WTI (Sep)* $78.40 -1c, Brent (Sep) $82.34 -29c, Diff -$3.94 +$1.44
USNG (Aug) $2.26 +13c, UKNG (Aug) 73.4p -0.49p, TTF (Aug) €31.66 +€0.33
*Denotes the expiry of the WTI August contract.

Oil price

Not much going on in crude whilst the USA concentrates in the White House as Sleepy Joe passes the baton to Kamala Harris for the Democratic nomination. Almost more important to note that WTI August expired overnight…

Zephyr Energy

Zephyr has provided an update on operations on the State 36-2R LNW-CC well at the Company’s flagship project in the Paradox Basin, Utah, U.S.  

The Company has completed the initial phase of the production test on the well, in which the well was tested at multiple rates and choke settings to ascertain its production potential.

Initial production test observations include:

• High reservoir deliverability and high initial reservoir pressures (approximately 8,600 pounds per square inch absolute).
• Peak production rates achieved during the production test were 1,350 barrels of oil equivalent per day, at which level the well was still choked back and constrained. 
• Significantly higher condensate-yield than Zephyr’s previously drilled Paradox project well (with more than a three-fold increase in condensate rate versus that from the State 16-2LN-CC well). Future production rates would likely be controlled to facilitate stable flows and maximise economics from the high condensate yield.
• Condensate yield averaged 180 barrels per 1,000 mscf produced and peaked at over 600 barrels of condensate per day.  Condensate produced had an average American Petroleum Institute (“API”) gravity of 58 degrees, making it a highly desirable barrel for Utah’s refinery market.  The condensate produced from the well to date was sold to a Utah refinery at a price close to current WTI crude oil prices (inclusive of trucking costs).
• This elevated liquid yield has the potential to be a significant driver of improved economics and may increase recoverable liquid volumes across the Company’s White Sands Unit.
• Almost zero evidence of water production, another potential boost to the well’s economics by reducing the need for water disposal.

While the initial test was successful on multiple fronts, there was also evidence that the natural fracture network may be partially obstructed from the greater reservoir at this well location. The fracture network may be either plugged by the heavyweight drilling mud which was used for well control purposes (from both the well and the original State 36-2 well) or compartmentalised by faulting. 

The Company plans to “acidise” the well to further remove any drilling mud emulsions from the natural fracture network and maximise the well’s connectivity with the larger reservoir.  This operation is expected to take place in the first half of August and will be immediately followed by a second production test.

The Company is evaluating further options to improve well connectivity (if needed).  At a higher level, Zephyr’s team has also begun assessing broader development options to capitalise on the positive benefits of the overall higher condensate yield and high reservoir deliverability as part of a larger asset development plan.

Colin Harrington, Zephyr’s Chief Executive, said:
“We’re delighted with the results from the initial production test. The well demonstrated excellent deliverability and consistently higher condensate yields than expected, both of which are highly encouraging signs for the underlying value of our wider Paradox asset base.  

“The condensate barrels produced from the well to date have been tested and were sold at a price close to current WTI crude oil prices (inclusive of trucking costs), which indicates that future barrels could be in strong demand in the local refinery market.

“Our next step is to further clean out the nearby reservoir to attempt to maximise the well’s connectivity with the larger reservoir, and then immediately run a second production test.  The data from that test will be used to determine our future offtake and processing requirements. 

We look forward to keeping Shareholders updated on progress over the coming weeks.”

Zephyr is delivering news from the Paradox in piecemeal form and today we have got results from the initial phase which at first glance look very good indeed. The company say that the well delivered at ‘multiple rates’ and with different choke settings to offer flexibility and more importantly how to manage economically for the best results. 

With high reservoir deliverability with high pressure, the well gave peak production of 1,350 boe/d more than half of which was condensate, significantly higher than previous wells and of such high quality that some has already been sold to local refiners at a price almost the same as WTI including trucking. 

There is still the need to acidise the well because of drilling mud being clogged in the fractures and so we can expect plenty more news in upcoming days and weeks. I am confident from what we have seen today that the well has been a success and with much more to come and that there is huge value in the Paradox Basin, interestingly still to be manifested in the share price…

Deltic Energy

Deltic has announced that the Valaris 123 drilling unit has been mobilised and is on route to the Selene well location.

Shell UK Ltd (“Shell”), in its role as Operator of Licence P2437, has informed Deltic that the Valaris 123 drilling unit was mobilised on 21 July from its current location in the Central North Sea, and is anticipated to arrive at the Selene well location in the Southern North Sea shortly, depending on weather conditions encountered during transit. Drilling operations are expected to commence shortly thereafter, with planned operations lasting approximately 90 days. The Company will make a further announcement once drilling has commenced.

The well is designed to collect all key information in relation to reservoir quality and gas composition that is required to support, assuming a successful drilling outcome, a field development plan and final investment decision on the potential development of the Selene gas field without the requirement for a further appraisal well. The Joint Venture has therefore determined there is no requirement for a full well test as part of that process and, in line with normal oilfield practice, the well will accordingly be plugged and abandoned on completion.

Deltic estimates the Selene structure to contain gross P50 prospective resources of 318 BCF (P90-P10 Range of 132-581 BCF with GCoS of 69%) in the Leman Sandstone reservoir, which is the key reservoir interval in all adjacent gas fields including Barque, Clipper and West Sole.

Following farm-outs to Shell in 2019 and Dana Petroleum (E&P) Limited (“Dana”) in February 2024, Deltic is fully carried for its 25% working interest in the Selene well up to a gross success case well cost of USD$49M, which is in excess of the Operator’s success case well Authorisation for Expenditure of USD$47M.

Graham Swindells, CEO of Deltic, commented:
“We are excited to be commencing drilling operations on Selene with our partners Shell and Dana, and for which we are fully carried for the estimated success case cost. This will be the first exploration well spudded on the UKCS in 2024 and is an equally important milestone for Deltic. The Selene prospect is a high impact infrastructure-led exploration opportunity which demonstrates the strength and depth of the portfolio that we have built over the last few years, and which we estimate to be worth multiples of the Company’s current market value. Despite ongoing political uncertainty, we look forward to commencing operations and continue to believe exploration on the UKCS has a hugely important role to play in supporting the provision of energy security, vital jobs within the energy sector and offsetting higher carbon intensity imported energy.”

At last for Deltic and its shareholders some very exciting news as the drilling of Selene is about to become a reality. The well is targeting 318 bcf of gas resources and their 25% interest would see them on just under 80 bcf net which would make a worthwhile difference and a long awaited significant kick upwards to the share price. 

Deltic is carried for full costs of this well by Shell and Dana and if successful after the 90 day well should create enough data to go straight to an FID decision. Let’s hope that enough people in the Department of energy realise that this could be a huge benefit to the UK’s energy needs at extremely low carbon effects.

KeyFacts Energy Industry Directory: Malcy's Blog