REG - Zephyr Energy PLC - Cooperation agreement and operations update

Zephyr EnergyAnnouncement

24/10/2022 07:00

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RNS Number : 7936D  Zephyr Energy PLC  24 October 2022

Prior to publication, the information contained within this announcement was
deemed by the Company to constitute inside information as stipulated under the
UK Market Abuse Regulation. With the publication of this announcement, this
information is now considered to be in the public domain.

 

24 October 2022

Zephyr Energy plc

("Zephyr" or the "Company")

 

Drilling programme update;

State 16-2LN-CC production test update;

Cooperation Agreement established with Kirkwood Oil and Gas LLC; and

Investor webinar update

 

Zephyr Energy plc (AIM: ZPHR) (OTCQB: ZPHRF), the Rocky Mountain oil and gas
company focused on responsible resource development from carbon-neutral
operations, provides an update on operations and related investor webinar on
its project in the Paradox Basin, Utah, U.S. (the "Paradox project") and
announces the signing of a Cooperation Agreement with Kirkwood Oil and Gas LLC
related to data sharing and planned joint drilling in the Paradox Basin.

 

Drilling programme update

 

The Company has completed all preparations needed to commence drilling the
fully-funded State 36-2 LNW-CC well, pending receipt of the final Federal
drilling permit.  While Federal drilling permit approvals have slowed
markedly across the entire U.S. domestic oil and gas industry, the Company
remains confident it will be able to commence drilling in the near-term.

 

In anticipation of the receipt of the final permit, and in order to be in
position to spud the well shortly thereafter, the Company recently completed
construction of the shared pad on which the State 36-2 LNW-CC and the State
36-3 LN-C9 wells will be located.  The State 36-2 LNW-CC well will be the
initial well drilled and will target the Cane Creek reservoir.  The State
36-3 LN-C9 exploration well (targeting the shallower C9 reservoir) is being
permitted in parallel.  The pad for the wells is located in an area with good
quality road access and adjacent to the recently acquired 6-inch gas gathering
pipeline, providing efficient access to gas export infrastructure.

 

With the exception of the final Federal permit, all regulatory approvals
required to drill the State 36-2 LNW-CC well have been secured. The Company is
in advanced discussions to execute a rig contract shortly after the final
permit is approved, details of which will be announced in due course.

 

The two wells mentioned above are both located within Zephyr's White Sands
Unit (the "WSU"), the same Federal unit in which the previously drilled State
16-2LN-CC well is located.   A third well is expected to be drilled outside
of the WSU, and will be drilled in partnership with, and operated by, Kirkwood
Oil and Gas LLC, the Paradox Basin's largest operator, details of which can be
found below.

State 16-2LN-CC well production test update

The State 16-2 LN-CC well was successfully drilled, completed and tested in
late 2021, although rates were constrained throughout the production test due
to surface equipment limitations. Since then, Zephyr's operations team,
working with a team of external consultants, has spent significant time
designing surface facilities to re-equip the well pad in order to:

 

a) test plans for improved flow assurance;

b) prepare for eventual gas export and continual production operations; and,

c) obtain further production data for overall well and field management.

 

The Company, which previously announced plans to conduct an additional
production test on the well, is pleased to announce that all permits needed
for that production test have been approved and operations to construct
further surface facilities on the well pad are in progress.

 

Multiple service providers are currently active on site, and the wellbore has
been re-entered to prepare for the commencement of the additional well test,
currently envisioned to begin mid to late November 2022.

 

Cooperation Agreement with Kirkwood Oil and Gas LLC

 

The Company is pleased to announce it has entered into an agreement (the
"Agreement") with Kirkwood Oil and Gas LLC and its affiliate, Wesco Operating,
Inc. ("Wesco") (collectively, "Kirkwood"), in which Zephyr and Kirkwood agree
to co-operate and collaborate on the extension and further development of the
Cane Creek play in Grand County, Utah - including the drilling of a new,
Kirkwood-operated well.

 

Kirkwood, based in Wyoming, operates over 500 wells across 39 oil fields in
the Rocky Mountain region and is currently the operator of the Cane Creek oil
field located 12 miles to the south of Zephyr's White Sands Unit in the
Paradox Basin. Kirkwood, via its operating subsidiary Wesco, is the most
active regional operator in the northern Paradox Basin.

 

The Agreement allows for the sharing of certain proprietary data in order to
assist both companies with the development of their individual acreage
positions.  In addition, the Agreement also allows for the planning and
drilling of a 2-mile horizontal well targeting both Zephyr and Wesco held
acreage.  The planned well will be located in Grand County, Utah immediately
to the south of the Wesco-operated Cane Creek Field.  Cooperation on the
planned well would involve sharing design and lessons learned from the
Zephyr-operated State 16-2LN-CC well and utilising Wesco's considerable
experience as operator of the Cane Creek oil field.  Wesco will act as the
operator of the planned well, and each party will hold a 50% working interest
with all expenses shared pro-rata.

 

The objective of the planned well is to test the potential of modern hydraulic
stimulation and completion (as recently performed at the State 16-2LN-CC well)
on the Cane Creek reservoir within the black oil fairway of the play.  The
well will be drilled from an existing pad with existing infrastructure,
thereby reducing environmental impact and the need for further gathering line
infrastructure. The planned well location is immediately offset by a 2014
vintage horizontal well (with a 4,900-foot lateral) which targeted the
productive, highly over-pressured, naturally-fractured Cane Creek reservoir.
That well was subsequently recompleted with a small volume diesel stimulation
and has produced over 188,000 barrels of oil to date, at very low water cut,
and is still in production today.

 

By applying the latest completion techniques, it is expected that initial oil
rate and expected ultimate recovery from the planned well will be increased
both by drilling a longer well and improving the overall reservoir drainage.
Success at this location would open new play opportunities for both companies
on their existing acreage positions.  Drilling operations remain subject to
regulatory authority approvals.

 

 

Investor Webinar

 

On 28 September 2022, the Company announced that it would be presenting a live
investor webinar on Tuesday 25 October 2022.  At the webinar, the Company
intended to present detailed development plans and schedules related to the
forthcoming drilling programme.  Given that the Company is still awaiting the
final Federal permits for the two wells located in the WSU, it has elected to
delay the webinar until the State 36-2 LNW-CC Federal permit is granted and
the rig contract awarded, so that the webinar can be as detailed, accurate and
informative as possible.

 

 

Colin Harrington, Zephyr's Chief Executive, said:  "It's exciting to see
activity building across the Paradox project as we prepare for the
commencement of our fully-funded drilling programme. With the construction of
the State 36-2 LNW-CC drilling pad now complete, our team is prepared to
commence drilling operations as soon as possible after the final Federal
permit has been granted.

 

"Based on discussions with the relevant Federal authorities our team is
confident that drilling approval has the potential to be granted in the
near-term in spite of an industry wide slowdown of Federal drilling permit
approvals.  In the meantime, we've worked extremely hard to navigate the
challenging rig, labour and supply chain market environment so that we're
positioned to spud the well as soon as possible.

 

"In addition to preparations for drilling, our facilities team has been
working on the re-equip and augmentation of the surface facilities at the
State 16-2 LN-CC, and we look forward to the seeing the results of the
production test over the coming weeks.

 

"I am further delighted to announce the signing of the Agreement with
Kirkwood.  As the most active operator in the northern Paradox Basin,
Kirkwood's team has a strong history and service relationships which are
second to none in the basin.  Paired with Zephyr's technical understanding
and expertise gained from successfully drilling the northern Paradox Basin's
first horizontal well using a modern completion, our joint cooperation on the
funding and drilling of a new well - at a location where our respective
acreage positions are contiguous - has the potential to be highly beneficial
for both parties, and with a minimum of surface disruption.  We look forward
to the collaboration and are eager to see the application of hydraulic
stimulation applied to a long lateral horizontal well in the black oil fairway
of the Cane Creek Field.

 

"Finally, while I'm frustrated with the delay related to our Paradox-focused
investor webinar, we look forward to rescheduling as soon as the Federal
permit is granted and the drilling contract is finalised - at which point it
will be possible to more accurately share details regarding drill timing,
service partners and expected completion and testing schedules.

 

"We expect the next period to be an exciting time in our development of the
Paradox project and we look forward to providing further updates when activity
on the ground permits."

 

 

 

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 / 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 45,000-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.

 

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