Zephyr Energy (ZPHR ) says its Board has elected to recommence production from the State 16-2LN-CC well in conjunction with the completion of its own crypto-currency mining facility now under development following an evaluation of natural gas sales and export options.
The Rocky Mountain oil and gas company successfully completed a well test on the State 16-2LN-CC well in December 2021 and has since conducted a detailed evaluation of the various natural gas sales and export options informing its decision to restart production.
This morning’s announced plan is expected to allow the company to both accelerate its near-term production as well as benefit from long term gas sales optionality should the economic returns from the co-located crypto-mining facility meet internal expectations.
Following the commencement of production, liquid volumes produced from the well will be trucked and sold to refineries in Utah, and produced gas volumes will be sold to fuel onsite power generators which in turn will provide electricity for the co-located crypto-mining facility.
The Company said it plans to fund the initial investment required to launch the initial 1 megawatt (“MW”) crypto-mining facility - the capital expenditure here is forecast to be less than US$2 million - from existing cash resources or via third party investment, with facility capital payback expected in under two years at current crypto-currency prices, it noted.
Zephyr said its Board has taken the appropriate steps to fast-track equipment procurement, and it is expected that the crypto-mine will be operational in as little as eight to 12 weeks.
The Company further highlighted that work will also be conducted over the same timeframe, at which point production from the State 16-2LN-CC well is expected to recommence.
Meanwhile, over the longer-term, the Company expects to tie its gas production into the nearby gas export infrastructure recently purchased by Dominion Energy, Inc. (“Dominion”) a Fortune 500 Company which currently services over seven million customers in the U.S.
Dominion has plans to expand the natural gas infrastructure running across Zephyr’s acreage and is expected to be available to accept gas volumes from the company’s wells in 2023.
In parallel with the work on the State 16-2LN-CC well, the Company says it is also at an advanced stage of planning for a three well drill programme on the Paradox project expected to commence in the second half of this year. Well design has been completed to date and all permit applications have been submitted and negotiations continue with rig vendors, it said.
Colin Harrington, Zephyr’s Chief Executive, said: “The completion of our highly successful initial well test gave the Zephyr team the comfort to proceed with detailed evaluations of both near and long-term off-take solutions for the gas volumes from the State 16-2LN-CC well.
Addressing shareholders, Harrington, who believes today’s plan has the potential to be a profitable opportunity for Zephyr, stated: “While the Dominion infrastructure is envisioned to be the long-term solution for the majority of our gas production from the Paradox project, the construction of the co-located crypto-mining facility is an excellent interim step.”
“The coming months will be a period of intense activity on the Paradox project. In addition to the re-start of State 16-2LN-CC well production and launch of crypto-mining operations, we are in detailed planning for our forthcoming three well drill programme. We look forward to providing regular updates as we prepare to commence drilling in the upcoming months.”
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