TIDMZPHR
RNS Number : 3556Z
Zephyr Energy PLC
14 September 2022
Prior to publication, the information contained within this
announcement was deemed by the Group to constitute inside
information for the purposes of Regulation 11 of the Market Abuse
(Amendment) (EU Exit) Regulations 2019/310. With the publication of
this announcement, this information is now considered to be in the
public domain.
14 September 2022
Zephyr Energy plc
("Zephyr" or the "Company")
Acquisition of infrastructure and additional acreage in the
Paradox Basin
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 that it has
entered into a binding agreement (the "Agreement") to acquire a
package of oil and gas assets located on and around the Company's
Paradox project, Utah, U.S. (the "Paradox project") (the
"Acquisition").
Under the Agreement, Zephyr will acquire 21 miles of natural gas
gathering lines, the Powerline Road gas processing plant (the
"Plant", which is not currently in operation), rights of way for
additional gathering lines, active permits, five existing wellbores
and additional acreage (the "New Acreage") which is partly
contiguous to the Company's operated White Sands Unit (the
"WSU").
The consideration for the Acquisition is US$750,000 and will be
satisfied by a payment from Zephyr's existing cash resources and as
the new owner, Zephyr will assume responsibility for all eventual
decommissioning and plugging and abandonment ("P&A")
liabilities for the assets acquired (estimated to be approximately
US$2.5 million in today's terms).
Once the Acquisition is completed (which is expected by 7
October 2022), Zephyr will operate approximately 45,000 gross acres
in the Paradox Basin, the majority in which the Company holds a 75%
or greater working interest.
Overview
The Agreement enables the Company to acquire an asset package
which will allow Zephyr to substantially reduce the capital
required to build the necessary gas export infrastructure for its
forecast gas production from the Paradox project. Given Zephyr's
potential significant gas resource, strong current pricing and
increasing demand for U.S. domestic natural gas, the Board is
delighted to have secured this opportunity ahead of commencing its
further development of the Paradox project.
The assets being acquired under the Agreement include:
o 21 miles of six-inch gas gathering line, with an estimated
replacement cost value of US$8.8 million, which will substantially
reduce the capital and costs required to export the Company's gas
production from the WSU. The acquired gathering lines tie directly
into the Plant.
-- One of the acquired lines passes immediately alongside the
site of the planned State 36-2 well (the first in a series of
Paradox wells to be drilled in the upcoming drilling
programme).
-- Additional rights of way for future pipelines are also
included in the Agreement.
o The Plant, while not currently in operation, is well suited
for brownfield redevelopment and contains useable pre-existing
infrastructure and related permits. This Plant is ideally located
at the head of a 16-inch gas export pipeline recently purchased by
Dominion Energy ("Dominion"), and can also act as a supply base for
other WSU operations. The Plant has an estimated replacement cost
value of US$1.8 million.
o 1,160 acres which comprises the final leasehold acreage parcel
under Zephyr's existing 3D seismic, giving Zephyr a complete and
contiguous 20,000 acres in the WSU with 3D coverage. Zephyr
estimates that this portion of acquired acreage will
contribute:
-- 2 gross drilling locations with 2C contingent resources from
the Cane Creek reservoir of 1.25 million barrels of oil equivalent
with a net present value at a ten per cent. discount rate
("NPV-10") of approximately US$17 million.
o 4,320 additional acres, in locations near to the WSU, which
are not covered by Zephyr's pre-existing 3D seismic data but with
resource upside potential in a success case.
o Five existing vertical wells, four of which were planned for
P&A by the existing owner, all which are expected to have
re-use potential under Zephyr's ownership:
-- The Federal 28-11 well, currently shut in, has near-term
workover potential and is expected to have an initial estimated
proved developed not producing ("PDNP") reserve value of US$0.4
million once the well's gas export is online.
-- Two wells with notable prior observations of hydrocarbons
which may have additional work over or sidetrack potential.
-- Remaining wellbores which have re-use potential as future
salt water disposal and water supply wells, which could
substantially reduce future operating and completion costs (subject
to State approval).
o A full well database from the Operator.
The consideration for the Acquisition is US$750,000 which will
be satisfied by a payment from Zephyr's existing cash resources. As
the new asset owner, Zephyr will assume responsibility for all
eventual decommissioning and P&A liabilities for the assets
acquired (estimated to be approximately US$2.5 million in today's
terms). The Acquisition is expected to complete by 7 October
2022.
Upcoming Investor Presentation
In light of today's Acquisition and the recent Paradox project
acreage acquisition announced on 25 August 2022, and prior to the
commencement of its upcoming Paradox drilling programme, the
Company intends to present detailed development plans and schedules
for the Paradox project at an investor webinar, the date of which
will be announced within the next two weeks.
Colin Harrington, Zephyr's Chief Executive, said: "We've often
compared our Paradox project development to a jigsaw puzzle with a
number of requisite pieces to be assembled prior to the
commencement of commercial production - and today's announcement is
another substantial piece now in place. By acquiring this package
of surface infrastructure, we are moving rapidly from a programme
of value delineation to a tangible development programme which is
expected to facilitate cashflows from the project in a more rapid
timeframe.
"Beyond the additional resources being acquired, today's
Acquisition provides us with several critical benefits. Firstly, it
allows us to greatly reduce the capital needed to build out the gas
infrastructure required to sell produced gas volumes into the
market. Secondly, it completes the acquisition of all key acreage
covered by the WSU 3D. Thirdly, it provides an additional well pad
already tied to the pipeline, which in combination with the New
Acreage will simplify future development drilling. Similarly, the
gas plant, while currently not in use, has excellent potential for
reintroduction to service and can potentially act as a WSU supply
base.
"The acquired wellbores provide us with multiple re-use options
over the short to medium term. Along with the wells comes a
proprietary well database from the Cane Creek and overlying
reservoirs (including wells with notable hydrocarbon shows and
prior production). Wellbores that do not become work over
candidates have potential as water supply and/or salt water
disposal wells, which can substantially reduce our future operating
and completion costs as the development progresses.
"I would like to take this opportunity to thank our counterparty
in this transaction, as I believe we have jointly created a win-win
situation for both parties through the Agreement. We are now able
to accelerate our Paradox project development without incurring
significant upfront cash costs, and we plan to be proactive
managers of the acquired assets in order to best bring them back
into service. Our aim, as responsible stewards of capital and of
the environment around us, is to minimise surface and environmental
disruption to the greatest extent possible, and making best use of
the existing brownfield infrastructure across our leaseholding is a
key way to achieve this objective.
"Following the significant recent additions to both our land and
infrastructure positions, we plan, in the coming month, to give
Shareholders a comprehensive update on our forthcoming drilling.
It's an exciting time for the Company, filled with short-term
operational activity and long-term strategic potential."
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 / 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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