TIDMZPHR
RNS Number : 1474X
Zephyr Energy PLC
25 August 2022
25 August 2022
Zephyr Energy plc
("Zephyr" or the "Company")
Acquisition of additional acreage in the Paradox Basin;
State 16-2LN-CC and drilling programme update
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 an increase
in its operated land position through the acquisition of an
additional 1,920 acres (the "new acreage") in the Paradox Basin,
Utah, U.S. (the "Paradox"), and to provide an update on its State
16-2LN-CC operations and upcoming Paradox drilling programme.
Acquisition of prime Paradox Basin acreage
Zephyr has increased its land position adjacent to its operated
White Sands Unit (the "WSU") through the targeted acquisition of
1,920 leased acres deemed by the Company to have immediate
development potential.
Acquisition highlights:
-- Optimal Location. The new acreage is directly contiguous to
the Zephyr-operated WSU, with the potential to be added to the Unit
acreage subject to approval from the U.S. Bureau of Land Management
(the "BLM").
o The acquired acreage is largely covered by Zephyr's existing
3D seismic, and directly borders the Zephyr lease on which the
planned State 36-2 LNW-CC and 36-3 LN-C9 well pad is located.
o The new acreage is close to pre-existing surface
infrastructure in the form of a six-inch gas pipeline which
traverses the leasehold.
-- Immediate drilling benefits. By adding the new acreage, the
lateral for the proposed State 36-2 LNW-CC can be fully completed
across a 10,000-foot lateral length, subject to final regulatory
approval. This is expected to further enhance the well's forecast
economics and estimated ultimate recovery.
o In conjunction with the acquisition, Zephyr recently amended
its BLM application for a permit to drill (an "APD") for the State
36-2 LNW-CC well to reflect the enhanced completion design. BLM
approval is expected shortly.
-- Increased overall resources and drilling locations. Based on
modelling results of the recently drilled State 16-2LN-CC well,
modelling for the upcoming State 36-2 LNW-CC well, and production
data from the nearby vertical Federal 28-11 well, Zephyr's
technical team estimates that the acquisition adds over 4 million
barrels of oil equivalent of additional 2C net Contingent Resources
to Zephyr's Paradox Basin position with the following additional
benefits:
o The acquisition substantively increases the Company's Working
Interest in an estimated 4 Cane Creek reservoir well locations,
adding an estimated 2.4 net wells assuming 2-mile lateral well
lengths.
o It adds unrisked net present value at a ten per cent. discount
rate ("NPV-10)", net to Zephyr, of approximately US$40 million from
the Cane Creek reservoir, based on estimated economics for 2-mile
laterals. This estimate assumes success case outcomes from State
16-2 LN-CC flow testing and State 36-2 LNW-CC drilling and
testing.
o It delivers access to acreage that may host liquid yields
similar to that observed at the nearby vertical Federal 28-11 well
and higher than those at the recently tested State 16-2 LNW-CC
well.
o It provides additional potential in the overlying shallow
clastic zones.
The acquisition is part of the Company's ongoing portfolio
management of its Paradox Basin position. This active land
management strategy has resulted in a defensible and growing
portfolio of development opportunities which Zephyr's Board
believes is increasingly difficult to replicate in today's
regulatory and political environment.
The consideration for the new acreage has been satisfied by a
payment from Zephyr's existing cash resources. In addition, the
seller will be entitled to receive royalty payments which are only
payable in the event of drilling success. The Company has also
agreed to use reasonable commercial efforts to drill at least one
well across the new acreage prior to December 2023, a requirement
which the Board believes will be satisfied by the upcoming drilling
of the State 36-2 LNW-CC well.
Inclusive of the new acreage, the Company will operate a total
of 39,473 gross acres in the Paradox Basin, the majority in which
the Company holds a 75% working interest.
State 16-2LN-CC and Paradox drilling programme update
The Company continues to prepare for extended production testing
of its successfully drilled and completed State 16-2 LN-CC well.
All relevant applications have been filed and orders for long lead
time items have been made in anticipation of recommencement of
production operations this autumn, subject to final permit
approval. The production test is designed to further investigate
the flow potential of the State 16-2 LN-CC well, to add production
data for use in surface infrastructure development decisions, and
to test and develop flow assurance processes for the well.
In conjunction with the production test, and as announced on 7
June 2022, Zephyr planned to sell a small portion of gas produced
from the State 16-2 LN-CC to a crypto-mining facility to be
co-located on the well pad. Due to continued volatility in the
crypto-currency markets, Zephyr's Board has elected to further
monitor pricing of crypto-mining equipment and facilities prior to
proceeding with a co-located facility and prior to committing to
any related investment. To date, no Zephyr funds have been expended
on crypto-mining equipment or facilities. In parallel, Zephyr
continues to focus on commercial efforts regarding the acceleration
of gas sales into nearby existing gas infrastructure.
The Company also continues with extensive preparatory work
related to its upcoming high impact drilling programme. The State
36-2 LNW-CC well, with a 10,000-foot lateral well targeting the
Cane Creek reservoir, has been designated as the first of the three
wells planned to be drilled. As previously noted, the Company
updated its APD with the BLM to reflect the extended lateral.
Zephyr will proceed with drilling operations upon receiving Federal
approval and securing a rig contract. All state level approvals
related to the State 36-2 LNW-CC well have now been received.
Colin Harrington, Zephyr's Chief Executive, said: "Our team has
been working flat out to deliver substantive value from our Paradox
project during a globally challenging period of supply chain
conditions. We've often compared this type of development process
to a jigsaw puzzle, and another important piece has been connected
through the acquisition of the new acreage. This prime acreage,
already located under Zephyr's 3D seismic, adds valuable locations
and resources, and just as importantly, it secures an immediate win
by providing the opportunity to drill and complete a longer and
more effective delineation/development well. We expect a
corresponding beneficial impact on the well's production potential
and its estimated ultimate recovery.
"With the new acreage secured, we plan to spud the State 36-2
LNW-CC as soon as final permits are received and a rig contract is
secured. We will be providing a full update on the proposed
drilling programme once the final permits have been issued.
"In the meantime, we are focused on recommencing production
testing at the State 16-2 LN-CC, for which operational preparations
are largely complete and long lead time items are in process. The
test will allow for the sale of liquid volumes and, most
critically, allow for data generation which will help as we
evaluate the most effective options for infrastructure
development.
"Overall, I am thrilled to bolster the scale of our Paradox
project at this point in time. Our team is developing a unique
understanding and data set across the Paradox Basin - and we're
excited about this timely opportunity to further expand our
operated asset base. Furthermore, we are always mindful of our core
mission to be responsible stewards of the environment in which we
operate, and we have taken great care to acquire acreage which we
believe can be developed with a maximum of potential and a minimum
of surface and environmental disruption.
"It's an exciting time for the Company, filled with short-term
operational activity and long-term strategic potential. Today's
news is strong progress on both fronts, all in the pursuit of
delivering significant value creation from the Paradox project for
many years to come."
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 - Joint-Broker Tel: +44 (0)20 3657
James Pope / Andy Thacker 0050
Panmure Gordon (UK) Limited - Joint-Broker
John Prior / Hugh Rich / James Sinclair-Ford Tel: +44 (0) 20 7886
/ Harriette Johnson 2500
Celicourt Communications - PR
Mark Antelme / Felicity Winkles
Tel: +44 (0) 20 8434
2643
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 39,473-acre leaseholding
located in the Paradox Basin, Utah which has been assessed by third
party consultants Sproule International to hold, net to Zephyr, 2P
reserves of 2.1 million barrels of oil equivalent ("mmboe"), 2C
resources of 27 mmboe and 2U resources 203 mmboe. Following the
successful initial production testing of the recently drilled and
completed State 16-2LN-CC well, Zephyr is planning a three well
drilling program commencing later this year to further delineate
the scale and value of the project.
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. The
Williston portfolio currently consists of working-interests in over
200 modern horizontal wells which are expected to provide US$35-40
million of revenue, net to Zephyr, in 2022. 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.
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
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.
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