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Auctus Advisers Research Note, 10th November 2022

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Rig contracted to initiate high impact drilling campaign

  • Zephyr has now received approval of its Application for Permit to Drill from the U.S. Bureau of Land Management, the final regulatory approval required to spud the State 36-2 LNW-CC well on its project in the Paradox Basin.
  • Zephyr has also signed a rig contract with CWC Ironhand Drilling for its Ironhand Rig 118. The State 36-2 LNW-CC well is expected to spud in the second half of November.
  • Drilling of this type of well is expected to last for ~30 days. The well would be then fracked and tested for at least 30 days with results expected in 1Q23.
  • The State 36-2 LNW-CC well would be tied-in as soon as the infrastructure is ready (we assume 2H23).
  • The extended production test of the State 16-2 LN-CC well drilled in 2021 is expected to start in the next few days.
  • We reiterate our target price of £0.16 per share. The upcoming 3 well drilling programme could take our Core NAV to £0.25/sh. A successful well test at State 36-2 LNW-CC well would confirm the commerciality of up to 32 mmboe net contingent resources (unrisked NAV of £0.11 per share). The second well of the campaign (State 36-3 LN-C9) would derisk a further ~25 mmboe net resources in a different reservoir.

Auctus Advisers Research Note, 10th November 2022