TIDMZPHR
RNS Number : 6896M
Zephyr Energy PLC
25 January 2021
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.
25 January 2021
Zephyr Energy plc
(the "Company" or "Zephyr")
Corporate Update:
State 16-2 well successfully plugged for future re-entry;
data evaluation ongoing;
planning and permitting underway for a potential horizontal
lateral; and,
corporate outlook regarding the new U.S. Administration
Zephyr Energy plc (AIM: ZPHR), the Rocky Mountain oil and gas
company focused on responsible resource development, provides an
update on its project in the Paradox Basin, Utah, U.S. (the
"Paradox" or the "Paradox project") and other matters .
As previously announced, the State 16-2 well was drilled
successfully and safely to a total depth ("TD") of 9,745 feet in
less than 19 days, a record performance versus historical drilling
in the northern part of the Paradox Basin. In addition:
-- The data acquisition programme secured 113 feet of continuous
core from the Cane Creek reservoir.
-- 31 sidewall cores were secured from 11 overlying secondary
reservoirs, an increase over the initial goal of 20 cores from 7
overlying reservoirs.
-- Open hole logs were run across the bulk of the Paradox
Formation, and these logs are now being integrated with existing
log data from the neighbouring State 16-42 well co-located on the
same pad.
-- Initial indications showed similar log responses to offset
wells, suggesting the presence of hydrocarbons in multiple
reservoir intervals.
-- Data analysis is underway, and the Company expects to announce initial results on 29 January.
The Company now announces that following the completion of
drilling and data acquisition activity, the State 16-2 well was
plugged safely at 6,437 feet TD, and Cyclone Drilling's Rig #34 was
formally released shortly thereafter. The State 16-2 wellbore is
stable and readily available for re-use as a host from which a
future side track lateral appraisal well may be drilled.
The Cane Creek core and overlying reservoir sidewall cores have
been transported to a laboratory in Houston for detailed analysis.
Zephyr expects to receive detailed results from this analysis of
reservoir data over the coming weeks and plans to give an initial
report to Shareholders later this week as outlined above.
A decision on whether to drill the side track lateral will be
made after Zephyr has full results from all of the data acquired,
and the Board currently expects to make a decision by the end of
March.
In order to assist and expedite that decision, Zephyr's team has
commenced the related detailed well design and planning work. The
Company has also contracted to retain the services of the same
experienced drilling operations team which successfully completed
the vertical portion of the well. A draft Authorization for
Expenditure ("AFE") for the lateral well has been prepared, with
total costs forecast at $3.5 million - this total includes both
drilling costs and costs to equip the well for production. On a
related front, over the coming weeks the Company will evaluate a
number of possible funding sources for the lateral well, with
alternatives that include strategic and industry partnerships.
In addition, the Company can also report it has applied for the
necessary permits required to drill the horizontal lateral leg of
the well. The State 16-2LN Application to Drill ("APD"), once
granted, would allow Zephyr to fully test the commerciality of the
Cane Creek reservoir with a goal of achieving near term oil and
natural gas production.
Well and Project Economics
Zephyr has previously highlighted its economic forecast for the
Paradox project, most recently in its presentation of November 2020
which is available on the Company's website.
Updated for current commodity prices and reduced drilling costs
as demonstrated by the State 16-2 well, the Company's Paradox
acreage is estimated to hold the following:
-- Net 2C contingent recoverable resources of over 12 million
barrels of oil equivalent ("mmboe") from 30 wells; and
-- Net present value of approximately US$93 million (pre-Federal
Income Tax), using a flat oil price of US$50 per barrel and a ten
percent discount rate ("NPV -10").
Both estimates are solely for the Cane Creek reservoir and do
not include the significant upside potential from additional
overlying reservoirs. The estimates were calculated in accordance
with the Company's Competent Persons Report ("CPR") prepared by
Gaffney Cline & Associates ("Gaffney Cline") in June 2018, and
will be revised further once all data from the State 16-2 well has
been processed.
A potential side track lateral on the State 16-2 well (the
"State 16-2LN-CC") is individually forecast to have strong
economics as a standalone investment. Utilising production profiles
generated from Gaffney Cline's CPR, and updated with a $50 per
barrel oil price and reduced capital expenditure estimates, the
Board estimates the lateral side track could generate the following
on a 2C basis:
Initial gross oil production rate: 780 barrels of oil per
day
Estimated Ultimate Recovery: 550,000 barrels of oil and 1.8 billion cubic feet of gas
Return on Invested Capital: 169%
Single well net NPV-10: $4.6 million
The Board further believes that the overall Paradox project has
potential to be a project of considerable scale versus Zephyr's
current market capitalisation, and the drilling of the State
16-2LN-CC side track lateral would be a major step forward as
Zephyr seeks to unlock the considerable potential value of the
project.
Corporate outlook regarding the new U.S Administration
The Company notes the Biden Administration's new directive to
grant temporary decision-making powers for federal land leasing and
permitting decisions to senior personnel within the Department of
Interior.
Zephyr has long anticipated the potential for a slowdown on
federal lease sales and permitting under a new Administration, and
welcomes the Biden Administration's efforts to undertake a
responsible review of current practices. The Board believes
Zephyr's core mission - to develop resources economically and
responsibly, with the utmost care and minimal environmental impact
- is well aligned with the aims of the new Administration.
The temporary senior-level review on new federal leasing does
not impact Zephyr's current leases, as the Company dedicated
significant resources over the last eighteen months to solidify all
existing federal leases across the entirety of its acreage within
its 3D seismic position.
Similarly, the Board does not expect the temporary slowing of
new federal drilling permits to have an impact on the Company's
planned potential drilling activities - the State 16-2 well is
located on Utah state land, and permits for drilling within state
lease boundaries are unaffected by the temporary federal permit
review.
Zephyr also holds two fully approved federal drilling permits
for wells on the Paradox which have not yet been drilled. With the
potential drilling of the State 16-2LN-CC side track lateral,
multiple additional state lease drilling targets and two existing
federal permits, Zephyr has solid inventory through which to work
should the federal permitting process be delayed longer than the
60-day period of the Administration order.
In addition, Zephyr's larger business development and asset
acquisition strategy is centered around Rocky Mountain basins in
which a majority of land is under private rather than federal
ownership.
Colin Harrington, Zephyr's Chief Executive, said "We are
thrilled with the results of the State 16-2 drilling campaign, and
we eagerly await more detailed analysis from the data acquired. We
expect to receive multiple rounds of reservoir information, and we
look forward to updating Shareholders with our initial findings
later this week.
"In the meantime, in order to maintain our significant momentum,
we are moving full steam ahead with preparations for the potential
horizontal lateral. Detailed planning and permitting is well
underway - and in the event we elect to undertake the next phase of
drilling, we will be well positioned to move forward on an
expedited basis.
"Finally, I'd like to again reiterate my thanks to our partners,
and for the incredible collaboration between our federal, state,
academic and industry project teams. We very much look forward to
the continuation of our joint efforts to unlock the significant
economic value of the Paradox Basin while always minimising the
impact on the environment in which we work."
Contacts:
Zephyr Energy plc Tel: +44 (0)20 7225 4590
Colin Harrington (CEO)
Chris Eadie (CFO)
Allenby Capital Limited - AIM Nominated Tel: +44 (0)20 3328 5656
Adviser
Jeremy Porter / Liz Kirchner
Turner Pope Investments - Broker Tel: +44 (0)20 3657 0050
Andy Thacker / Zoe Alexander
Flagstaff Strategic and Investor Communications
Tim Thompson / Mark Edwards / Fergus Tel: +44 (0) 20 7129
Mellon 1474
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.
Glossary of Terms and Definitions
1C Low Estimate of Contingent Resources
2C Best Estimate of Contingent Resources
3C High Estimate of Contingent Resources
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 categorized in
accordance with the level of certainty associated with the
estimates and may be sub-classified based on project maturity
and/or characterized by their economic status.
Background to the 16-2 well
As previously announced, Zephyr has been working with a project
team led by the University of Utah's Energy & Geoscience
Institute ("EGI"), in collaboration with the Utah Geological Survey
(the "UGS") and other Utah-based partners. The project is sponsored
by the U.S. Department of Energy and its National Energy Technology
Laboratory (the "DOE").
Entitled "Improving Production in Utah's Emerging Northern
Paradox Unconventional Oil Play," the project's goal is to assess
and perform optimisation analyses for more focused, efficient and
less environmentally-impactful oil production strategies in the
northern Paradox Basin, particularly in the Pennsylvanian Paradox
Formation's Cane Creek shale and adjacent clastic zones.
As part of this study, the EGI and UGS originally planned to
drill a vertical stratigraphic test well to gather data to improve
the understanding of the Paradox Basin play. It was planned that
the proposed well would target the Cane Creek and potentially the
C18/19 reservoirs, acquiring both core data and a comprehensive
well log suite in order to provide valuable new basin data.
Over a period of several months, the project team analysed
multiple potential well locations across the Paradox Basin, and the
Company was delighted that the EGI and UGS selected Zephyr's
Paradox acreage as the location on which to drill the well.
The Company's location was selected for a number of reasons,
including the quality of the Group's underlying 3D seismic data
(which can be tied into the well results to build a stronger
integrated predictive model) as well as a favourable surface
location which will be sited on a pre-existing pad.
After Zephyr's Paradox acreage was selected as the location for
the test well, Zephyr worked with its project partners to construct
a project plan that maximised opportunity for all parties.
A key part of this plan was to design the well in such a way
that it could not only be used to obtain all the data required by
the research project, but so that it could also be re-used by the
Company in the future as the host for a lateral appraisal well.
This approach not only reduces environmental impact but will also
significantly reduce future lateral well costs for the Company.
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END
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