REG - Zephyr Energy PLC - Paradox project update

Zephyr EnergyAnnouncement

10/10/2024 07:00

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RNS Number : 6202H  Zephyr Energy PLC  10 October 2024

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 October 2024

 

Zephyr Energy plc

("Zephyr" or the "Company")

 

Paradox project update

 

 Decision to drill lateral extension on the State 36-2R well;

Letter of Intent signed to fund the extended lateral

 

 

Zephyr Energy plc (AIM: ZPHR) (OTCQB: ZPHRF), the Rocky Mountain oil and
gas company focused on responsible resource development and carbon-neutral
operations, is pleased to provide an update on operations on the State 36-2R
LNW-CC well (the "well") at the Company's flagship project in the Paradox
Basin, Utah, U.S. (the "Paradox project").

Highlights

·    Following a detailed assessment process, the board of directors of
Zephyr (the "Board" or the "Directors") has approved the drilling of an
extended lateral on the well.

·    Management estimated ultimate recoveries ("EURs") from the well,
following completion of the extended lateral, are as high as two million
barrels of oil equivalent ("boe"), substantially higher than recoveries that
could be achieved from producing from the well in its current form.

·    A non-binding letter of intent (the "LOI") has been signed with a
U.S.-based industry investor to fund 100% of the estimated cost of the
extended lateral, on commercially attractive terms to all parties, with no
issue of Zephyr's equity or any further exposure into the Paradox project.

·    Drilling operations are expected to commence before the end of 2024,
or in early 2025, depending on rig availability and weather conditions.

 

Background

On 6 September 2024, the Company announced that following two successful
production tests, including achieving peak production rates in excess of 2,100
barrels of oil equivalent per day ("boepd"), the well had been temporarily
shut-in, as per normal operations, while Zephyr's team evaluated the data
gathered from the production tests to determine the optimal way forward for
the well.

The key decision from this assessment was whether to produce the well in the
short-term, or to defer production temporarily to extend the wellbore (the
"extended lateral") to increase overall hydrocarbon recovery potential.

While the Directors believe the well is capable of considerable production
rates in its current form, it would be doing so from only a 130-foot completed
interval which would make it more difficult to extend the well in the future
as a result of depletion in the area of the wellbore.

Decision to drill the lateral extension

Following a detailed assessment process, the Board is pleased to announce that
it has now approved the drilling of the extended lateral.

This decision was based on the following two key factors:

·    EURs from the well are expected to be substantively higher once the
proposed extended lateral is completed. Management estimates that, based on
all the available data, the EURs from the well could be as high as two million
boe once the extended lateral is completed, given the increase in size of the
well's drainage area following the completion of drilling; and,

 

·    the acidisation process used in the well production tests was
extremely effective and had the benefit of significantly enhancing
near-wellbore productivity. The Board believes that the combination of a
longer completed interval and subsequent acidisation could potentially be one
of the key factors in the successful long-term development of the Paradox
project, reducing costs and improving EURs from the well. This could result in
significantly reduced project risk and enhanced project economics.

 

Based on these factors the Board believes that it is firmly in the best
interests of the Company and its Shareholders to proceed with the extended
lateral.

 

The proposed length of the extended lateral is expected to be 5,500 feet and
the cost of the operation is expected to be circa US$7 million (including the
workover preparations on the existing well, the drilling of the lateral
extension, acidisation and the well production test).

The Board currently anticipates that drilling operations will commence late in
the fourth quarter of 2024 or early in the first quarter of 2025, depending on
rig availability and weather conditions.

Funding of the lateral extension

On 6 September 2024, the Company announced that the Board had launched a
process to identify an industry or asset-level financial partner to accelerate
both the development of the well and the wider Paradox project. The
announcement also noted that investment could come in the form of a farm-in
with an industry operator, a joint venture with a non-operator investor, or
asset level funding.  On 26 September 2024, the Company announced, inter
alia, that these financial and/or investment discussions were at an advanced
stage.

The Company is now pleased to announce that it has entered into a non-binding
LOI with a U.S.-based industry investor (the "wellbore investor") with
non-operated investment experience to fully fund the extended lateral.

Under the proposed terms outlined in the LOI, which is on commercially
attractive terms to all parties, the wellbore investor would assume a direct
non-operated interest in the State 36-2R wellbore (the "wellbore interest")
without any Company equity issued in respect of the transaction. Under the
proposed terms, Zephyr would retain operatorship and receive a majority of the
economic benefits from the well. In addition, the investor would not receive
any further interest or option in the Paradox project other than the
individual wellbore interest.

The Board expects to complete full binding documentation for the funding of
the extended lateral over the coming weeks, well ahead of its proposed
drilling commencement date. While there is no guarantee that this funding path
will be successful, the Board is optimistic of closing on the LOI by
progressing to full binding documentation, particularly as the wellbore
investor has a long track record related to the successful closing of similar
investments. The Board is further encouraged by the level of additional
industry interest shown in relation to the funding opportunity.

The Company will continue other funding discussions with industry and
asset-level financial partners in respect of the larger, long-term development
of the Paradox project.

Colin Harrington, Zephyr's Chief Executive, said:

"Following the recent successful production tests we have been working
tirelessly to determine the optimal way forward for the well and the Paradox
project as a whole.

"This work has highlighted that the combination of an extended lateral and
acidisation will potentially deliver a large and highly productive well, and
demonstrate that we have found the key for the long-term development of the
Paradox project.

"We look forward to closing the funding for the extended lateral in the coming
weeks, after which we will launch a process to secure a rig contract and
additional equipment. We expect to commence the next phase of operations at
site in late 2024 or early 2025."

 

Contacts:

 

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

 Colin Harrington (CEO)

 Chris Eadie (Group Finance Director and Company Secretary)

 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 Liberum Limited - Joint-Broker                        Tel: +44 (0) 20 7886 2500

 Mark Murphy / Kieron Hodgson / James Sinclair-Ford

 Celicourt Communications - PR

 Mark Antelme / Felicity Winkles / Ali AlQahtani               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 46,000-acre leaseholding 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. 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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