Zephyr Energy to Drill Extended Lateral on Paradox Basin Well, Secures Funding Partner

Highlights:

• Zephyr Energy has approved the drilling of an extended lateral on the State 36-2R well, with expected ultimate recoveries (EURs) of up to two million barrels of oil equivalent (boe), a substantial increase over its current configuration.
• A non-binding letter of intent (LOI) has been signed with a U.S.-based investor to fund the entire operation, valued at around $7 million, without diluting Zephyr's equity.
• Drilling operations are anticipated to begin in late 2024 or early 2025, depending on rig availability and weather conditions.

Zephyr Energy plc (LSE:ZPHR), a leading oil and gas company focused on sustainable resource development, has announced its decision to drill an extended lateral on the State 36-2R LNW-CC well at its flagship Paradox Basin project in Utah, USA. This decision comes after a detailed assessment process and is aimed at significantly increasing the well’s hydrocarbon recovery potential.

Background and Strategic Decision

Following two successful production tests, which saw peak production rates of over 2,100 barrels of oil equivalent per day (boepd), Zephyr's management temporarily halted operations to assess the best way forward. The evaluation showed that while the well was capable of producing in its current form, its potential would be limited without further extension. Producing from the existing 130-foot completed interval could deplete resources around the wellbore, making future extensions more challenging.

As a result, Zephyr has opted to proceed with the extended lateral, which is expected to increase the drainage area of the well significantly. The company estimates that once completed, the EURs from the well could reach up to two million boe, thanks to the combination of a longer wellbore and the acidisation process, which had been highly effective in boosting near-wellbore productivity during previous tests.

This decision not only aims to reduce project risks but also to enhance the long-term economics of the Paradox project, making it a more viable and profitable venture.

Funding and Investment

Zephyr Energy has entered into a non-binding LOI with a U.S.-based investor who specializes in non-operated oil and gas investments. The investor will fully fund the estimated $7 million cost of the extended lateral in exchange for a non-operated interest in the well. Importantly, Zephyr will retain operational control and the majority of the economic benefits, while the investor will hold no further stake in the broader Paradox project.

This funding structure allows Zephyr to proceed with the well extension without issuing new shares or further diluting shareholder equity. The Board is optimistic about completing the final binding documentation for this funding ahead of the planned drilling operations. The investor involved has a proven track record in successfully closing similar deals, which further bolsters confidence in the partnership.

Zephyr remains open to additional funding opportunities as it looks toward the long-term development of the Paradox project. Discussions with other industry and asset-level financial partners continue, with the goal of securing broader investment to accelerate the project’s full potential.

Looking Ahead

Drilling operations for the extended lateral are expected to begin in late Q4 2024 or early Q1 2025, contingent on rig availability and weather conditions. Zephyr is positioning itself for a significant increase in production potential, aiming for a transformative step in the development of the Paradox Basin, a key part of its portfolio.

This move is another demonstration of Zephyr’s strategy of responsible resource development, combined with a focus on carbon-neutral operations, aimed at delivering long-term value for shareholder