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.

8 March 2023

Zephyr Energy plc

(the "Company" or "Zephyr")

 Paradox project update

Zephyr Energy plc (AIM: ZPHR), the Rocky Mountain oil and gas company focused on responsible resource development and carbon-neutral operations, is pleased to provide an update on operations on the State 36-2 LNW-CC well (the "State 36-2 well") and the State 16-2 LN-CC well (the "State 16-2 well") at the Company's flagship project in the Paradox Basin, Utah, U.S (the "Paradox project").  

State 36-2 well update

As reported on 19 January 2023, the State 36-2 well intersected a major natural fracture network in the Cane Creek reservoir which led to a significant influx of hydrocarbons into the wellbore. This influx was managed and safely controlled, which subsequently allowed for the drilling of an additional 132 feet in the fractured and productive Cane Creek reservoir. The Company then elected to run production casing down to the total-depth of the well.

The Company has now finalised its planning for the completion and production testing of the well's fractured reservoir interval. All services have been procured, with operations expected to start in the next two weeks when a service rig will be mobilised to site. Workover operations and production testing are expected to take four to six weeks to complete. The production test will be paid for from the Company's existing cash resources and any oil and/or condensate produced during the test is expected to be sold via existing marketing partners.

Production test results from the well, along with results from the production test on the State 16-2 well, will be integrated into Zephyr's overall reservoir model and will help define the next steps for the Paradox project development, including the sizing of related gas infrastructure and the associated capital expenditure.

State 16-2 well update

The first phase of the extended production testing on the well has now concluded within the flare consent limit set by the regulatory bodies, and the Company now plans to further test the well (subject to regulatory approval and during warmer weather months) in order to gather more data.

As previously announced, the State 16-2 well test was hampered by severe weather and surface facility commissioning issues which resulted in delays to the programme and, at times, intermittent operational activity.

During the most recent testing, the Company's efforts were primarily focused on surface facility issues, and once these issues had been successfully resolved, the well was initially brought online at choked-back, moderate rates in order to test for flow assurance at varying levels of production.  At a controlled rate of 2 million square cubic feet of gas per day and 100 barrels of oil per day (an average of 433 barrels of oil equivalent per day) the well flowed continuously and surface flow assurance efforts proved successful.

As flow rates were increased above those levels, well performance became limited by fresh water pumping capacity and was subsequently impacted by the formation of down hole salt precipitate, an issue not uncommon with this type of completion. The precipitate, which blocked and subsequently cleared multiple times, impacted the well's flow capacity to achieve extended higher rates.  The Company was in early stages of testing higher rates when its mandated flaring limits were reached. 

The Company is now assessing whether the precipitate issue is a function of continued flow back of injected completion fluids or a function of normal flowing conditions.  If it is a result of normal flowing conditions, a series of mitigation solutions that have been successful in the past can be applied, and the Company will likely test these solutions in the coming months (subject to regulatory approvals) in order to fully determine the potential of the reservoir. 

In relation to the State 36-2 well production test, precipitate formation is not expected to pose an issue as the well is testing the natural fracture network. In addition, the well has not been hydraulically stimulated and will therefore not flow back large volumes of completion fluid (water).

Colin Harrington, Zephyr's Chief Executive, said:

"We're excited to production test the State 36-2 well, an operation which will commence shortly and which (due to the fact we're testing a natural fracture) is anticipated to take significantly less time than the State 16-2 well production test, which is still in the late flow back phase to clean up all injected completion fluids.

"In respect of the State 16-2 well test, the Company deliberately limited the well from a production perspective in order to first test flow assurance and uptime at a measured set of rates.  The long ramp-up ultimately demonstrated success with stable constrained flows and solid uptime, but it also resulted in the utilisation of most of our approved gas flaring allotment during the ramp up phase.

"When constraints were relaxed to test the upper bounds of production rates, flow was impacted by downhole salt precipitation, but once the root cause is diagnosed, I'm confident our team will devise appropriate mitigation measures as needed, and our plan will be to seek additional authority for continued testing as we seek a greater understanding of the potential upside of the well.  It's important to remember that the Paradox is an emerging play and one in which we are breaking new ground, and while start-up issues are not unexpected, our goal is to learn and improve with each subsequent phase of operations.

"We look forward to updating investors on the results from the State 36-2 production test and once the results from the test are analysed, we expect to be in a position to announce our plans for future drilling and infrastructure plans on the Paradox project."

Contacts

Qualified Person

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.

Notes to Editors

Zephyr Energy plc (AIM: ZPHR) (OTCQB: ZPHRF) is a technology-led oil and gas company focused on responsible resource development from carbon-neutral operations in the Rocky Mountain region of the United States.  The Company's mission is rooted in two core values: to be responsible stewards of its investors' capital, and to be responsible stewards of the environment in which it works.

Zephyr's flagship asset is an operated 45,000-acre leaseholding located in the Paradox Basin, Utah, 25,000 acres of which has been assessed to hold, net to Zephyr, 2P reserves of 2.6 million barrels of oil equivalent ("mmboe"), 2C resources of 34 mmboe and 2U resources 240 mmboe.

In addition to its operated assets, the Company owns working interests in a broad portfolio of non-operated producing wells across the Williston Basin in North Dakota and Montana. 

The Williston portfolio currently consists of working-interests in over 200 modern horizontal wells which are expected to provide production of 1,550 - 1,750 barrels of oil equivalent per day, net to Zephyr, in 2023.  Cash flow from the Williston production will be used to fund the planned Paradox Basin development. In addition, the Board will consider further opportunistic value-accretive acquisitions.