Zephyr Energy PLC (AIM:ZPHR, OTCQB:ZPHRF) told investors it is picking up additional acreage in Utah, in the vicinity of the company’s flagship Paradox.
The company said in a statement it agreed to buy a package of oil and gas assets including natural gas infrastructure, five existing well bores and acreage that’s contiguous with its White Sands Unit (WSU) which forms one part of the Paradox project.
Chief executive Colin Harrington highlighted that Zephyr has added a “substantial piece” to the company’s jigsaw in Utah.
"We've often compared our Paradox project development to a jigsaw puzzle with a number of requisite pieces to be assembled prior to the commencement of commercial production - and today's announcement is another substantial piece now in place,” Harrington said.
“By acquiring this package of surface infrastructure, we are moving rapidly from a programme of value delineation to a tangible development programme which is expected to facilitate cashflows from the project in a more rapid timeframe.”
Zephyr is paying US$750,000 to acquire the assets and is also assuming responsibility for all eventual decommissioning and plugging and abandonment liabilities (presently estimated at around US$2.5mln in today’s terms).
Post-acquisition, Zephyr will hold an interest in some 45,000 gross acres in the Paradox basin, with at least a 75% stake in each holding.
The new asset package includes 21 miles of six-inch gas gathering line, with an estimated replacement cost value of US$8.8mln. It also includes a gas processing plant, which is not currently in operation.
Zephyr said the deal will substantially reduce the capital and costs required to export the company's gas production from the WSU.
"Beyond the additional resources being acquired, today's acquisition provides us with several critical benefits.
“Firstly, it allows us to greatly reduce the capital needed to build out the gas infrastructure required to sell produced gas volumes into the market.
“Secondly, it completes the acquisition of all key acreage covered by the WSU 3D.
“Thirdly, it provides an additional well pad already tied to the pipeline, which in combination with the new acreage will simplify future development drilling. Similarly, the gas plant, while currently not in use, has excellent potential for reintroduction to service and can potentially act as a WSU supply base.”
The well bores being acquired in the deal are expected to give the company with multiple re-use options over the short to medium term, Harrington noted.
Zephyr now intends, in the coming months, to give investors a comprehensive update on it plans for upcoming drilling.