pre-existing infrastructure and
related permits;
• 21 miles of six-inch gas gathering line which tie directly into the gas processing plant;
• 1,160 acres which comprise the final leasehold acreage parcel under the Group’s existing 3D seismic;
• 4,320 additional acres not covered by the Group’s existing 3D seismic;
• Five existing vertical wells which are expected to have reuse potential under the Group(cid:360)s ownership(cid:330) and
• A full well database from the operator.
The consideration for the acquisition which has been treated as an acquisition of assets was US$0.8 million. As a result of the
acquisition, an additional asset of US$2 million, together with a corresponding liability of US$2 million was recognised in respect of
ARO. See note 24.
In 2023, the Group increased its working interest across the WSU to 100% following the acquisition of the remaining 25% working
interest in the acreage from RSOC.
U.S. Department of energy funding
During the year ended 31 December 2021, the Group received grant funding of US$0.3 million from the University of Utah’s Energy
and Geoscience Institute (“EGI”), resulting in total grants awarded since 2020 of US$2.1 million In accordance with IAS 20, the
carrying value of the Group’s exploration and evaluation assets have been presented net of the funds received.
On 9 December 2022, the Group announced that it had secured additional US$1 million research grant funding from the EGI, to be
utilised for data gathering during the drilling of the State 36-2 LN-CC well. No funds were due or received during the year ended 31
December 2022.
State 36-2 well control incident
On 7 April 2023, the State 36-2 well experienced a significant control issue. Well control efforts were successful and remediation and
clean up operations have commenced. A third-party confirmatory environmental survey was subsequently completed and the initial
results found no evidence of lingering environmental impact. See note 31.
Impairment
(cid:92)he Directors assessed the indicators of impairment as set out in (cid:42)FRS (cid:262) and no indicators or impairment were identified. On this
basis the Directors have satisfied themselves that there was no requirement to perform an impairment test at 31 December 2022
and, as a result, no provision for impairment has been made in respect of these assets at 31 December 2022 (2021: nil). See note 4.
Rockies Standard agreement
On 21 December 2022, the Group announced that it would acquire the remaining 25% working interest across the WSU from Rockies
Standard Oil Company LLC (“RSOC”). The consideration is payable by the issue of up to 40,449,284 new Ordinary Shares of 0.1 pence
in Zephyr Energy plc, at a price of 6.05 pence per new Ordinary Share. The Group announced completion of the acquisition on
1(cid:256) February (cid:258)(cid:256)(cid:258)(cid:259). See note (cid:259)1.
64 Zephyr Energy plc Annual Report and Financial Statements 2022
Financial Statements Notes to the Financial Statements continued
14. Property, plant and equipment
Group
Company
Oil and gas
properties
US$’000
Plant and
machinery
US$’000
Right-of-use
assets
US$’000
Total
US$’000
Plant and
machinery
US$’000
Right-of-use
assets
US$’000
Total
US$’000
Cost
At 1 January 2021
Acquisitions
Additions
De-recognition
At 1 January 2022
Business combination
(see note 15)
Acquisitions
Additions
Exchange differences
At 31 December 2022
Accumulated depreciation
At 1 January 2021
Charge for the year
De-recognition
At 1 January 2022
Charge for the year
Exchange differences
At 31 December 2022
Carrying amount
At 31 December 2022
At 31 December 2021
At 1 January 2021
-
(cid:271),(cid:270)(cid:270)(cid:269)
(cid:273),(cid:270)(cid:271)(cid:275)
-
(cid:267)(cid:268),(cid:275)(cid:266)(cid:268)
(cid:270)(cid:266),(cid:267)(cid:275)(cid:275)
(cid:269),(cid:269)(cid:272)(cid:268)
(cid:275),(cid:273)(cid:271)(cid:273)
-
66,220
-
(cid:267),(cid:273)(cid:271)(cid:271)
-
(cid:267),(cid:273)(cid:271)(cid:271)
(cid:267)(cid:268),(cid:272)(cid:272)(cid:272)
-
14,421
51,799
(cid:267)(cid:267),(cid:267)(cid:270)(cid:273)
-
(cid:267)(cid:268)(cid:275)
-
(cid:270)
(cid:349)(cid:267)(cid:266)(cid:272)(cid:350)
(cid:268)(cid:273)
-
-
(cid:349)(cid:269)(cid:350)
24
(cid:267)(cid:267)(cid:273)
(cid:273)
(cid:349)(cid:267)(cid:266)(cid:272)(cid:350)
(cid:267)(cid:274)
(cid:268)
(cid:349)(cid:268)(cid:350)
18
6
(cid:275)
(cid:267)(cid:268)
(cid:271)(cid:273)
-
-
(cid:349)(cid:271)(cid:273)(cid:350)
-
-
-
-
-
(cid:270)(cid:267)
(cid:267)(cid:272)
(cid:349)(cid:271)(cid:273)(cid:350)
-
-
-
-
-
-
(cid:267)(cid:272)
(cid:267)(cid:274)(cid:272)
(cid:271),(cid:270)(cid:270)(cid:269)
(cid:273),(cid:270)(cid:271)(cid:275)
(cid:349)(cid:267)(cid:272)(cid:269)(cid:350)
(cid:267)(cid:268),(cid:275)(cid:268)(cid:275)
(cid:270)(cid:266),(cid:267)(cid:275)(cid:275)
(cid:269),(cid:269)(cid:272)(cid:268)
(cid:275),(cid:273)(cid:271)(cid:273)
(cid:349)(cid:269)(cid:350)
66,244
(cid:267)(cid:271)(cid:274)
(cid:267),(cid:273)(cid:273)(cid:274)
(cid:349)(cid:267)(cid:272)(cid:269)(cid:350)
(cid:267),(cid:273)(cid:273)(cid:269)
(cid:267)(cid:268),(cid:272)(cid:272)(cid:274)
(cid:349)(cid:268)(cid:350)
14,439
51,805
(cid:267)(cid:267),(cid:267)(cid:271)(cid:272)
(cid:268)(cid:274)
(cid:268)(cid:269)
-
(cid:270)
-
(cid:268)(cid:273)
-
-
(cid:349)(cid:269)(cid:350)
24
(cid:267)(cid:267)
(cid:273)
-
(cid:267)(cid:274)
(cid:268)
(cid:349)(cid:268)(cid:350)
18
6
(cid:275)
(cid:267)(cid:268)
The Group depreciation and depletion charge has been allocated to the income statement as follows:
Cost of sales
Administrative expenses
(cid:271)(cid:273)
-
-
(cid:349)(cid:271)(cid:273)(cid:350)
-
-
-
-
-
(cid:270)(cid:267)
(cid:267)(cid:272)
(cid:349)(cid:271)(cid:273)(cid:350)
-
-
-
-
-
-
(cid:267)(cid:272)
(cid:274)(cid:266)
-
(cid:270)
(cid:349)(cid:271)(cid:273)(cid:350)
(cid:268)(cid:273)
-
-
(cid:349)(cid:269)(cid:350)
24
(cid:271)(cid:268)
(cid:268)(cid:269)
(cid:349)(cid:271)(cid:273)(cid:350)
(cid:267)(cid:274)
(cid:268)
(cid:349)(cid:268)(cid:350)
18
6
(cid:275)
(cid:268)(cid:274)
2022
US$’000
12,666
2
12,668
2021
US$’000
(cid:267),(cid:273)(cid:271)(cid:271)
(cid:268)(cid:269)
(cid:267),(cid:273)(cid:273)(cid:274)
During the year ended 31 December 2022, the Group acquired non-operated working interests in a number of projects located in the
Williston Basin, North Dakota, U.S.
Zephyr Energy plc Annual Report and Financial Statements 2022
65
Financial Statements Notes to the Financial Statements continued
14. Property, plant and equipment continued
Slawson acquisition
In December 2022, the Group completed the acquisition of non-operated working interests, ranging from 11% to 32%, in a further 6
proved not producing wells (“PNP”) in the Williston Basin, North Dakota. The wells are operated by Slawson Exploration.
The cost of the acquisition was US$2.9 million and the Group will contribute approximately US$8.9 million CAPEX to bring the wells
into production.
On 19 December 2022, the Group entered into a facility agreement with an experienced U.S. based institutional investor from which
the Group received a 12-month revolving credit facility of up to US$8 million. At 31 December 2022, US$2.5 million had been drawn
and used to finance the Slawson acquisition. See note 22.
No revenues were received from the Slawson acquisition during the year ended 31 December 2022.
(cid:92)he Group applied the re(cid:202)uirements of (cid:42)FRS (cid:259) Business combinations to the ac(cid:202)uisition and concluded that it meets the
requirements of the initial concentration test and it has, therefore, been classified as an asset acquisition. See note 4.
Williston basin accretive acquisitions
IIn June 2022, the Group completed the acquisition of non-operated working interests in a further 14 wells, the majority of which had
already been drilled and were awaiting completion. The working interest across the assets averaged approximately 1.4% per well and
the operators in the newly acquired wells include Kraken Oil and Gas LLC and Bowline Energy LLC.
The cost of the acquisitions was US$0.4 million.
(cid:92)he Group applied the re(cid:202)uirements of (cid:42)FRS (cid:259) Business combinations to the ac(cid:202)uisition and concluded that it meets the
requirements of the initial concentration test and it has, therefore, been classified as an asset acquisition. See note 4.
Impairment
At 31 December 2022, the Directors considered the requirements of IAS 36 Impairment of assets in respect of its production and
development assets. They have satisfied themselves that there were no indicators of impairment and, therefore, there was no
requirement to perform an impairment test. As a result, no provision for impairment has been made in respect of these assets
at 31 December 2022 (2021: nil). See note 4.
15. Business combination
Kaiser acquisition
(cid:42)n February (cid:258)(cid:256)(cid:258)(cid:258), the Group completed the ac(cid:202)uisition of non-operated working interests in 1(cid:262)(cid:259) producing wells (cid:349)(cid:357)PDP(cid:358)(cid:350), 1(cid:264) PNP
and DUCs and 47 proved but undeveloped (“PUD”) locations for future drilling. The working interest across the assets averaged
approximately 4%.
The assets were spread across 22 separate drilling pads in Mountrail County, North Dakota and are operated by Whiting Petroleum
Corporation.
The initial cost of the acquisition, which was subject to post completion closing adjustments, was US$36 million, of which US$3
million was paid in 2021. See note 19. The closing adjustments included US$3.9 million in respect of CAPEX and net income of US$2
million in respect of income generated and expenditure arising in the period between the effective date of the agreement and
subse(cid:202)uent completion on 1(cid:262) February (cid:258)(cid:256)(cid:258)(cid:258). (cid:92)he total consideration paid in respect of the ac(cid:202)uisition including post-closing
adjustments was US$37.9 million.
On 1(cid:262) February (cid:258)(cid:256)(cid:258)(cid:258), the Group entered into a credit facility agreement with F(cid:42)B(cid:92) in respect of a term loan of US(cid:381)1(cid:264) million, and a
12-month revolving credit facility of US$10 million which was used towards financing the acquisition. Under the terms of the facility
F(cid:42)B(cid:92) has a lien on the assets ac(cid:202)uired. See note (cid:258)(cid:258).
(cid:92)he Group applied the re(cid:202)uirements of (cid:42)FRS (cid:259) Business combinations to the ac(cid:202)uisition and concluded that it meets the criteria to
be classified as a business combination.
66
Zephyr Energy plc Annual Report and Financial Statements 2022
Financial Statements Notes to the Financial Statements continued
15. Business combination continued
The fair value of the identifiable assets and liabilities acquired in respect of the acquisition are as follows:
Assets
Oil and gas assets
Liabilities
Decommissioning obligation
Identifiable net assets at fair value
Consideration
Cash paid at date of completion
Receivables outstanding at date of completion
US$’000
(cid:270)(cid:266),(cid:267)(cid:275)(cid:275)
(cid:349)(cid:268),(cid:269)(cid:267)(cid:275)(cid:350)
(cid:269)(cid:273),(cid:274)(cid:274)(cid:266)
(cid:269)(cid:275),(cid:271)(cid:270)(cid:269)
(cid:349)(cid:267),(cid:272)(cid:272)(cid:269)(cid:350)
37,880
The fair value of the net assets acquired is deemed to be equal to the fair value of the consideration transferred and, therefore, the
Group has not recognised goodwill or a bargain purchase on the acquisitions.
All outstanding receivables had been received at 31 December 2022.
Since the date of acquisition, the non-operated working interests acquired contributed US$26.6 million to revenue and US$22.1
million of operating profit. If the acquisition had taken place at the beginning of the year, revenue from continuing operations would
have been US$42.4 million and the profit before tax from continuing operations would have been US$23.8 million. In determining
these amounts, management has assumed that the fair value adjustments arising on the date of acquisition would have been the
same had the acquisition taken place on 1 January 2022.
Zephyr Energy plc Annual Report and Financial Statements 2022
67
Financial Statements Notes to the Financial Statements continued
16. Derivative contracts
During the year ended 31 December 2022, the Group entered into the following derivative contracts to mitigate its exposure to
fluctuations in commodity prices.
Oil
Contracts
Volume
Bbl
Pricing point
Strike price
per bbl
US$
Term
Swap
Swap
Swap
Swap
Swap
Swap
(cid:272)(cid:270),(cid:266)(cid:266)(cid:266) WTI NYMEX
(cid:267)(cid:266)(cid:266).(cid:274)(cid:266)
1 April 2022 to 30 June 2022
(cid:271)(cid:273),(cid:266)(cid:266)(cid:266) WTI NYMEX
(cid:275)(cid:274).(cid:266)(cid:266)
1 July 2022 to 30 September 2022
(cid:271)(cid:266),(cid:266)(cid:266)(cid:266) WTI NYMEX
(cid:275)(cid:270).(cid:271)(cid:271)
1 October 2022 to 31 December 2022
(cid:272)(cid:275),(cid:266)(cid:266)(cid:266) WTI NYMEX
(cid:275)(cid:266).(cid:266)(cid:271)
1 January 2023 to 30 June 2023
(cid:272)(cid:267),(cid:266)(cid:266)(cid:266) WTI NYMEX
(cid:274)(cid:271).(cid:270)(cid:266)
1 July 2023 to 31 December 2023
(cid:268)(cid:273),(cid:266)(cid:266)(cid:266) WTI NYMEX
(cid:274)(cid:268).(cid:268)(cid:266)
1 January 2024 to 31 March 2024
The fair value of the outstanding contracts at 31 December 2022 has been recognised as follows:
Current assets
Non-current assets
Fair value
31 December
\2022
US$’000
Settled
Settled
Settled
(cid:272)(cid:273)(cid:273)
(cid:270)(cid:271)(cid:272)
(cid:267)(cid:273)(cid:271)
(cid:267),(cid:269)(cid:266)(cid:274)
2022
US$’000
2021
US$’000
(cid:267),(cid:267)(cid:269)(cid:269)
(cid:267)(cid:273)(cid:271)
(cid:267),(cid:269)(cid:266)(cid:274)
-
-
-
The fair value measurement of derivative contracts has been categorised as Level 1 in the fair value hierarchy as the measurement
inputs are quoted prices in active markets for identical assets at the measurement date.
The recognised gain on derivative contracts was as follows:
Realised gains
Unrealised gains
2022
US$’000
2021
US$’000
(cid:270)(cid:273)(cid:269)
(cid:267),(cid:269)(cid:266)(cid:274)
(cid:267),(cid:273)(cid:274)(cid:267)
-
-
-
68 Zephyr Energy plc Annual Report and Financial Statements 2022
Financial Statements Notes to the Financial Statements continued
17. Investments
Cost
At 1 January 2021
Additions
Exchange differences
At 1 January 2022
Additions
Exchange differences
At 31 December 2022
Impairment
At 1 January 2021
Exchange differences
At 1 January 2022
Exchange differences
At 31 December 2022
Carrying amount
At 31 December 2022
At 31 December 2021
Company
Shares in
subsidiary
undertakings
US$’000
Loans to
subsidiary
undertakings
US$’000
Total
US$’000
(cid:271)(cid:270),(cid:268)(cid:275)(cid:273)
(cid:267)(cid:274),(cid:268)(cid:275)(cid:275)
(cid:349)(cid:270)(cid:274)(cid:268)(cid:350)
(cid:273)(cid:268),(cid:267)(cid:267)(cid:270)
(cid:267)(cid:268),(cid:273)(cid:275)(cid:266)
(cid:349)(cid:273),(cid:275)(cid:269)(cid:269)(cid:350)
76,971
(cid:270)(cid:274),(cid:275)(cid:274)(cid:274)
(cid:267)(cid:274),(cid:268)(cid:275)(cid:275)
(cid:349)(cid:270)(cid:269)(cid:272)(cid:350)
(cid:272)(cid:272),(cid:274)(cid:271)(cid:267)
(cid:267)(cid:268),(cid:273)(cid:275)(cid:266)
(cid:349)(cid:273),(cid:269)(cid:273)(cid:271)(cid:350)
72,266
(cid:269)(cid:268),(cid:266)(cid:272)(cid:271)
(cid:269)(cid:273),(cid:269)(cid:273)(cid:270)
(cid:349)(cid:268)(cid:273)(cid:273)(cid:350)
(cid:269)(cid:267),(cid:273)(cid:274)(cid:274)
(cid:349)(cid:269),(cid:269)(cid:273)(cid:268)(cid:350)
28,416
(cid:349)(cid:269)(cid:268)(cid:269)(cid:350)
(cid:269)(cid:273),(cid:266)(cid:271)(cid:267)
(cid:349)(cid:269),(cid:275)(cid:269)(cid:266)(cid:350)
33,121
(cid:271),(cid:269)(cid:266)(cid:275)
-
(cid:349)(cid:270)(cid:272)(cid:350)
(cid:271),(cid:268)(cid:272)(cid:269)
-
(cid:349)(cid:271)(cid:271)(cid:274)(cid:350)
4,705
(cid:271),(cid:269)(cid:266)(cid:275)
(cid:349)(cid:270)(cid:272)(cid:350)
(cid:271),(cid:268)(cid:272)(cid:269)
(cid:349)(cid:271)(cid:271)(cid:274)(cid:350)
4,705
-
-
43,850
(cid:269)(cid:271),(cid:266)(cid:272)(cid:269)
43,850
(cid:269)(cid:271),(cid:266)(cid:272)(cid:269)
Company
The Company has outstanding loans made to its subsidiaries which incur interest at a rate of 1% above the UK base rate. The loans
are due for repayment once the subsidiaries are generating surplus cashflows from their revenue-generating activities, having met
their operating, administrative and capital expenditure. This is not anticipated to happen within the next twelve months and,
therefore, the loans are presented within non-current assets. The Board has assessed the recoverability of the loans and investments
based on the expected future cashflows arising to the Company from its subsidiary entities and consider that no additional provision
(2021: nil) should be recognised in the period.
The Company had investments in the following subsidiary undertakings as at 31 December 2022:
Place of incorporation (or
registration) and operation
Proportion of
ownership interest
Proportion of
voting power held
Principal activity
Directly owned:
VANE Minerals (UK) Limited
Rose Petroleum (UK) Limited
Indirectly owned:
Rose Petroleum (US) LLC
Rose Petroleum (Utah) LLC
Zephyr Bakken LLC
Zephyr Williston LLC
Zephyr Hawk LLC
UK
UK
U.S.
U.S.
U.S.
U.S.
U.S.
(cid:267)(cid:266)(cid:266)(cid:401)
(cid:267)(cid:266)(cid:266)(cid:401)
(cid:267)(cid:266)(cid:266)(cid:401)
(cid:267)(cid:266)(cid:266)(cid:401)
(cid:267)(cid:266)(cid:266)(cid:401)
(cid:267)(cid:266)(cid:266)(cid:401)
(cid:267)(cid:266)(cid:266)(cid:401)
(cid:267)(cid:266)(cid:266)(cid:401)
(cid:267)(cid:266)(cid:266)(cid:401)
(cid:267)(cid:266)(cid:266)(cid:401)
(cid:267)(cid:266)(cid:266)(cid:401)
(cid:267)(cid:266)(cid:266)(cid:401)
(cid:267)(cid:266)(cid:266)(cid:401)
(cid:267)(cid:266)(cid:266)(cid:401)
Dormant
Holding company
Holding company
Exploration and development
Production and development
Production and development
Dormant
During the year ended 31 December 2022, Minerales VANE S.A de C.V., which previously held the Group’s mining assets in Mexico
ceased to have legal status.
During the year Zephyr Hawk LLC was formed in the U.S. and has not yet commenced trading.
The registered office address for all companies incorporated in the United Kingdom is 20-22 Wenlock Road, London, N1 7GU.
The registered office address for all companies registered in the U.S. is 1 Shipwright Street, Annapolis, MD 21401.
Zephyr Energy plc Annual Report and Financial Statements 2022
69
Financial Statements Notes to the Financial Statements continued
18. Trade and other receivables
Trade receivables
VAT recoverable
Other receivables
Group
Company
2022
US$’000
3,919
41
330
4,290
2021
US$’000
(cid:267),(cid:268)(cid:268)(cid:273)
(cid:269)(cid:268)
(cid:270)
(cid:267),(cid:268)(cid:272)(cid:269)
2022
US$’000
2021
US$’000
-
41
-
41
-
(cid:269)(cid:269)
-
(cid:269)(cid:269)
Trade receivables are due from third-party working interest operators. The Group consistently assesses the collectability of these
receivables and at 31 December 2022 do not consider that any allowance for credit losses is required.
At 31 December 2022, other receivables include the sum of US$0.3 million in respect of amounts due in respect of settled derivative contracts.
The Directors consider that the carrying amount of trade and other receivables approximates to their fair value, and represents the
Group’s maximum exposure to credit risk.
19. Prepayments and deposits
Prepaid deposit
Prepayments and accrued income
Group
Company
2022
US$’000
2021
US$’000
2022
US$’000
2021
US$’000
-
347
347
(cid:269),(cid:266)(cid:266)(cid:266)
(cid:271)(cid:273)(cid:269)
(cid:269),(cid:271)(cid:273)(cid:269)
-
41
41
-
(cid:269)(cid:267)
(cid:269)(cid:267)
The prepaid deposit at 31 December 2021 represents a non-refundable deposit paid in respect of an agreement, subject to
conditions precedent, with Kaiser Acquisition and Development to acquire a portfolio of non-operated working interest in wells
located in the Williston Basin. (cid:92)he ac(cid:202)uisition completed in February (cid:258)(cid:256)(cid:258)(cid:258). See note 15.
20. Cash and cash equivalents
Cash and cash equivalents held by the Group and the Company as at 31 December 2022 were US$9 million and US$0.1 million
respectively (2021: US$1.8 million, US$1.6 million). The Directors consider that the carrying amount of these assets approximate to
their fair value and do not believe that the Group is exposed to any significant credit risk on its cash.
21. Trade and other payables
Trade payables
Taxes and social security
Other payables
Accruals
Group
Company
2022
US$’000
8,881
21
110
3,508
12,520
2021
US$’000
2022
US$’000
2021
US$’000
(cid:269),(cid:271)(cid:268)(cid:270)
(cid:268)(cid:266)
(cid:267)(cid:267)(cid:272)
(cid:267),(cid:273)(cid:271)(cid:270)
(cid:271),(cid:270)(cid:267)(cid:270)
121
21
1
316
459
(cid:267)(cid:269)(cid:273)
(cid:268)(cid:266)
-
(cid:269)(cid:266)(cid:266)
(cid:270)(cid:271)(cid:273)
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs.
Other payables primarily represent the potential liability due to the German licencing authorities in respect of historical, relinquished
hydrocarbon licences in south-western Germany. The Group has continued to recognise the remaining potential liability although it
continues to negotiate further reductions with the German licencing authorities.
No interest is generally charged on balances outstanding.
The Group has financial risk management policies to ensure that all payables are paid within the credit time frame.
The Directors consider that the carrying amount of trade and other payables approximates to their fair value.
70 Zephyr Energy plc Annual Report and Financial Statements 2022
Financial Statements Notes to the Financial Statements continued
22. Borrowings
Bridge loan
Term loan
Revolving credit
Less: amortised debt costs
F(cid:42)B(cid:92) facility
Revolving credit
Less: amortised debt costs
Slawson asset bridge facility
Total borrowings
Current borrowings
Non-current borrowings
Maturity analysis
Less than 6 months
6 months to 1 year
1 year to 2 years
2 years to 5 years
Group
Company
2022
US$’000
2021
US$’000
2022
US$’000
-
(cid:270),(cid:266)(cid:272)(cid:266)
15,129
8,000
(239)
22,890
2,580
(77)
2,503
25,393
14,572
10,821
25,393
-
-
-
-
-
-
-
(cid:270),(cid:266)(cid:272)(cid:266)
(cid:270),(cid:266)(cid:272)(cid:266)
-
(cid:270),(cid:266)(cid:272)(cid:266)
-
-
-
-
-
-
-
-
-
-
-
-
2021
US$’000
(cid:270),(cid:266)(cid:272)(cid:266)
-
-
-
-
-
-
-
(cid:270),(cid:266)(cid:272)(cid:266)
(cid:270),(cid:266)(cid:272)(cid:266)
-
(cid:270),(cid:266)(cid:272)(cid:266)
Group
Company
2022
US$’000
2021
US$’000
2022
US$’000
2021
US$’000
1,964
12,607
4,471
6,351
25,393
(cid:270),(cid:266)(cid:272)(cid:266)
-
-
-
(cid:270),(cid:266)(cid:272)(cid:266)
-
-
(cid:270),(cid:266)(cid:272)(cid:266)
-
(cid:270),(cid:266)(cid:272)(cid:266)
Bridge loan facility
On 22 November 2021, the Group announced that it had drawn down a bridge loan facility of US$4 million (£3 million) provided
by a number of sources, including certain Directors and Shareholders, which were primarily to fund payment of the non-refundable
deposit due in respect of an agreement with Kaiser Acquisition and Development to acquire a portfolio of non-operated working
interest in wells located in the Williston Basin. See note 19.
The terms of these loan agreements include payment of a 2% arrangement fee and interest payable at the rate of 1% per month payable
monthly in arrears. These loans were due for repayment on 22 May 2022 but this was subsequently extended to 21 November 2022 and the
rate of interest was increased to 1.25% per month. The loans were repaid in full during the year ended 31 December 2022.
First International Bank and Trust (“FIBT”)
On 1(cid:262) February (cid:258)(cid:256)(cid:258)(cid:258), the Group entered into a facility agreement with F(cid:42)B(cid:92) through its U.S. subsidiaries. Under the terms of the
agreement the Group received a term loan of US$18 million, repayable by 48 monthly instalments, and a 12-month revolving credit
facility of US$10 million. The term loan and revolving credit facility both incur interest at a rate of 6.74% and were subject to an
arrangement fee of US$180,000 and US$100,000 respectively. A non-refundable fee of US$50,000 was paid prior to the
completion of the agreement.
The revolving credit facility has a standard redetermination every six months and was increased to a facility of up to US$13 million
in October 2022, which will next be redetermined in October 2023, and incurs interest at a rate of 9.74%. The loan was subject to
an arrangement fee of US$60,000. At 31 December 2022, the Group had drawn US$8 million in respect of the facility.
F(cid:42)B(cid:92) has a lien on the assets of the Group(cid:360)s U.S. subsidiaries, (cid:117)ephyr Bakken (cid:56)(cid:56)(cid:14) and Rose Petroleum (cid:349)Utah(cid:350) (cid:56)(cid:56)(cid:14).
Zephyr Energy plc Annual Report and Financial Statements 2022
71
Financial Statements Notes to the Financial Statements continued
22. Borrowings continued
Slawson asset bridge facility
On 19 December 2022, the Group entered into a facility agreement with an experienced U.S. based institutional investor through its
U.S. subsidiary Zephyr Williston LLC. Under the terms of the agreement the Group received a 12-month revolving credit facility of up
to US$8 million, of which US$2.5 million had been drawn at 31 December 2022. The facility incurs interest at a rate 12% and was
subject to an arrangement fee of US$80,000 which was rolled up into the loan facility.
The movement in total borrowings during the year was:
At 1 January
Cashflows – financing activities
Amortised debt costs
At 31 December
23. Deferred tax
At 1 January
Charge
At 31 December
Represented by:
U.S. tax losses
Oil and gas property
Unrealised foreign gain
Mark to Market adjustments
Net deferred tax liability
2022
US$’000
4,060
21,569
(236)
25,393
2021
US$’000
-
(cid:270),(cid:266)(cid:272)(cid:266)
-
(cid:270),(cid:266)(cid:272)(cid:266)
2022
US$’000
2021
US$’000
-
1,955
1,955
2022
US$’000
(9,511)
9,730
1,409
327
1,955
-
-
-
2021
US$’000
(cid:349)(cid:272),(cid:274)(cid:267)(cid:274)(cid:350)
(cid:272),(cid:274)(cid:267)(cid:274)
-
-
-
Unrelieved tax losses arising in the UK of US$1.9 million have not been recognised as a deferred tax asset as there is currently insufficient
evidence that the asset will be recoverable in the foreseeable future. The losses must be utilised in relation to the same operations.
24. Provisions
At 1 January
Business combinations
Additions
Change in estimates
Accretion interest
At 31 December
Non-current provision
Group
Decommissioning
2022
US$’000
2021
US$’000
508
2,319
2,146
(955)
120
4,138
4,138
(cid:273)
-
(cid:270)(cid:266)(cid:266)
(cid:275)(cid:270)
(cid:273)
(cid:271)(cid:266)(cid:274)
(cid:271)(cid:266)(cid:274)
In accordance with the Group’s environmental policy and applicable legal requirements, where a liability for the retirement of a well,
removal of production equipment and site restoration at the end of the production life of a well exists, the Group recognises a
liability for decommissioning.
72
Zephyr Energy plc Annual Report and Financial Statements 2022
Financial Statements Notes to the Financial Statements continued
24. Provisions continued
During the year ended 31 December 2022, the Group recognised a provision for the decommissioning liability acquired in business
combinations, additions in respect of wells where a change of status indicated the requirement for decommissioning provisions and
any changes in estimates in respect of all relevant assets at 31 December 2022. See note 4.
The relevant rates used by the Group in calculating the provision for decommissioning are:
Inflation factor
Risk free rate
31 December
2022
%
31 December
2021
%
2.36
4.14
(cid:268).(cid:270)(cid:272)
(cid:267).(cid:275)(cid:270)
The cost of recognising the decommissioning provision is included as part of the cost of the relevant asset and the provision at 31
December 2022 has been recognised as follows:
Exploration and evaluation assets
Production and development assets
Unwinding of discount rate
25. Share capital
Authorised
Ordinary Shares of 0.1 pence each
Deferred Shares of 9.9 pence each
Allotted, issued and fully paid
Ordinary Shares of 0.1 pence each
Deferred Shares of 9.9 pence each
2022
US$’000
2021
US$’000
1,990
2,021
127
4,138
(cid:273)(cid:269)
(cid:270)(cid:268)(cid:274)
(cid:273)
(cid:271)(cid:266)(cid:274)
Group and Company
2022
Number
‘000
US$’000
2021
Number
‘000
7,779,297
9,411
(cid:273),(cid:273)(cid:273)(cid:275),(cid:268)(cid:275)(cid:273)
227,753
27,278
(cid:268)(cid:268)(cid:273),(cid:273)(cid:271)(cid:269)
8,007,050
36,689
(cid:274),(cid:266)(cid:266)(cid:273),(cid:266)(cid:271)(cid:266)
1,560,746
2,107
(cid:267),(cid:269)(cid:266)(cid:270),(cid:273)(cid:270)(cid:272)
227,753
40,305
(cid:268)(cid:268)(cid:273),(cid:273)(cid:271)(cid:269)
1,788,499
42,412
(cid:267),(cid:271)(cid:269)(cid:268),(cid:270)(cid:275)(cid:275)
US$’000
(cid:267)(cid:266),(cid:271)(cid:268)(cid:274)
(cid:269)(cid:266),(cid:271)(cid:267)(cid:271)
(cid:270)(cid:267),(cid:266)(cid:270)(cid:269)
(cid:267),(cid:273)(cid:272)(cid:266)
(cid:270)(cid:266),(cid:269)(cid:266)(cid:271)
(cid:270)(cid:268),(cid:266)(cid:272)(cid:271)
The Deferred Shares are not listed on AIM, do not give the holders any right to receive notice of, or to attend or vote at, any general
meetings, have no entitlement to receive a dividend or other distribution or any entitlement to receive a repayment of nominal
amount paid up on a return of assets on a winding up nor to receive or participate in any property or assets of the Company.
The Company may, at its option, at any time redeem all of the Deferred Shares then in issue at a price not exceeding £0.01
from all Shareholders upon giving not less than 28 days’ notice in writing.
Due to the difference in functional and presentation currencies of the Parent Company, foreign exchange differences can arise
between the authorised share capital which is restated at each period end, and the allotted, issued and fully paid share capital
which is presented at historical rates of exchange.
Zephyr Energy plc Annual Report and Financial Statements 2022
73
Financial Statements Notes to the Financial Statements continued
25. Share capital continued
Issued ordinary share capital
On 30 March 2021, the Company issued 200,000,000 Ordinary Shares of 0.1 pence each at a price of 2 pence per share, raising
gross proceeds of US$5.5 million (£4 million).
On 19 April 2021, the Company issued 300,000,000 Ordinary Shares of 0.1 pence each at a price of 2 pence per share, raising
gross proceeds of US$8.4 million (£6 million).
On 19 April 2021, the Company issued 2,428,885 Ordinary Shares of 0.1 pence in lieu of professional fees due to a service provider
engaged by the Company.
Between 26 January 2021 and 30 June 2021, the Company issued 48,973,418 Ordinary Shares of 0.1 pence each at a price of 0.6875
pence per share, raising gross proceeds of US$0.47 million (£0.34 million), in respect of the exercise of warrants.
On 30 June 2021, the Company issued 19,868,455 Ordinary Shares of 0.1 pence each at a price of 0.55 pence per share, raising gross
proceeds of US$0.15 million (£0.11 million), in respect of the exercise of warrants.
On 29 October 2021, the Company issued 2,727,273 Ordinary Shares of 0.1 pence each at a price of 1.32 pence per share, raising
gross proceeds of US$49,227 (£36,000), in respect of the exercise of warrants.
Between 1 February (cid:258)(cid:256)(cid:258)1 and (cid:265) November (cid:258)(cid:256)(cid:258)1, the (cid:14)ompany issued (cid:259)4,545,455 Ordinary Shares of (cid:256).1 pence each at a price of
2 pence per share, raising gross proceeds of US$0.95 million (£0.69 million), in respect of the exercise of warrants.
On 1 February (cid:258)(cid:256)(cid:258)(cid:258), the (cid:14)ompany issued (cid:262)(cid:262),5(cid:256)(cid:256),(cid:256)(cid:256)(cid:256) Ordinary Shares of (cid:256).1 pence each at a price of 5 pence per share, raising gross
proceeds of US$4.5 million (£3.3 million).
On 11 February (cid:258)(cid:256)(cid:258)(cid:258), the (cid:14)ompany issued 1(cid:264)(cid:265),5(cid:256)(cid:256),(cid:256)(cid:256)(cid:256) Ordinary Shares of (cid:256).1 pence each at a price of 5 pence per share, raising
gross proceeds of US$12.9 million (£9.5 million).
At 1 January 2021
Allotment of shares
At 1 January 2022
Allotment of shares
At 31 December 2022
Ordinary
Shares
Number
‘000
Deferred
Shares
Number
‘000
(cid:272)(cid:275)(cid:272),(cid:268)(cid:266)(cid:268)
(cid:272)(cid:266)(cid:274),(cid:271)(cid:270)(cid:270)
(cid:268)(cid:268)(cid:273),(cid:273)(cid:271)(cid:269)
-
(cid:267),(cid:269)(cid:266)(cid:270),(cid:273)(cid:270)(cid:272)
(cid:268)(cid:268)(cid:273),(cid:273)(cid:271)(cid:269)
(cid:268)(cid:271)(cid:272),(cid:266)(cid:266)(cid:266)
-
(cid:267),(cid:271)(cid:272)(cid:266),(cid:273)(cid:270)(cid:272)
(cid:268)(cid:268)(cid:273),(cid:273)(cid:271)(cid:269)
On 29 December 2022, 22,272,726 warrants were exercised at a price of 2 pence per Ordinary Share, raising gross proceeds of
US$0.5 million (£0.45 million). 22,272,726 Ordinary Shares of 0.1 pence each in respect of these warrants were not issued until
5 January 2023, and the proceeds have been presented within equity as shares to be issued at 31 December 2022. See note 26.
74 Zephyr Energy plc Annual Report and Financial Statements 2022
Financial Statements Notes to the Financial Statements continued
26. Warrant reserve
In November 2019, the Company undertook a fundraise which resulted in the issue of 113,636,364 Ordinary Shares of 0.1 pence each.
Subscribers were granted warrants to subscribe for 56,818,182 new Ordinary Shares, representing one warrant for every two placing
shares. The warrants were exercisable at a price of 2 pence per Ordinary Share for a period of two years from the date of issue. In
2021, the Company announced that it had extended the exercise date in respect of 22,272,727 outstanding warrants to 30 June
2022 then, on 29 June 2022, this was further extended to 31 December 2022. The resulting impact on the fair value charge of these
warrants was US$32,548. The warrants were exercised on 29 December 2022.
(cid:42)n February (cid:258)(cid:256)(cid:258)(cid:258), the (cid:14)ompany undertook a fundraise which resulted in the issue of (cid:258)5(cid:262),(cid:256)(cid:256)(cid:256),(cid:256)(cid:256)(cid:256) Ordinary Shares of (cid:256).1 pence each.
Subscribers were granted warrants to subscribe for 64,000,000 new Ordinary Shares, representing one warrant for every four placing
shares. The warrants are exercisable at a price of 7.5 pence per Ordinary Share for a period of three years from the date of issue.
The fair value of the warrants granted during the year has been calculated using the Black-Scholes model. The significant inputs into
the model for the (cid:42)FRS (cid:258) valuation were as follows(cid:329)
Exercise price (pence)
Expected volatility (%)
Expected life (years)
Risk free rates (%)
Expected dividends
Performance condition
Grants in year
64,000,000
Warrants
(cid:273).(cid:271)
(cid:273)(cid:271)
(cid:268).(cid:271) years
(cid:267).(cid:269)(cid:271)
-
None
The fair value of the warrants granted to subscribers during the year was US$1.6 million (2021: nil) and this has been recognised as a
movement between equity reserves.
Between 1 February (cid:258)(cid:256)(cid:258)1 and (cid:265) November (cid:258)(cid:256)(cid:258)1, a total of (cid:259)4,545,455 warrants were exercised at a price of (cid:258) pence per Ordinary
share, raising gross proceeds of US$0.95 million (£0.69 million).
On 29 December 2022, 22,272,726 warrants were exercised at a price of 2 pence per Ordinary Share, raising gross proceeds of
US$0.5 million (£0.45 million). See note 25.
The fair value of the warrants exercised during the year was US$0.12 million (2021: US$0.14 million) and this has been recognised as a
movement between equity reserves.
At 1 January 2021
Exercised
At 1 January 2022
Granted
Exercised
At 31 December 2022
Warrants
Number
‘000
(cid:271)(cid:272),(cid:274)(cid:267)(cid:274)
(cid:349)(cid:269)(cid:270),(cid:271)(cid:270)(cid:271)(cid:350)
(cid:268)(cid:268),(cid:268)(cid:273)(cid:269)
(cid:272)(cid:270),(cid:266)(cid:266)(cid:266)
(cid:349)(cid:268)(cid:268),(cid:268)(cid:273)(cid:269)(cid:350)
64,000
Zephyr Energy plc Annual Report and Financial Statements 2022
75
Financial Statements Notes to the Financial Statements continued
27. Reserves
The share premium account represents the sum paid, in excess of the nominal value, of shares allotted, net of the costs of issue.
The shares to be issued reserve represents equity funds received for which shares have not yet been issued.
The warrant reserve represents accumulated charges made in respect of the issue of warrants to Shareholders. See note 26.
(cid:92)he share-based payment reserve represents accumulated charges made under (cid:42)FRS (cid:258) in respect of share-based payments.
The cumulative translation reserve represents foreign exchange differences arising on the translation of foreign operations and any
net gain(cid:340)(cid:349)loss(cid:350) on the hedge of net investment in foreign subsidiaries. (cid:92)he cumulative translation reserve also represents the net
effect of the fact that the functional currency of the parent undertaking is GBP, whilst its reporting currency is US$, resulting in
exchange differences on translation of the parent undertakings equity.
(cid:92)he retained deficit includes all current and prior period retained profits(cid:340)(cid:349)losses(cid:350).
28. Share-based payments
Equity settled share option plan
The Company has a Share Option Plan, 2013 Share Option Plan Part A (employees) and 2013 Share Option Plan Part B (non-
employees), under which options to subscribe for the Company’s shares have been granted to certain Directors and to selected
employees and consultants.
At 31 December 2022, 45 million share options had been granted under the terms of the Share Option Plans and not exercised.
The Company has no legal or constructive obligation to repurchase or settle the options in cash. The latest date for exercise of the
options is 28 May 2030 and, unless otherwise agreed, the options are forfeited if the employee or consultant leaves the Group
before the options vest, or if those options which have vested are not exercised within three months of leaving.
Details of the share options outstanding at the end of the year were as follow:
Outstanding at 1 January
Expired
Lapsed
Outstanding at 31 December
Exercisable at 31 December
2022
2021
Number of
options
‘000
Weighted
average
exercise price
pence
Number
of options
‘000
Weighted
average
exercise price
pence
45,281
-
(250)
45,031
34,365
5.57
-
145.4
4.8
6.1
(cid:270)(cid:271),(cid:270)(cid:269)(cid:270)
(cid:349)(cid:267)(cid:271)(cid:269)(cid:350)
-
(cid:270)(cid:271),(cid:268)(cid:274)(cid:267)
(cid:268)(cid:269),(cid:275)(cid:270)(cid:274)
(cid:271).(cid:275)(cid:269)
(cid:267)(cid:267)(cid:268).(cid:271)
-
(cid:271).(cid:271)(cid:273)
(cid:267)(cid:266).(cid:266)
The options outstanding at 31 December 2022 had an estimated weighted average remaining contractual life of 7 years (2021: 8
years), with an exercise price ranging between 0.1 pence and 342.5 pence.
There were no options issued during the year ended 31 December 2022 (2021: nil).
Share-based compensation
On 19 April 2021, the Company issued 2,428,885 Ordinary Shares of 0.1 pence in lieu of professional fees due to a service provider
engaged by the Company. The fair value of the service provided could be measured directly, and accordingly an expense of
US$27,502 was recognised in the year ended 31 December 2021.
No shares have been issued in respect of share-based compensation during the year ended 31 December 2022.
Warrants
On 19 April 2021, the Company granted 32,350,000 warrants to TPI, in respect of broker services provided by them in relation to
the placing of the Company’s Ordinary Shares. The warrants permit the holder to subscribe for one new Ordinary Share at a price
of 3 pence per Ordinary Share and are exercisable at any time for a period of three years from the date of issue.
On 11 February (cid:258)(cid:256)(cid:258)(cid:258), the (cid:14)ompany granted 1(cid:263),(cid:256)(cid:262)(cid:262),(cid:262)(cid:262)(cid:263) warrants to (cid:92)P(cid:42), in respect of broker services provided by them in relation
to the placing of the Company’s Ordinary Shares. The warrants permit the holder to subscribe for one new Ordinary Share of
0.1 pence at a price of 7.5 pence per Ordinary Share and are exercisable at any time for a period of three years from the date of issue.
76
Zephyr Energy plc Annual Report and Financial Statements 2022
Financial Statements Notes to the Financial Statements continued
28. Share-based payments continued
On 11 February (cid:258)(cid:256)(cid:258)(cid:258), the (cid:14)ompany granted (cid:264),5(cid:256)(cid:256),(cid:256)(cid:256)(cid:256) warrants to (cid:92)P(cid:42), in respect of broker services provided by them in relation
to the raising of bridge loan facilities. The warrants permit the holder to subscribe for one new Ordinary Share of 0.1 pence at a price
of 7.5 pence per Ordinary Share and are exercisable at any time for a period of three years from the date of issue.
The fair value of the warrants issued during the year has been calculated using the Black-Scholes model. The significant inputs into
the model for the (cid:42)FRS (cid:258) valuation were as follows(cid:329)
Exercise price (pence)
Expected volatility (%)
Expected life (years)
Risk free rates (%)
Expected dividends
Performance condition
Grants in year
25,566,667
Warrants
(cid:273).(cid:271)
(cid:273)(cid:271)
(cid:268).(cid:271) years
(cid:267).(cid:269)(cid:267)
-
None
The fair value of the warrants granted during the year was US$0.6 million (2021: US$0.6 million).
In accordance with the Group’s accounting policy, the costs of an equity transaction are accounted for as a deduction from equity to
the extent that they are incremental costs directly attributable to the equity transaction that would otherwise have been avoided. As
a result, US$0.4 million fair value charge relating to the warrants issued in respect of services provided in relation to the placing of
the Company’s Ordinary Shares has been treated as a movement between equity reserves.
Between 26 January 2021 and 30 June 2021, a total of 48,973,418 warrants were exercised at a price of 0.6875 pence per share,
raising gross proceeds of US$0.47 million (£0.34 million).
On 30 June 2021, 19,868,455 warrants were exercised at a price of 0.55 pence per share, raising gross proceeds of US$0.15 million
(£0.11 million).
On 29 October 2021, 2,727,273 warrants were exercised at a price of 1.32 pence per share, raising gross proceeds of US$49,227
(£36,000).
During the year ended 31 December 2022, 1,360,000 options expired. The fair value of the expired options was US$11,513 and this
has been recognised as a movement between equity reserves.
No warrants have been exercised during the year. The fair value of the warrants exercised during the year ended 31 December 2021
was US$0.63 million and this was recognised as a movement between equity reserves.
Details of the warrants included in share-based payments and outstanding at the end of the year were as follow:
At 1 January 2021
Granted
Exercised
At 1 January 2022
Granted
Expired
At 31 December 2022
Warrants
Number
‘000
(cid:273)(cid:268),(cid:275)(cid:268)(cid:275)
(cid:269)(cid:268),(cid:269)(cid:271)(cid:266)
(cid:349)(cid:273)(cid:267),(cid:271)(cid:272)(cid:275)(cid:350)
(cid:269)(cid:269),(cid:273)(cid:267)(cid:266)
(cid:268)(cid:271),(cid:271)(cid:272)(cid:273)
(cid:349)(cid:267),(cid:269)(cid:272)(cid:266)(cid:350)
57,917
In the year ended 31 December 2021, the Company recognised a total expense of US$0.2 million (2021: US$93,104) in respect
of share-based payments, being US$24,792 (2021: US$65,602) in respect of the share option plan, US$ nil (2021: US$27,502)
in respect of share-based compensation and US$0.2 million (2021: nil) in respect of warrants.
Zephyr Energy plc Annual Report and Financial Statements 2022
77
Financial Statements Notes to the Financial Statements continued
29. Financial instruments
Financial risk management objectives
Management provides services to the business, co-ordinates access to domestic and international financial markets and monitors
and manages the financial risks relating to the operations of the Group. These risks include cashflow interest rate risk, foreign
currency risk, credit risk, liquidity risk, and commodity price risk.
The policies for managing these risks are regularly reviewed and agreed by the Board who aim to minimise potential adverse effects
on the Group’s financial performance on a continuous basis.
The Group’s principal financial assets are comprised of cash and cash equivalents, trade and other receivables derived from its
operations and derivative contracts. The Group’s principal financial liabilities are comprised of borrowings and trade and other
payables and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings.
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns, while maximising the return
to Shareholders through the optimisation of the debt and equity balance. The Group’s overall strategy is to minimise costs and liquidity risk.
The Group is not subject to externally imposed capital requirements.
The capital structure of the Group consists of cash and cash equivalents, interest bearing borrowings and equity attributable to
owners of the Parent Company, comprising issued capital, reserves and retained earnings.
The Group plans its capital requirements on a regular basis and as part of this review the Directors consider the cost of capital and
the risks associated with each class of capital.
Significant accounting policies
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement,
the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity
instrument are disclosed in note 3.
Categories of financial instruments
Financial assets measured at amortised cost
Cash and cash equivalents
Trade receivables
Other receivables
Loans to subsidiary undertakings
Financial assets measured at fair value
Derivative contracts – hierarchy, Level 1
Financial liabilities measured at amortised cost
Trade payables
Other payables
Accruals
Borrowings
78 Zephyr Energy plc Annual Report and Financial Statements 2022
Group
Company
2022
US$’000
2021
US$’000
2022
US$’000
2021
US$’000
8,996
3,919
330
-
(cid:267),(cid:274)(cid:267)(cid:267)
(cid:267),(cid:268)(cid:268)(cid:273)
(cid:270)
-
13,245
(cid:269),(cid:266)(cid:270)(cid:268)
118
(cid:267),(cid:271)(cid:273)(cid:270)
-
-
-
-
43,850
43,968
(cid:269)(cid:271),(cid:266)(cid:272)(cid:269)
(cid:269)(cid:272),(cid:272)(cid:269)(cid:273)
Group
Company
2022
US$’000
2021
US$’000
2022
US$’000
2021
US$’000
1,307
-
-
-
Group
Company
2022
US$’000
2021
US$’000
2022
US$’000
2021
US$’000
8,881
110
3,508
25,709
38,208
(cid:269),(cid:271)(cid:268)(cid:270)
(cid:267)(cid:267)(cid:272)
(cid:267),(cid:273)(cid:271)(cid:270)
(cid:270),(cid:266)(cid:272)(cid:266)
(cid:275),(cid:270)(cid:271)(cid:270)
121
1
316
-
438
(cid:267)(cid:269)(cid:273)
-
(cid:269)(cid:266)(cid:266)
(cid:270),(cid:266)(cid:272)(cid:266)
(cid:270),(cid:270)(cid:275)(cid:273)
Financial Statements Notes to the Financial Statements continued
29. Financial instruments continued
Fair value of financial instruments
The Directors consider that the carrying amount of its financial instruments approximates to their fair value.
Interest rate risk management
The Group’s policy on interest rate management is agreed at Board level and is reviewed on an ongoing basis.
The Group is exposed to interest rate risk on cash held on deposit at banks but these accounts are held for liquidity rather than
investment and the interest rate risk is not considered material to the Group.
The Group has no substantial exposure to fluctuating interest rates on its liabilities. The Group’s interest-bearing loans incur a fixed
interest rate charge and, therefore, the Group is not exposed to significant interest rate fluctuations.
Accordingly, no sensitivity analysis has been presented.
Foreign exchange risk and foreign currency risk management
The Group undertakes certain transactions denominated in foreign currencies, with the result that exposure to exchange rate
fluctuations arise.
The Group does not normally hedge against the effects of movements in exchange rates. The Group policy is not to repatriate any
currency where there is the requirement or obligation to spend in the same denomination. When foreign exchange is required the
Group purchases using the best spot rate available. As a result, there is limited currency risk within the Group other than cash and
cash equivalents whose functional currency is different to presentation currency.
The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date
are as follows:
GBP
Liabilities
Assets
2022
US$’000
2021
US$’000
2022
US$’000
2021
US$’000
90
(cid:267)(cid:267)(cid:272)
71
(cid:267)(cid:272)(cid:275)
Foreign currency sensitivity analysis
The financial statements of the Group’s foreign subsidiaries are denominated in foreign currencies.
The Group is exposed primarily to movements in US$ in respect of foreign currency risk arising from recognised assets.
Sensitivity analysis has been performed to indicate how the profit or loss would have been affected by changes in the exchange rate
between GBP and US$. The analysis is based on the weakening and strengthening of US$ by 5%. A movement of 5% reflects a
reasonably positive sensitivity when compared to historical movements over a three to five-year timeframe. The sensitivity analysis
includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 5%
change in foreign currency rates.
The table below details the Group’s sensitivity to a 5% decrease in US$ against GBP. A positive number below indicates an increase in
profit where US(cid:381) strengthens 5(cid:401) against GBP. For a 5(cid:401) weakening of US(cid:381) there would be an e(cid:202)ual and opposite impact on the
profit, and the balance below would be negative. The sensitivity calculated below is primarily attributable to the restatement of GBP
denominated intercompany loans in the Group’s U.S. subsidiaries.
Income statement
2022
US$’000
2021
US$’000
(2,616)
(cid:349)(cid:268),(cid:267)(cid:275)(cid:272)(cid:350)
Liquidity risk management
Liquidity risk is the risk that the Group will not be able to meet its financial obligations when they fall due. Ultimate responsibility for
liquidity risk management rests with the Board of Directors, which has built an appropriate liquidity risk management framework for
the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group manages
liquidity risk by maintaining adequate cash reserves and by continuously monitoring forecast and actual cashflow.
With the exception of borrowings, outlined in note 22, the Group’s financial liabilities mature within less than six months.
At 31 December 2022, the Group was compliant with all the terms of its borrowings.
Zephyr Energy plc Annual Report and Financial Statements 2022
79
Financial Statements Notes to the Financial Statements continued
29. Financial instruments continued
At 31 December 2022, the maturity of undiscounted borrowings including interest was as follows:
Maturity analysis
Less than 6 months
6 months to 1 year
1 year to 2 years
2 years to 5 years
Group
Company
2022
US$’000
2021
US$’000
2022
US$’000
2021
US$’000
2,543
14,037
5,086
6,782
28,448
(cid:270),(cid:267)(cid:266)(cid:271)
-
-
-
(cid:270),(cid:267)(cid:266)(cid:271)
-
-
(cid:270),(cid:267)(cid:266)(cid:271)
-
(cid:270),(cid:267)(cid:266)(cid:271)
Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group.
The maximum exposure to credit risk at the reporting date to recognised financial assets is the carrying amount, net of any
provisions for impairment of those assets. The Group does not hold any collateral. Generally, financial assets are written off
when there is no reasonable expectation of recovery.
The Group does not have any significant credit risk exposure on trade and other receivables, which are current and collectible.
The credit risk on liquid funds (cash) is considered to be limited because the counterparties are financial institutions with high and
good credit ratings assigned by international credit-rating agencies.
Commodity price management
The Group is exposed to commodity price risks relating to its ongoing business operations and uses derivative contracts to manage
this risk.
The Group uses oil forward contracts to manage some of its transaction exposures and are intended to reduce the level of risk due
to fluctuations in oil price. The forward contracts are not designated as cashflow hedges and are entered into for periods consistent
with exposure of the underlying transactions.
30. Related party transactions
Amounts due from subsidiaries
Group
Other than foreign exchange gains attributable to the restatement of GBP denominated intercompany loans in the Company’s U.S.
subsidiaries, balances and transactions between the Company and its subsidiaries which are related parties, have been eliminated on
consolidation and are not disclosed in this note. A foreign exchange gain of US$5.6 million (2021: US$0.4 million) has been
recognised in the income statement for the year ending 31 December 2022.
Company
The Company has entered into a number of unsecured related party transactions with subsidiary undertakings. The most significant
transactions carried out between the Company and their subsidiary undertakings are management charges for services provided to
the subsidiary company and long-term financing. Details of these transactions are as follows:
2022
2021
Transactions
in the year
US$’000
Amounts
owing
US$’000
Transactions
in the year
US$’000
Amounts
owing
US$’000
11,042
58,952
(cid:267)(cid:273),(cid:270)(cid:272)(cid:273)
(cid:271)(cid:269),(cid:274)(cid:273)(cid:266)
533
1,215
-
5,902
6,839
573
(cid:270)(cid:272)(cid:268)
(cid:269)(cid:273)(cid:266)
-
(cid:272),(cid:266)(cid:267)(cid:275)
(cid:272),(cid:269)(cid:268)(cid:267)
(cid:272)(cid:270)(cid:267)
Loans
Management charges
Interest (1% over UK base rate)
Capital contribution
80 Zephyr Energy plc Annual Report and Financial Statements 2022
Financial Statements Notes to the Financial Statements continued
30. Related party transactions continued
Remuneration of key management personnel
The remuneration of key management personnel of the Group is set out below in aggregate for each of the categories specified in
IAS 24 Related Party Disclosures.
2022
2021
Purchase of
services
US$’000
Amounts
owing
US$’000
Purchase of
services
US$’000
Amounts
owing
US$’000
Short-term employee benefits
Post-employment benefits
Share-based payments
1,363
84
19
1,466
-
67
-
67
(cid:275)(cid:268)(cid:274)
(cid:270)(cid:268)
(cid:270)(cid:274)
(cid:267),(cid:266)(cid:267)(cid:274)
The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received.
All transactions with related parties have been conducted on an arm’s length basis.
Directors’ pensions
The number of Directors to whom retirement benefits are accruing under money purchase schemes was
2022
No
2
-
(cid:268)(cid:274)
-
(cid:268)(cid:274)
2021
No
(cid:268)
Transactions with related parties
Services
During the year ended 31 December 2022, the Group received services from OCE which is a related party as JC Harrington is
indirectly the controlling shareholder and RL Grant is also a shareholder.
Office services
2022
US$’000
2021
US$’000
17
(cid:267)(cid:274)
Interest bearing loans
During the year ended 31 December 2021, the Group received loans from a number of sources, including certain Directors and
Shareholders. See note 22.
At 31 December 2022, there were no outstanding loans due to Directors of the Company (including family interests and those
entities in which Directors have a controlling interest), and payments have been made as follows:
RL Grant
CJ Eadie
OCE1
RL Grant
CJ Eadie
OCE1
Loans
outstanding
US$’000
2022
Repayment
fee
US$’000
Interest
paid
US$’000
Total
US$’000
-
-
-
-
(cid:270)
(cid:267)
(cid:269)
(cid:274)
(cid:269)
(cid:267)
(cid:267)
(cid:271)
7
2
4
13
Loans
outstanding
US$’000
2021
Arrangement
fee
US$’000
Interest
paid
US$’000
Total
US$’000
(cid:267)(cid:272)(cid:275)
(cid:270)(cid:267)
(cid:267)(cid:266)(cid:267)
(cid:269)(cid:267)(cid:267)
(cid:269)
(cid:267)
(cid:268)
(cid:272)
(cid:268)
-
(cid:267)
(cid:269)
(cid:271)
(cid:267)
(cid:269)
(cid:275)
1 JC Harrington is indirectly the controlling shareholder of OCE
Zephyr Energy plc Annual Report and Financial Statements 2022
81
Financial Statements Notes to the Financial Statements continued
30. Related party transactions continued
Warrant extension
On 29 June 2022, the Company announced that it had extended the exercise period of warrants issued to OCE and CJ Eadie
as a result of their participation in an equity placing carried out by the Company in November 2019. In the Placing, OCE
invested £480,000 and was issued with 21,818,182 warrants. CJ Eadie invested £10,000 and was issued 454,545 warrants.
The expiry of the exercise period of the warrants was extended from 30 June 2022 to 31 December 2022 and the resulting
impact on the fair value charge of these warrants was US$32,548. See note 26.
The warrants were exercised on 29 December 2022, but the corresponding Ordinary Shares were not issued until January 2023.
See note 26.
31. Post balance sheet events
Acquisition and share issue
On 1(cid:256) February (cid:258)(cid:256)(cid:258)(cid:259), the Group announced that it had completed its ac(cid:202)uisition of the remaining (cid:258)5(cid:401) working interest in the WSU
in the Paradox Basin, Utah from RSOC with the issue of up to 40,449,284 new Ordinary Shares of 0.1p in Zephyr Energy plc, at a
price of (cid:262).(cid:256)5p per new Ordinary Share. On 1(cid:256) February (cid:258)(cid:256)(cid:258)(cid:259), 1(cid:259),4(cid:264)(cid:259),(cid:256)(cid:265)5 new Ordinary Shares were issued and a further (cid:258)(cid:262),(cid:265)(cid:262)(cid:262),1(cid:264)(cid:265)
new Ordinary Shares will be issued when the Group makes a final investment decision relating to the processing plant. See note 13.
Hedging programme
In May 2023, the Group announced the implementation of an additional hedging programming related to oil productions from its
non-operated asset portfolio in the Williston Basin over the period to 31 March 2024. The programme has been implemented with
BP Energy Company (“BP”) one of the world’s leading energy trading houses, as the hedge counterparty.
Equity fundraise
In June 2023, the Company raised gross proceeds of US$3.9 million (£3.15million) by way of a placing of 90 million Ordinary Shares
of 0.1 pence each at a price of 3.5 pence per Ordinary Share.
State 36-2 well control incident
On 7 April 2023, as workover operations were being completed on State 36-2, the well experienced a significant control issue despite
multiple attempts to secure the well by the rig crew. The incident was initially caused by the failure in a safety valve, and
subsequently resulted in hydrocarbons being released from the well in an uncontrolled manner.
In keeping with safety procedures, all personnel were safely evacuated without injury. All relevant authorities were notified and a
specialist well control team (recommended by the Group’s insurers) was deployed to bring the well under control as quickly as possible.
Ultimately, well control efforts were successful and remediation and clean–up operations have been commenced. A third-party
confirmatory environmental survey was subsequently completed and the initial results found no evidence of lingering
environmental impact.
82 Zephyr Energy plc Annual Report and Financial Statements 2022
Other Information
(cid:20)irectors(cid:328) Ad(cid:227)isers
(cid:121)nd (cid:68)(cid:153)(cid:153)icers
Directors
RL Grant
TH Reynolds
GB Stein
JC Harrington
(cid:14)(cid:51) (cid:24)adie
Secretary
CJ Eadie
Non-Executive Chairman
Non-Executive Director
Non-Executive Director
Chief Executive Officer
Finance Director
Registered office
20-22 Wenlock Road
London
N1 7GU
Auditor
BDO LLP
55 Baker Street
London
W1U 7EU
Registrar
Link Group
29 Wellington Street
Leeds
LS1 4DL
Bankers
Barclays Bank Plc
Level 27
1 Churchill Place
London
E14 5HP
Public relations
Celicourt Communications Limited
4 Bream’s Buildings
London
EC4A 1HP
Solicitors
RBG Legal Services Limited, trading as Memery Crystal
1(cid:262)5 Fleet Street
London
EC4A 2DY
Nominated adviser
Allenby Capital Limited
5 St Helen’s Place
London
EC3A 6AB
Joint brokers
Turner Pope Investments Ltd
(cid:259)rd Floor
(cid:264) Fredericks Place
London
EC2R 8AB
Panmure Gordon (UK) Limited
40 Gracechurch Street
London
EC3V 0BT
Zephyr Energy plc Annual Report and Financial Statements 2022
83
OTCQB
£ / GBP
2P
PDP
PNP
PRAX
PUD
ROIC
RSOC
Slawson
Sproule
U.S.
US$
2U
VERs
WSU
OTCQB Venture Market
Pound Sterling
Proved plus probable reserves
Producing well
Proved not producing well
Prax Group
Proved but undeveloped well
Return on invested capital
Rockies Standard Oil Company LLC
Slawson Exploration Company
Sproule International
United States
United States Dollar
Unrisked prospective resources
Verified emission reductions
White Sands Unit
Other Information
(cid:34)loss(cid:121)r(cid:234)
AGM
bbls
BLM
bo
boe
boepd
2C
BP
Annual General Meeting
Barrels
U.S. Bureau of Land Management
Barrel of oil
Barrel of oil equivalent
Barrels of oil equivalent per day
Best estimate of contingent resources
BP Energy Company
CAPEX
Capital expenditure
CGU
Code
CPR
DOE
Cash Generating Unit
Corporate Governance Code
Competent persons report
U.S. Department of Energy
Dominion Energy Dominion Energy Utah, LLC
DUC
DSU
EGI
ESG
ECL
E&E
E&P
FIBT
HSRP
IFRS
IASB
KPI
<
LTI
M&A
Drilled but uncompleted well
Drilling spacing unit
Utah’s Energy and Geoscience Institute
Environmental, social and governance
Expected credit losses
Exploration and evaluation
Evaluation and production
First (cid:42)nternational Bank and (cid:92)rust
Hydraulically stimulated resource play
(cid:42)nternational Financial Reporting Standards
International Accounting Standards Board
Key performance indicator
Less than
Lost time injuries
Merger & Acquisition
mmboe
Million barrels of oil equivalent
>
NED
OCE
More than
Non-Executive Director
Origin Creek Energy LLC
84
Zephyr Energy plc Annual Report and Financial Statements 2022
Head Office:
First Floor, Newmarket House
Market Street, Newbury
Berkshire, RG14 5DP
www.zephyrplc.com