Zephyr Energy PLC (LON:ZPHR), the Rocky Mountain oil and gas company, has got the funding needed to drill a research well in the Paradox Basin, Utah.
The company said the well should be spudded before the end of the year.
Zephyr has entered into a definitive binding agreement with the University of Utah’s Energy & Geoscience Institute (EGI) to sanction and fund US$2 million towards the planned stratigraphic research well.
The well's primary objective will be to acquire a comprehensive data set across the Cane Creek reservoir. The well has also been designed to facilitate re-use, which will allow the potential for future drilling of a horizontal appraisal lateral from the well-bore after the initial data acquired has been processed and evaluated.
Given the significant commercial benefits of potential well re-use for the company, Zephyr has agreed to fund up to US$1mln of incremental costs, should the total cost of the well go above EGI's US$2 million committed funding. The total cost of the vertical well activity is forecast to be between US$2.5mln-US$3mln, of which the first US$2mln will be funded via a grant from the US Department of Energy (DoE) and its National Energy Technology Laboratory.
Zephyr will be the operator of the vertical well (known as State 16-2) and will be responsible for all planning and drilling activity. Zephyr and its 25% joint-venture partner will continue to be the sole working interest owners in the leasehold and of the vertical well.
The AIM-listed company expects the data acquired will be processed and analysed within three months of acquisition. Zephyr believes that this analysis, when combined with the company's pre-existing 3D seismic data, will enable and optimise future drilling and responsible development of the company's acreage.
Once the vertical well is drilled and temporarily plugged back to about 6,500 feet total vertical depth, Zephyr (or a future farm-in partner) will have the option to reuse the State 16-2 vertical well-bore as a sidetrack host, from which a horizontal lateral can be drilled to fully test the Cane Creek natural fracture play.
By reusing 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$6.0mln to circa US$3.0mln.
Zephyr has also entered into a non-binding agreement with Booner Capital for a US$1mln debt facility. If the facility goes live, it would be used to fund Zephyr's full pro-rata commitment of the vertical well.
In a statement, Colin Harrington, Zephyr’s chief executive officer, said the signing of the agreement was “a watershed moment for the company”.
“With drilling expected to commence by the end of this year, the proposed well will de-risk the project and will help us fast-track the development necessary to finally unlock its underlying value,” he added.
"The data from the vertical stratigraphic well will provide invaluable geological information which can help optimise future development efforts. It will also provide new insights into the stacked potential that overlies the primary Cane Creek reservoir, which could conceivably increase prospective resource estimates. Moreover, the potential to re-use the vertical well-bore will result in significant cost reductions and enhanced economics on a future horizontal lateral project.
"We also believe that the geological data obtained from the initial vertical well – especially when combined with the reduced costs for a future horizontal appraisal well – will be highly beneficial to funding and farm-in discussions for our Paradox holdings,” Harrington concluded.
Shares in Zephyr were up 4.2% at 0.63p in early deals.