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Northern Paradox Basins Rediscovered by Zephyr

Zephyr Energy of the Rocky Mountains announced on Dec. 8 that its field testing of the State 16-2LN-CC well at its Paradox Basin project in Utah provided a substantial basis for further development.

Zephyr reported that after 23 days of production testing the well demonstrated the ability to extract a larger hydrocarbon resource than initially estimated. It is now planned to outfit the well and facilitate the sale and/or export of hydrocarbons.

The research may have allowed the discovery of eight high-grade hydrocarbon reservoirs under the opportunity that was initially being investigated. A total of 200 wells could be drilled, creating a potential resource of 125 million barrels of oil equivalent.

This milestone was achieved when the company's State 16-2LN-CC horizontal well became the first with a hydraulically-stimulated completion to flow hydrocarbons in the Northern Paradox Basin.

A rate-constrained daily rate of 716 barrels of oil equivalent per day (boepd) was achieved with limited pressure drawdown and a rate-constrained maximum rate of 1,083 boepd.

Based on initial simulation modeling, Zephyr concludes that 2,100 boepd plateau rates would be possible when the well is fully equipped and not rate-constrained.

In an investor presentation, Zephyr said that gas rates may reach plateaus of 10 million square cubic feet per day and 500 boepd of liquids.

Zephyr's predrill estimates of up to 0.85 million barrels of oil equivalent (mmboe) are significantly lower than the growth potential of State 16-2LN-CC resulting from production testing.

To maximize this potential, hydraulically stimulated resources must be developed instead of assuming that they are naturally fractured, as was thought before the evaluation of the most recent well data.

Zephyr forecasts that the reserve will produce strong economics for its new gas condensate wells based on a highly successful appraisal of the reserve. According to the company, up to 200 well locations are potentially available across the eight identified overlying reservoirs.

In light of the new production forecasts and realized oil prices of $65 per barrel and $3 per thousand cubic feet of gas, Zephyr calculates the well's net present value to be $12.5 million at a 10% discount rate (NPV-10).

Due to the substantial potential for an increase in project size, Zephyr's Board has committed to exploring the idea of a multi-well drilling program in the near future, as additional drilling could help better define and unlock the considerable potential value of this asset.

Zephyr's Board, however, will not rush into an investment in Paradox, according to Zephyr CEO Colin Harrington, and will only deploy company capital if the risks/rewards are favorable.

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