TIDMZPHR
RNS Number : 6518Q
Zephyr Energy PLC
29 October 2021
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.
29 October 2021
Zephyr Energy plc
("Zephyr" or the "Company")
Approval granted for the formation of a new Federal Unit
Zephyr Energy plc (AIM: ZPHR) (OTCQB: ZPHRF), the Rocky Mountain
oil and gas company focused on responsible resource development
from carbon-neutral operations, provides an update related to the
land position on its flagship project in the Paradox Basin, Utah
(the "Paradox project"), where the Company is currently production
testing the State 16-2LN-CC well.
Zephyr is pleased to announce that following its recent activity
on the State 16-2LN-CC well, the United States Bureau of Land
Management (the "BLM") has approved the formation of a new
25,000-acre Federal Unit to be operated by Zephyr. The new unit,
named the White Sands Federal Unit (the "WSU"), incorporates all
the Company's existing leases covered by its historic 3D seismic
survey, including the lease on which the State 16-2LN-CC well is
situated.
The WSU approval, effective 1 October 2021, is a key milestone
in the Company's ongoing development of the Paradox project. By
consolidating over twenty separate leases into one overarching land
agreement, Zephyr can focus on an optimal long-term development
plan for the project as a whole, rather than maintaining its lease
position in an ad-hoc fashion.
The BLM defines a Federal Unit as follows:
"A unit agreement is for oil and gas exploration, development
and production for separately owned leases and interests within a
set boundary. The entire unit area is operated as a single entity,
without regard to lease boundaries, and allows for the maximum
recovery of production from the reservoir. Costs are reduced
because the reservoir can be produced by utilising the most
efficient spacing pattern, separate tank batteries are not
necessary, and there is no requirement to drill unnecessary offset
wells. The objective of unitisation is to provide for the unified
development and operation of an entire geologic prospect or
producing reservoir so that exploration, drilling, and production
can proceed in the most efficient and economical manner by one
operator."
As part of the WSU agreement, the State 16-2LN-CC well was
designated as a commitment well (a "Unit obligation well"). Now
that the State 16-2LN-CC has been completed and is currently
undergoing production testing, the Unit obligation well requirement
of the WSU agreement has been fully satisfied. As a result, the
entire contiguous 25,000-acre land position around the State
16-2LN-CC will now be held for a minimum of an additional 36 months
without any lease expiry.
Furthermore, if the State 16-2 LN CC well is determined to be
capable of delivering paying quantities of hydrocarbons, or if a
second well is drilled on the WSU acreage within the next twelve
months, the WSU will be extended beyond the initial 36-month
extension currently approved by the BLM.
Next steps
With the WSU approved and operational, the Company will continue
its detailed planning for the next phases of development of the
Paradox project - both on the WSU acreage (which consolidates the
majority of the Company's historical footprint in the Basin) and on
the acreage recently acquired in the Utah School and Institutional
Trust Lands Administration ("SITLA") auction in July 2021.
While the Company's future drilling plans will, to some degree,
be informed by the performance of the State 16-2LN-CC well, it is
currently planning for the following future operations on the
Paradox project:
1. A second well targeting the Cane Creek reservoir in the WSU in 2022
2. A development well on a recently acquired lease located in
the historically prolific Cane Creek Field (south of the WSU) in
2022
3. An exploration/appraisal well targeting the WSU's shallow Paradox Formation in 2022/2023
It is currently proposed that this activity will be funded from
cashflows from the Company's non-operated portfolio and/or from
revenues generated by the State 16-2LN-CC well. Further details on
each of these three planned wells are set out below.
The Company is also planning to immediately commission an
updated Competent Person's Report ("CPR") on its entire asset
portfolio, both operated and non-operated assets, once the
production testing on the State 16-2LN-CC well has been completed
in the coming weeks.
Colin Harrington, Zephyr's Chief Executive said: "I am
absolutely delighted that Zephyr has gained approval for this new
Federal Unit - the White Sands Unit - named after the former U.S.
missile testing range on which a large portion of our lease acreage
is located.
"This approval is a direct result of the successful operations
completed on the State 16-2LN-CC well to date, and means that we
now have a strong framework from which to hold our lease acreage
for the medium and/or long-term. I'd like to thank the BLM and
SITLA for working closely with our team over many months to form
this Unit - it's a major step to enable the future development of
the Paradox project in a systematic, commercial and responsible
fashion.
"Over the past twelve months, the work conducted by Zephyr's
technical team and our third-party partners has significantly
enhanced our understanding of the Paradox geology. Going forward,
we will seek to utilise this knowledge, combined with cash flow
generated from both our operated and non-operated production
assets, to deliver additional wells located on our existing leases.
If we identify further attractive and accretive acquisition
opportunities that fit our stringent acquisition criteria, we'll of
course pursue those deals in parallel.
"As always, we'll endeavour to generate additional Shareholder
value whilst being responsible stewards of investors' capital and
responsible stewards of the environment."
Contacts:
Zephyr Energy plc Tel: +44 (0)20 7225 4590
Colin Harrington (CEO)
Chris Eadie (CFO)
Allenby Capital Limited - AIM Nominated Tel: +44 (0)20 3328 5656
Adviser
Jeremy Porter / Liz Kirchner
Turner Pope Investments - Broker Tel: +44 (0)20 3657 0050
James Pope / Andy Thacker
Flagstaff Strategic and Investor Communications
- PR Tel: +44 (0) 20 7129
Tim Thompson / Mark Edwards / Fergus 1474
Mellon
Background to the three proposed wells
1. White Sands Unit - second well targeting the Cane Creek
reservoir: The planned follow-up well to the State 16-2 LN CC forms
an additional component of the delineation/development of the WSU's
Cane Creek reservoir. Once well testing on the State 16-2LN CC well
is completed, the Company will provide more detailed development
plans for this well. Given the Company's detailed reservoir
database and increased understanding of the geology underlying the
WSU, Zephyr's board believes that additional drilling in the Cane
Creek reservoir is already warranted in order to more fully
delineate this reservoir.
2. Cane Creek Field development well: The Company acquired a
further 12,260 acres across the northern Paradox Basin in July
2021. Approximately 5,000 of these acres surround the currently
producing Cane Creek Field, with 640 of those acres located 2 miles
from an existing production well in an area with existing field 3D
seismic. Zephyr believes that this is an ideal location for
development via hydraulic stimulation like the State 16-2LN CC
well, with a near term goal to deliver commercial levels of
production. Demonstration of this completion type could open up to
13 further well locations on Zephyr's Cane Creek Field acreage.
3. White Sands Unit - shallow reservoir exploration/appraisal
well: With a proven successful completion technique at State 16-2
LN-CC, the Company anticipates testing the shallow reservoirs above
the Cane Creek in the WSU. Initial analysis of twenty reservoirs
overlying the Cane Creek suggests that all twenty reservoirs are
likely to be hydrocarbon filled to some degree, based on the State
16-2 well sidewall core data and petrophysical analysis of several
offset wells. Of the twenty overlying reservoirs, the Company has
high-graded eight reservoirs which have adequate thickness for
potential future development. Data gathered during the drilling of
State 16-2LN-CC well provided the first step in determining the
viability of these reservoirs, and the Company believes that
successful testing of the selected target would provide further
confirmation of the potential for several of these additional
reservoir zones.
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