Zephyr Energy, the Rocky Mountain oil and gas company focused on responsible resource development from carbon-neutral operations, has announced the results from an updated Competent Person's Report ('CPR') on its assets in the Paradox Basin, Utah, U.S.
The CPR was compiled by Sproule International, a leading independent global energy consulting and advisory firm. The previous CPR on the Paradox project was completed in 2018 by Gaffney Cline & Associates, the results of which were announced on 22 June 2018.
An interview with the Company's Chief Executive Officer, Colin Harrington, discussing the results of the CPR can be found on the Company's website www.zephyrplc.com or can be accessed through the following link https://www.zephyrplc.com/cpr26-4. A supporting slide presentation may be found on the Company's website at https://www.zephyrplc.com/slides26-4.
- 2P Reserves: First Paradox Basin Proved Reserves booked, based on the State 16-2 LN-CC well drilling success:
- 2.1 million net barrels of oil equivalent ("boe") - an increase from zero boe from 2018 CPR
- 2C Resources: Significant increase to resource estimate across the Cane Creek Reservoir:
- 27 million net boe -more than double the 12.3 million boe from 2018 CPR
- Prospective resources from overlying reservoirs:
- 203 million net unrisked boe (68 million boe risked with a weighted-average 33% chance of success ("CoS"))
Combined with Zephyr's Williston Basin non-operated portfolio, Zephyr's total 2P Proved Reserves now have an estimated net present value at a ten per cent discount rate ("NPV-10") of over US$111 million (up from zero value ascribed in 2018) with substantial multiples of additional upside potential from success cases related to its contingent and prospective resources. The Company plans to drill three wells in the second half of 2022 to further delineate and increase value from the Paradox asset base.
In determining the NPV-10 for the reserves and resources, Sproule utilised its March 31, 2022 price forecast for both oil and gas which includes a West Texas Intermediate ("WTI") oil price forecast of US$93/barrel ("bbl") in 2022, US$83/bbl in 2023, and US$73/bbl in 2024, with a further US$5.00 per barrel deduction for price differential. For the gas price forecast, Sproule used a Henry Hub gas price of US$5.00/per million British thermal units ("mmbtu") in 2022, US$4.25/mmbtu in 2023, and US$3.25/mmbtu, with a further gas price differential of US$1.25 per million standard cubic feet ("mscf") reduction from Henry Hub, a heating value of 1000 btu per mscf and a shrinkage of 5% for losses due to surface facilities. Prices and costs are escalated at 2.0% per annum until the price doubles, and are then held flat.
Sproule's study took place across 30,700 acres of Zephyr's Utah assets, with an additional 6,500 acres of Zephyr's leaseholding not yet evaluated. Sproule's recoverable estimates display a broader range and more significant upside than previously published Management guidance, which had utilised a post-drill assessment of 1 billion boe of hydrocarbons initially in place ("HCIIP") and a 5-15% recovery factor.
Colin Harrington, Chief Executive of Zephyr, said:
'We are delighted with the conclusions drawn by Sproule, which both demonstrate the impact of our recent drilling success and which further highlight the substantial potential scale and profitability of the Paradox project. Over the last twelve months Zephyr created over US$111 million NPV-10 in 2P proved reserves in two discrete basins, through opportunistic acquisitions and success with the drill bit - and the Contingent and Prospective Resource estimates demonstrate the potential for many multiples of additional value growth beyond.
'Today's announcement of the results of the CPR is a key milestone for the Company, outlining the value potential in our portfolio. Thanks to the State 16-2 LN-CC well and our acquisition of proved reserves around the Cane Creek field, we've been able to book Proved Reserves on the Paradox project for the first time. Further, we are on track to unlock even greater value as we prepare for the fully funded Cane Creek three well drilling campaign in 2022. By drilling additional delineation and exploration wells, our goal is to significantly advance the understanding of this play, its key risks and its potential upside. Our hope is to fuel further increases across all reserve and resource classes by this time next year, and ultimately to unlock the next great unconventional resource play in the onshore U.S. Our potential for funded, organic growth is significant and we look forward to executing this strategy over the remainder of 2022.
'That said, we feel we are merely at the start. The Sproule report illustrates potential contingent and prospective resources worth well in excess of a billion dollars. While the range in values is still broad and there are a number of underlying technical and operational risks to be tested and mitigated, our team to date has demonstrated its ability to approach development in a measured and successful way. We aim to build on that knowledge and track record to further accelerate the value growth in our existing portfolio.
'Funding for the next phase of development of the Paradox project will be provided from our non-operated production portfolio in the Williston Basin, U.S., where first quarter 2022 operational production rates averaged 1,643 boepd and nearly half of the next two years' anticipated production is hedged at an average of $92.70 /bbl. In addition, we look forward to generating additional production and cashflow from our previously drilled and completed State 16-2 LN-CC well in the coming months.
'Zephyr is perfectly positioned for further material growth and value creation, and the results from today's CPR highlight the substantial potential in front of us. I look forward to providing regular updates as our near-term drilling and operational plans progress."
'Finally, I would like to reiterate that through this busy and exciting time our mission remains to operate as responsible stewards of investors' capital and of the environment in which we work.