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Pin to quick picksZephyr Energy Regulatory News (ZPHR)

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Q2 Williston Basin & State 36-2 LNW-CC Update

15 Aug 2023 07:00

RNS Number : 2906J
Zephyr Energy PLC
15 August 2023
 

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.

15 August 2023

Zephyr Energy plc

("Zephyr" or the "Company")

Second Quarter 2023 Williston Basin results;

Paradox acreage acquisition;

State 36-2 LNW-CC well work continues

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 provide initial second quarter 2023 ("Q2") results related to hydrocarbon production and cashflows from its non-operated asset portfolio in the Williston Basin, North Dakota, U.S (the "Williston project"), and an update on its flagship project in the Paradox Basin, Utah, U.S (the "Paradox project").

 Q2 Williston Basin Highlights

· Quarterly revenues totaled US$7.1 million, net to Zephyr, compared to first quarter 2023 ("Q1") revenues of US$6.3 million (subject to audit).

 

· Q2 operating income was US$4.2 million (after taxes, lease operating expenses, realised hedging impacts, and gathering and marketing fees), compared to Q1 operating income of US$5.7 million. 

 

· Q2 sales volumes averaged 1,385 barrels of oil equivalent per day ("boepd") compared to Q1 sales volumes average of 1,093 boepd.

 

· At 30 June 2023, 223 wells in the portfolio were available for production.

o Net working interests across the Company portfolio now average 7% per well, equivalent to 15.1 gross wells in total, all of which utilised horizontal drilling and modern, hydraulically stimulated completions.

 

· The recently acquired Slawson Exploration ("Slawson") operated wellbore interests (as announced on 21 December 2022) are fully drilled and completed. Production from these working interests is forecast to be online by October 2023 following completion of surface facilities on the well pad. The Company will provide an update in relation to FY 2023 production guidance when those wells are brought online.

 

· The Company has received notice from Continental Resources ("Continental"), operator of a drilling and drilling spacing unit ("DSU") in which Zephyr holds existing working interests, that it plans to drill ten new wells on the DSU. The acreage is located in a highly attractive part of the Williston Basin, and the initial two wells drilled by Continental in 2021 have been some of the top performers in Zephyr's non-operated portfolio, paying out in under six months from first production. Zephyr's Board of Directors has elected to participate in the upcoming drilling programme, and Zephyr's forecasted net capital expenditure (CAPEX) related to the drilling is approximately US$205,000 which will be funded from existing cash resources. The planned new development drilling is an illustration of the continued organic growth from the Company's existing Williston position and provides continued access to low risk, near-term production.

Acquisition of additional acreage in the Paradox Basin 

Zephyr is also pleased to announce an agreement to increase its land position in the Paradox Basin through the targeted acquisition of an additional 640 leased acres deemed by the Company to be prospective for mid to long-term development.

The new acreage is on Utah School and Institutional Trust Lands Administration ("SITLA") lands and was secured during the most recent SITLA auction. The acreage is close to the Company's existing White Sands Unit and gas export infrastructure.

The acquisition of the new acreage is part of Zephyr's ongoing portfolio management of its Paradox Basin position - this active land management strategy has resulted in a defensible and growing land position which Zephyr's Board believes is increasingly difficult to replicate in today's regulatory and political environment.

Consideration for the new acreage was satisfied from the Company's existing cash resources. Following the closing of the acquisition of the new acreage, the Company now operates over 46,000 gross acres in the Paradox Basin, the majority of which the Company holds as operator with a 100% working interest.

State 36-2 LNW-CC well update

The State 36-2 LNW-CC well remains static and under control, and Zephyr's operations team continues to complete the well work required prior to commencement of a production test. Operations over the last month were hindered by the extreme heat witnessed in the U.S. Southwest, with record high temperatures being recorded in the region. In order to maintain safe working conditions, operations over the last month were limited to nighttime only. Given recent improvements in conditions, the team plans to resume daytime operations this week.

All current and future operations will continue to be conducted in such a way that well control is maintained and working conditions are safe for the team. The Board notes the safe progress to date and fully expects to deliver a production test in the near-term. This methodical and patient approach is necessitated by the expected high pressure and substantial apparent deliverability of the well and reservoir, as witnessed during the earlier phases of operations.

As previously reported, the Company retains comprehensive well control insurance coverage, and the Board ultimately expects to recover the vast majority of costs associated with the well control incident. Under the terms of Zephyr's insurance policy these payment recoveries are made on a reimbursement basis (after approval by the insurer, and after the Company has paid the corresponding contractor invoices). 

The Company is pleased to report that all invoices submitted to date to its insurer have been approved and funds due from Zephyr's claims have been paid promptly. Additional invoices are being submitted on a regular basis with payments expected within 30 days of receipt by the insurer.

Colin Harrington, Chief Executive of Zephyr, said: "Zephyr's profitable and diverse non-operated asset base continues to deliver low risk, high margin cash flows for the Company. The Company now has a multi-year track record of successful non-operated investment, with rapid paybacks and solid cash flows available to fund future growth within both our operated and non-operated portfolios. 

"Near term growth includes our investment in the newly drilled and completed Slawson-operated wells which are expected to significantly boost non-operated production rates when brought online in the autumn. The new wells proposed by Continental will also help to grow volumes over the upcoming year and demonstrate continued growth from the existing non-operated portfolio.

"On our operated Paradox project, our near-term priority is to deliver a safe and successful production test of the State 36-2 LNW-CC well, and we look forward to updating shareholders when the test commences."

Q2 Sales Detail

Zephyr's net sales for Q2 were approximately 126,044 boe.

Q2 sales product mix was 89% crude oil, 4% natural gas, and 7% natural gas liquids. The table below provides sales volumes, product mix, and average sales prices for the quarter:

Oil:

85,310 bbls at an average sales price of US$74.70/bbl*

 

Natural Gas:

121,773 thousand cubic feet ("mcf") at an average sales price of US$2.21 /mcf

 

 

Natural Gas Liquids:

20,438 bbls at an average sales price of US$24.33 per bbl

 

*not including hedges

(Note: Q2 volumes and average sales prices figures include field estimates in respect of June 2023 natural gas and natural gas liquids sales volumes and are subject to future revision.)

The Company has hedged 117,000 barrels of oil for 12 months starting 1 April 2023 at a weighted-average price of US$83.35 per barrel. 33,000 bbls were hedged in Q2 at an average price of $90.05. The Company is expecting significant additional production volumes by the end of October 2023 from new wells coming online and will continue to evaluate its commodity price risk management strategy on a regular basis.

During Q2, more of Zephyr's existing production wells were changed from temporarily shut-in to producing status. As new infill wells are drilled, existing offset wells may be temporarily shut in to optimise the nearby completion and mitigate offset well production losses. The Company is now seeing those offset wells being re-instated for production when the new infill wells are started up for production. 

In the Williston Basin, cashflow from non-operated interests in newly drilled wells may lag actual production by up to five months. Such payments from the operator accrue on a monthly basis and are paid in full prior to the sixth month of production, which may result in impacts to quarterly sales volumes and revenues during times of significant completion activity. Zephyr expects additional accrued payments from operators during the remainder of 2023 given the Company's interests in 25 newly drilled wells which came online over the last two quarters.

Contacts

Zephyr Energy plc

Colin Harrington (CEO)

Chris Eadie (CFO)

 

 Tel: +44 (0)20 7225 4590

Allenby Capital Limited - AIM Nominated Adviser

Jeremy Porter / Vivek Bhardwaj

 

 Tel: +44 (0)20 3328 5656

 

Turner Pope Investments - Joint-Broker

James Pope / Andy Thacker 

 

Panmure Gordon (UK) Limited - Joint-Broker

John Prior / Hugh Rich / James Sinclair-Ford

 

Celicourt Communications - PR

Mark Antelme / Felicity Winkles

 Tel: +44 (0)20 3657 0050

 

 

Tel: +44 (0) 20 7886 2500

 

 

 

Tel: +44 (0) 20 7770 6424

 

Qualified Person

 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.

 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 lease holding of over 46,000 acres located in the Paradox Basin, Utah, 25,000 acres of which has been assessed to hold, net to Zephyr, 2P reserves of 2.6 million barrels of oil equivalent ("mmboe"), 2C resources of 34 mmboe and 2U resources 240 mmboe.

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. 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. 

 

 

 

 

 

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UPDNKQBKDBKBAFD
Date   Source Headline
9th Jul 20247:00 amRNSOperations Update
27th Jun 20247:00 amRNSFinal Results
26th Jun 20247:00 amRNSOperations Update
14th Jun 20247:00 amRNSState 36-2R well production test
6th Jun 20247:00 amRNSState 36-2R well update
3rd Jun 20247:00 amRNSState 36-2R well drilling update
31st May 20245:00 pmRNSTotal Voting Rights
31st May 20247:00 amRNSQ1 2024 results from the Williston Basin portfolio
29th May 20247:01 amRNSGrant funding from U.S. DOE & drilling update
14th May 20247:00 amRNSOperations update, warrant exercise and TVR change
3rd May 20247:00 amRNSHolding(s) in Company
3rd May 20247:00 amRNSDebt for equity exchange & State 36-2R well update
25th Apr 20247:00 amRNSStart of well drilling operations
17th Apr 20247:00 amRNSState 36-2R well drilling operations update
10th Apr 20247:00 amRNSGrant of share options and issue of warrants
28th Mar 20247:00 amRNSAdditions to senior management team
27th Mar 20241:02 pmRNSSalt Wash helium project update - replacement
27th Mar 20247:00 amRNSSalt Wash helium project update
22nd Mar 20247:00 amRNSCommencement of Initial Drilling Operations
15th Mar 20247:00 amRNSAward of rig contract to Helmerich & Payne
11th Mar 20247:00 amRNSParadox project update
29th Feb 20247:00 amRNSQ4 2023 results from Williston Basin portfolio
14th Feb 20247:00 amRNSState 36-2R Drilling Permit Sundry Notice Approval
8th Feb 20247:00 amRNSOperations update
15th Dec 20237:00 amRNSOperational update
15th Nov 20237:00 amRNSQ3 2023 results from Williston Basin portfolio
1st Nov 20237:00 amRNSWilliston Basin Update
25th Oct 20237:00 amRNSInvestor Webinar Registration
18th Oct 202312:38 pmRNSInvestor Webinar
18th Oct 20237:00 amRNSParadox project update
29th Sep 20237:00 amRNSHalf-year Report
20th Sep 20237:00 amRNSStatement Re Market Speculation
15th Aug 20237:00 amRNSQ2 Williston Basin & State 36-2 LNW-CC Update
26th Jul 202311:39 amRNSResult of AGM
26th Jul 20237:00 amRNSAGM Statement
10th Jul 20237:00 amRNSParadox project update
30th Jun 20235:00 pmRNSTotal Voting Rights
26th Jun 20237:00 amRNSFinal Results
6th Jun 20237:00 amRNSPlacing & Subscription & Project Update
16th May 20237:00 amRNSQ1 Williston Basin & State 36-2 LNW-CC Update
2nd May 20237:00 amRNSHedging programme update
20th Apr 20236:15 pmRNSCorporate Presentation
13th Apr 20234:02 pmRNSInvestor Webinar
11th Apr 20237:00 amRNSState 36-2 LNW-CC well update
20th Mar 20237:00 amRNSState 36-2 LNW-CC well production test to commence
8th Mar 20237:00 amRNSParadox project update
28th Feb 20235:00 pmRNSTotal Voting Rights
15th Feb 20237:00 amRNSQ4 & FY 22 results from Williston Basin portfolio
14th Feb 20237:00 amRNSState 36-2 LNW-CC well update
10th Feb 20238:00 amRNSCompletion of Paradox project acquisition

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