REG - Zephyr Energy PLC - Salt Wash helium project update

Zephyr EnergyAnnouncement

27/03/2024 07:00

For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20240327:nRSa4204Ia&default-theme=true

RNS Number : 4204I  Zephyr Energy PLC  27 March 2024

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.

 

27 March 2024

 

Zephyr Energy plc

("Zephyr" or the "Company")

 

Salt Wash helium project 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 provide an update on the Company's proposed farm-in
to a minimum 75 per cent working interest in a 1,047-acre leasehold position
in the Salt Wash Field, a previously producing asset with proven oil, gas and
helium reserves located three miles to the south of Zephyr's Paradox project
in Utah, U.S. (the "Salt Wash project").

As announced on 18 October 2023, the Salt Wash Field has a thin (15 feet) oil
rim, above which is an inert gas cap (approximately 500 feet of gas column)
which consists of approximately 72% nitrogen 22% hydrocarbon gases, and 1.4%
to 1.7% helium content. The field historically produced 1.65 million barrels
of oil and 11.7 billion cubic feet ("BCF") of gas prior to its abandonment in
2014, at which time the oil rim was largely produced and the market for
natural gas and helium was not supportive of continued development.

The decision to farm-in to the Salt Wash Field was undertaken to increase the
Company's oil and gas resource potential, and to achieve exposure to the U.S.
industrial helium market (which has seen recent helium prices rising up to
US$1,000 per million square cubic feet ("mscf")).  The field has an already
discovered, proven helium resource in the Leadville Formation, with further
opportunity for upside through three deeper helium exploration targets which
have been successfully proven in other nearby fields in the Paradox Basin. The
Company's board of directors (the "Board") notes recent market interest in
helium-related companies and believes that the economics for the Salt Wash
project are attractive for the helium content alone, notwithstanding further
upside from oil and gas development.

The Company's management forecasts the Salt Wash project to include:

·    Net helium discovered resource potential of 0.07 to 0.19 BCF
(Leadville Formation only)

·    Net helium un-risked, prospective resource of a further 0.04 to 0.66
BCF (including exploration targets)

·    An estimated net present value at a ten per cent discount rate
("NPV-10") of circa US$58m with the risked upside case having an NPV-10 of
circa US$120m (using $650/mscf and $750/mscf pricing, respectively)

As per the terms of the farm-in agreement (the "Agreement"), the Company
confirms that the two initial payments of US$300,000 each (totaling
US$600,0000) were made to the incumbent leaseholder (the "seller") and that it
is the Company's intention that the dual-purpose Leadville Formation
delineation well (the "Commitment Well") will be drilled.  The Commitment
Well would also test the three additional helium exploration targets and other
potential hydrocarbon bearing reservoirs.

 

The Agreement includes a provision that the Commitment Well is to be spudded
before 30 June 2024. The Board believes the Company can begin initial drilling
operations to fulfil this timing obligation, and alternatives to extend the
deadline may also exist. To date, the Company has received multiple informal
proposals regarding potential funding for 100% of the drill at the asset
level, and the Board is currently considering the best alternatives to
maximise the value from this exciting opportunity for Zephyr's Shareholders.

The Company will provide an update on the above matters in due course.

 

Colin Harrington, Zephyr's CEO commented: "We are excited about the potential
of the Salt Wash project and are appraising several funding options to
maximise value for our Shareholders.

"While helium is a new addition to our resource exposure, many nearby Paradox
Basin oil and gas operators are already producing co-mingled helium in
commercial quantities, and there is an active local offtake market for
produced helium. While Zephyr is not looking for helium to become our primary
focus, we do believe that the Salt Wash project has significant and currently
unrecognised potential value for our Shareholders and can further utilise our
team's significant experience in the Paradox Basin. We look forward to keeping
the market updated on our progress."

 

Further Information

Figure 1: Zephyr acreage in the Paradox Basin including the new Salt Wash
Field

 

The Salt Wash Field was discovered in 1961 and consists of a four-way dipping
anticline within the Leadville Formation. The field was subsequently shut-in
having only been partially developed, as the oil rim was produced and the
market for natural gas and helium was not supportive of further development at
the time.

Salt Wash Field highlights include:

·    Demonstrable oil and gas potential in the Cane Creek reservoir (the
same formation which underlies the WSU).

·    Secondary oil and gas potential within the Upper Leadville Formation.

·    Proven helium discovered resource with deep exploration prospective
resource opportunities:

o  Net helium discovered resource potential: 0.07 to 0.19 BCF (Company
estimate*).

o  Net helium un-risked, prospective resource of a further 0.04 to 0.66 BCF
(Company estimate*).

o  1.4% to 1.7% helium content.

·    Close proximity to Zephyr's other Paradox acreage and surface
infrastructure.

·    Historical production of 1.65 million barrels of oil and 11.7BCF of
gas in total (8.26 BCF from the Lower Leadville reservoir) prior to being shut
in.

The key terms of the farm-in are as follows:

·    Initial payment of US$600,000 (fully paid in FY 2023)

·    Zephyr to drill, log and case one vertical delineation well (the
"Commitment well"), with spudding prior to 30 June 2024, to top basement rock
(circa 11,000ft measured depth) to obtain a one hundred per cent share in the
leasehold.

·    The incumbent leaseholder (the "seller") will have the option to
back-in to the leaseholding at a 25% working interest, with no historic cost
exposure, once the delineation well is drilled and a field development plan
has been proposed by Zephyr.  From that point forward, the seller would
become a fully paying 25% working interest partner.

·    Zephyr has begun the work to integrate the well planning for the
Commitment well within its wider Paradox project development. Should the
Company not meet its condition to drill the Commitment well during H1 2024, it
could lose its rights to the leaseholding.

The farm-in enables Zephyr to increase its footprint across its primary play,
the Cane Creek reservoir, in a location close to existing operations. It also
grants access to the increasingly active helium play that spans south-east
Utah, northern Arizona and western Colorado, which can supply the growing U.S.
industrial demand for helium. This industrial helium supply requirement has
resulted in recent helium prices rising up to US$1,000/mscf. As such, this
farm-in fits well with Zephyr's strategy in the area, capitalises on the
Company's regional basin knowledge, and opens a series of possible future
opportunities in a region becoming more active with drilling and merger and
acquisitions activity.

 

Contacts:

 

 Zephyr Energy plc                                  Tel: +44 (0)20 7225 4590

 Colin Harrington (CEO)

 Chris Eadie (CFO)

 Allenby Capital Limited - AIM Nominated Adviser    Tel: +44 (0)20 3328 5656

 Jeremy Porter / Vivek Bhardwaj

 Turner Pope Investments - Joint Broker             Tel: +44 (0)20 3657 0050

 James Pope / Andy Thacker

 Panmure Gordon (UK) Limited - Joint Broker         Tel: +44 (0) 20 7886 2500

 Hugh Rich / James Sinclair-Ford

 Celicourt Communications - Public Relations       Tel: +44 (0) 20 7770 6424

 Mark Antelme / Felicity Winkles / Ali AlQahtani

 

Qualified Person

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.

 

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 lease holding of over 46,000 gross
acres located in the Paradox Basin, Utah, 25,000 acres of which has been
assessed to hold, net to Zephyr, 2P reserves of 2.6 million barrels of oil
equivalent ("mmboe"), 2C resources of 34 mmboe and 2U resources 270 mmboe.

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. 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.

 

 

 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
 or visit
www.rns.com (http://www.rns.com/)
.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
.   END  UPDPPUWCWUPCPGQ