Turner Pope Research Note, 8th March 2023
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| Zephyr has provided an operational update on both 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 Group’s flagship project in the Paradox Basin, Utah (the ‘Paradox project’). While confirming that production testing for the State 36-2 well’s fractured reservoir interval will commence shortly, and that it is expected to take significantly less time than a similar exercise took for State 16-2, management now also notes that following relaxation of constraints to enable testing of the upper bounds of production rates for State 16-2, flow was found to be impacted by down hole salt precipitation. Accordingly, the Group is now assessing whether this 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 the latter, appropriate mitigation solutions will be applied and, subject to regulatory approvals, tested in the coming months in order to fully determine the potential of the reservoir. Such start-up issues are of course not unusual when such emerging plays break new ground, even if the final outcome may be to modestly delay preparation for eventual gas export and continual production operations. Bearing in mind that the current drilling programme remains amply funded through c.US$18.5m of liquidity available as of 10 Nov 2022, however, projected medium term cash flows still appear sufficient to support exploitation of the existing inventory, which includes 2U potential of over 200 million boe across the Paradox. This of course remains key to Zephyr closing in on its ultimate goal of unlocking the next great unconventional onshore resource play in the US. We would draw your attention to the various disclaimers in the document both at the beginning and at the end of the note. Retail clients (as defined by the rules of the FCA) must not rely on the research document. In particular you should note that the research document is a non-independent marketing communication. The analyst who has prepared the research is aware that TPI provides research to Zephyr Energy plc. Accordingly the research has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibitions on dealing ahead of its dissemination. The information in the document is published solely for information purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The material contained in the document is general information intended for recipients who understand the risks associated with equity investment in smaller companies. It does not constitute a personal recommendation as defined by the FCA or take into account the particular investment objectives, financial situation or needs of individual investors nor provide any indication as to whether an investment, a course of action or the associated risks are suitable for the recipient. |
