# Zephyr Energy embarking on next steps to open up the Paradox Basin resource play

- Link: https://www.directorstalkinterviews.com/zephyr-energy-embarking-on-next-steps-to-open-up-the-paradox-basin-resource-play/4121070711
- Published: 2022-06-07T07:13:00+01:00
- Author: Amilia Stone

**Zephyr Energy plc **(LON:ZPHR), the Rocky Mountain oil and gas company focused
on responsible resource development from carbon-neutral operations, has provided
an update on recent activity at its project in the Paradox Basin, Utah, U.S.

**Highlights**

· Following the completion of a successful well test on the State 16-2LN-CC well
in December 2021, and after a detailed evaluation of the various natural gas sales
and export options, the Board has elected to recommence production from the State
16-2LN-CC well in conjunction with the completion of a Zephyr owned crypto-currency
mining facility now under development.

o  Liquid volumes produced from the well will be trucked and sold to refineries 
in Utah, and produced gas volumes will be sold to fuel onsite power generators which
in turn will provide electricity for the co-located crypto-mining facility. 

· The Company plans to fund the initial investment required to launch the initial
1 megawatt (“MW”) crypto-mining facility (capital expenditure forecast to be less
than US$2 million) from existing cash resources or via third party investment, with
facility capital payback expected in under two years at current crypto-currency 
prices. 

· The Board has taken steps to fast-track equipment procurement, and it is expected
that the crypto-mine will be operational in as little as eight to 12 weeks.  Well
work will also be conducted over the same timeframe, at which point production from
the State 16-2LN-CC well is expected to recommence.

· Over the longer-term, the Company expects to tie its gas production into the nearby
gas export infrastructure recently purchased by Dominion Energy, Inc. (“Dominion”)
a Fortune 500 Company which currently services over seven million customers in the
U.S.  Dominion has made public its plans to refurbish and expand the natural gas
infrastructure running across Zephyr’s acreage, and is expected to be available 
to accept gas volumes from Zephyr’s wells in 2023.

· In parallel with the work on the State 16-2LN-CC well, the Company is also at 
an advanced stage of planning for a three well drill programme on the Paradox project
expected to commence in the second half of this year. Well design has been completed,
all permit applications have been submitted and negotiations continue with rig vendors.

> **Colin Harrington, Zephyr’s Chief Executive, said:  **“We are hugely excited 
> to embark on the next steps to open up the Paradox Basin resource play.  The completion
> of our highly successful initial well test gave the Zephyr team the comfort to
> proceed with detailed evaluations of both near and long-term off-take solutions
> for the gas volumes from the State 16-2LN-CC well.  The plan announced today allows
> us to both accelerate near-term production and benefit from long term gas sales
> optionality should the economic returns from the co-located crypto-mining facility
> meet internal expectations.
> “While the Dominion infrastructure is envisioned to be the long-term solution 
> for the majority of our gas production from the Paradox project, the construction
> of the co-located crypto-mining facility is an excellent interim step. We believe
> it has potential to be a profitable opportunity for Zephyr and we hope to have
> production from the State 16-2LN-CC well and the crypto-facility online in as 
> little as eight to 12 weeks.
> “Over the last twelve months, a growing number of U.S. upstream oil and gas operators(
> including an immediately adjacent Paradox Basin oil and gas operator) have chosen
> to co-locate crypto-mining facilities at well sites in order to benefit from the
> growing demand for natural gas to fuel dedicated sources of power generation.
> “Our planned crypto-mining facility will enable Zephyr to meet its near-term objectives–
> it will allow us to accelerate revenues from the State 16-2LN-CC well, to earn
> additional revenues from the crypto-mine infrastructure, and to enable a long-
> term test which will provide valuable information about the well’s production 
> profile. 
> “The coming months will be a period of intense activity on the Paradox project.
> In addition to the re-start of State 16-2LN-CC well production and launch of crypto-
> mining operations, we are in detailed planning for our forthcoming three well 
> drill programme. We look forward to providing regular updates as we prepare to
> commence drilling in the upcoming months.
> “As we embark on another busy period for the Company, I’d like to reiterate that
> our mission, as always, is to be responsible stewards of investors’ capital while
> also being responsible stewards of the environment.”

**Further details and State 16-2LN-CC well update**

· On 8 December 2021, Zephyr announced the completion of a safe and highly successful
well test at the State 16-2 LN-CC well. Over a period of 23 days, the well demonstrated
substantial production potential that the Company believes will mark the opening
of a commercial Cane Creek play in the Company’s White Sands Unit in the Paradox
basin.

· Following the completion of the well test, Zephyr commenced a detailed evaluation
of its options for the sale of the well’s produced natural gas, including the potential
to tie production into nearby gas export infrastructure recently purchased by Dominion,
a Fortune 500 Company which currently services over seven million customers in the
U.S.

· Dominion has made public its intention to refurbish and expand the natural gas
infrastructure running across Zephyr’s acreage, and the infrastructure is expected
to be available to accept gas volumes from Zephyr in 2023, thereby providing Zephyr
with a long-term export route for gas volumes produced from the White Sands Unit.

· In the interim, Zephyr’s Board of Directors has elected to recommence production
from the State 16-2LN-CC well, whereby:

o  Liquid volumes produced from the well will be trucked and sold to refineries 
in Utah;

o  Gas volumes will be sold to a Zephyr-owned crypto-mining facility to be built
and co-located on the State 16-2 well pad; and

o  Valuable, longer term production data will be gathered while the produced gas
is used to fuel the crypto-mine facility.

· Design work, permitting and procurement is underway to prepare the well for production
re-start and to build an initial 1MW, rate constrained “beta test” crypto-mining
facility.   Re-started production from the State 16-2 LN-CC well and production 
from the initial phase of the mining facility is expected to be brought online within
8-12 weeks.  CryptoKnight Energy, an experienced operator of oil industry co-located
crypto mining operations, will serve as the general contractor for the construction
and operator of the mining facility.

· Site preparation work at the State 16-2 pad commenced in early May 2022, when 
1,185 barrels of oil condensate produced and stored onsite during the December 2021
production test were hauled and sold to a refinery in Salt Lake City. 

o  Zephyr received a realised price of US$103.36 per barrel, net of transportation
costs, for those volumes.

· The Company plans to fund the initial investment required to launch the crypto-
mining operation (estimated at less than US$2 million) from existing cash resources
or from third party investment, with capital payback expected in under two years
at current crypto currency and commodity prices. 

· Post review of the beta test operations, Zephyr may elect to build up to 4MW of
power generation and crypto-mine facilities on the pad.  Zephyr is evaluating a 
range of third-party investment options in the event it elects to expand the crypto-
mining infrastructure and will provide updates on the outcome of these discussions
following the results from the beta test. 

**Paradox Basin three well drilling programme update**

Zephyr remains firmly on track to commence its planned three well drilling programme
in the second half of 2022.  Recent development milestones include:

o  All well design work has been finalised

o  All permit applications have been filed

o  Stimulation optimisation is well advanced

o  The vendor selection process continues, with the rig contract award a key short-
term objective

o  Partner outreach, both with potential upstream and midstream counterparties, 
is well underway.

Zephyr intends to update the market as additional programme milestones are met as
and when appropriate.

**Additional Background**

Following a crackdown on Chinese bitcoin producers, and due to stable regulatory
environment and relatively lower power prices, the U.S. has become the global leader
for hosting crypto-mining operations.  By way of illustration, from May to July 
of 2021 the  U.S.  went from hosting 18% of Bitcoin miners to hosting 35% of all
Bitcoin mining operations. 

Over the last twelve months, and even prior to producing gas from the State 16-2LN-
CC well, Zephyr was approached by multiple parties wishing to use our natural gas
production to create power on site for use with power-intensive crypto-mining activities.

Given the nationwide trend to limit gas flaring and reduce methane production, combined
with a surge in crypto-mining operations in the western U.S., Zephyr undertook a
detailed review of the potential to partner with a co-located crypto-mining facility.

As part of the process to responsibly assess the viability of this market, Zephyr
established an Advisory Board of crypto-currency operations, technology and regulatory
specialists, and has had extensive outreach with other operators in the sector. 

Initial indications suggest the State 16-2LN-CC well production profile is ideally
suited for the co-location of a crypto-mining facility, in particular as the remote
location of the site minimises community impacts.  In addition, Zephyr Energy plans
to maintain its commitment to carbon neutral operations by offsetting any CO2 emissions
produced by the crypto-mine and associated generators.

Over the long term, both traditional gas export and co-location uses appear as viable
alternatives (either separately or in tandem) for commercialising the substantial
gas resource which exists across the Paradox project, and the Board will carefully
weigh the potential financial returns offered by both alternatives. 

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