TIDMZPHR
RNS Number : 5632D
Zephyr Energy PLC
30 June 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.
30 June 2021
Zephyr Energy plc
(the "Company" or "Zephyr")
State 16-2 well data assessed and integrated;
additional resource potential across multiple overlying
reservoirs;
additional development potential through hydraulic
stimulation
Zephyr Energy plc (AIM: ZPHR), the Rocky Mountain oil and gas
company focused on responsible resource development and
carbon-neutral operations , provides an update on its flagship
project in the Paradox Basin, Utah, in the United States of America
("U.S.") (the "Paradox project" or the "project").
Since the successful completion of the State 16-2 "dual-use"
stratigraphic test well (the "State 16-2 well") earlier this year,
Zephyr has worked to analyse and interpret the extensive geological
data obtained during the drilling programme - data from both the
project's primary target, the Cane Creek reservoir (the "Cane
Creek") and from multiple potential stacked reservoirs overlying
the Cane Creek (the "overlying reservoirs").
In addition to the work carried out by the Company, Zephyr
engaged the third-party consultant Premier Oilfield Group
("Premier") to assist the Company in determining the viability of
additional methods for the development of the Paradox project. A
U.S. Department of Energy-backed project team, led by the
University of Utah's Energy & Geoscience Institute ("EGI"),
also contributed data and analysis as part of their evaluation of
the State 16-2 well data related to ongoing Paradox Basin
research.
Highlights
-- Results from the recent evaluation work have reconfirmed
Zephyr's view that the planned State 16-2LN-CC well is a suitable
location from which to test the natural fracture play ("NFP") in
the Cane Creek reservoir. Drilling operations are scheduled to
commence in July.
-- Results from reservoir, fracture stimulation and simulation
modelling suggest that the Paradox project could also be developed
by way of a hydraulically stimulated resource play ("HSRP") which
provides an alternative to the NFP and which would potentially
facilitate broader project development across more than one
reservoir.
-- Analysis of the twenty overlying reservoirs suggests that all
reservoirs are likely to be hydrocarbon filled to some degree,
based on the State 16-2 well sidewall core data and petrophysical
analysis of several offset wells.
-- Of the twenty overlying reservoirs, the Company has
high-graded eight reservoirs which have adequate thickness for
potential future development. If development of the eight
high-graded reservoirs proves feasible as an HSRP, the Company
estimates:
- The potential for up to 200 well locations across the eight overlying reservoirs; and
- A risked contingent resource potential, net to Zephyr, of up
to an additional 125 million barrels of oil equivalent ("mmboe") on
an estimated P50 Hydrocarbon Initially in Place ("HCIIP") of around
1 billion barrels of oil equivalent (" boe") on currently held
acreage.
- This estimate of the HSRP potential is preliminary and highly
dependent upon developing better understanding of each zone's
reservoir pressure, fluid phase, geomechanical properties,
permeability and a successful proof of concept hydraulic
stimulation and production well. The contingent resources are
classified as 'Development Unclarified' and are risked for Chance
of Development.
- Additional data gathered during the planned drilling of State
16-2LN-CC well will be the first step in determining the viability
and method of future asset development.
Colin Harrington, Chief Executive of Zephyr, said: "A huge
amount of time and effort has been invested to complete this
updated evaluation of our Paradox resource base, and I am
encouraged that we may have a wider viable development alternative
to the natural fracture play in the Cane Creek reservoir. I am both
cautiously optimistic and excited about our initial findings for
the overlying reservoirs and the potential for substantially
increased resources on the Paradox project.
"The results suggest multiple viable scenarios for considerable
upside - from the exploration potential of the overlying reservoirs
to the hydraulic stimulation of targeted reservoirs, or from a
combination of both.
"It's important to bear in mind that while the potential project
upside is exciting, the Paradox Basin is an immature play with
limited data when compared to offset Rocky Mountain basins, with
the only notable production coming from the Cane Creek reservoir
NFP and with only very limited prior testing of the HSRP. That
said, the knowledge gained from the development of other basins has
the potential to be leveraged and applied in the Paradox, and we
are very grateful to Premier for sharing their deep experience and
expertise in relation to hydraulic stimulation. Recent advances in
the technology and understanding of modern completion techniques
may also prove beneficial to future development efforts.
"Our next steps are to safely and responsibly drill the State
16-2LN-CC well to targeted depth, obtain further log and geologic
data, and test the well should efforts to target production prove
successful.
"Given the substantial potential increase in project scale, the
Board will also explore the possibility of a multiple well
programme in the near-term, as additional drilling could serve to
better define and unlock the significant potential value of this
asset.
"Above all, Zephyr's Board will always approach the potential
Paradox development in a prudent and measured way and only deploy
the Company's capital when it sees favourable risk/reward
conditions.
"Our goal is to maximise the economic impact of a resource with
minimal disruption to the environment, and we believe our Paradox
acreage to be an excellent fit for this strategy. Much of our
Paradox project acreage is located on an abandoned U.S. Air Force
missile testing range - a brownfield site, near an interstate
highway, with roads, infrastructure and pad sites already in
existence. If the HSRP development route for development is
selected, it could allow for a simpler surface footprint and more
predictable well patterns including the grouping of multiple wells
from a single pad, thereby maximising resource efficiency while
minimising surface disruption. Beyond that, we are continuing to
work with the Prax Group to mitigate one hundred per cent. of
Zephyr's Scope 1 operational carbon footprint by the end of
September this year.
"Our mission is to be responsible stewards of our investors'
capital while also being responsible stewards of the environment,
and I'm pleased to report that the Paradox project continues to fit
that mission extremely well. We look forward to the next steps with
much anticipation."
Overview
Since the successful completion of the State 16-2 well earlier
this year, Zephyr worked to analyse and interpret the extensive
geological data obtained during the drilling operation - data from
both the project's primary target, the Cane Creek reservoir (the
"Cane Creek") and from the overlying reservoirs.
The northern Paradox Basin is a relatively immature oil and gas
basin with significantly less historical data than more established
U.S. basins such as the Williston or Denver Julesberg ("DJ") basins
in which Zephyr has evaluated numerous other projects. Zephyr's
Paradox acreage position also has less historical data than the
producing Cane Creek Field to the south.
It is therefore important to contextualise these initial
positive conclusions being announced today against the level of
data available. The positive results and findings need to be
further corroborated and validated through additional drilling and
data acquisition - particularly in relation to a potential HSRP
development.
Based on the evaluation work undertaken to date, Zephyr is
pleased to report its initial high-level assessment as follows:
-- State 16-2LN-CC location analysis: Results to date reconfirm
the Board's view that the planned State 16-2LN-CC well is a
suitable location from which to test the Cane Creek through the
targeting of the reservoir's existing natural fracture network, as
identified on Zephyr's 3D seismic data. As previously announced,
all permits related to the well have now been approved, the
drilling contract has been executed, and Zephyr plans to commence
the drilling of the well in July. The well is located on an
existing pad with existing roads in an effort to minimise surface
disruption.
-- Additional development scenario: Newly-completed detailed
reservoir, fracture and flow simulation models built by Premier
suggest an alternative for wider potential development of Zephyr's
Paradox asset base, should the currently envisaged natural fracture
play prove limiting:
- Premier's work indicates that HSRP is a potential path to an
alternative development of the project in the Cane Creek. This
option would not rely upon the need for the development of
naturally fractured reservoirs to deliver well productivity, which
is currently a key risk to the project.
- It is important to note that the feasibility of any HSRP
alternative is highly dependent upon the existence of a continuous
hydrocarbon play across Zephyr's acreage at a given reservoir
interval, as envisioned in the 2011 USGS resource assessment.*
While a preponderance of evidence suggests this is likely,
additional data must be gathered during the forthcoming State
16-2LN-CC drilling operations, and from subsequent drilled wells,
to generate additional confirmation of this key point.
- Using data acquired to date, the Company estimates that the
HSRP alternative could potentially be applied to up to 30 drilling
locations in the Cane Creek reservoir. It estimates a range of net
risked recoverable, contingent resources of up to 18mmboe from the
Cane Creek reservoir (based on a 9% recovery rate). Given the HSRP
alternative is in the early stages of appraisal, this initial
resource estimate is preliminary and the play still requires, at a
minimum, a successful proof of concept production well and further
modelling work incorporating data from the upcoming State 16-2LN-CC
well. As a result, the contingent resources are classified as
'Development Unclarified' and are risked for Chance of
Development.
- Given the encouraging preliminary resource estimate, hydraulic
stimulation also provides a potential secondary route to a
successful well result on the State 16-2LN-CC. The Company is
currently generating data acquisition and stimulation options for
this well to be performed in the event the NFP proves to be less
productive at this location.
-- Overlying reservoir analysis: Initial analysis of twenty
overlying reservoirs located above the Cane Creek reservoir has now
been completed. This analysis suggests that all twenty observed
reservoir zones are likely hydrocarbon filled to some extent, even
at the off-structure location of the State 16-2 well. Initial
findings by Zephyr have estimated the potential HCIIP of around 1
billion boe in place across the eight reservoirs that have adequate
thickness to host development. These zones also have potential to
deliver productive wells from the NFP and the HSRP.
- The overlying reservoirs have very limited analogue production
in the basin from the NFP and no significant production from the
HSRP. However, with the exception of the NFP in the C18/19 in the
Cane Creek, there have been very limited attempts to test or
develop these reservoirs in the past.
- The NFP in these reservoirs has potential across the Zephyr
acreage, with Chance of Success risk estimate averaging 34% across
the eight high-graded reservoirs, accounting for the unknown
presence of the natural fracture network in these reservoirs.
- Should a contiguous hydrocarbon play exist allowing for
development of the overlying reservoirs by way of HSRP, the Company
estimates the potential for up to 200 well locations across the
overlying reservoirs with a net risked contingent resource
potential of up to an additional 125mmboe.
- Given this alternative is in the early stages of development,
this preliminary resource estimate has been classed as Contingent
Resources 'Development Unclarified' and are risked for Chance of
Development. It will require further modelling and understanding of
each reservoir's pressure, fluid phase, geomechanical properties,
permeability and a successful proof of concept production well to
mature the resource further.
-- Next steps:
- Safely and responsibly complete the State 16-2LN-CC well, and
test production if successful;
- Obtain additional geologic data during the drilling and
potential testing of the State 16-2LN-CC well, in order to further
inform our resource upside analysis;
- Commission an independent Competent Persons Report ('CPR") on
the Paradox project; and,
- Utilise all learnings to plan for a multiple well development.
Updated Resource Estimation
NATURAL FRACTURE PLAY CASES
Base Case NFP - development of the Cane Creek reservoir only,
utilising existing natural fracture networks
Background: The Cane Creek reservoir has developed over time as
a natural fracture play, and Zephyr's previously released
contingent resource estimates envisioned this type of development
scenario. Although significant evaluation work was undertaken in
recent months, the resource estimate for the Base Case Cane Creek
NFP development is largely the same as previous estimates:
-- The number of well locations remains unchanged.
-- Type curves will remain unchanged and continue to be linked
to the gas and oil ratios observed from the 2 mile offset, Federal
28-11 well production data.
-- 12mmboe of estimated 2C net recoverable resources, as
detailed by Gaffney Cline & Associates (GCA) in their 2018
Competent Persons Report.
-- 2C resources with a net present value at a ten percent
discount rate ("NPV-10") of $225 million using:
o $70 per barrel of oil ("/bo") flat oil price (minus a $7/bo
differential); and
o $2.50 per million square cubic feet gas price (minus $1.75
differential)
Internal Zephyr Assessment: Upside case NFP - development of
overlying reservoirs
Background: Overlying reservoirs C1, C2, C4, C7, C8, C9, C10/11
and C18/19 have been high-graded by Zephyr as potential exploration
zones with an estimated P50 total of 1 billion boe HCIIP. In the
central case of this NFP scenario, these resources could be
targeted by an estimated 23 risked wells which are estimated to
potentially deliver up to an additional 14 million BOE net risked
recoverable prospective resources - representing an approximate 7%
recovery factor from the gross in place resource. It should be
noted that most of these overlying reservoirs, with the exception
of the C18/19 reservoirs, have very limited analogue production and
therefore have been risked within the following range:
-- The C10/11 reservoir, which has no sidewall core fluid sample
analysis, has been risked at a 27% Chance of Success
-- The C18/19 reservoir, which is considered to be very similar
in characteristics to the underlying Cane Creek reservoir (the C21
zone) and has offset production at the Cane Creek Field and
significant shows in wells offset to Zephyr acreage, has been
risked at a 67% Chance of Success
-- Remaining reservoirs fall between these risk estimates (34% average)
-- Net risked recoverable resources (overlying reservoirs only):
up to 14mmboe (at a 7% recovery factor)
-- Total net risked recoverable contingent resources (inclusive
of Cane Creek) of up to up to 26mmboe
HYDRAULIC STIMULATION RESOURCE PLAY CASES
Internal Zephyr Assessment: HSRP Case #1 - hydraulic stimulation
of the Cane Creek reservoir only
Background: In Q2 2021, Zephyr hired Premier to assess the
Company's primary Cane Creek reservoir related to the potential for
a HSRP development. This process modelled a modern stimulation and
its impact on the Cane Creek reservoir, and concluded that if a
continuous hydrocarbon play exists, there is good evidence that
hydraulically stimulated wells have potential to deliver commercial
well rates and volumes. This estimate is preliminary and highly
dependent upon the continued observations of ubiquitous low water
saturations, reservoir over-pressure and a yet to be proven,
successful hydraulic stimulation operation.
This HSRP alternative delivers the following preliminary
estimates:
-- up to 30 well locations
-- A range of risked net recoverable contingent resources of up to 18mmboe
Internal Zephyr Assessment: HSRP Case #2: hydraulic stimulation
of the overlying reservoirs
Background: As mentioned above, the C1, C2, C4, C7, C8, C9,
C10/11 and C18/19 overlying reservoirs have been high-graded by
Zephyr as potential exploration zones with an estimated P50 total
of 1 billion boe HCIIP in place across the ZPHR acreage. Scaling of
Premier's models indicates an opportunity to target this in place
resource via HSRP development. Should the conditions for the HSRP
be proven to be favourable, it could result in the potential for up
to 200 well locations across the shallow reservoirs with a net
contingent resource potential of up to 125mmboe. This estimate is
highly dependent upon developing a better understanding of each
zone's reservoir pressure, fluid phase, geomechanical properties,
permeability and a successful proof of concept production well. The
assessment can be summarised as:
-- up to 200 well locations
-- Range of risked net recoverable contingent resources
(overlying reservoirs only): up to 125mmboe
-- Range of total risked net recoverable contingent resources for the HSRP: up to 143mmboe
Additional observations and identification of risks:
-- The State 16-2 well has a good well tie to the existing 3D seismic data.
-- Initial source rock analysis suggests that the State 16-2
well has organic rich source rock shales in many of the clastic
layers, including the Cane Creek reservoir, as was confirmed in
other wells by earlier studies.
-- Initial source rock analysis also suggests that these shales
are more likely to be more mature in both the Cane Creek zone and
the overlying reservoirs, which could imply an increase in gas
volumes while liquid volumes remain as forecasted. The production
history from the Federal 28-11 well (in the Cane Creek reservoir
and which lies within Zephyr's 3D seismic survey area), was used to
guide previous Cane Creek production type curves and their gas and
oil ratios. In the absence of detailed fluid analysis, these gas
and oil ratios still remain the best estimate of fluid composition
for the Zephyr acreage and remain valid for production forecasting
and economic analysis. In the overlying reservoirs, the expected
reservoir fluids have higher levels of uncertainty and range from a
base case of liquid rich gas condensates to black oil fluids. A key
objective of any well testing at the State 16-2LN-CC well will be
to obtain high quality fluid samples for product valuation and
production forecasting purposes.
-- The matrix reservoir quality is better than expected and is
high when compared to other continuous resource plays such as the
DJ or the Williston.
-- The overlying reservoirs are fine-grained, and contain high
clay content and complex mineralogies, which can introduce
uncertainty into the petrophysical analysis and estimation of
porosity, water saturation and ultimately the overall Hydrocarbons
Initially In Place estimation.
-- Water saturation in the overlying reservoirs is comparable
with log analysis and with core data from the Cane Creek Field, and
log data from offset wells suggest that all overlying reservoirs
are hydrocarbon filled to some extent, even in the off-structure
location at the State 16-2 well.
-- A preponderance of evidence suggests low water saturations
across the Cane Creek reservoir as well. However, in the unlikely
event that water saturation under Zephyr's leases is greater than
in the Cane Creek field to the south, it would suggest a faulted,
conventional reservoir rather than a continuous hydrocarbon plan
across the Cane Creek reservoir. Should the scenario where higher
water saturations exist in the Cane Creek, then the HSRP
development option would not be feasible and the natural fracture
play potential would also be reduced.
-- The State 16-2LN CC drilling operation, which is expected to
commence in July, will give more data on the Cane Creek reservoir.
In addition, the Company will attempt to acquire pressure data from
the most promising overlying reservoir targets. Once this data is
secured, the Company will seek an updated CPR for its Paradox Basin
assets in the second half of this year.
-- A State 16-2LN-CC production test (of either the NFP and
HSRP) will also help further develop the understanding of the
asset, as well as provide additional data for the testing of the
overlying reservoirs.
* Assessment of Undiscovered Oil and Gas Resources in the
Paradox Basin Province, Utah, Colorado, New Mexico, and Arizona,
2011. Katherine J. Whidden
For further information please visit https://www.zephyrplc.com/
or contact:
Zephyr Energy plc Tel: +44 (0)20 7225
Colin Harrington (CEO) 4590
Chris Eadie (CFO)
Allenby Capital Limited - AIM Nominated Tel: +44 (0)20 3328
Adviser 5656
Jeremy Porter / Liz Kirchner
Turner Pope Investments - Broker Tel: +44 (0)20 3657
James Pope / Andy Thacker 0050
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.
Estimates of resources and reserves contained within this
announcement have been prepared according to the standards of the
Society of Petroleum Engineers. All estimates are internally
generated and subject to third party review and verification.
Glossary of Terms
Chance for Development : The estimated probability that a known
accumulation, once discovered, will be commercially developed.
Chance of Success - Chance equals 1 or 100% minus risk. Generally synonymous with likelihood.
Contingent Resources : A discovered accumulation where project
activities are under evaluation and where justification as a
commercial development is unknown based on available
information.
Contingent Resources, Development Unclarified: This sub-class of
Contingent Resources requires appraisal or study and should not be
maintained without a plan for future evaluation. The sub-class
should reflect the actions required to move a project toward
commercial maturity. A project maturity sub-class of contingent
resources.
Hydrocarbon Initially In Place (HCIIP) - Quantity of hydrocarbon
that is estimated, as of a given date, to be contained in known
accumulations before production. HCIIP may be subdivided into
commercial, sub-commercial, and the portion remaining in the
reservoir as unrecoverable.
P50 - is the quantity within the resources category that is
estimated to have a 50% probability of being exceeded or a 50%
probability of falling below.
Risk - The probability of loss or failure. Risk is not
synonymous with uncertainty. Risk is generally associated with the
negative outcome, the term "chance" is preferred for general usage
to describe the probability of a discrete event occurring.
About Premier Oilfield Group
Premier was formed in May 2016 under the private equity
sponsorship of CSL Capital Management. Headquartered in the U.S.,
Premier is a global leader in the aggregation, generation and
application of rock and fluid data, utilising it to better
understand, explore and develop earth resources. It is founded on
the belief that the data-driven energy industry is here, and
generating and sharing relevant data from rock and fluid samples is
the key to more effective and efficient resource development.
Premier has assembled world-class experts, laboratories and
platforms to produce data, make it readily accessible and help its
clients apply the data effectively. https://pofg.com/about/
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