Zephyr Energy plc share price, company news, analysis and interviews

Zephyr Energy plc (LON:ZPHR) (OTCQB: ZPHRF), the Rocky Mountain oil and gas company focused on responsible resource development from carbon-neutral operations, has provided an update on operations and related investor webinar on its project in the Paradox Basin, Utah, U.S. and announces the signing of a Cooperation Agreement with Kirkwood Oil and Gas LLC related to data sharing and planned joint drilling in the Paradox Basin.

Drilling programme update

The Company has completed all preparations needed to commence drilling the fully-funded State 36-2 LNW-CC well, pending receipt of the final Federal drilling permit.  While Federal drilling permit approvals have slowed markedly across the entire U.S. domestic oil and gas industry, the Company remains confident it will be able to commence drilling in the near-term. 

In anticipation of the receipt of the final permit, and in order to be in position to spud the well shortly thereafter, the Company recently completed construction of the shared pad on which the State 36-2 LNW-CC and the State 36-3 LN-C9 wells will be located.  The State 36-2 LNW-CC well will be the initial well drilled and will target the Cane Creek reservoir.  The State 36-3 LN-C9 exploration well (targeting the shallower C9 reservoir) is being permitted in parallel.  The pad for the wells is located in an area with good quality road access and adjacent to the recently acquired 6-inch gas gathering pipeline, providing efficient access to gas export infrastructure. 

With the exception of the final Federal permit, all regulatory approvals required to drill the State 36-2 LNW-CC well have been secured. The Company is in advanced discussions to execute a rig contract shortly after the final permit is approved, details of which will be announced in due course.

The two wells mentioned above are both located within Zephyr’s White Sands Unit (the “WSU”), the same Federal unit in which the previously drilled State 16-2LN-CC well is located.   A third well is expected to be drilled outside of the WSU, and will be drilled in partnership with, and operated by, Kirkwood Oil and Gas LLC, the Paradox Basin’s largest operator, details of which can be found below.

State 16-2LN-CC well production test update

The State 16-2 LN-CC well was successfully drilled, completed and tested in late 2021, although rates were constrained throughout the production test due to surface equipment limitations. Since then, Zephyr’s operations team, working with a team of external consultants, has spent significant time designing surface facilities to re-equip the well pad in order to:

a) test plans for improved flow assurance;

b) prepare for eventual gas export and continual production operations; and,

c) obtain further production data for overall well and field management. 

Zephyr Energy, which previously announced plans to conduct an additional production test on the well, is pleased to announce that all permits needed for that production test have been approved and operations to construct further surface facilities on the well pad are in progress. 

Multiple service providers are currently active on site, and the wellbore has been re-entered to prepare for the commencement of the additional well test, currently envisioned to begin mid to late November 2022.

Cooperation Agreement with Kirkwood Oil and Gas LLC

The Company is pleased to announce it has entered into an agreement (the “Agreement”) with Kirkwood Oil and Gas LLC and its affiliate, Wesco Operating, Inc. (“Wesco”) (collectively, “Kirkwood”), in which Zephyr and Kirkwood agree to co-operate and collaborate on the extension and further development of the Cane Creek play in Grand County, Utah – including the drilling of a new, Kirkwood-operated well.

Kirkwood, based in Wyoming, operates over 500 wells across 39 oil fields in the Rocky Mountain region and is currently the operator of the Cane Creek oil field located 12 miles to the south of Zephyr’s White Sands Unit in the Paradox Basin. Kirkwood, via its operating subsidiary Wesco, is the most active regional operator in the northern Paradox Basin.

The Agreement allows for the sharing of certain proprietary data in order to assist both companies with the development of their individual acreage positions.  In addition, the Agreement also allows for the planning and drilling of a 2-mile horizontal well targeting both Zephyr and Wesco held acreage.  The planned well will be located in Grand County, Utah immediately to the south of the Wesco-operated Cane Creek Field.  Cooperation on the planned well would involve sharing design and lessons learned from the Zephyr-operated State 16-2LN-CC well and utilising Wesco’s considerable experience as operator of the Cane Creek oil field.  Wesco will act as the operator of the planned well, and each party will hold a 50% working interest with all expenses shared pro-rata. 

The objective of the planned well is to test the potential of modern hydraulic stimulation and completion (as recently performed at the State 16-2LN-CC well) on the Cane Creek reservoir within the black oil fairway of the play.  The well will be drilled from an existing pad with existing infrastructure, thereby reducing environmental impact and the need for further gathering line infrastructure. The planned well location is immediately offset by a 2014 vintage horizontal well (with a 4,900-foot lateral) which targeted the productive, highly over-pressured, naturally-fractured Cane Creek reservoir. That well was subsequently recompleted with a small volume diesel stimulation and has produced over 188,000 barrels of oil to date, at very low water cut, and is still in production today.

By applying the latest completion techniques, it is expected that initial oil rate and expected ultimate recovery from the planned well will be increased both by drilling a longer well and improving the overall reservoir drainage. Success at this location would open new play opportunities for both companies on their existing acreage positions.  Drilling operations remain subject to regulatory authority approvals.

Investor Webinar

On 28 September 2022, the Company announced that it would be presenting a live investor webinar on Tuesday 25 October 2022.  At the webinar, the Company intended to present detailed development plans and schedules related to the forthcoming drilling programme.  Given that the Company is still awaiting the final Federal permits for the two wells located in the WSU, it has elected to delay the webinar until the State 36-2 LNW-CC Federal permit is granted and the rig contract awarded, so that the webinar can be as detailed, accurate and informative as possible.

Colin Harrington, Zephyr Energy’s Chief Executive, said:  “It’s exciting to see activity building across the Paradox project as we prepare for the commencement of our fully-funded drilling programme. With the construction of the State 36-2 LNW-CC drilling pad now complete, our team is prepared to commence drilling operations as soon as possible after the final Federal permit has been granted.

“Based on discussions with the relevant Federal authorities our team is confident that drilling approval has the potential to be granted in the near-term in spite of an industry wide slowdown of Federal drilling permit approvals.  In the meantime, we’ve worked extremely hard to navigate the challenging rig, labour and supply chain market environment so that we’re positioned to spud the well as soon as possible.

“In addition to preparations for drilling, our facilities team has been working on the re-equip and augmentation of the surface facilities at the State 16-2 LN-CC, and we look forward to the seeing the results of the production test over the coming weeks.

“I am further delighted to announce the signing of the Agreement with Kirkwood.  As the most active operator in the northern Paradox Basin, Kirkwood’s team has a strong history and service relationships which are second to none in the basin.  Paired with Zephyr’s technical understanding and expertise gained from successfully drilling the northern Paradox Basin’s first horizontal well using a modern completion, our joint cooperation on the funding and drilling of a new well – at a location where our respective acreage positions are contiguous – has the potential to be highly beneficial for both parties, and with a minimum of surface disruption.  We look forward to the collaboration and are eager to see the application of hydraulic stimulation applied to a long lateral horizontal well in the black oil fairway of the Cane Creek Field.

“Finally, while I’m frustrated with the delay related to our Paradox-focused investor webinar, we look forward to rescheduling as soon as the Federal permit is granted and the drilling contract is finalised – at which point it will be possible to more accurately share details regarding drill timing, service partners and expected completion and testing schedules.

“We expect the next period to be an exciting time in our development of the Paradox project and we look forward to providing further updates when activity on the ground permits.”

Zephyr Energy plc (LON:ZPHR), the Rocky Mountain oil and gas company focused on responsible resource development from carbon-neutral operations, has announced the completion of the acquisition of a package of oil and gas assets located on and around the Company’s Paradox project, Utah, U.S. Details of the Acquisition were announced on 14 September 2022.

The Acquisition is comprised of 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 Acquisition 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.  The estimated replacement cost value of the acquired pipelines and plant is over US$10.6 million.

The consideration for the Acquisition was US$750,000, which was satisfied by a payment from Zephyr’s existing cash resources, and as the new owner, Zephyr has assumed responsibility for all future decommissioning, plugging and abandonment liabilities associated with the assets (estimated to be approximately US$2.5 million in today’s terms).

Zephyr now operates 45,000 gross acres in the Paradox Basin, the majority of which the Company holds a 75% or greater working interest.

A full summary of the assets purchased as part of the Acquisition was outlined in the Company’s announcement on 14 September 2022.

Colin Harrington, Zephyr Energy’s Chief Executive, said:  “I am delighted that we have now completed  the Acquisition which is expected to bring multiple commercial benefits to the Company.

“Firstly, it allows us to greatly reduce the capital needed to build out the gas infrastructure required to sell our produced gas volumes from the Paradox project into the market.  Secondly, it completes the acquisition of all key acreage covered by the WSU 3D and thirdly, it provides us with an additional well pad already tied to the pipeline, which in combination with the newly acquired 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 Acquisition marks the start of an exciting period for Zephyr as we kick-off our extended production test on the State 16-2LN-CC well and as we make final preparations for our forthcoming drilling programme. While supply chain and labour availability issues continue to exist across the sector, Zephyr’s team is working hard to ensure the necessary pieces are in place in order to commence drilling shortly after the final federal permit has been received.  Further updates on this will be announced shortly and will be presented at our Investor Webinar on 25 October 2022, details of which we announced on 28 September 2022.”

Zephyr Energy plc (LON:ZPHR) (OTCQB: ZPHRF), the Rocky Mountain oil and gas group focused on responsible resource development from carbon-neutral operations, has announced its unaudited interim results for the six months ended 30 June 2022.

HIGHLIGHTS

The first six months of the 2022 financial year, and the period since, were a time of intense activity during which Zephyr continued to make substantial progress in the development of its flagship operated project in the Paradox Basin, Utah, U.S while growing its highly attractive portfolio of cash-generating non-operated assets in the Williston Basin.

Financial

·    Revenues for H1 2022 were US$25.9 million, driven almost entirely by the Group’s hydrocarbon production from the Williston assets

·    Adjusted earnings before interest, tax, depreciation, depletion and amortisation (“DD&A”), unrealised foreign exchange gains and unrealised losses on hedging contracts (together “Adjusted EBITDA”) for the six months was US$19 million and net profit after tax for the period was US$17.4 million

·    The Group’s gross borrowings at 30 June 2022 were US$28.6 million and net borrowings (gross borrowings less cash and cash equivalents) were US$18 million. During H1 2022 the Group met all its financing obligations in respect of its outstanding borrowings

·    In April 2022, in order to lock in cashflow to develop the Paradox project and meet the Group’s financing commitments, the Group hedged just under half of its forecast 2022 production at more than US$98 per barrel of oil. In total the hedging programme related to 328,000 barrels (“bbls”) of oil production from the Williston assets over the next two years. At 14 September 2022, the Group had an unrealised gain on its outstanding hedges of US$1.5 million

·    At 3 September 2022, the Group had cash and cash equivalents of US$12.8 million and gross borrowings of US$24.7 million.

·    During H1 2022 capital expenditure (“CAPEX”) across the Williston assets and the Paradox project totalled US$9.6 million.

Paradox project (operated asset)

·    A Competent Persons Report (“CPR”), compiled by Sproule International (“Sproule”), highlighted the scale and resource potential of the Paradox project:

o  Net 2P Reserves: Proved Reserves of 2.1 million barrels of oil equivalent (“boe”) net to Zephyr, the Group’s first proved reserves booked in the Paradox Basin

o  Net 2C Resources: 27 million boe net to Zephyr, more than double the 12.3 million boe in the previous CPR prepared in 2018

o  Net Prospective Resources from overlying reservoirs: 203 million net unrisked boe net to Zephyr (68 million boe risked with a weighted-average 33% chance of success)

o  Sproule’s evaluation took place across 30,700 acres of Zephyr’s Utah assets. Inclusive of Zephyr’s recently announced acquisition, Zephyr will operate 45,000 gross acres in the Paradox Basin and further evaluation is planned for acreage not yet included in the CPR

·    Preparations continue for extended production testing of the State 16-2 LN-CC well, designed to show flow potential and shape decision making for the longer-term development strategy of the asset

o  Long lead items ordered and all relevant applications filed

·    Liquid volumes from the initial State 16-2 LN-CC production test were successfully marketed and sold to refineries in Salt Lake City, Utah

·    A fully funded, high impact, three-well drilling programme is expected to commence later this year, and is designed to further delineate the full potential of the Paradox project:

o  The State 36-2 LNW-CC lateral well is set to be the first well in the upcoming drilling programme, and targets the Cane Creek reservoir in the southern portion of the Group’s operated White Sands Unit (the “WSU”)

o  All State permits for the State 36-2 LNW-CC have now been received and the Federal permit is currently being processed, which, when issued, will allow for the signing of a rig contract and subsequent commencement of drilling operations

o  Recently acquired contiguous acreage allows for the State 36-2 LNW-CC to be fully completed across a 10,000-foot lateral length

·    Additionally, Zephyr has entered into a binding agreement to acquire a separate package of oil and gas assets located on and around the Paradox project. Assets being acquired include 21 miles of natural gas gathering lines, the Powerline Road gas processing plant (not currently in operation), rights of way for additional gathering lines, active permits, five existing wellbores and additional acreage partly contiguous to the WSU. The assets being acquired 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. In addition, 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).

o  Once the acquisition is completed, Zephyr will operate 45,000 gross acres in the Paradox Basin, the majority in which the Group holds a 75% or greater working interest

Williston assets (non-operated assets)

·    Zephyr continues to deliver on its strategy to acquire working interest positions in value accretive, high-quality, high-margin production assets with significant near-term growth potential in the Williston Basin

·    H1 2022 revenues from the portfolio totalled US$25.8 million, net to Zephyr, up from US$0.9 million in the six months ended 30 June 2021 (“H1 2021”)

·    H1 2022 sales volumes averaged 1,729 barrels of oil equivalent per day (“boepd”)

·    H1 2022 gross profit was US$21.8 million (after taxes, lease operating expenses, and gathering and marketing fees and excluding DD&A) demonstrating the high margins realised from the produced barrels

·    At the end of H1 2022, 195 wells in Zephyr’s portfolio were available for production

o  An estimated 30 additional wells in which Zephyr will have working interests are forecast to be brought on production by the end of 2022, which will help to decrease standard portfolio decline rates

·    Net working interests across the Williston Basin non-operated portfolio now average 7.1%, equivalent to approximately 15 gross wells

·    Zephyr reiterates its previously released 2022 production and revenue guidance of an expected US$35-40 million in non-operated revenue, net to Zephyr, for FY 2022 based on a forecast production range of 500,000 to 550,000 boe for the year

Corporate

·    In February 2022, the Company raised US$17.4 million (before expenses) through the placing of new Ordinary Shares in the Company, and secured US$28 million of senior bank debt. The net proceeds from these debt and equity instruments were used to complete the Group’s US$36 million acquisition of non-operated assets in the Williston Basin and to fund further drilling activity across the portfolio

·    Zephyr remains carbon neutral on a Scope 1 basis across its operations, through the purchase of Verified Emission Reduction credits (“VERs”)

·    Panmure Gordon was appointed as Joint Broker to the Company in August 2022

Colin Harrington, Chief Executive of Zephyr Energy, said:

“The first half of 2022 and the period since have been another transformational time for the Company. We continued to make significant in-roads across both our Williston assets and the Paradox project, serving to grow the Group and deliver on our self-sustaining strategy of using our non-operated, cash generative portfolio to enable development of the Paradox and, by extension, to open up the next prolific onshore U.S. oil and gas play.

“The rest of this year promises to be an equally important time for our Shareholders as we commence the extended production test on our State 16-2LN-CC well and kick off the proposed three well drill programme on the Paradox project. In addition, we plan to complete and fully integrate the acquisition of the infrastructure asset package in order to substantially reduce the forecast expenditure needed to bring our Paradox gas production to market. A successful drilling programme will see the Group further define the project and materially increase its reserve base in the Paradox, and is expected to deliver significant cashflows once nearby infrastructure improvements are completed.

“This year started with our major acquisition in the Williston Basin, which we expect will enable Zephyr to generate revenues of between US$35-40 million over the course of 2022, with sufficient cash flow generated to fuel all envisioned upcoming development activity.

“I would like to thank our Shareholders and advisers for their ongoing support. We are excited about the multiple near-term catalysts in our investment case as we commence an active period with the drill bit, and we look forward to keeping the market updated on our progress.

“Our forthcoming activity will be carried out consistent with our core values of being responsible stewards of investors’ capital and responsible stewards of the environment.”

Zephyr Energy plc (LON:ZPHR), the Rocky Mountain oil and gas company focused on responsible resource development from carbon-neutral operations, has announced that it has entered into a binding agreement to acquire a package of oil and gas assets located on and around the Company’s Paradox project, Utah, U.S.

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 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 Energy’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.”