Analyst Comment30 Jun 2021 11:39
Zephyr Energy (ZPHR LN): State 16-2 well data assessed, Paradox Project, US
Share Price: 6.9p, Market Cap: £84.4m
• Zephyr has announced that results from the recent evaluation work on the State 16-2 stratigraphic test well have reconfirmed Zephyr's view that the planned State 16-2LN-CC well is a suitable location from which to test the natural fracture play in the Cane Creek reservoir. Drilling operations are scheduled to commence in July.
• Results from reservoir, fracture stimulation and simulation modelling suggest that the Paradox project could also be developed by way of a hydraulically stimulated resource play which provides an alternative to the NFP and which would potentially facilitate broader project development across more than one reservoir.
• Management has also confirmed that analysis of the twenty overlying reservoirs suggests that all 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.
• If development of the eight high-graded reservoirs proves feasible as an HSRP, the Company estimates the potential for up to 200 well locations across the eight overlying reservoirs, and a risked contingent resource potential, net to Zephyr, of up to an additional 125MMboe.
• This estimate of the HSRP potential is preliminary and highly dependent upon developing better understanding of each zone's reservoir pressure, fluid phase, geomechanical properties, permeability and a successful proof of concept hydraulic stimulation and production well.
• Additional data gathered during the planned drilling of State 16-2LN-CC well will be the first step in determining the viability and method of future asset development.
Our take: Initial findings for the overlying reservoirs and the potential for substantially increased resources on the Paradox project appear encouraging at this stage although will require significant funding. The results suggest multiple viable scenarios for considerable upside - from the exploration potential of the overlying reservoirs to the hydraulic stimulation of targeted reservoirs, or from a combination of both. The next planned appraisal well, the State 16-2LN-CC (lateral well), will target the Company's first production on the Paradox project. Using a flat oil price of US$70/boe, the Company estimates that the lateral well has a 2C single-well NPV10 of US$10.4m. Using the same flat oil price of US$70/boe, the prime reservoir target on its lease holding - the Cane Creek reservoir - has estimated 2C resources with an NPV10 of US$225m.
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