TIDMZPHR
RNS Number : 2874J
Zephyr Energy PLC
26 April 2022
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.
26 April 2022
Zephyr Energy plc
("Zephyr" or the "Company")
Updated Paradox Basin Independent Reserves and Resource
Evaluation
CPR highlights significant scale and long-term production
potential of the Paradox Project
Inaugural Paradox Proved Reserves booked
Substantial increase to Contingent Resource estimates
Maiden Prospective Resource estimates on overlying
reservoirs
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 announce the results
from an updated Competent Person's Report ("CPR") on its assets in
the Paradox Basin, Utah, U.S. (the "Paradox project").
The CPR was compiled by Sproule International Limited
("Sproule"), a leading independent global energy consulting and
advisory firm. The previous CPR on the Paradox project was
completed in 2018 by Gaffney Cline & Associates, the results of
which were announced on 22 June 2018 (the "2018 CPR").
An interview with the Company's Chief Executive Officer, Colin
Harrington, discussing the results of the CPR can be found on the
Company's website www.zephyrplc.com or can be accessed through the
following link https://www.zephyrplc.com/cpr26-4 . A supporting
slide presentation may be found on the Company's website at
https://www.zephyrplc.com/slides26-4 .
Highlights
-- 2P Reserves: First Paradox Basin Proved Reserves booked,
based on the State 16-2 LN-CC well drilling success:
o 2.1 million net barrels of oil equivalent ("boe") - an
increase from zero boe from 2018 CPR
-- 2C Resources: Significant increase to resource estimate across the Cane Creek Reservoir:
o 27 million net boe -more than double the 12.3 million boe from
2018 CPR
-- Prospective resources from overlying reservoirs:
o 203 million net unrisked boe (68 million boe risked with a
weighted-average 33% chance of success ("CoS"))
Net Attributable to Zephyr
Paradox Basin 1P 2P 3P
------------ -------------- --------------
Developed and Undeveloped Reserves (boe)
- Cane Creek Reservoir 537,000 2,123,000 6,811,000
------------ -------------- --------------
NPV-10 $1 ,384,000 $22,612,000 $104,548,000
------------ -------------- --------------
Net Attributable to Zephyr
Paradox Basin 1C 2C 3C
------------ -------------- --------------
Contingent Resources (boe) - Cane Creek
Reservoir - 26,870,000 81,130,000
------------ -------------- --------------
NPV-10 - $ 148,028,000 $894,112,000
------------ -------------- --------------
Net Attributable to Zephyr
Paradox Basin 1U 2U 3U
------------ -------------- --------------
Net Unrisked Prospective Resources (boe)
- Overlying Reservoirs * 57,500,000 203,000,000 4 19 ,000,000
------------ -------------- --------------
Net Risked Prospective Resources (boe)
- Overlying Reservoirs* 23,000,000 6 8 ,000,000 1 12 ,000,000
------------ -------------- --------------
*Net present value economics at a discount rate of 10 per cent
("NPV-10") were not evaluated for Prospective Resources in the
Sproule report.
*Risked Chance of Success avg.
33%
Combined with Zephyr's Williston Basin non-operated portfolio,
Zephyr's total 2P Proved Reserves now have an estimated net present
value at a ten per cent discount rate ("NPV-10") of over US$111
million (up from zero value ascribed in 2018) with substantial
multiples of additional upside potential from success cases related
to its contingent and prospective resources. The Company plans to
drill three wells in the second half of 2022 to further delineate
and increase value from the Paradox asset base.
In determining the NPV-10 for the reserves and resources,
Sproule utilised its March 31, 2022 price forecast for both oil and
gas which includes a West Texas Intermediate ("WTI") oil price
forecast of US$93/barrel ("bbl") in 2022, US$83/bbl in 2023, and
US$73/bbl in 2024, with a further US$5.00 per barrel deduction for
price differential. For the gas price forecast, Sproule used a
Henry Hub gas price of US$5.00/per million British thermal units
("mmbtu") in 2022, US$4.25/mmbtu in 2023, and US$3.25/mmbtu, with a
further gas price differential of US$1.25 per million standard
cubic feet ("mscf") reduction from Henry Hub, a heating value of
1000 btu per mscf and a shrinkage of 5% for losses due to surface
facilities. Prices and costs are escalated at 2.0% per annum until
the price doubles, and are then held flat.
Sproule's study took place across 30,700 acres of Zephyr's Utah
assets, with an additional 6,500 acres of Zephyr's leaseholding not
yet evaluated. Sproule's recoverable estimates display a broader
range and more significant upside than previously published
Management guidance, which had utilised a post-drill assessment of
1 billion boe of hydrocarbons initially in place ("HCIIP") and a
5-15% recovery factor.
Colin Harrington, Chief Executive of Zephyr, said : "We are
delighted with the conclusions drawn by Sproule, which both
demonstrate the impact of our recent drilling success and which
further highlight the substantial potential scale and profitability
of the Paradox project. Over the last twelve months Zephyr created
over US$111 million NPV-10 in 2P proved reserves in two discrete
basins, through opportunistic acquisitions and success with the
drill bit - and the Contingent and Prospective Resource estimates
demonstrate the potential for many multiples of additional value
growth beyond.
"Today's announcement of the results of the CPR is a key
milestone for the Company, outlining the value potential in our
portfolio. Thanks to the State 16-2 LN-CC well and our acquisition
of proved reserves around the Cane Creek field, we've been able to
book Proved Reserves on the Paradox project for the first time.
Further, we are on track to unlock even greater value as we prepare
for the fully funded Cane Creek three well drilling campaign in
2022. By drilling additional delineation and exploration wells, our
goal is to significantly advance the understanding of this play,
its key risks and its potential upside. Our hope is to fuel further
increases across all reserve and resource classes by this time next
year, and ultimately to unlock the next great unconventional
resource play in the onshore U.S. Our potential for funded, organic
growth is significant and we look forward to executing this
strategy over the remainder of 2022.
That said, we feel we are merely at the start. The Sproule
report illustrates potential contingent and prospective resources
worth well in excess of a billion dollars. While the range in
values is still broad and there are a number of underlying
technical and operational risks to be tested and mitigated, our
team to date has demonstrated its ability to approach development
in a measured and successful way. We aim to build on that knowledge
and track record to further accelerate the value growth in our
existing portfolio.
"Funding for the next phase of development of the Paradox
project will be provided from our non-operated production portfolio
in the Williston Basin, U.S., where first quarter 2022 operational
production rates averaged 1,643 boepd and nearly half of the next
two years' anticipated production is hedged at an average of $92.70
/bbl. In addition, we look forward to generating additional
production and cashflow from our previously drilled and completed
State 16-2 LN-CC well in the coming months.
"Zephyr is perfectly positioned for further material growth and
value creation, and the results from today's CPR highlight the
substantial potential in front of us. I look forward to providing
regular updates as our near-term drilling and operational plans
progress."
"Finally, I would like to reiterate that through this busy and
exciting time our mission remains to operate as responsible
stewards of investors' capital and of the environment in which we
work."
Background
At the request of Zephyr, Sproule audited the crude oil, natural
gas, and field condensate reserves and contingent resources and the
associated future net revenue attributable to the White Sand Unit
(WSU) and Cane Creek DSU (CC DSU) located in the Paradox Basin in
Utah, USA with an effective date as of March 31, 2022. Sproule also
conducted an audit of the Prospective Resources attributable to the
White Sand Unit (WSU) located in the Paradox Basin in Utah, USA as
of March 31, 2022.
The scope and nature of Sproule's work was an audit of the
specified resource information for the purpose of expressing an
opinion as to whether such resource volumes, in aggregate, are
reasonable and have been estimated and presented in conformity with
generally accepted petroleum engineering and evaluation principles.
Sproule conducted certain tests and spot checks to confirm the
adherence to the Society of Petroleum Engineers (SPE) Petroleum
Resources Management System (PRMS) reserves reporting requirements
and that the data flowing into the Company's reserves and
contingent resources determination system was consistent with
available records provided by the Company.
All estimates were prepared in accordance with generally
accepted petroleum engineering and evaluation principles as set
forth in the SPE Standards Pertaining to the Estimating and
Auditing of Oil and Gas Reserve Information.
Due to the early-stage nature of the Paradox Basin resource
play, the range of outcomes for Zephyr's Utah assets remains large.
Both Zephyr and Sproule identified uncertainties which remain due
to limited data across the areas planned for development by the
Company. These include fluid composition and compressibility, water
production, continuity of geomechanical properties across the
reservoir and their impact on hydraulic fracture characteristics,
and stimulated area around a well (well drainage area). The Company
plans to utilise its upcoming three well drilling campaign to
further quantify both the risks and upside presented by these
uncertainties.
The Company's net reserves and contingent resources and net
present value, as estimated by Sproule, are summarised in the
Tables below.
Table 1: Summary of Company Net Reserves and Net Present
Value
Net Reserves Net Present Value
Oil & Condensate Gas (Million 0% Discount 10% Discount
(Bbls) s tandard cubic (US$) (US$)
feet)
------------------------------ ------------------------------ ------------ -------------
White Sand Unit
1P 25,000 842 2,376,000 2,126,000
------------------------------ ------------------------------ ------------ -------------
2P 206,000 6,873 19,191,000 10,831,000
------------------------------ ------------------------------ ------------ -------------
3P 696,000 23,187 97,431,000 36,980,000
------------------------------ ------------------------------ ------------ -------------
Cane Creek DSU
1P 344,000 163 3.091,000 -742,000
------------------------------ ------------------------------ ------------ -------------
2P 715,000 340 28,985,000 11,781,000
------------------------------ ------------------------------ ------------ -------------
3P 2,085,000 990 127,988,000 67,568,000
------------------------------ ------------------------------ ------------ -------------
*Some columns may not add due to rounding.
Table 2: Summary of Company Net Contingent Resources and Net
Present Value
Net Contingent Resources Net Present Value
Oil & Condensate Gas(2) (MMscf) 0% Discount 10% Discount (US$)
(Bbls) (US$)
-----------------
White Sand Unit
1C(1) 0 0 0 0
-------------------------- ---------------------- ----------------- -------------------
2C 3,420,000 108,288 222,596,000 88,009,000
-------------------------- ---------------------- ----------------- -------------------
3C 10,414,000 329,787 1,223,945,000 511,662,000
-------------------------- ---------------------- ----------------- -------------------
Cane Creek DSU
1C(1) 0 0 0 0
-------------------------- ---------------------- ----------------- -------------------
2C 5,006,000 2,378 196,818,000 60,019,000
-------------------------- ---------------------- ----------------- -------------------
3C 14,596,000 6,933 899,310,000 382,450,000
-------------------------- ---------------------- ----------------- -------------------
*Some columns may not add due to rounding
1. Contingent resources sub-marginal (uneconomic)
2. Sales gas (includes 5% loss due to facilities)
Table 3: Summary of Company's Net Prospective resources
1U 2U 3U
----------- ------------
Gas (MMscf) 499,180 1,559,890 2,889,240
Oil and Condensate
(Bbls) 12,480,000 77,990,000 216,690,000
Contacts:
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 / Vivek
Bhardwaj
Turner Pope Investments - Broker Tel: +44 (0)20 3657
James Pope / Andy Thacker 0050
Celicourt Communications
Mark Antelme / Felicity Winkles Tel: +44 (0) 20 8434
2643
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, unless otherwise
noted, are internally generated and subject to third party review
and verification.
Glossary of terms
Reserves : Reserves are defined as those quantities of petroleum
which are anticipated to be commercially recovered from known
accumulations from a given date forward
1P: proven reserves (both proved developed reserves + proved
undeveloped reserves)
2P: 1P (proven reserves) + probable reserves, hence "proved and
probable"
3P: the sum of 2P (proven reserves + probable reserves) +
possible reserves, all 3Ps "proven and probable and possible"
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 categorised in
accordance with the level of certainty associated with the
estimates and may be sub-classified based on project maturity
and/or characterised by their economic status.
1C: Low estimate of Contingent Resources
2C: Best estimate of Contingent Resources
3C: High estimate of Contingent Resources
Prospective Resources : Those quantities of petroleum which are
estimated, on a given date, to be potentially recoverable from
undiscovered accumulations.
1U: Low estimate of Prospective Resources
2U: Best estimate of Prospective Resources
3U: High estimate of Prospective Resources
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