Zephyr Energy- First oil from the Paradox Basin

The State 16-2LN-CC well was put on flowback on 28 October 2021, under a heavy 7/64 inch choke in order to prevent formation damage during early stages of flowback; The well is now successfully flowing hydrocarbons; Although production rates are facility constrained at present, the well is demonstrating highly encouraging daily average flow rates of 420 barrels of oil equivalent per day with recent hourly rates of over 690 boepd on a slightly less restricted 12/64 inch choke setting.

In addition to hydrocarbons, the well continues to flowback completion fluids at approximately 1,200 barrels per day and production testing remains ongoing: Fluid composition is evolving as additional completion fluid is recovered, with ultimate expected gas/oil ratios yet to be determined.

The well has demonstrated limited pressure drawdown to date despite the high liquid rate, an additional encouraging sign which may indicate a large connected volume.

Results to date suggest the State 16-2LN-CC is a successful proof of concept well with highly positive implications for the utilisation of hydraulic stimulation completions across the multiple reservoir zones and across the Company’s 37,613-acre lease position within the Paradox Basin.

Colin Harrington, Zephyr’s Chief Executive, said:

“I’m absolutely delighted that, after many years of hard work and investment in the Paradox Basin, we can finally announce the first flowing hydrocarbons from our Paradox project. As this represents the first production generated from a horizontal well in the Paradox Basin using modern hydraulic stimulation, today marks a historic moment and heightens our expectations regarding the future development potential of Zephyr’s leaseholding.

“We’ve always viewed this first well as a ‘proof of concept’ for a wider development, and our future wells are expected to benefit from further optimisations such as longer lateral lengths and from additional refinements of completion techniques.  Even without those future enhancements, I’m hugely excited that we’re seeing rates of nearly 700 boepd, especially given the substantial level of choke on the well and the fact that we are rate constrained by existing surface facilities.  I fully expect to see production rates increase further should we further resolve facility constraints during the remainder of the production test.

“While these initial results are highly encouraging, it’s important to remember that production testing remains ongoing and key parameters such as fluid mix are still variable and volatile.  That said, what we’ve seen so far lends support to our vision of opening up a new hydraulically stimulated play in the United States, and over the coming months we fully expect to deliver additional wells that target the Cane Creek reservoir as well as the overlying reservoirs.  The increased production from our non-operated portfolio in the Williston Basin, during this time of strong commodity pricing, is expected to generate substantial cashflows to fund future development efforts in the Paradox.

“I would like to once again thank our technical team and dedicated contractors for their ongoing efforts in delivering a successful well.  Having invested so much time and resource into the Paradox project, delivering the first production from our Paradox position is a true landmark event for the Company, and I look forward to providing further updates in the near future.

“Finally, but very importantly, I want to remind Shareholders that all produced hydrocarbons are carefully measured and always subject to our carbon mitigation efforts.  While natural gas volumes are being flared through this testing phase, Zephyr remains committed, at the highest level, to providing carbon-neutral operations through the purchase of Verified Emission Reduction credits to offset our Scope 1 emissions.  Moreover, we are well underway evaluating a number of profitable long-term solutions for the sale of any future natural gas volumes produced, including via interconnection with the nearby pipeline system as well as options to monetise produced gas directly on site.   As always, our goal is to deliver strong Shareholder value while being responsible stewards of investors’ capital and responsible stewards of the environment.”

I am in London today so will comment briefly now, I have a call with Colin this afternoon so will update tomorrow. Having said that this announcement pretty much speaks for itself, it is really fantastic news for the company and shareholders and subject to all the usual caveats whilst testing the management, who are not known for exaggeration seem remarkably chipper about this news. 

Whilst the share price has moved strongly upwards during the Paradox journey this news can only lead to significant further moves as markets realise just how big this company could be. Note mentions of potential further growth from increased laterals, completion techniques and that this well is restricted by surface facilities which should see production rates rising in due course. 

With the production that Zephyr bought to give funding flexibility and now a really great result from the Paradox Basin I’m sure that when I speak to Colin later it will be a positive but as ever measured conversation, I shall be less measured, this sets Zephyr on the road to being a landmark oil company and the share price should increase substantially from here.