Zephyr Energy plc (LON:ZPHR), the Rocky Mountain oil and gas company focused on responsible resource development from carbon-neutral operations, has provided second quarter 2022 results related to hydrocarbon production and cashflows from its non-operated asset portfolio in the Williston Basin, North Dakota, U.S.
Q2 2022 Williston Basin Highlights
· Quarterly revenues totalled US$14.3 million net to Zephyr, up from US$11.5 million in the first quarter of 2022 (“Q1”) and a 16-fold increase from US$0.9 million reported in Q2 2021.
· Quarterly operating income was US$10.1 million (after taxes, lease operating expenses, hedging impacts, and gathering and marketing fees).
· Q2 sales volumes averaged circa 1,856 barrels of oil equivalent per day (“boepd”), an increase from circa 1,600 boepd in Q1 2022 and from 148 boepd in Q2 2021.
o Q2 revenue was positively impacted by deferred payments for production on newly completed wells generated in earlier months but received in Q2.
o Q2 wellhead production averaged circa 1,400 boepd, net to Zephyr, in line with management expectations and marginally impacted by temporary shut-ins due to planned “frac-protect” procedures on existing wells while new nearby wells were completed.
· At the end of Q2, 195 wells in the portfolio were available for production, including 10 wells which came online during the quarter.
o An estimated 30 additional wells in which Zephyr will have working interests are forecast to be brought on production by the end of 2022, which will help to decrease standard portfolio decline rates.
· Net working interests across the Williston Basin non-operated portfolio now average 7.1%, equivalent to 15 gross wells, all of which utilised horizontal drilling and modern, hydraulically stimulated completions.
· Zephyr reiterates its previously released 2022 production and revenue guidance of an expected US$35-40 million in non-operated revenue, net to Zephyr, for FY 2022 based on a forecast production range of 500,000 to 550,000 barrels of oil equivalent (“boe”) for the year.
Q2 Sales Detail
During the second quarter of 2022, the Company reported net sales of approximately 168,880 boe. Product mix for Q2 was 73% crude oil, 15% natural gas, and 12% natural gas liquids. The table below provides sales volumes, product mix, and average sales prices for the quarter:
Oil: 123,233 barrels (“bbls”) at an average sales price of US$99.84/bbl
Natural Gas: 149,860 thousand cubic feet (“mcf”) at an average sales price of US$6.69 /mcf
Natural Gas Liquids: 20,671 bbls at an average sales price of US$50.40 per bbl
(Note: Second quarter production volumes and average sales prices figures include field estimates in respect of June 2022 natural gas and natural gas liquids sales volumes and are subject to future revision.)
During Q2, a number of Zephyr’s existing production wells were temporarily shut-in due to “frac-protect” procedures while new nearby wells were stimulated and completed. As new infill wells are drilled, existing offset wells may be temporarily shut in to optimise the nearby completion and mitigate offset well production losses. Offset wells are then re-instated for production when the new infill wells are started up for production.
Q2 sales volumes of 168,880 boe include approximately 41,480 boe produced prior to Q2 but for which payments were received during the quarter. In the Williston Basin, cashflow from non-operated interests in newly drilled wells may lag actual production by up to five months. Such payments from the operator accrue on a monthly basis and are paid in full prior to the sixth month of production, which may result in impacts to quarterly sales volumes and revenues during times of significant completion activity. Zephyr expects additional accrued payments from operators in Q3 2022 given the Company’s interests in 10 newly drilled wells which came online during Q2.
Williston Basin production outlook
30 additional producing wells from Zephyr’s existing portfolio are expected to be brought online during the next six months, which will partially mitigate decline rates typical of Williston Basin production.
The Company has hedged just under half of its forecast non-operated production over the next 21 months. Using an average hedged production price of US$96.28 for the remainder of the 2022 calendar year and using US$90 flat for the remainder of its anticipated production, the Company reiterates its forecast of an expected US$35-40 million in non-operated revenue, net to Zephyr, for FY 2022 based on forecast production range of 500,000 to 550,000 boe for the year.
Colin Harrington, Chief Executive of Zephyr Energy, said: “In the 15 months since we announced Zephyr’s first non-operated acquisition in the Williston Basin, I’ve been delighted with the growth and strong cash flows generated from that part of our portfolio. Having completed six discrete acquisitions, our non-operated asset base is a now diverse mix of 195 low-risk, high margin producing wells operated by some of the strongest companies in the Williston Basin. With a further 30 wells expected to come online over the next six months, the platform is demonstrating its capacity for future organic growth.
“This highly attractive portfolio is delivering substantial cashflows which will fuel the ongoing development of our flagship Paradox project, and potentially facilitate further opportunistic portfolio acquisitions.
“It’s an exciting time for Zephyr and we look forward to keeping Shareholders regularly updated on progress in the coming weeks. In particular, we look forward to commencing the upcoming drilling programme on the Paradox project. With internal development potential fully funded from our existing asset portfolio, we plan on significant further growth over the next twelve months.”