Paradox Basin Reserves and Resource Evaluation
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.
26 April 2022
Zephyr Energy plc
("Zephyr" or the "Company")
Updated Paradox Basin Independent Reserves and Resource Evaluation
CPR highlights significant scale and long-term production potential of the Paradox Project
Inaugural Paradox Proved Reserves booked
Substantial increase to Contingent Resource estimates
Maiden Prospective Resource estimates on overlying reservoirs
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 announce the results from an updated Competent Person's Report ("CPR") on its assets in the Paradox Basin, Utah, U.S. (the "Paradox project").
The CPR was compiled by Sproule International Limited ("Sproule"), 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 (the "2018 CPR").
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 .
Highlights
· 2P Reserves: First Paradox Basin Proved Reserves booked, based on the State 16-2 LN-CC well drilling success:
o 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:
o 27 million net boe -more than double the 12.3 million boe from 2018 CPR
· Prospective resources from overlying reservoirs:
o 203 million net unrisked boe (68 million boe risked with a weighted-average 33% chance of success ("CoS"))
|
Paradox Basin |
Net Attributable to Zephyr |
|||
|
1P |
2P |
3P |
||
|
Developed and Undeveloped Reserves (boe) - Cane Creek Reservoir |
537,000 |
2,123,000 |
6,811,000 |
|
|
NPV-10 |
$1 ,384,000 |
$22,612,000 |
$104,548,000 |
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|
|
Paradox Basin |
Net Attributable to Zephyr |
|||
|
1C |
2C |
3C |
||
|
Contingent Resources (boe) - Cane Creek Reservoir |
- |
26,870,000 |
81,130,000 |
|
|
NPV-10 |
- |
$ 148,028,000 |
$894,112,000 |
|
|
|
|
|
|
|
|
Paradox Basin |
Net Attributable to Zephyr |
|||
|
1U |
2U |
3U |
||
|
Net Unrisked Prospective Resources (boe) - Overlying Reservoirs * |
57,500,000 |
203,000,000 |
4 19 ,000,000 |
|
|
Net Risked Prospective Resources (boe) - Overlying Reservoirs* |
23,000,000 |
6 8 ,000,000 |
1 12 ,000,000 |
|
|
*Net present value economics at a discount rate of 10 per cent ("NPV-10") were not evaluated for Prospective Resources in the Sproule report. |
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*Risked Chance of Success avg. 33% |
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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 : "Weare 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."
Background
At the request of Zephyr, Sproule audited the crude oil, natural gas, and field condensate reserves and contingent resources and the associated future net revenue attributable to the White Sand Unit (WSU) and Cane Creek DSU (CC DSU) located in the Paradox Basin in Utah, USA with an effective date as of March 31, 2022. Sproule also conducted an audit of the Prospective Resources attributable to the White Sand Unit (WSU) located in the Paradox Basin in Utah, USA as of March 31, 2022.
The scope and nature of Sproule's work was an audit of the specified resource information for the purpose of expressing an opinion as to whether such resource volumes, in aggregate, are reasonable and have been estimated and presented in conformity with generally accepted petroleum engineering and evaluation principles. Sproule conducted certain tests and spot checks to confirm the adherence to the Society of Petroleum Engineers (SPE) Petroleum Resources Management System (PRMS) reserves reporting requirements and that the data flowing into the Company's reserves and contingent resources determination system was consistent with available records provided by the Company.
All estimates were prepared in accordance with generally accepted petroleum engineering and evaluation principles as set forth in the SPE Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserve Information.
Due to the early-stage nature of the Paradox Basin resource play, the range of outcomes for Zephyr's Utah assets remains large. Both Zephyr and Sproule identified uncertainties which remain due to limited data across the areas planned for development by the Company. These include fluid composition and compressibility, water production, continuity of geomechanical properties across the reservoir and their impact on hydraulic fracture characteristics, and stimulated area around a well (well drainage area). The Company plans to utilise its upcoming three well drilling campaign to further quantify both the risks and upside presented by these uncertainties.
The Company's net reserves and contingent resources and net present value, as estimated by Sproule, are summarised in the Tables below.
Table 1: Summary of Company Net Reserves and Net Present Value
|
|
Net Reserves |
Net Present Value |
||
|
Oil & Condensate (Bbls) |
Gas (Million s tandard cubic feet) |
0% Discount (US$) |
10% Discount (US$) |
|
|
White Sand Unit |
||||
|
1P |
25,000 |
842 |
2,376,000 |
2,126,000 |
|
2P |
206,000 |
6,873 |
19,191,000 |
10,831,000 |
|
3P |
696,000 |
23,187 |
97,431,000 |
36,980,000 |
|
Cane Creek DSU |
||||
|
1P |
344,000 |
163 |
3.091,000 |
-742,000 |
|
2P |
715,000 |
340 |
28,985,000 |
11,781,000 |
|
3P |
2,085,000 |
990 |
127,988,000 |
67,568,000 |
|
*Some columns may not add due to rounding. |
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Table 2: Summary of Company Net Contingent Resources and Net Present Value
|
|
Net Contingent Resources |
Net Present Value |
||||
|
Oil & Condensate (Bbls) |
Gas2 (MMscf) |
0% Discount (US$) |
10% Discount (US$) |
|||
|
White Sand Unit |
||||||
|
1C1 |
0 |
0 |
0 |
0 |
||
|
2C |
3,420,000 |
108,288 |
222,596,000 |
88,009,000 |
||
|
3C |
10,414,000 |
329,787 |
1,223,945,000 |
511,662,000 |
||
|
Cane Creek DSU |
||||||
|
1C1 |
0 |
0 |
0 |
0 |
||
|
2C |
5,006,000 |
2,378 |
196,818,000 |
60,019,000 |
||
|
3C |
14,596,000 |
6,933 |
899,310,000 |
382,450,000 |
||
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*Some columns may not add due to rounding |
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1. Contingent resources sub-marginal (uneconomic) |
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2. Sales gas (includes 5% loss due to facilities) |
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Table 3: Summary of Company's Net Prospective resources
|
|
|
|
|
|
|
1U |
2U |
3U |
|
|
|
|
|
|
Gas (MMscf) |
499,180 |
1,559,890 |
2,889,240 |
|
|
|
|
|
|
Oil and Condensate (Bbls) |
12,480,000 |
77,990,000 |
216,690,000 |
|
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Contacts:
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Zephyr Energy plc Colin Harrington (CEO) Chris Eadie (CFO)
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Tel: +44 (0)20 7225 4590 |
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Allenby Capital Limited - AIM Nominated Adviser Jeremy Porter / Liz Kirchner / Vivek Bhardwaj
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Tel: +44 (0)20 3328 5656
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Turner Pope Investments - Broker James Pope / Andy Thacker
Celicourt Communications Mark Antelme / Felicity Winkles |
Tel: +44 (0)20 3657 0050
Tel: +44 (0) 20 8434 2643 |
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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.
Estimates of resources and reserves contained within this announcement have been prepared according to the standards of the Society of Petroleum Engineers. All estimates, unless otherwise noted, are internally generated and subject to third party review and verification.
Glossary of terms
Reserves : Reserves are defined as those quantities of petroleum which are anticipated to be commercially recovered from known accumulations from a given date forward
1P: proven reserves (both proved developed reserves + proved undeveloped reserves)
2P: 1P (proven reserves) + probable reserves, hence "proved and probable"
3P: the sum of 2P (proven reserves + probable reserves) + possible reserves, all 3Ps "proven and probable and possible"
Contingent Resources : Those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations by application of development projects, but which are not currently considered to be commercially recoverable due to one or more contingencies.
Contingent Resources may include, for example, projects for which there are currently no viable markets, or where commercial recovery is dependent on technology under development, or where evaluation of the accumulation is insufficient to clearly assess commerciality. Contingent Resources are further categorised in accordance with the level of certainty associated with the estimates and may be sub-classified based on project maturity and/or characterised by their economic status.
1C: Low estimate of Contingent Resources
2C: Best estimate of Contingent Resources
3C: High estimate of Contingent Resources
Prospective Resources : Those quantities of petroleum which are estimated, on a given date, to be potentially recoverable from undiscovered accumulations.
1U: Low estimate of Prospective Resources
2U: Best estimate of Prospective Resources
3U: High estimate of Prospective Resources
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