REG - Zephyr Energy PLC - Further Paradox acreage & infrastructure acquired

Zephyr EnergyAnnouncement

14/09/2022 07:00

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RNS Number : 3556Z  Zephyr Energy PLC  14 September 2022

Prior to publication, the information contained within this announcement was
deemed by the Group to constitute inside information for the purposes of
Regulation 11 of the Market Abuse (Amendment) (EU Exit) Regulations 2019/310.
With the publication of this announcement, this information is now considered
to be in the public domain.

 

14 September 2022

Zephyr Energy plc

("Zephyr" or the "Company")

 

Acquisition of infrastructure and additional acreage in the Paradox Basin

 

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 that it has entered into a binding
agreement (the "Agreement") to acquire a package of oil and gas assets located
on and around the Company's Paradox project, Utah, U.S. (the "Paradox
project") (the "Acquisition").

 

Under the Agreement, Zephyr will acquire 21 miles of natural gas gathering
lines, the Powerline Road gas processing plant (the "Plant", which is not
currently in operation), rights of way for additional gathering lines, active
permits, five existing wellbores and additional acreage (the "New Acreage")
which is partly contiguous to the Company's operated White Sands Unit (the
"WSU").

 

The consideration for the Acquisition is US$750,000 and will be satisfied by a
payment from Zephyr's existing cash resources and as the new owner, Zephyr
will assume responsibility for all eventual decommissioning and plugging and
abandonment ("P&A") liabilities for the assets acquired (estimated to be
approximately US$2.5 million in today's terms).

 

Once the Acquisition is completed (which is expected by 7 October 2022),
Zephyr will operate approximately 45,000 gross acres in the Paradox Basin,
the majority in which the Company holds a 75% or greater working interest.

 

Overview

 

The Agreement enables the Company to acquire an asset package which will allow
Zephyr to substantially reduce the capital required to build the necessary gas
export infrastructure for its forecast gas production from the Paradox
project. Given Zephyr's potential significant gas resource, strong current
pricing and increasing demand for U.S. domestic natural gas, the Board is
delighted to have secured this opportunity ahead of commencing its further
development of the Paradox project.

 

The assets being acquired under the Agreement include:

o  21 miles of six-inch gas gathering line, with an estimated replacement
cost value of US$8.8 million, which will substantially reduce the capital and
costs required to export the Company's gas production from the WSU. The
acquired gathering lines tie directly into the Plant.

§ One of the acquired lines passes immediately alongside the site of the
planned State 36-2 well (the first in a series of Paradox wells to be drilled
in the upcoming drilling programme).

§ Additional rights of way for future pipelines are also included in the
Agreement.

o  The Plant, while not currently in operation, is well suited for brownfield
redevelopment and contains useable pre-existing infrastructure and related
permits. This Plant is ideally located at the head of a 16-inch gas export
pipeline recently purchased by Dominion Energy ("Dominion"), and can also act
as a supply base for other WSU operations. The Plant has an estimated
replacement cost value of US$1.8 million.

o  1,160 acres which comprises the final leasehold acreage parcel under
Zephyr's existing 3D seismic, giving Zephyr a complete and contiguous 20,000
acres in the WSU with 3D coverage.  Zephyr estimates that this portion of
acquired acreage will contribute:

§ 2 gross drilling locations with 2C contingent resources from the Cane
Creek reservoir of 1.25 million barrels of oil equivalent with a net present
value at a ten per cent. discount rate ("NPV-10") of approximately US$17
million.

o  4,320 additional acres, in locations near to the WSU, which are not
covered by Zephyr's pre-existing 3D seismic data but with resource upside
potential in a success case.

o  Five existing vertical wells, four of which were planned for P&A by
the existing owner, all which are expected to have re-use potential under
Zephyr's ownership:

§ The Federal 28-11 well, currently shut in, has near-term workover potential
and is expected to have an initial estimated proved developed not producing
("PDNP") reserve value of US$0.4 million once the well's gas export is online.

§ Two wells with notable prior observations of hydrocarbons which may have
additional work over or sidetrack potential.

§ Remaining wellbores which have re-use potential as future salt water
disposal and water supply wells, which could substantially reduce future
operating and completion costs (subject to State approval).

o  A full well database from the Operator.

 

The consideration for the Acquisition is US$750,000 which will be satisfied by
a payment from Zephyr's existing cash resources. As the new asset owner,
Zephyr will assume responsibility for all eventual decommissioning and P&A
liabilities for the assets acquired (estimated to be approximately US$2.5
million in today's terms).  The Acquisition is expected to complete by 7
October 2022.

 

 

Upcoming Investor Presentation

 

In light of today's Acquisition and the recent Paradox project acreage
acquisition announced on 25 August 2022, and prior to the commencement of its
upcoming Paradox drilling programme, the Company intends to present detailed
development plans and schedules for the Paradox project at an investor
webinar, the date of which will be announced within the next two weeks.

 

Colin Harrington, Zephyr's Chief Executive, said:  "We've often compared our
Paradox project development to a jigsaw puzzle with a number of requisite
pieces to be assembled prior to the commencement of commercial production -
and today's announcement is another substantial piece now in place.  By
acquiring this package of surface infrastructure, we are moving rapidly from a
programme of value delineation to a tangible development programme which is
expected to facilitate cashflows from the project in a more rapid timeframe.

"Beyond the additional resources being acquired, today's Acquisition provides
us with several critical benefits.  Firstly, it allows us to greatly reduce
the capital needed to build out the gas infrastructure required to sell
produced gas volumes into the market.  Secondly, it completes the acquisition
of all key acreage covered by the WSU 3D.  Thirdly, it provides an additional
well pad already tied to the pipeline, which in combination with the New
Acreage will simplify future development drilling.  Similarly, the gas plant,
while currently not in use, has excellent potential for reintroduction to
service and can potentially act as a WSU supply base.

"The acquired wellbores provide us with multiple re-use options over the short
to medium term.  Along with the wells comes a proprietary well database from
the Cane Creek and overlying reservoirs (including wells with notable
hydrocarbon shows and prior production).  Wellbores that do not become work
over candidates have potential as water supply and/or salt water disposal
wells, which can substantially reduce our future operating and completion
costs as the development progresses.

"I would like to take this opportunity to thank our counterparty in this
transaction, as I believe we have jointly created a win-win situation for both
parties through the Agreement.  We are now able to accelerate our Paradox
project development without incurring significant upfront cash costs, and we
plan to be proactive managers of the acquired assets in order to best bring
them back into service.  Our aim, as responsible stewards of capital and of
the environment around us, is to minimise surface and environmental disruption
to the greatest extent possible, and making best use of the existing
brownfield infrastructure across our leaseholding is a key way to achieve this
objective.

"Following the significant recent additions to both our land and
infrastructure positions, we plan, in the coming month, to give Shareholders a
comprehensive update on our forthcoming drilling.  It's an exciting time for
the Company, filled with short-term operational activity and long-term
strategic potential."

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 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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