REG - Zephyr Energy PLC - Acquisition of additional Paradox acreage & update

Zephyr EnergyAnnouncement

25/08/2022 07:00

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RNS Number : 1474X  Zephyr Energy PLC  25 August 2022

 

 

25 August 2022

Zephyr Energy plc

("Zephyr" or the "Company")

 

Acquisition of additional acreage in the Paradox Basin;

State 16-2LN-CC and drilling programme update

 

Zephyr Energy plc (AIM: ZPHR) (OTCQB: ZPHRF), the Rocky Mountain oil and gas
company focused on responsible resource development from carbon-neutral
operations, is pleased to announce an increase in its operated land position
through the acquisition of an additional 1,920 acres (the "new acreage") in
the Paradox Basin, Utah, U.S. (the "Paradox"), and to provide an update on its
State 16-2LN-CC operations and upcoming Paradox drilling programme.

 

Acquisition of prime Paradox Basin acreage

 

Zephyr has increased its land position adjacent to its operated White Sands
Unit (the "WSU") through the targeted acquisition of 1,920 leased acres
deemed by the Company to have immediate development potential.

 

Acquisition highlights:

 

·    Optimal Location. The new acreage is directly contiguous to the
Zephyr-operated WSU, with the potential to be added to the Unit acreage
subject to approval from the U.S. Bureau of Land Management (the "BLM").

o  The acquired acreage is largely covered by Zephyr's existing 3D seismic,
and directly borders the Zephyr lease on which the planned State 36-2 LNW-CC
and 36-3 LN-C9 well pad is located.

o  The new acreage is close to pre-existing surface infrastructure in the
form of a six-inch gas pipeline which traverses the leasehold.

·    Immediate drilling benefits.  By adding the new acreage, the lateral
for the proposed State 36-2 LNW-CC can be fully completed across a 10,000-foot
lateral length, subject to final regulatory approval. This is expected to
further enhance the well's forecast economics and estimated ultimate
recovery.

o  In conjunction with the acquisition, Zephyr recently amended its BLM
application for a permit to drill (an "APD") for the State 36-2 LNW-CC well to
reflect the enhanced completion design.  BLM approval is expected shortly.

·    Increased overall resources and drilling locations. Based on
modelling results of the recently drilled State 16-2LN-CC well, modelling for
the upcoming State 36-2 LNW-CC well, and production data from the nearby
vertical Federal 28-11 well, Zephyr's technical team estimates that the
acquisition adds over 4 million barrels of oil equivalent of additional 2C net
Contingent Resources to Zephyr's Paradox Basin position with the following
additional benefits:

o  The acquisition substantively increases the Company's Working Interest in
an estimated 4 Cane Creek reservoir well locations, adding an estimated 2.4
net wells assuming 2-mile lateral well lengths.

o  It adds unrisked net present value at a ten per cent. discount rate
("NPV-10)", net to Zephyr, of approximately US$40 million from the Cane Creek
reservoir, based on estimated economics for 2-mile laterals. This estimate
assumes success case outcomes from State 16-2 LN-CC flow testing and State
36-2 LNW-CC drilling and testing.

o  It delivers access to acreage that may host liquid yields similar to that
observed at the nearby vertical Federal 28-11 well and higher than those at
the recently tested State 16-2 LNW-CC well.

o  It provides additional potential in the overlying shallow clastic zones.

 

The acquisition is part of the Company's ongoing portfolio management of
its Paradox Basin position.  This active land management strategy has
resulted in a defensible and growing portfolio of development opportunities
which Zephyr's Board believes is increasingly difficult to replicate in
today's regulatory and political environment.

 

The consideration for the new acreage has been satisfied by a payment from
Zephyr's existing cash resources. In addition, the seller will be entitled to
receive royalty payments which are only payable in the event of drilling
success.  The Company has also agreed to use reasonable commercial efforts to
drill at least one well across the new acreage prior to December 2023, a
requirement which the Board believes will be satisfied by the upcoming
drilling of the State 36-2 LNW-CC well.

Inclusive of the new acreage, the Company will operate a total of 39,473 gross
acres in the Paradox Basin, the majority in which the Company holds a 75%
working interest.

 

State 16-2LN-CC and Paradox drilling programme update

 

The Company continues to prepare for extended production testing of its
successfully drilled and completed State 16-2 LN-CC well.  All relevant
applications have been filed and orders for long lead time items have been
made in anticipation of recommencement of production operations this autumn,
subject to final permit approval.  The production test is designed to further
investigate the flow potential of the State 16-2 LN-CC well, to add production
data for use in surface infrastructure development decisions, and to test and
develop flow assurance processes for the well.

 

In conjunction with the production test, and as announced on 7 June 2022,
Zephyr planned to sell a small portion of gas produced from the State 16-2
LN-CC to a crypto-mining facility to be co-located on the well pad.  Due to
continued volatility in the crypto-currency markets, Zephyr's Board has
elected to further monitor pricing of crypto-mining equipment and facilities
prior to proceeding with a co-located facility and prior to committing to any
related investment.  To date, no Zephyr funds have been expended on
crypto-mining equipment or facilities.  In parallel, Zephyr continues to
focus on commercial efforts regarding the acceleration of gas sales into
nearby existing gas infrastructure.

The Company also continues with extensive preparatory work related to its
upcoming high impact drilling programme.  The State 36-2 LNW-CC well, with a
10,000-foot lateral well targeting the Cane Creek reservoir, has been
designated as the first of the three wells planned to be drilled.  As
previously noted, the Company updated its APD with the BLM to reflect the
extended lateral.  Zephyr will proceed with drilling operations upon
receiving Federal approval and securing a rig contract.  All state level
approvals related to the State 36-2 LNW-CC well have now been received.

 

Colin Harrington, Zephyr's Chief Executive, said: "Our team has been working
flat out to deliver substantive value from our Paradox project during a
globally challenging period of supply chain conditions.  We've often compared
this type of development process to a jigsaw puzzle, and another important
piece has been connected through the acquisition of the new acreage.  This
prime acreage, already located under Zephyr's 3D seismic, adds valuable
locations and resources, and just as importantly, it secures an immediate win
by providing the opportunity to drill and complete a longer and more effective
delineation/development well.  We expect a corresponding beneficial impact on
the well's production potential and its estimated ultimate recovery.

"With the new acreage secured, we plan to spud the State 36-2 LNW-CC as soon
as final permits are received and a rig contract is secured.  We will be
providing a full update on the proposed drilling programme once the final
permits have been issued.

"In the meantime, we are focused on recommencing production testing at the
State 16-2 LN-CC, for which operational preparations are largely complete and
long lead time items are in process.  The test will allow for the sale of
liquid volumes and, most critically, allow for data generation which will help
as we evaluate the most effective options for infrastructure development.

"Overall, I am thrilled to bolster the scale of our Paradox project at this
point in time.  Our team is developing a unique understanding and data set
across the Paradox Basin - and we're excited about this timely opportunity
to further expand our operated asset base. Furthermore, we are always mindful
of our core mission to be responsible stewards of the environment in which we
operate, and we have taken great care to acquire acreage which we believe can
be developed with a maximum of potential and a minimum of surface and
environmental disruption.

"It's an exciting time for the Company, filled with short-term operational
activity and long-term strategic potential.  Today's news is strong progress
on both fronts, all in the pursuit of delivering significant value creation
from the Paradox project for many years to come."

 

Contacts:

 

 Zephyr Energy plc                                                   Tel: +44 (0)20 7225 4590

 Colin Harrington (CEO)

 Chris Eadie (CFO)

 Allenby Capital Limited - AIM Nominated Adviser                     Tel: +44 (0)20 3328 5656

 Jeremy Porter / Liz Kirchner / Vivek Bhardwaj

 Turner Pope Investments - Joint-Broker                              Tel: +44 (0)20 3657 0050

 James Pope / Andy Thacker

 Panmure Gordon (UK) Limited - Joint-Broker                         Tel: +44 (0) 20 7886 2500

 John Prior / Hugh Rich / James Sinclair-Ford / Harriette Johnson

 Celicourt Communications - PR

 Mark Antelme / Felicity Winkles                                    Tel: +44 (0) 20 8434 2643

 

 

Notes to Editors

 

Zephyr Energy plc (AIM: ZPHR) (OTCQB: ZPHRF) is a technology-led oil and gas
company focused on responsible resource development from carbon-neutral
operations in the Rocky Mountain region of the United States.  The Company's
mission is rooted in two core values: to be responsible stewards of its
investors' capital, and to be responsible stewards of the environment in which
it works.

 

Zephyr's flagship asset is an operated 39,473-acre leaseholding located in the
Paradox Basin, Utah which has been assessed by third party consultants Sproule
International to hold, net to Zephyr, 2P reserves of 2.1 million barrels of
oil equivalent ("mmboe"), 2C resources of 27 mmboe and 2U resources 203 mmboe.
Following the successful initial production testing of the recently drilled
and completed State 16-2LN-CC well, Zephyr is planning a three well drilling
program commencing later this year to further delineate the scale and value of
the project.

 

In addition to its operated assets, the Company owns working interests in a
broad portfolio of non-operated producing wells across the Williston Basin in
North Dakota and Montana.  The Williston portfolio currently consists of
working-interests in over 200 modern horizontal wells which are expected to
provide US$35-40 million of revenue, net to Zephyr, in 2022.  Cash flow from
the Williston production will be used to fund the planned Paradox Basin
development. In addition, the Board will consider further opportunistic
value-accretive acquisitions.

 

 

 

Glossary of terms

Reserves: Reserves are defined as those quantities of petroleum which are
anticipated to be commercially recovered from known accumulations from a given
date forward.

 1P: proven reserves (both proved developed reserves + proved undeveloped
reserves)

2P: 1P (proven reserves) + probable reserves, hence "proved and probable"

3P: the sum of 2P (proven reserves + probable reserves) + possible reserves,
all 3Ps "proven and probable and possible"

 Contingent Resources: Those quantities of petroleum estimated, as of a
given date, to be potentially recoverable from known accumulations by
application of development projects, but which are not currently considered to
be commercially recoverable due to one or more contingencies.

 Contingent Resources may include, for example, projects for which there are
currently no viable markets, or where commercial recovery is dependent on
technology under development, or where evaluation of the accumulation is
insufficient to clearly assess commerciality. Contingent Resources are further
categorised in accordance with the level of certainty associated with the
estimates and may be sub-classified based on project maturity and/or
characterised by their economic status.

 

1C: Low estimate of Contingent Resources

 2C: Best estimate of Contingent Resources

 3C: High estimate of Contingent Resources

 Prospective Resources: Those quantities of petroleum which are estimated, on
a given date, to be potentially recoverable from undiscovered accumulations.

 1U: Low estimate of Prospective Resources

 2U: Best estimate of Prospective Resources

 3U: High estimate of Prospective Resources

 

Dr Gregor Maxwell, BSc Hons. Geology and Petroleum Geology, PhD, Technical
Adviser to the Board of Zephyr Energy plc, who meets the criteria of a
qualified person under the AIM Note for Mining and Oil & Gas Companies
- June 2009, has reviewed and approved the technical information contained
within this announcement.

Estimates of resources and reserves contained within this announcement have
been prepared according to the standards of the Society of Petroleum
Engineers. All estimates, unless otherwise noted, are internally generated and
subject to third party review and verification.

 

 

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