REG - Zephyr Energy PLC - Q2 Williston Basin & State 36-2 LNW-CC Update

Zephyr EnergyAnnouncement

15/08/2023 07:00

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RNS Number : 2906J  Zephyr Energy PLC  15 August 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.

15 August 2023

Zephyr Energy plc

("Zephyr" or the "Company")

Second Quarter 2023 Williston Basin results;

Paradox acreage acquisition;

State 36-2 LNW-CC well work continues

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 initial second quarter 2023 ("Q2") results
related to hydrocarbon production and cashflows from its non-operated asset
portfolio in the Williston Basin, North Dakota, U.S (the "Williston project"),
and an update on its flagship project in the Paradox Basin, Utah, U.S (the
"Paradox project").

 Q2 Williston Basin Highlights

·    Quarterly revenues totaled US$7.1 million, net to Zephyr, compared to
first quarter 2023 ("Q1") revenues of US$6.3 million (subject to audit).

 

·    Q2 operating income was US$4.2 million (after taxes, lease operating
expenses, realised hedging impacts, and gathering and marketing fees),
compared to Q1 operating income of US$5.7 million.

 

·    Q2 sales volumes averaged 1,385 barrels of oil equivalent per day
("boepd") compared to Q1 sales volumes average of 1,093 boepd.

 

·    At 30 June 2023, 223 wells in the portfolio were available for
production.

o Net working interests across the Company portfolio now average 7% per well,
equivalent to 15.1 gross wells in total, all of which utilised horizontal
drilling and modern, hydraulically stimulated completions.

 

·    The recently acquired Slawson Exploration ("Slawson") operated
wellbore interests (as announced on 21 December 2022) are fully drilled and
completed.  Production from these working interests is forecast to be online
by October 2023 following completion of surface facilities on the well pad.
The Company will provide an update in relation to FY 2023 production guidance
when those wells are brought online.

 

·    The Company has received notice from Continental Resources
("Continental"), operator of a drilling and drilling spacing unit ("DSU") in
which Zephyr holds existing working interests, that it plans to drill ten new
wells on the DSU.  The acreage is located in a highly attractive part of the
Williston Basin, and the initial two wells drilled by Continental in 2021 have
been some of the top performers in Zephyr's non-operated portfolio, paying out
in under six months from first production.  Zephyr's Board of Directors has
elected to participate in the upcoming drilling programme, and Zephyr's
forecasted net capital expenditure (CAPEX) related to the drilling is
approximately US$205,000 which will be funded from existing cash
resources.  The planned new development drilling is an illustration of the
continued organic growth from the Company's existing Williston position and
provides continued access to low risk, near-term production.

Acquisition of additional acreage in the Paradox Basin

Zephyr is also pleased to announce an agreement to increase its land position
in the Paradox Basin through the targeted acquisition of an additional 640
leased acres deemed by the Company to be prospective for mid to long-term
development.

The new acreage is on Utah School and Institutional Trust Lands
Administration ("SITLA") lands and was secured during the most recent SITLA
auction.  The acreage is close to the Company's existing White Sands Unit and
gas export infrastructure.

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

Consideration for the new acreage was satisfied from the Company's existing
cash resources. Following the closing of the acquisition of the new acreage,
the Company now operates over 46,000 gross acres in the Paradox Basin, the
majority of which the Company holds as operator with a 100% working interest.

State 36-2 LNW-CC well update

The State 36-2 LNW-CC well remains static and under control, and Zephyr's
operations team continues to complete the well work required prior to
commencement of a production test.  Operations over the last month were
hindered by the extreme heat witnessed in the U.S. Southwest, with record high
temperatures being recorded in the region.  In order to maintain safe working
conditions, operations over the last month were limited to nighttime only.
Given recent improvements in conditions, the team plans to resume daytime
operations this week.

All current and future operations will continue to be conducted in such a way
that well control is maintained and working conditions are safe for the team.
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 operations.

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 report that all invoices submitted to date to its
insurer have been approved and funds due from Zephyr's claims have been paid
promptly.  Additional invoices are being submitted on a regular basis with
payments expected within 30 days of receipt by the insurer.

Colin Harrington, Chief Executive of Zephyr, said:  "Zephyr's profitable and
diverse non-operated asset base continues to deliver low risk, high margin
cash flows for the Company.   The Company now has a multi-year track record
of successful non-operated investment, with rapid paybacks and solid cash
flows available to fund future growth within both our operated and
non-operated portfolios.

"Near term growth includes our investment in the newly drilled and completed
Slawson-operated wells which are expected to significantly boost non-operated
production rates when brought online in the autumn.  The new wells proposed
by Continental will also help to grow volumes over the upcoming year and
demonstrate continued growth from the existing non-operated portfolio.

"On our operated Paradox project, our near-term priority is to deliver a safe
and successful production test of the State 36-2 LNW-CC well, and we look
forward to updating shareholders when the test commences."

Q2 Sales Detail

Zephyr's net sales for Q2 were approximately 126,044 boe.

Q2 sales product mix was 89% crude oil, 4% natural gas, and 7% natural gas
liquids. The table below provides sales volumes, product mix, and average
sales prices for the quarter:

 Oil:                                                              85,310 bbls at an average sales price of US$74.70/bbl*

 Natural Gas:                                                      121,773 thousand cubic feet ("mcf") at an average sales price
                                                                   of US$2.21 /mcf

 Natural Gas Liquids:                                              20,438 bbls at an average sales price of US$24.33 per bbl

*not including hedges

(Note: Q2 volumes and average sales prices figures include field estimates in
respect of June 2023 natural gas and natural gas liquids sales volumes and are
subject to future revision.)

The Company has hedged 117,000 barrels of oil for 12 months starting 1 April
2023 at a weighted-average price of US$83.35 per barrel.  33,000 bbls were
hedged in Q2 at an average price of $90.05.  The Company is expecting
significant additional production volumes by the end of October 2023 from new
wells coming online and will continue to evaluate its commodity price risk
management strategy on a regular basis.

During Q2, more of Zephyr's existing production wells were changed from
temporarily shut-in to producing status.  As new infill wells are drilled,
existing offset wells may be temporarily shut in to optimise the nearby
completion and mitigate offset well production losses. The Company is now
seeing those offset wells being re-instated for production when the new infill
wells are started up for production.

In the Williston Basin, cashflow from non-operated interests in newly drilled
wells may lag actual production by up to five months.  Such payments from the
operator accrue on a monthly basis and are paid in full prior to the sixth
month of production, which may result in impacts to quarterly sales volumes
and revenues during times of significant completion activity. Zephyr expects
additional accrued payments from operators during the remainder of 2023 given
the Company's interests in 25 newly drilled wells which came online over the
last two quarters.

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

 Celicourt Communications - PR

 Mark Antelme / Felicity Winkles                   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 lease holding of over 46,000 acres
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 240 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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