Zephyr Energy PLC (ZPHR.L) Grant of final approvals for State 16-2 well

Zephyr Energy plc (AIM: ZPHR), the Rocky Mountain oil and gas company focused on responsible resource development, provides an update on its project in the Paradox Basin, Utah, U.S.A (the “Paradox project”), where the Company is preparing to spud the ‘dual-use’ State 16-2 well before the end of the year.

The Company is pleased to announce that it has now received all the final approvals required to proceed with the spud of the State 16-2 well. These approvals include surface rights and rights to drill from the Utah School and Institutional Trust Lands Administration (“SITLA”), federal Right of Way approvals from the Bureau of Land Management (“BLM”), and Application to Drill (“APD”) approval from the Utah Division of Oil, Gas and Mining (“DOGM”). In addition, the Company has received all necessary consents from its joint-venture partner on the Paradox project.

With these approvals and permits in place, the Company is working to finalise project contracts to enable rig mobilisation over the coming days. The road and site preparation work for the well has now been successfully completed, and work to responsibly plug and abandon the existing inactive well on site has commenced.

Colin Harrington, Zephyr’s Chief Executive said “I am delighted that we have secured the final approvals and consents required to facilitate the commencement of drilling of the State 16-2 well.

“I would like to thank all parties involved in this process for their commitment, flexibility and hard work in enabling us to reach this major milestone within the required timeframe.

“With work on the ground already underway, we are in the final stages of operational preparations to ensure the safe and successful spud of the well by our year-end goal.”

Background to the 16-2 well

As announced on 2nd 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 U.S. Department of Energy and its National Energy Technology Laboratory (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$2million 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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