REG - Zephyr Energy PLC - Paradox project update

Zephyr EnergyAnnouncement

10/07/2023 07:00

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RNS Number : 4654F  Zephyr Energy PLC  10 July 2023

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.

 

 

10 July 2023

Zephyr Energy plc

("Zephyr" or the "Company")

 

Paradox project update

Update on State 36-2 well;

First tranche of insurance proceeds received;

Amendment to White Sands Unit acreage approved; and

Assessments underway on previously acquired Greentown wells

 

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 provide an update on operations at its flagship
Paradox Project in the Paradox Basin, Utah, U.S (the "Paradox project").

 

State 36-2 LNW-CC well update

On 19 January 2023 the Company announced that it had intersected a major,
highly-pressured, natural fracture network while drilling the State 36-2
LNW-CC well (the "State 36-2 well"). On 20 March 2023 the Company announced
that workover and subsequent production test operations were set to commence.

In early April 2023, a significant well control issue arose in which
hydrocarbons flowed from the well in an uncontrolled manner.  The incident
was the apparent result of multiple equipment failures and in particular the
failure of a safety valve.  Importantly, there were no injuries during the
incident and subsequent well control efforts proved to be successful.

At present, the State 36-2 well remains static and under control, and Zephyr
is in the process of pulling the production tubing out of the hole, as some
joints were compressed/compromised or stuck due to the high pressures
experienced during the well control incident and subsequent well control
efforts. To date approximately 7,000 feet of 8,900 feet of tubing has been
pulled and inspected with circa 15 per cent of the pulled joints requiring
replacement. The Company is moving methodically to remove and inspect the
remaining joints while keeping the wellbore static. Once the tubing work is
complete, a final cement squeeze will be performed and then the casing will be
perforated across the reservoir interval prior to production testing the well.

Current and future operations will continue to be conducted in such a way that
well control is maintained and working conditions are safe for our team.
Although recent operations have been slower than initially expected, the
Company's Board of Directors (the "Board") notes the safe progress to date and
fully expects to deliver a production test in the near-term. This methodical
and patient approach is necessitated by the expected high pressure and
substantial apparent deliverability of the well and reservoir, as witnessed
during the earlier phases of the operation.

 

Well control insurance update

While the State 36-2 well control incident was a powerful illustration of the
high pressures and productivity inherent in certain Paradox Basin natural
fracture networks, the resulting well work operations have subsequently
resulted in a delay to the work programme.

As previously reported, the Company retains comprehensive well control
insurance coverage, and the Board ultimately expects to recover the vast
majority of costs associated with the well control incident.  Under the terms
of Zephyr's insurance policy these payment recoveries are made on a
reimbursement basis (after approval by the insurer, and after the Company has
paid the corresponding contractor invoices).

The Company is pleased to announce the initial invoices submitted to its
insurer have now been approved and funds from Zephyr's initial claim, totaling
circa US$800,000, have been received.  Additional invoices are being
submitted on a regular basis with payments expected within 30 days of receipt
by the insurer.

 

BLM Approval of White Sands Unit Acreage Expansion/Contraction

On 25 August, 2022, the Company announced the acquisition of additional
prime Paradox Basin acreage 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.   Additional contiguous
acreage was acquired as reported on 14 September 2022 (collectively, the
"acquired acreage").

The acquired acreage was largely covered by Zephyr's existing 3D seismic, and
directly bordered the Zephyr lease on which the State 36-2 is located, and
with access to pre-existing surface infrastructure which Zephyr subsequently
acquired.

A portion of the acquired acreage was envisioned to be added to the WSU,
subject to approval from the U.S. Bureau of Land Management (the "BLM") for
which the Company applied in early 2023.  Zephyr is pleased to report such
approval has now been granted as part of larger Expansion/Contraction
amendment of the WSU.  As part of the approval, 5,000 high-graded acres with
near-term development potential have been added to the WSU, and roughly 5,395
acres deemed by the Company to be less suitable for future development have
been relinquished.

These actions are part of the Company's active and ongoing portfolio
management of its Paradox Basin position.  The Board is pleased with its
recent BLM interactions and subsequent approval, which results in an amended
federal unit with an upgraded and manageable acreage position - a position
increasingly difficult to replicate in today's regulatory and political
environment.

 

Assessment underway on recently acquired Greentown wells

The Company is also pleased to report that it has commenced the assessment on
five existing wellbores (located in the WSU) acquired as part of a larger
acquisition of infrastructure assets and which was announced on 14 September
2022.  Several of the existing wells are former producers of hydrocarbons and
were subsequently shut-in due to lack of operating infrastructure.  Others
were deemed to have potential future use as salt water disposal wells or as
producers of salt water brine for potential extraction of lithium resources.

As part of this assessment, Zephyr's operations team recently recommenced
production from the Greentown Federal 28-11 well in order to understand the
well's potential contribution to overall field production when ongoing field
infrastructure work has been completed.  Hydrocarbons are currently flowing
from the well, with condensate volumes collected for sale and natural gas
volumes being flared.  Once flow stabilises, the Company will assess its
future potential for the short and longer term when gas export is available.

 

Colin Harrington, Zephyr's Chief Executive Officer, stated:

"Work on the State 36-2 well has progressed safely, and the team continues to
push forward while maintaining control of the well and ensuring the safety of
those working on it.  I would like to once again thank our team on the ground
for their ongoing efforts in keeping the well stable and safe.

 

"I am also pleased to report the receipt of initial proceeds from our well
control insurance policy.  We appreciate the level of engagement from our
insurance partners.

 

"In relation to the upgraded acreage position in the WSU, we continue to work
closely with the BLM and other regulatory authorities to perfect the federal
unit by maximising its upside potential and minimising environmental impact in
areas not deemed as prospective.

 

"Finally, I would like to note the work being done on the Paradox project away
from the 36-2 well, with recent operations including the restart of the
Federal 28-11 well where hydrocarbons are now flowing.  While this well will
not have the same volumetric potential as the State 16-2 LN-CC well or the
State 36-2 well, we do believe it will have positive economic impact once our
infrastructure buildout has been completed.  Two other existing wells in the
Zephyr portfolio have also had notable prior shows of hydrocarbons and offer
potential future locations and/or workover opportunities.

 

"We look forward to updating investors on continued progress in the coming
weeks during this pivotal time for the Paradox project."

 

 

Contacts

 

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

 Colin Harrington (CEO)

 Chris Eadie (FD)

 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

 Celicourt Communications - Public Relations

 Mark Antelme / Felicity Winkles / Ali Al Qahtani    Tel: +44 (0) 20 7770 6424

 

 

Qualified Person

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.

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 lease holding located in
the Paradox Basin, Utah, 25,000 acres of which has been assessed to hold,
net to Zephyr, 2P reserves of 2.6 million barrels of oil equivalent ("mmboe"),
2C resources of 34 mmboe and 2U resources 270 mmboe.

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 220
modern horizontal wells.  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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