TIDMZPHR
RNS Number : 9102N
Zephyr Energy PLC
07 June 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.
7 June 2022
Zephyr Energy plc
("Zephyr" or the "Company")
Paradox Project Update
Production from State 16-2LN-CC well to recommence,
facilitated
by co-located crypto-mine facility currently under
development
Update on forthcoming three well drill programme
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 an update on
recent activity at its project in the Paradox Basin, Utah, U.S (the
"Paradox project").
Highlights
-- Following the completion of a successful well test on the
State 16-2LN-CC well in December 2021, and after a detailed
evaluation of the various natural gas sales and export options, the
Board has elected to recommence production from the State 16-2LN-CC
well in conjunction with the completion of a Zephyr owned
crypto-currency mining facility now under development.
o Liquid volumes produced from the well will be trucked and sold
to refineries in Utah, and produced gas volumes will be sold to
fuel onsite power generators which in turn will provide electricity
for the co-located crypto-mining facility.
-- The Company plans to fund the initial investment required to
launch the initial 1 megawatt ("MW") crypto-mining facility
(capital expenditure forecast to be less than US$2 million) from
existing cash resources or via third party investment, with
facility capital payback expected in under two years at current
crypto-currency prices.
-- The Board has taken steps to fast-track equipment
procurement, and it is expected that the crypto-mine will be
operational in as little as eight to 12 weeks. Well work will also
be conducted over the same timeframe, at which point production
from the State 16-2LN-CC well is expected to recommence.
-- Over the longer-term, the Company expects to tie its gas
production into the nearby gas export infrastructure recently
purchased by Dominion Energy, Inc. ("Dominion") a Fortune 500
Company which currently services over seven million customers in
the U.S. Dominion has made public its plans to refurbish and expand
the natural gas infrastructure running across Zephyr's acreage, and
is expected to be available to accept gas volumes from Zephyr's
wells in 2023.
-- In parallel with the work on the State 16-2LN-CC well, the
Company is also at an advanced stage of planning for a three well
drill programme on the Paradox project expected to commence in the
second half of this year. Well design has been completed, all
permit applications have been submitted and negotiations continue
with rig vendors.
Colin Harrington, Zephyr's Chief Executive, said: "We are hugely
excited to embark on the next steps to open up the Paradox Basin
resource play. The completion of our highly successful initial well
test gave the Zephyr team the comfort to proceed with detailed
evaluations of both near and long-term off-take solutions for the
gas volumes from the State 16-2LN-CC well. The plan announced today
allows us to both accelerate near-term production and benefit from
long term gas sales optionality should the economic returns from
the co-located crypto-mining facility meet internal
expectations.
"While the Dominion infrastructure is envisioned to be the
long-term solution for the majority of our gas production from the
Paradox project, the construction of the co-located crypto-mining
facility is an excellent interim step. We believe it has potential
to be a profitable opportunity for Zephyr and we hope to have
production from the State 16-2LN-CC well and the crypto-facility
online in as little as eight to 12 weeks.
"Over the last twelve months, a growing number of U.S. upstream
oil and gas operators (including an immediately adjacent Paradox
Basin oil and gas operator) have chosen to co-locate crypto-mining
facilities at well sites in order to benefit from the growing
demand for natural gas to fuel dedicated sources of power
generation.
"Our planned crypto-mining facility will enable Zephyr to meet
its near-term objectives - it will allow us to accelerate revenues
from the State 16-2LN-CC well, to earn additional revenues from the
crypto-mine infrastructure, and to enable a long-term test which
will provide valuable information about the well's production
profile.
"The coming months will be a period of intense activity on the
Paradox project. In addition to the re-start of State 16-2LN-CC
well production and launch of crypto-mining operations, we are in
detailed planning for our forthcoming three well drill programme.
We look forward to providing regular updates as we prepare to
commence drilling in the upcoming months.
"As we embark on another busy period for the Company, I'd like
to reiterate that our mission, as always, is to be responsible
stewards of investors' capital while also being responsible
stewards of the environment."
Further details and State 16-2LN-CC well update
-- On 8 December 2021, Zephyr announced the completion of a safe
and highly successful well test at the State 16-2 LN-CC well. Over
a period of 23 days, the well demonstrated substantial production
potential that the Company believes will mark the opening of a
commercial Cane Creek play in the Company's White Sands Unit in the
Paradox basin.
-- Following the completion of the well test, Zephyr commenced a
detailed evaluation of its options for the sale of the well's
produced natural gas, including the potential to tie production
into nearby gas export infrastructure recently purchased by
Dominion, a Fortune 500 Company which currently services over seven
million customers in the U.S.
-- Dominion has made public its intention to refurbish and
expand the natural gas infrastructure running across Zephyr's
acreage, and the infrastructure is expected to be available to
accept gas volumes from Zephyr in 2023, thereby providing Zephyr
with a long-term export route for gas volumes produced from the
White Sands Unit.
-- In the interim, Zephyr's Board of Directors (the "Board") has
elected to recommence production from the State 16-2LN-CC well,
whereby:
o Liquid volumes produced from the well will be trucked and sold
to refineries in Utah;
o Gas volumes will be sold to a Zephyr-owned crypto-mining
facility to be built and co-located on the State 16-2 well pad;
and
o Valuable, longer term production data will be gathered while
the produced gas is used to fuel the crypto-mine facility.
-- Design work, permitting and procurement is underway to
prepare the well for production re-start and to build an initial
1MW, rate constrained "beta test" crypto-mining facility.
Re-started production from the State 16-2 LN-CC well and production
from the initial phase of the mining facility is expected to be
brought online within 8-12 weeks. CryptoKnight Energy, an
experienced operator of oil industry co-located crypto mining
operations, will serve as the general contractor for the
construction and operator of the mining facility.
-- Site preparation work at the State 16-2 pad commenced in
early May 2022, when 1,185 barrels of oil condensate produced and
stored onsite during the December 2021 production test were hauled
and sold to a refinery in Salt Lake City.
o Zephyr received a realised price of US$103.36 per barrel, net
of transportation costs, for those volumes.
-- The Company plans to fund the initial investment required to
launch the crypto-mining operation (estimated at less than US$2
million) from existing cash resources or from third party
investment, with capital payback expected in under two years at
current crypto currency and commodity prices.
-- Post review of the beta test operations, Zephyr may elect to
build up to 4MW of power generation and crypto-mine facilities on
the pad. Zephyr is evaluating a range of third-party investment
options in the event it elects to expand the crypto-mining
infrastructure and will provide updates on the outcome of these
discussions following the results from the beta test.
Paradox Basin three well drilling programme update
Zephyr remains firmly on track to commence its planned three
well drilling programme in the second half of 2022. Recent
development milestones include:
o All well design work has been finalised
o All permit applications have been filed
o Stimulation optimisation is well advanced
o The vendor selection process continues, with the rig contract
award a key short-term objective
o Partner outreach, both with potential upstream and midstream
counterparties, is well underway.
Zephyr intends to update the market as additional programme
milestones are met as and when appropriate.
Additional Background
Following a crackdown on Chinese bitcoin producers, and due to
stable regulatory environment and relatively lower power prices,
the U.S. has become the global leader for hosting crypto-mining
operations. By way of illustration, from May to July of 2021 the
U.S. went from hosting 18% of Bitcoin miners to hosting 35% of all
Bitcoin mining operations.
Over the last twelve months, and even prior to producing gas
from the State 16-2LN-CC well, Zephyr was approached by multiple
parties wishing to use our natural gas production to create power
on site for use with power-intensive crypto-mining activities.
Given the nationwide trend to limit gas flaring and reduce
methane production, combined with a surge in crypto-mining
operations in the western U.S., Zephyr undertook a detailed review
of the potential to partner with a co-located crypto-mining
facility.
As part of the process to responsibly assess the viability of
this market, Zephyr established an Advisory Board of
crypto-currency operations, technology and regulatory specialists,
and has had extensive outreach with other operators in the
sector.
Initial indications suggest the State 16-2LN-CC well production
profile is ideally suited for the co-location of a crypto-mining
facility, in particular as the remote location of the site
minimises community impacts. In addition, Zephyr plans to maintain
its commitment to carbon neutral operations by offsetting any CO2
emissions produced by the crypto-mine and associated
generators.
Over the long term, both traditional gas export and co-location
uses appear as viable alternatives (either separately or in tandem)
for commercialising the substantial gas resource which exists
across the Paradox project, and the Board will carefully weigh the
potential financial returns offered by both alternatives.
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
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