Zephyr Energy acquires additional acreage in Utah’s Paradox Basin

August 26, 2022

Zephyr Energy, the Rocky Mountain oil and gas company focused on responsible resource development from carbon-neutral operations, announced an increase in its operated land position through the acquisition of an additional 1,920 acres in the Paradox Basin, Utah, U.S.

Zephyr has increased its land position adjacent to its operated White Sands Unit (WSU) through the targeted acquisition of 1,920 leased acres deemed by the Company to have immediate development potential. 

Optimal Location. The new acreage is directly contiguous to the Zephyr-operated WSU, with the potential to be added to the Unit acreage subject to approval from the U.S. Bureau of Land Management (BLM).

    • The acquired acreage is largely covered by Zephyr’s existing 3D seismic, and directly borders the Zephyr lease on which the planned State 36-2 LNW-CC and 36-3 LN-C9 well pad is located.
    • The new acreage is close to pre-existing surface infrastructure in the form of a six-inch gas pipeline which traverses the leasehold.

Immediate drilling benefits.  By adding the new acreage, the lateral for the proposed State 36-2 LNW-CC can be fully completed across a 10,000-foot lateral length, subject to final regulatory approval. This is expected to further enhance the well’s forecast economics and estimated ultimate recovery. 

    • In conjunction with the acquisition, Zephyr recently amended its BLM application for a permit to drill (an “APD”) for the State 36-2 LNW-CC well to reflect the enhanced completion design.  BLM approval is expected shortly.

Increased overall resources and drilling locations. Based on modelling results of the recently drilled State 16-2LN-CC, modelling for the upcoming State 36-2 LNW-CC, and production data from the nearby vertical Federal 28-11 well, Zephyr’s technical team estimates that the acquisition adds over 4 million barrels of oil equivalent of additional 2C net Contingent Resources to Zephyr’s Paradox Basin position with the following additional benefits:

    • The acquisition substantively increases the Company’s Working Interest in an estimated 4 Cane Creek reservoir well locations, adding an estimated 2.4 net wells assuming 2-mile lateral well lengths.
    • It adds unrisked net present value at a ten per cent. discount rate (“NPV-10)”, net to Zephyr, of approximately US$40 million from the Cane Creek reservoir, based on estimated economics for 2-mile laterals. This estimate assumes success case outcomes from State 16-2 LN-CC flow testing and State 36-2 LNW-CC drilling and testing.
    • It delivers access to acreage that may host liquid yields similar to that observed at the nearby vertical Federal 28-11 well and higher than those at the recently tested State 16-2 LNW-CC well.
    • It provides additional potential in the overlying shallow clastic zones.

The acquisition is part of the Company’s ongoing portfolio management of its Paradox Basin position.  This active land management strategy has resulted in a defensible and growing portfolio of development opportunities which Zephyr's Board believes is increasingly difficult to replicate in today's regulatory and political environment.  

While the terms of the acquisition are not publicly disclosed, the immediate consideration for the new acreage has been satisfied by a payment from Zephyr's existing cash resources. The majority of consideration to the seller is expected to come in the form of royalty payments which are only payable in the event of drilling success.  The Company has also agreed to use reasonable commercial efforts to drill at least one well across the new acreage prior to December 2023, a requirement which the Board believes will be satisfied by the upcoming drilling of the State 36-2 LNW-CC well.

Inclusive of the new acreage, the Company will operate a total of 39,473 gross acres in the Paradox Basin, the majority in which the Company holds a 75% working interest.

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