Zephyr Energy commences production, experiences delays at Utah’s Paradox basin

(WO) – Zephyr Energy plc provided an update on operations at its flagship Paradox Project in the Paradox basin, Utah.

On Jan. 19, 2023, the company announced that it had intersected a major, highly-pressured natural fracture network while drilling the State 36-2 LNW-CC well. On March 20, 2023, the company announced that workover and subsequent production test operations were set to commence.

In early April 2023, a significant well control issue arose in which hydrocarbons flowed from the well in an uncontrolled manner.  The incident was the apparent result of multiple equipment failures and in particular the failure of a safety valve.  Importantly, there were no injuries during the incident and subsequent well control efforts proved to be successful.

The State 36-2 well remains static and under control, and Zephyr is in the process of pulling the production tubing out of the hole, as some joints were compressed/compromised or stuck due to the high pressures experienced during the well control incident and subsequent well control efforts. To date, approximately 7,000 ft. of 8,900 ft. of tubing has been pulled and inspected with circa 15% of the pulled joints requiring replacement.

The company is moving methodically to remove and inspect the remaining joints while keeping the wellbore static. Once the tubing work is complete, a final cement squeeze will be performed and then the casing will be perforated across the reservoir interval prior to production testing the well.

Current and future operations will continue to be conducted in such a way that well control is maintained and working conditions are safe for the team. Although recent operations have been slower than initially expected, the company’s Board of Directors noteed the safe progress to date and fully expects to deliver a production test in the near-term. This methodical and patient approach is necessitated by the expected high pressure and substantial apparent deliverability of the well and reservoir, as witnessed during the earlier phases of the operation.

While the State 36-2 well control incident was a powerful illustration of the high pressures and productivity inherent in certain Paradox basin natural fracture networks, the resulting well work operations have subsequently resulted in a delay to the work program.

Zephyr retains comprehensive well control insurance coverage, and the Board ultimately expects to recover the vast majority of costs associated with the well control incident.  Under the terms of Zephyr’s insurance policy, these payment recoveries are made on a reimbursement basis.

Initial invoices submitted to its insurer have now been approved and funds from Zephyr’s initial claim, totaling $800,000, have been received.  Additional invoices are being submitted on a regular basis with payments expected within 30 days of receipt by the insurer.

BLM approval of White Sands Unit acreage expansion/contraction

On Aug 22, 2022, the company announced the acquisition of additional prime Paradox basin acreage adjacent to its operated White Sands Unit (the "WSU") through the targeted acquisition of 1,920 leased acres deemed by the company to have immediate development potential.   Additional contiguous acreage was acquired as reported on Sept. 14, 2022.

The acquired acreage was largely covered by Zephyr's existing 3D seismic, and directly bordered the Zephyr lease on which the State 36-2 is located, and with access to pre-existing surface infrastructure which Zephyr subsequently acquired.

A portion of the acquired acreage was envisioned to be added to the WSU, subject to approval from the U.S. Bureau of Land Management (the "BLM") for which the Company applied in early 2023.  Zephyr reported such approval has now been granted as part of larger Expansion/Contraction amendment of the WSU.  As part of the approval, 5,000 high-graded acres with near-term development potential have been added to the WSU, and roughly 5,395 acres deemed by the company to be less suitable for future development have been relinquished.

Assessment underway on recently acquired Greentown wells

The company has also commenced the assessment on five existing wellbores (located in the WSU) acquired as part of a larger acquisition of infrastructure assets. Several of the existing wells are former producers of hydrocarbons and were subsequently shut-in due to lack of operating infrastructure.  Others were deemed to have potential future use as saltwater disposal wells or as producers of salt water brine for potential extraction of lithium resources.

As part of this assessment, Zephyr’s operations team recently recommenced production from the Greentown Federal 28-11 well to understand the well’s potential contribution to overall field production when ongoing field infrastructure work has been completed.  Hydrocarbons are currently flowing from the well, with condensate volumes collected for sale and natural gas volumes being flared.  Once flow stabilizes, the company will assess its future potential for the short and longer term when gas export is available.