REG - Zephyr Energy PLC - Successful State 36-2R well production test result

Zephyr EnergyAnnouncement

06/09/2024 07:00

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RNS Number : 1534D  Zephyr Energy PLC  06 September 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.

 

6 September 2024

 

Zephyr Energy plc

("Zephyr" or the "Company")

 

Successful result of State 36-2R well second phase production test

 

Zephyr Energy plc (AIM: ZPHR) (OTCQB: ZPHRF), the Rocky Mountain oil and
gas company focused on responsible resource development and carbon-neutral
operations, is pleased to provide an update on operations on the State 36-2R
LNW-CC well (the "well") at the Company's flagship project in the Paradox
Basin, Utah, U.S. (the "Paradox project").

The Company has completed the second phase of the production test on the well
(the "second test"), as announced on 23 July 2024, and is pleased to report
the following key observations:

·    Peak production rates achieved during the second test were over 2,100
barrels of oil equivalent per day ("boepd"), a very significant production
rate for an onshore U.S. well with only 130 feet of completed reservoir
interval.

·    The acidisation operation successfully removed any remaining
near-wellbore formation damage and generated very high reservoir
deliverability, with a notable improvement to near-wellbore reservoir
permeability after each acid treatment. As such, the operation not only
removed damage but also enhanced reservoir productivity.

·    This is the first known example of acidisation stimulation in the
Paradox Basin, and the result is highly positive for the development of the
play, with the potential for substantially reduced reservoir risk and removal
of the need for costly hydraulic stimulation as used in other U.S. onshore
resource plays.

·    Variable liquid-yields were observed over the second test, all of
which are higher than that at the Company's State 16-2 LN-CC well (the "State
16-2 well") in the northern part of Zephyr's Paradox project acreage. At the
peak production rates in the second test, condensate/light volatile oil
represented approximately 510 boepd, and these liquid yields were on an
increasing trend at the conclusion of the test.

o  The elevated liquid yield has the potential to be a significant driver of
improved economics and may increase recoverable liquid volumes across the
Company's Paradox project acreage.

o  A detailed fluid laboratory analysis is currently underway, and the
results will help the Company further characterise the field's fluid fill and
composition.

·    Continued evidence of almost zero water production, another potential
boost to the well's economics by material reducing the need for expensive
water disposal.

·    Given the highly positive observations, Zephyr has commenced the
process of discussing potential well and wider Paradox Project development
opportunities with U.S. based industry partners in an effort to accelerate
additional appraisal and development of the Paradox project.

 

Additional detail and next steps

In addition to cleaning up any remaining formation damage, the acidisation
operation appears to have had the unanticipated benefit of significantly
enhancing near-wellbore reservoir quality (by dissolving calcite and dolomite
minerals known to exist in the reservoir, creating higher porosity and
permeability where those minerals have been dissolved away). The Company has
previously observed widespread minor fracturing in the reservoir cores of the
State 16-2 well and other Cane Creek wells. Zephyr's initial analysis suggests
that acidisation could materially enhance the permeability of the overall
reservoir matrix, including the minor fracturing (which may be present across
the Company's entire Paradox project acreage position) as well as any major
fracture networks encountered.

This implies that acidisation, when utilised across a longer lateral, may
offer a cost-effective completion technique compared to the hydraulic
stimulation operation used in other U.S. resource plays. This alternative
completion technique could also offer a broader and lower risk method for the
long-term development of the Paradox project versus solely targeting major
natural fracture networks (the historical development approach in this part of
the Paradox Basin).

Given the positive implications for the Paradox project, Zephyr's board of
directors (the "Board") has launched an immediate process to identify an
industry or asset-level financial partner to accelerate further appraisal and
field wide development. This could come in the form of a farm-in with an
industry operator, a joint venture with a non-operator investor, or asset
level funding. The Board now believes that the data generated from drilling
the State 16-2, State 36-2 and State 36-2R wells, combined with the
significant technical analysis developed from the Paradox project over the
past four years (including extensive 3D seismic, core samples, log data,
stimulation data and the recent production test results) provides a robust
dataset for prospective partners to evaluate.

Now that the second test has been completed, the well has been temporarily
shut in as per standard operations while Zephyr's operations team evaluates
the new data. A key consideration is whether to produce the well in the short
term, or to defer production temporarily in order to extend the wellbore and
increase overall hydrocarbon recovery potential. While the well is capable of
considerable production rates in its current form, it would be doing so from
only a 130-foot completed interval which could make it more difficult to
extend the well in the future by causing depletion in the near well bore area.

The well is permitted for up to a 10,000-foot lateral extension, and any
future lateral extension would be expected to benefit both from greater
connected volumes and the material positive impact acidisation could have on
the high deliverability of this play.

In addition, with the new data generated from the second test and that from
the Company's other Paradox wells, Zephyr will move as quickly as possible to
produce an updated Competent Persons Report.

Colin Harrington, Zephyr's Chief Executive, said:

"This is a highly significant milestone for the Company in its development of
the White Sands Unit and its wider Paradox project acreage. This is the first
known use of acidisation stimulation in the Paradox Basin and the results have
been extremely encouraging - the well's deliverability and permeability are
particularly notable, leading to the strong peak production rates witnessed.

By materially reducing completion costs and increasing chances of high
productivity without having to target only major natural fracture zones or
deploy higher cost hydraulic stimulation, the results from the latest well
test could have significant positive implications for the future value of the
Paradox project.

"The Board is now considering all options, including producing from the State
36-2R and the potential to materially increase the drained area of the well
via the extension of the current lateral. Safe operations and capital
efficiency will be taken into consideration when evaluating the next steps for
the Paradox project.  In parallel, and given these highly positive results,
we have commenced discussions around asset-level partnership opportunities
with U.S.-based industry partners.

"In all, the findings from the two production tests have considerably advanced
our understanding of the Paradox Basin and have opened up a highly effective
new development alternative.  We believe this could be meaningful as we seek
to unlock significant additional value for our shareholders."

 

 

 Contacts                                                       Tel: +44 (0)20 7225 4590

 Zephyr Energy plc

 Colin Harrington (CEO)

 Chris Eadie (Group Finance Director and Company Secretary)

 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 Liberum Limited - Joint-Broker                        Tel: +44 (0) 20 7886 2500

 Mark Murphy / Kieron Hodgson / James Sinclair-Ford

 Celicourt Communications - PR

 Mark Antelme / Felicity Winkles / Ali AlQahtani               Tel: +44 (0) 20 7770 6424

 

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.

 

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 46,000-acre leaseholding 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.

 

 

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