Zephyr Energy Plc (AIM: ZPHR): Spotless execution at twinning of high impact well. All eyes on upcoming flow test.

• The State 36-2R well has reached TD. The well penetrated a folded and naturally fractured section of the Cane Creek reservoir, encountering drilling mud gas shows of a similar magnitude to the original well.
• Pore pressure analysis suggests formation pressures estimated at approximately 9,300 psi (which is broadly consistent with previously drilled offset wells). High pressure implies very high energy in the reservoir; which has positive implications for the well’s flow rate.
• The company believes that the well has hit the natural fracture target with precision. This is critical for obtaining a high flow rate.
• The well will now be tested. Results are expected in late June/early July.
• Our unrisked NAV for the contingent resources that the State 36-2R well will contribute to derisk is £0.11 per share. A high flow rate would allow the booking of 2P reserves and growth in production. With success, overall production rates could increase by 250% by end of 4Q24 (compared to the FY23 average production).
• In addition, the well has encountered the overlying reservoirs with a similar response as at the original well. 270 mmboe prospective resources have been estimated at the nine overlying reservoirs. This represents 6-7 times the contingent resources estimated in the Cane Creek reservoir, which was the target of the State 36-2R well.
• Ahead of the result of the well test, we have increased our chance of success associated with the 39 mmboe contingent resources in the Cane Creek from 60% to 65%.
• We re-iterate our target price of £0.12 per share.

Valuation
We have increased our ReNAV from £0.11 per share to £0.12 per share. Fully derisking the Cane Creek contingent resources would add £0.03 per share to our ReNAV.