Zephyr Energy Secures $15 Million Non-Dilutive Pre-Production Financing for Utah’s Paradox Basin Project with Atlas Oil

Overview of Zephyr’s Paradox Basin Asset and Financing Structure

Zephyr Energy operates the approximately 73,000-acre Paradox project in Utah, its flagship operated asset in the Rocky Mountain region. A 2025 Competent Persons Report by Sproule International verified 2P reserves of 35.3 million barrels of oil equivalent ("boe") and total recoverable resources of 74.2 million boe within the White Sands Unit, a 20,000-acre segment of the broader Paradox project. Production history dates back to 2021 when Zephyr initiated testing of the State 16-2 well, laying the groundwork for the current financing initiative.

The proposed US$15 million Prepaid Commodity Purchase Agreement with Atlas Oil offers a non-dilutive funding mechanism for pre-production activities. Importantly, this financing involves no issuance of new Zephyr equity and no sale of asset-level working interests to Atlas. Instead, Atlas will be repaid exclusively from future production sales proceeds, linking repayment directly to project revenue. This approach preserves shareholder equity while providing essential capital to advance the project toward commercial production at a scale beyond what internal resources alone could achieve.

Atlas Oil’s Established Role at Paradox

Founded in 1985 and based in Houston, Atlas Oil Company brings extensive operational expertise to the Paradox project, having supported oil marketing, transportation, and logistics since 2021. Atlas managed volumes from the State 16-2 well testing program, establishing a strong operational partnership that underpins the current financing proposal and reflects deep understanding of the project’s operational, commercial, and financial aspects.

Atlas is a major independent hydrocarbon marketing and structured finance firm with significant presence in North American energy markets. It distributes over 1 billion gallons of fuel annually across 49 states. Its Supply & Marketing division delivers refined fuel products including gasoline, diesel, crude oil, ethanol, and natural gas liquids globally. Atlas’s combined marketing expertise and structured capital capabilities create operational continuity for the proposed commodity purchase agreement.

Allocation of Funds and Infrastructure Development Plans

Zephyr plans to deploy the US$15 million financing across key pre-production expenditures at Paradox. Primary uses include completing infrastructure build-out for commercial operations, conducting workovers on the State 36-2R and other wells to restore or improve productivity, and evaluating expanded gas processing solutions to accommodate increased production volumes.

This financing structure offers capital flexibility that enables project scaling beyond internal funding limits. Securing external non-dilutive capital allows Zephyr to plan additional well drilling and optimize production ramp-up strategies. The company highlights that the funding "allows Zephyr to reach first commercial production at a larger scale while reallocating internal resources for future well planning and drilling." This flexibility is especially valuable given Zephyr’s concurrent farm-out process, providing financial support without restricting strategic options.

Alignment with Ongoing Farm-Out Negotiations

Zephyr is actively pursuing a farm-out process for the Paradox project, with multiple interested parties accessing the data room. The Atlas financing is structured to support either a successful farm-out with a third-party operator or continued independent development by Zephyr. This dual-path approach demonstrates management’s commitment to maximizing shareholder value, whether by partnering or retaining operational control with non-dilutive capital.

The Letter of Intent specifies that the financing "supports a farm-out or allows Zephyr to continue standalone Paradox development, depending on the most value-accretive solution for shareholders." This arrangement enhances the project’s attractiveness to potential farm-out partners by providing a clearer path to commercial production through secured financing. Simultaneously, if farm-out terms are unsatisfactory, Zephyr retains capital to advance the project independently to a larger production scale.

Preserving Capital Structure and Protecting Shareholder Equity

A key feature of the financing is the preservation of shareholder equity. The announcement confirms that "No asset-level working interest will be sold to Atlas and no Zephyr equity will be issued as part of the funding." This non-dilutive model contrasts with equity financing alternatives that dilute existing shareholders. By structuring the deal as a commodity prepayment secured against future hydrocarbon sales, Zephyr accesses capital without equity dilution.

Atlas’s repayment depends solely on production sales proceeds, aligning its financial return with project success. This creates a natural incentive for operational excellence. For existing shareholders, revenue sharing with Atlas occurs only to the extent required to repay the financing, preserving long-term equity value once repayment is complete.

Robust Reserves and Resources Underpin Financing Confidence

The Paradox project’s independently verified reserves provide strong backing for Atlas’s confidence in the financing. The 2025 Sproule International Competent Persons Report confirmed 2P reserves of 35.3 million boe within the White Sands Unit and total recoverable resources of 74.2 million boe, indicating significant upside potential beyond proved reserves.

This resource base supports the commercial rationale for the US$15 million prepayment. Atlas’s General Manager of Crude Trading, Chris Dillman, stated, "Based on our experience and understanding of the asset, we believe the Paradox project has potential to become a meaningful oil and gas development as production and infrastructure advance." The combination of proven reserves, production testing since 2021, and operational insight forms a compelling case for commodity prepayment financing.

Closing Timeline and Conditions

The financing is subject to execution of binding agreements and customary due diligence. Zephyr anticipates closing in Q3 or early Q4 2026, allowing several months to finalize definitive contracts and ancillary documents. Closing conditions include signing a binding Commodity Purchase Agreement and completion of Atlas’s confirmatory due diligence.

Until these conditions are met, the Letter of Intent remains non-binding, permitting either party to withdraw if material issues arise. The timeline indicates active negotiations with expectations to resolve outstanding matters promptly. Zephyr commits to providing updates as the process progresses. Importantly, the funding "is not contingent on timing of first gas production," ensuring capital availability regardless of production schedule and mitigating execution risk.

Strategic Fit Within Zephyr’s Portfolio and Growth Plans

Beyond Paradox, Zephyr holds a diversified portfolio of non-operated production interests in the Williston Basin and other Rocky Mountain basins. The company benefits from a US$100 million strategic partnership to accelerate growth and cash flow across its assets. The Atlas financing targets the flagship Paradox project, complementing Zephyr’s strategy of balancing operated and non-operated interests across multiple basins.

The non-dilutive nature of the Paradox funding preserves capital flexibility across Zephyr’s portfolio. External prepayment financing for Paradox enables management to pursue other opportunities or reserve capital for contingencies. CEO Colin Harrington noted the funding "provides benefits and flexibility to the ongoing farm-out process while allowing standalone Paradox development operated by Zephyr." This underscores management’s focus on developing Paradox within a broader exploration and production strategy in the Rocky Mountain region.

Industry Trends and Market Context

This commodity prepayment financing reflects growing industry trends toward innovative capital structures aligning funders’ interests with upstream project success. Traditional debt financing has faced challenges in recent years, with more conservative credit pricing in energy markets. Commodity-linked financing secured against future hydrocarbon sales has gained traction as an alternative capital source, especially for junior and mid-cap upstream firms. Atlas’s combination of commodity marketing and structured finance exemplifies this evolving market dynamic.

For Zephyr, access to such financing validates the commercial strength of the Paradox project amid capital constraints. Announced in July 2026, this deal arrives as independent producers seek to balance pre-production capital needs with shareholder equity preservation. The non-dilutive structure enables Zephyr to advance a significant project without share issuance that could concern investors during a period emphasizing capital discipline in the energy sector.