Zephyr Energy plc, the Rocky Mountain oil and gas company focused on responsible resource development, has provided an update on its recently acquired non-operated working interests in North Dakota, USA (the "Whiting wells"), to announce the acquisition of additional near-term production interests in the nearby area (the "Continental acreage "), and to provide an update on its project in the Paradox Basin, Utah.
North Dakota assets: operations update
The recently acquired Whiting wells target production from the Bakken and Three Forks Formations in the Williston Basin of North Dakota, USA and consist of non-operated working interests in five wells located across three separate pads:
· The Iverson 11-14HU well, a well which is currently producing.
· The S-Bar 11-7HU and 11-7TFHU wells, which are drilled but uncompleted ("DUC") wells.
· The Feehan 11-9HU and 11-9TFHU wells, which are also DUC wells.
The Company is pleased to announce that it received its first monthly revenue payment for production from its interest in the Iverson well. The payment of $140,662 is related to volumes produced in the month of February, during which net production averaged 110 barrels of oil equivalent per day ("BOE")*.
In addition, the Company reports that completion operations are already underway on its four S-Bar and Feehan DUC wells, ahead of earlier operator forecasts. It is expected that all DUC wells will be subsequently tied into infrastructure and achieve first production by the end of July, with Zephyr expected to receive monthly revenue payments for production from all five Whiting wells by September 2021.
When the S-Bar and Feehan wells are brought online, these interests are expected to provide the Company with substantial additional oil production. The resulting cashflows, which will be sheltered from federal tax due to Company's historical tax loss position of circa US$16 million, will be utilised to fund additional development of the Company's Paradox Basin project or to acquire other attractive non-operated assets such as the Williston acquisition announced today.
Acquisition of additional interests in the Williston Basin, North Dakota
The Company is pleased to announce the acquisition of 11.6 acres in the Williston Basin, North Dakota (the "Continental acreage") which gives Zephyr working interests in a drilling spacing unit ("DSU") operated by Continental Resources Inc. ("Continental"), the largest operator in the Williston Basin. The Continental acreage is located approximately ten miles from the Company's Whiting wells, in a highly attractive part of the Basin. The cost of the acreage acquired by Zephyr was approximately US$170,000 and was paid for from the Company's existing cash resources.
Continental has already commenced drilling two initial wells on the DSU ("Initial wells"), with up to an additional 22 future wells ("Future wells") forecast to be drilled by 2023.
· For the Initial wells currently being drilled, Zephyr's forecasted net capital expenditure (CAPEX) is approximately $135,000 and will be funded from existing cash resources.
· For the 22 Future wells proposed, Zephyr's net CAPEX is forecast to be approximately $710,000, which could also be funded from the Group's internal cash resources.
· CAPEX on the Future wells is discretionary, and Zephyr's Board of Directors will elect whether to participate in those wells on a case-by-case basis.
The Continental acreage has, net to Zephyr, Company estimated 2P reserves (from all 24 wells) of circa 60,000 barrels of oil equivalent ("BOE"), which were acquired at a price of approximately $2.83 per BOE. The 1P reserves on the Continental acreage are, net to Zephyr, estimated at circa 41,000 BOE and the 3P reserves at circa 72,000 BOE.
This opportunistic acquisition has strong forecast economics and provides the Company with further exposure to low risk, near-term production. Initial revenues from the acquisition are expected to be received in the second half of this year.
Preparations for State 16-2 CC LN well in Paradox Basin continue on schedule, resource evaluation work continues
The Company continues to make progress with permitting, detailed drill planning and vendor selection related to the drilling of the State 16-2 CC LN well on the Company's flagship project in the Paradox Basin, Utah. The Company remains on track to drill the well in July 2021, and Zephyr will update Shareholders regularly as key well planning milestones are met.
In addition to drilling preparations, the detailed resource evaluation work remains ongoing, both in regard to the potential in overlying reservoirs above the Cane Creek reservoir, and in respect to the potential for a resource play development across the Company's Paradox leasehold. Zephyr continues to work with its partners at the University of Utah, the Utah Geological Survey and third-party consulting firms to develop an updated geological model and resource estimates. The Company will update Shareholders when this evaluation work is complete.
Colin Harrington, Chief Executive of Zephyr, said: "Following the completion of our fundraise and acquisition earlier this month, I'm delighted that the Company has officially delivered a key corporate objective in becoming a cash-flowing oil producer. Furthermore, with the completions of the four Whiting DUC wells underway ahead of schedule, we look forward to substantially increased cashflows in the very near term. This provides us with an excellent platform on which to build, particularly with the envisioned incremental production coming online at a time of strong commodity pricing.
"Over the last few weeks, Zephyr has transformed into a fully-funded, self-sustaining platform with the potential for significant organic growth from the forthcoming drilling programme on our Paradox project. In addition, we will continue to be opportunistic in the pursuit of attractive, near-term, high-return, low-risk non-operated assets, especially as current market conditions are favourable for growth through acquisition.
"The acquisition of prime Bakken acreage announced today, in a DSU operated by a first-class Williston Basin participant, is a strong example of what can be achieved in the current market. The acreage is in an excellent location and provides both near-term drilling exposure and future drilling optionality. While the initial scale of the acquisition is small, for a minimal upfront cost Zephyr now has potential to participate in up to 24 highly economic wells over the next two years. Given the continued improvement in drilling costs and robust oil price environment, the Company believes this acreage will provide attractive near-term cash flow returns and is an excellent complement to our growing portfolio of non-operated production assets.
"The next few months are expected to bring news flow on all fronts as we target initial production on our Paradox project, further define our Paradox resource and begin to generate significant cash flow from our non-operated asset portfolio - including cash flow from today's newly acquired asset.
"We look forward to keeping Shareholders updated as we look to deliver on these key objectives. As always, we will continue to strive to be responsible stewards of our investors' capital and responsible stewards of the environment in which we work."