Zephyr Energy: Turner Pope

Zephyr (ZPHR Follow | ZPHR) has announced its decision to drill a lateral extension on the State 36-2R well (‘the Well’), while confirming a non-binding letter of intent (the ‘LOI’) has been signed with a US-based industry investor (‘the Investor’) to fund 100% of the estimated cost. The Board expects to close the c.US$7m requirement in the coming weeks, following which it will move to secure a rig contract plus additional equipment in anticipation of commencing the next phase of on-site operations in late 2024 or early 2025. Supporting this, management has also estimated ultimate recoveries (‘EURs’) from the Well following completion of the extended lateral could be as high as two million barrels of oil equivalent (‘boe’), a figure substantially higher than would likely be achieved from the Well in its current form.

The fact that Zephyr has managed to advance negotiations so rapidly after confirming a positive result from the second phase production test on 6 September, suggests both a high level of interest and confidence in a successful outcome. The final terms will of course be key, but the fact that the proposal contains no equity element, while retaining operatorship and a majority of the economic benefits from the Well suggests an excellent outcome for shareholders. Other funding discussions with different industry and asset-level financial partners in respect of the larger, long-term development of the Paradox project remain ongoing, with the Investor receiving no future participation or option beyond the individual wellbore interest.