6th Sep 2024 16:30
(Alliance News) - Zephyr Energy PLC announced on Friday it has completed the second phase of the production test on the State 36-2R LNW-CC well in the Paradox Basin of the US state of Utah.
The Rocky Mountain region-focused oil and gas company aims for responsible resource development and carbon-neutral operations. Paradox is its flagship project.
The second test found peak production rates of more than 2,100 barrels of oil equivalent per day, a "very significant" rate for an onshore US well with just 130 feet of completed reservoir interval.
The test's acidisation operation also removed any remaining near-wellbore formation damage and generated very high reservoir deliverability. This could mean the removal of the costly hydraulic stimulation typically needed in US onshore resource plays, Zephyr highlighted.
Broker Liberum said that Zephyr's ability to deploy acid stimulation could be a "game-changer" for the Paradox Basin, estimating completion costs could be reduced as much as fivefold. This would also remove the need for frac crews, as Liberum acknowledges the availability of personnel is often a limiting factor outside of established basins.
Chief Executive Colin Harrington said: "This is a highly significant milestone for the company in its development of the White Sands Unit and its wider Paradox project acreage. This is the first known use of acidisation stimulation in the Paradox Basin and the results have been extremely encouraging - the well's deliverability and permeability are particularly notable, leading to the strong peak production rates witnessed.
"The board is now considering all options, including producing from the State 36-2R and the potential to materially increase the drained area of the well via the extension of the current lateral. Safe operations and capital efficiency will be taken into consideration when evaluating the next steps for the Paradox project."
Liberum said that the deliverability of the well and positive results for the high condensate yield were "encouraging". The broker continued: "This coupled with faster development drilling timings and the lower costs of acid stimulation will improve the value of wells across the acreage. It is also likely that the resources across the acreage will improve due to improved economics and strong reservoir performance."
Shares in Zephyr Energy were up 12% at 4.26 pence each in London on Friday afternoon.
Zephyr reported it had commenced discussions of potential well and wider Paradox Project developments with US-based industry partners.
However, Liberum said it remained "cautious" about positive speculation for the future, despite the test's results, and maintained its 'buy' recommendation and target price of 13.50 pence.
"Zephyr is facing an exciting time with multiple options in front of them to advance the development of the Paradox Basin", it said. "With acidisation offering a means to develop wells faster and at lower cost, the value and scale of the asset base could be significantly higher and is very likely to be of interest to potential industry partners.
"Investors will look forward to news-flow on next steps and timing of future activity, with multiple opportunities likely to re-rate the shares in the coming months."
By Emily Parsons, Alliance News reporter
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