The Rocky Mountain oil and gas firm Zephyr Energy (ZPHR ) has reported positive results from production testing at the State 16-2LN-CC well at its Paradox Basin project in Utah which it says provide ‘substantial justification’ for wider development of the Paradox project.
Following 23 days of production testing, Zephyr said the well has demonstrated the potential to drain a larger hydrocarbon resource and with stronger economies than initially forecast.
The Company’s State 16-2LN-CC well was the first well in the Northern Paradox Basin to flow hydrocarbons from a horizontal well with a modern hydraulically stimulated completion design.
During the test, the well averaged rate-constrained daily rates of 716 barrels of oil equivalent per day with rate-constrained highs of 1,083 boepd achieved with limited pressure drawdown.
The Company highlighted that initial simulation modeling suggests possible plateau rates of 2,100 boepd are possible when the well is fully equipped and no longer rate-constrained.
Gas rates, which are substantially higher than expected, could reach production plateau rates of 10 million square cubic feet of gas per day and 500 boepd of liquids, Zephyr told investors.
Initial data from the production testing suggests the State 16-2LN-CC has a single well potential Estimated Ultimate Recovery (“EUR”) of 2.65 million barrels of oil equivalent (“mmboe”), significantly higher than Zephyr’s pre-drill estimates of up to 0.85 mmboe.
In short, the test indicates ‘a highly successful appraisal of a substantial new gas condensate resource’ and one which Zephyr forecasts will deliver strong single well economics, it says.
Using updated production forecasts and realised prices of US$3 per thousand cubic feet of gas and $65 per barrel of oil, Zephyr estimates that the well will pay out in under seven months and have a net present value at a 10% discount rate (NPV-10) of US$12.5m.
Zephyr is currently evaluating well equipment and export options to put the well on full production as soon as practicable. It is also appraising several potential profitable solutions for selling the substantial volumes of natural gas expected to be produced from the well.
This includes selling gas into nearby existing infrastructure and potentially co-locating a cryptocurrency mining facility onsite to nearby operators in the Paradox and Williston Basins.
Zephyr has commissioned the independent reserve consulting firm Sproule Incorporated to complete a Competent Persons Report to assess its reserves of the Cane Creek reservoir and the eight overlying reservoirs. This is expected to be completed in the next 60 days.
Following the release of today’s results, the Board said it remains ‘highly encouraged’ by the implications of the test results as related to the wider development of the Paradox project.
Colin Harrington, Zephyr’s Chief Executive stated: “Not only does this successful production test indicate the potential for a highly profitable single well, but we also believe the test will lead to a substantial reduction in development risk across our acreage while allowing for a future systematic development of the project - one with relatively predictable well distribution within both the Cane Creek reservoir as well as across the multiple overlying reservoirs.”
He added that: “In conclusion, we are delighted to be able to report that we appear to have a large and profitable first well on our Paradox asset - one which has far exceeded our expectations and which has validated the Board’s decision to utilise hydraulic stimulation.”
He said this added “considerable weight” to the view that the Paradox asset has the potential to be a project of substantial scale and profitability, one which can be developed to maximise resource efficiency while minimising surface disruptions and offsetting Scope 1 emissions.
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