TIDMZPHR
RNS Number : 8502C
Zephyr Energy PLC
22 October 2020
Prior to publication, the information contained within this
announcement was deemed by the Company to constitute inside
information as stipulated under the Market Abuse Regulations (EU)
No. 596/2014 ("MAR"). With the publication of this announcement,
this information is now considered to be in the public domain.
22 October 2020
Zephyr Energy plc
(the "Company" or "Zephyr")
Initial tranche of grant funds received;
appointment of Drilling Manager; and
further State 16-2 well updates
Zephyr Energy plc (AIM: ZPHR), an oil and gas company focused on
responsible resource development in the Rocky Mountain region,
provides an update on its project in the Paradox Basin, Utah, U.S.
( the "Paradox" or the "Paradox project") where the Company is
preparing to spud the 'dual-use' State 16-2 well before the end of
the year.
As previously announced, Zephyr is working with a project team
led by the University of Utah's Energy & Geoscience Institute
("EGI"), in collaboration with the Utah Geological Survey (the
"UGS") and other Utah-based partners, to drill the vertical State
16-2 well. This project is sponsored by the U.S. Department of
Energy and its National Energy Technology Laboratory (the "DOE"),
with the first US$2 million of well expenditure funded by way of a
DOE grant. Up to US$1 million of incremental expenditure in excess
of the DOE's grant will be funded by Zephyr, utilising a portion of
the proceeds from the Company's recent oversubscribed equity
placing.
With the funding of the State 16-2 well secured, Zephyr's team
is focused on the operational preparations for the drilling of the
well. New milestones achieved include the following:
-- A US$600,000 initial tranche of DOE funding has been received
by Zephyr. The funds received, equivalent to 30% of the US$2
million grant total, will be partially utilised to cover near-term
costs including bonding, permitting and preliminary ground works at
the site of the 16-2 well. The balance of the DOE funding will be
received by Zephyr in three further tranches once additional
routine well development milestones are met.
-- Zephyr has bolstered its operations team with the appointment
of Bruce Houtchens, a highly experienced Drilling Manager who will
assist the Company on the State 16-2 project. Bruce previously
served as Manager of Drilling & Completions for Fidelity
Exploration & Production, the most active and successful
driller in the Paradox Basin over the last decade. At Fidelity,
Bruce coordinated all of Fidelity's drilling and completions
operations in the Paradox and the Bakken, with direct management of
annual drilling budgets of up to US$400
million. He brings a wealth of Paradox Basin drilling experience to the Zephyr team.
-- A detailed initial well design is largely completed, which
has allowed the Company to commence the tender process for project
contracts. Project contracts currently out for bid include the
solicitation of major items such as the rig contract. The newly
bolstered Zephyr project team has expedited this process in order
to award contracts in a timely manner to continue to ensure
drilling activities before the end of the year.
Colin Harrington, Zephyr's Chief Executive, said "I am delighted
with the progress made to ensure a successful and timely spud of
the State 16-2 well.
"In particular, I'm very pleased to welcome Bruce to our project
team - I'm not aware of anyone who's drilled more successful
horizontal Paradox Basin wells over the last decade. I know he is
excited to continue to deliver safe and successful wells within
this basin, and to continue the process of overseeing systematic
well cost reductions to improve future project profitability.
"Bruce's direct drilling experience in the Paradox Basin will be
absolutely invaluable as we move forward with our own drilling
activity - activity which we believe will also benefit from our
excellent 3D seismic coverage and site selection of a top-ranked
location in our portfolio.
"I'd also like to continue to thank the EGI and our other
Utah-based partners, all of whom are working very hard to assist
Zephyr with the launch of this exciting project. I'm very
encouraged by the momentum that we are building.
"We will keep the market updated regularly as we work to unlock
the value from our Paradox Basin holdings."
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
Andy Thacker / Zoe Alexander
Flagstaff Strategic and Investor Communications
Tim Thompson / Mark Edwards / Fergus Tel: +44 (0) 20 7129
Mellon 1474
Background to the 16-2 well
As announced on 2(nd) September 2020, the Company has been
working with a project team led by the EGI in collaboration with
the UGS and other Utah-based partners. The project is entitled
"Improving Production in Utah's Emerging Northern Paradox
Unconventional Oil Play" and its goal is to assess and perform
optimisation analyses for more focused, efficient and less
environmentally-impactful oil production strategies in the northern
Paradox Basin, particularly in the Pennsylvanian Paradox
Formation's Cane Creek shale and adjacent clastic zones. This
project is sponsored by the DOE.
As part of this study, the EGI and UGS originally planned to
drill a vertical stratigraphic test well to gather data to improve
the understanding of the Paradox Basin play. It was planned that
the proposed well would target the Cane Creek and potentially the
C18/19 reservoirs, acquiring both core data and a comprehensive
well log suite in order to provide valuable new basin data.
Over a period of several months, the project team analysed
multiple potential well locations across the Paradox Basin, and the
Company was delighted that the EGI and UGS selected Zephyr's
Paradox acreage as the location on which to drill the well.
The Company's location was selected for a number of reasons,
including the quality of the Group's underlying 3D seismic data
(which can be tied into the well results to build a stronger
integrated predictive model) as well as a favourable surface
location which will be sited on a pre-existing pad.
Since Zephyr's Paradox acreage was selected as the location for
the test well, Zephyr has been working with its project partners to
construct a project plan that maximises the opportunity for all
parties.
A key part of this plan is to design the well in such a way that
not only can it be used to obtain all the data required by the
research project, but that it can also be re-used by the Company in
the future as the host for a lateral appraisal well. This approach
not only reduces environmental impact but it will also potentially
significantly reduce future well costs for the Company.
It is currently expected that the total cost of the vertical
well activity is forecast to be between US$2.5 million to US$3
million, of which the first US$2 million will be funded by grant
funding from the DOE and up to US$1 million will be funded by
Zephyr. Neither party is liable for any costs in excess of the US$3
million combined project limit.
The primary objectives of the initial stratigraphic well are to
drill vertically to an approximate true vertical depth ("TVD") of
9,850 feet, and to acquire up to 90 feet of continuous core from
the Cane Creek reservoir. The results from the analysis of the core
and from other drilling data are expected to be available within
three months from the completion of drilling.
Once the vertical well is completed it will be temporarily
plugged back to 6,500 feet TVD. Zephyr (or a farm-in partner) will
then have the opportunity to re-utilise the vertical wellbore as a
sidetrack host from which a horizontal appraisal well can drilled.
By re-utilising the vertical portion of the stratigraphic well, the
Company estimates the total costs of drilling a future horizontal
appraisal well will be reduced from circa US$6.0m to circa
US$3.0m.
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