Zephyr holds an option for an initial transaction in the prolific Denver-Julesburg Basin (the “DJ Basin”) located in Colorado and Wyoming. We are actively pursuing other transactions in the same basin.
Zephyr is evaluating transactions which will provide the company with near-term, low-risk horizontal development drilling exposure in the prolific DJ Basin. Located in Colorado and Wyoming, the DJ Basin is a world class, liquids-rich resource play currently undergoing a major resurgence as vertical production is replaced with one, two and three-mile horizontal well developments, with over 4,000 horizontal wells drilled to date. Moreover, there is significant infrastructure in place with available capacity, as well as ready access to service providers and contractors.
Zephyr’s new management team and partners have extensive experience delivering production from horizontal development in the DJ Basin.
In November 2019, Zephyr announced its intent to acquire interests in the McCoy lease, a horizontal redevelopment of an existing productive lease located in an active part of the DJ Basin. Due to the economic crises related to coronavirus and the associated downturn in the oil price since the Group signed the McCoy deal, the McCoy project was not drilled in the first half of 2020 as originally planned. However, Zephyr’s Board was able to extend the Group’s option to proceed with the acquisition until the end of December 2020, in order to give time for a recovery in the oil price and in market sentiment. In addition, capital costs to drill two-mile wells in the DJ Basin have been reduced by over 30% in recent month, significantly lowering break even prices on horizontal developments.
If Zephyr elects to move forward with the McCoy lease interest acquisition, Zephyr would gain participation, as a non-operated working interest owner, in a significant two-mile lateral development project operated by Great Western Operating Company (“GWOC”). GWOC is a subsidiary of Great Western Petroleum, one of the leading private operators in the DJ Basin, having drilled and operated more than 600 wells in the region, and one with existing gross production of over 50,000 barrels of oil equivalent per day (“BOEPD”). At present, Zephyr forecasts that GWOC will commence drilling in Q1 2021 on the initial 12 well two-mile long lateral drilling programme covering the McCoy and adjacent leases.
The company believes the proposed McCoy Acquisition is the first in a series of expected deals designed to build value via attractively priced, low risk assets which have potential to deliver production in the near term. We believe the McCoy lease will be an excellent addition to the Zephyr portfolio and will both complement and balance our newly restructured Paradox Basin appraisal asset.