Award of drilling contract to Cyclone Drilling Inc

RNS Number : 3595H

Zephyr Energy PLC

03 December 2020

 

Prior to publication, the information contained within this announcement was deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR"). With the publication of this announcement, this information is now considered to be in the public domain.

3 December 2020

Zephyr Energy plc

(the "Company" or "Zephyr")

Award of drilling contract to Cyclone Drilling Inc.

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. (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 it has signed a drilling contract with Cyclone Drilling Inc. ("Cyclone"). This follows a competitive selection process by Zephyr's team, involving extensive technical and commercial evaluation across multiple potential drilling contractors.  Cyclone, based in Gillette, Wyoming, is one of the leading providers of rigs in the Rocky Mountain region (the "Rockies").  Cyclone's fleet of modern rigs was purpose-built for operating in the remote locations and rugged environment of the Rockies, and they hold one of the best drilling safety records in the U.S. oil and gas industry.  Additionally, Cyclone has recent experience drilling similar stratigraphic wells, including a 10,200-foot-deep stratigraphic well drilled in 2019 which was also part-funded by the U.S. Department of Energy (the "DOE").

For the State 16-2 well, the specific Cyclone rig under contract is Cyclone Rig #34.  This rig is currently active on a drilling project in Wyoming and will be mobilising to the site of the State 16-2 well in Utah in the coming days, ensuring Zephyr remains on track for spudding the well prior to the end of this year. 

Additionally, the signing of the State 16-2 drilling contract is a trigger for the Company to draw down the second US$600,000 tranche of the US$2 million grant funds allocated by the DOE for the drilling of the well. The balance of the DOE funding, a further US$800,000, will be received by Zephyr in two further tranches once additional routine well development milestones are met.

Colin Harrington, Zephyr's Chief Executive, said "We are delighted to be partnering with Cyclone to drill the State 16-2 well. Cyclone has a 40-year history as a respected contractor with a safe and successful track record of drilling wells, including on other DOE-funded projects.  We are confident in their ability to help us deliver this well in an efficient and responsible way.

"Awarding this contract is an important milestone in our plan to spud the State 16-2 well prior to the end of the year, and we look forward to working with the Cyclone team.

"With the well now fully permitted, the site and road work complete and the rig contract signed, we are ready to commence drilling in the very near term."

Contacts:

Zephyr Energy plc Colin Harrington (CEO) Chris Eadie (CFO)	Tel: [phone]
Allenby Capital Limited - AIM Nominated Adviser Jeremy Porter / Liz Kirchner	Tel: [phone]
Turner Pope Investments - Broker Andy Thacker / Zoe Alexander Flagstaff Strategic and Investor Communications Tim Thompson / Mark Edwards / Fergus Mellon	Tel: [phone] Tel: [phone]

Background to the 16-2 well

As announced on 2^nd 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 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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