Zephyr Energy PLC's (AIM:ZPHR, OTCQB:ZPHRF) upcoming drilling at the Paradox Basin could unlock substantial potential upside for the company, according to Panmure Liberum (PL).
The company plans to drill a 5,500-foot lateral section at its State 36-2 LNW-CC well, followed by acid stimulation and a flow test, with the operation estimated to cost $7 million.
Zephyr has secured non-dilutive funding from an industry partner, who will cover the cost of the drilling in exchange for a stake in this well, though the UK-listed oiler will retain operatorship and the majority of the economic benefits. The partner will have no interest in the broader Paradox acreage.
PL highlights that management believes the estimated ultimate recovery (EUR) from this well could now reach two million barrels, a significant increase and potentially three to four times higher than originally expected.
"While it remains too early to determine the longer-term readthrough for the wider Paradox development this is clearly a huge uplift in the potential, and for Zephyr to secure non-dilutive funding for this well is very encouraging too," the broker said in a note.
"We see this as a very exciting update, and investors will be keen to see the progress on this well which could unlock vast upside for the company."
In afternoon trading, the shares were up 8.3% at 3.79p, valuing the business at £66 million.