WTI (Aug) $73.86 +$2.06, Brent (Sep) $78.47 +$1.95, Diff -$4.61 -16c
USNG (Aug) $2.57 -3c, UKNG (Aug) 81.36p +1.26p, TTF (Aug) €32.6 -€0.75

Oil price

Oil rose just over three dollars last week as traders went with the second half recovery story, in the US the Non Farm Payrolls were in line with the whisper but Chinese data today on prices is weak again. The rig count showed a fall of 5 units in oil to 540 after a better week before.

Zephyr Energy

Zephyr has provided an update on operations at its flagship Paradox Project in the Paradox Basin, Utah, U.S.

State 36-2 LNW-CC well update
On 19 January 2023 the Company announced that it had intersected a major, highly-pressured, natural fracture network while drilling the State 36-2 LNW-CC well (the “State 36-2 well”). On 20 March 2023 the Company announced that workover and subsequent production test operations were set to commence.

In early April 2023, a significant well control issue arose in which hydrocarbons flowed from the well in an uncontrolled manner.  The incident was the apparent result of multiple equipment failures and in particular the failure of a safety valve.  Importantly, there were no injuries during the incident and subsequent well control efforts proved to be successful.

At present, the State 36-2 well remains static and under control, and Zephyr is in the process of pulling the production tubing out of the hole, as some joints were compressed/compromised or stuck due to the high pressures experienced during the well control incident and subsequent well control efforts. To date approximately 7,000 feet of 8,900 feet of tubing has been pulled and inspected with circa 15 per cent of the pulled joints requiring replacement. The Company is moving methodically to remove and inspect the remaining joints while keeping the wellbore static. Once the tubing work is complete, a final cement squeeze will be performed and then the casing will be perforated across the reservoir interval prior to production testing the well.

Current and future operations will continue to be conducted in such a way that well control is maintained and working conditions are safe for our team. Although recent operations have been slower than initially expected, the Company’s Board of Directors (the “Board”) notes the safe progress to date and fully expects to deliver a production test in the near-term. This methodical and patient approach is necessitated by the expected high pressure and substantial apparent deliverability of the well and reservoir, as witnessed during the earlier phases of the operation.

Well control insurance update
While the State 36-2 well control incident was a powerful illustration of the high pressures and productivity inherent in certain Paradox Basin natural fracture networks, the resulting well work operations have subsequently resulted in a delay to the work programme.

As previously reported, the Company retains comprehensive well control insurance coverage, and the Board ultimately expects to recover the vast majority of costs associated with the well control incident.  Under the terms of Zephyr’s insurance policy these payment recoveries are made on a reimbursement basis (after approval by the insurer, and after the Company has paid the corresponding contractor invoices).

The Company is pleased to announce the initial invoices submitted to its insurer have now been approved and funds from Zephyr’s initial claim, totalling circa US$800,000, have been received.  Additional invoices are being submitted on a regular basis with payments expected within 30 days of receipt by the insurer.

BLM Approval of White Sands Unit Acreage Expansion/Contraction
On 25 August, 2022, the Company announced the acquisition of additional prime Paradox Basin acreage adjacent to its operated White Sands Unit (the “WSU”) through the targeted acquisition of 1,920 leased acres deemed by the Company to have immediate development potential.   Additional contiguous acreage was acquired as reported on 14 September 2022 (collectively, the “acquired acreage”).

The acquired acreage was largely covered by Zephyr’s existing 3D seismic, and directly bordered the Zephyr lease on which the State 36-2 is located, and with access to pre-existing surface infrastructure which Zephyr subsequently acquired.

A portion of the acquired acreage was envisioned to be added to the WSU, subject to approval from the U.S. Bureau of Land Management (the “BLM”) for which the Company applied in early 2023.  Zephyr is pleased to report such approval has now been granted as part of larger Expansion/Contraction amendment of the WSU.  As part of the approval, 5,000 high-graded acres with near-term development potential have been added to the WSU, and roughly 5,395 acres deemed by the Company to be less suitable for future development have been relinquished.

These actions are part of the Company’s active and ongoing portfolio management of its Paradox Basin position.  The Board is pleased with its recent BLM interactions and subsequent approval, which results in an amended federal unit with an upgraded and manageable acreage position – a position increasingly difficult to replicate in today’s regulatory and political environment.

Assessment underway on recently acquired Greentown wells
The Company is also pleased to report that it has commenced the assessment on five existing wellbores (located in the WSU) acquired as part of a larger acquisition of infrastructure assets and which was announced on 14 September 2022.  Several of the existing wells are former producers of hydrocarbons and were subsequently shut-in due to lack of operating infrastructure.  Others were deemed to have potential future use as salt water disposal wells or as producers of salt water brine for potential extraction of lithium resources.

As part of this assessment, Zephyr’s operations team recently recommenced production from the Greentown Federal 28-11 well in order to understand the well’s potential contribution to overall field production when ongoing field infrastructure work has been completed.  Hydrocarbons are currently flowing from the well, with condensate volumes collected for sale and natural gas volumes being flared.  Once flow stabilises, the Company will assess its future potential for the short and longer term when gas export is available.

Colin Harrington, Zephyr’s Chief Executive Officer, stated: 
“Work on the State 36-2 well has progressed safely, and the team continues to push forward while maintaining control of the well and ensuring the safety of those working on it. I would like to once again thank our team on the ground for their ongoing efforts in keeping the well stable and safe. 

“I am also pleased to report the receipt of initial proceeds from our well control insurance policy.  We appreciate the level of engagement from our insurance partners.

“In relation to the upgraded acreage position in the WSU, we continue to work closely with the BLM and other regulatory authorities to perfect the federal unit by maximising its upside potential and minimising environmental impact in areas not deemed as prospective.

“Finally, I would like to note the work being done on the Paradox project away from the 36-2 well, with recent operations including the restart of the Federal 28-11 well where hydrocarbons are now flowing.  While this well will not have the same volumetric potential as the State 16-2 LN-CC well or the State 36-2 well, we do believe it will have positive economic impact once our infrastructure buildout has been completed.  Two other existing wells in the Zephyr portfolio have also had notable prior shows of hydrocarbons and offer potential future locations and/or workover opportunities.

“We look forward to updating investors on continued progress in the coming weeks during this pivotal time for the Paradox project.”

Zephyr are, whilst fully aware of the disappointment of the time taken on State 36-2  are taking their time to ensure that this extremely high pressure well is handled with care. To this end they have nearly taken all the tubing and joints out before cementing and reperforating and then testing. 

The insurance cover for the well appears to be sound, the first invoice has been approved for just under $1m with more to come so financially Zephyr are unlikely to be worse off. Reorganisation of the WSU is also sensible as it has gained the parts with 3D seismic and parted with the area ‘not deemed to be prospective. 

 With  the testing due in the near term Zephyr shareholders can start to think about progress at the Paradox which despite these delays has not seen any value erosion and I still consider Zephyr to be a potentially huge winner when it develops what I think will be a massive field.

Europa Oil & Gas

I thought that it would be interesting to show what EOG has today published with regard to an industry and political summit they attended last week. It gives a fascinating account of what the Irish Government are thinking at the moment about energy policy and that it is very much front and centre of their minds.

Last week our CEO @William Holland was part of a selected group of industry leaders invited to attend the ‘Energy Independence: Realising the Opportunities for Ireland’ summit hosted by the Taoiseach Leo Varadkar, where he raised the issue of the need for increasing the supply of indigenous gas and presented Irish Government officials with a document detailing Europa’s FEL 4/19 licence potential.

A number of @Department for Energy, Climate and Communications officials were in attendance at the summit, including Minister Eamon Ryan, which focused on how Ireland can secure energy supply whilst transitioning to a lower carbon economy driving the transition toward energy independence.

Europa’s Inishkea and Inishkea West prospects within FEL 4/19 contain an estimated combined prospective resource of 2.3 TCF of gas, and could provide the country with a dependable source of indigenous gas, significantly lower in carbon emissions than imported gas.

Petro Matad

Petro Matad has announced that the Velociraptor-1 exploration well in the Taats Basin of Block V located in central Mongolia reached a total depth (TD) of 1500m and wireline logging has been completed but unfortunately all the reservoirs encountered were water bearing.

The well came in close to prognosis at all levels. The primary objective Late Jurassic/Early Cretaceous Undur Formation was encountered at 1170m and had good quality reservoir sands interbedded with shales over a c. 200m interval. In the secondary objective Early Cretaceous Shinehudag Formation, three thick sand units were drilled with average porosity of around 18%. Good quality electric wireline logs confirmed both objectives to be water wet.

The well will now be plugged and abandoned and the rig will be demobilised. Operations were carried out on time and as budgeted with the full support and cooperation of the local community. The well results will now be incorporated into the Company’s interpretation of Block V before any further operational activity is undertaken in the area.

Mike Buck, CEO of Petro Matad, said:
“The results of the Velociraptor 1 well are obviously disappointing but such high impact targets, drillable at modest well cost cannot be ignored when exploring frontier areas. The well provides a valuable new data point to help unlock the hydrocarbon potential of the southern Gobi. We will now incorporate the well results into our overall evaluation of the area. Meanwhile our operational focus shifts back to Block XX where the Heron development offers near term oil production and revenue generation and where low risk, near field exploration opportunities have already been identified which provide exciting upside potential.” 

Further operational updates will be provided in due course.

This is indeed a big disappointment for Petro Matad and its shareholders for whom high expectations and a long wait have led to a dry hole at Velociraptor 1. But Mike Buck is right to say that this reasonably inexpensive well in a frontier acreage had to be drilled.

It is good that Block XX received the necessary approvals last week and it should be remembered that there are plenty of exciting things to go after in the Heron development. All is not lost…

SDX Energy

SDX announces that, following the completion of the Company’s investigation into the conduct of one of its senior employees in Egypt that was announced on 24 May 2023, the Company has terminated the employment of the individual.

This does what it says on the tin, after appropriate investigation the problem has been, terminated.

KeyFacts Energy Industry Directory: Malcy's Blog