Zephyr Energy Plc (AIM: ZPHR): State 16-2 well test to be extended while precipitate issues are addressed
• The State 16-2 well was initially flow tested at a choked back rate of 2 mmcf/d of natural gas and 100 bbl/d of condensate (433 boe/d), a measured rate which allowed the company to successfully commission surface facilities and improved flow assurance processes.• As flow rates were increased above those levels, well performance became limited by fresh water pumping capacity and was subsequently impacted by the formation of down hole salt precipitate, an issue not uncommon with this type of completion. The precipitate, which blocked and subsequently cleared multiple times, impacted the well's flow capacity to achieve higher rates for an extended period of time.
• Zephyr was in the early stages of testing higher rates when its mandated flaring limits were reached. This will prevent further testing until the permits are updated or the well is put in production. The achieved constrained flow rate of 433 boe/d is probably the least that should be expected from the well once in production.
• The formation of salt precipitate in the tubing to a depth of ~8,000 ft (where the packers are located) was expected. Fresh water is injected in the annulus into the tubing from that depth to dissolve any salt precipitate. The formation of salt precipitate below the packers was not expected. Zephyr is assessing whether the precipitate issue is a function of continued flow back of completion fluids or a function of normal flowing conditions. If it is a result of normal flowing conditions, Zephyr is evaluating mitigation solutions which have been successful in other basins, and plans to extend the well test subject to regulatory approval.
• Pending further details on next steps and the flow test results of the State 36-2 well, we have not changed our forecasts. Our target price of £0.20/sh is unchanged. The precipitate formation is not expected to pose an issue at the State 36-2 well as it is testing the natural fracture network and will not be fracked. Zephyr plans to also drill a well in the oil-window of the basin that should not experience salt precipitate.
More details on salt precipitation
There are a few possible explanations for the formation of the salt precipitate. The seal above the reservoir is made of salt and the formation water is very salty. In addition, the fracking water injected in the well might have dissolved salt from the seal. As the well flow rate was increased, the pressure drop between the reservoir and the tubing also increased. Above a certain pressure differential threshold, the salt in the water (fracking or formation) may precipitate. There are various ways to eliminate salt precipitation: (1) Injection of chemicals, (2) regular injection of fresh water to dissolve the salt and (3) maintain production below a certain level to reduce pressure differential triggering the formation of salt precipitate.
Rose Petroleum is an oil and gas (O&G) and mining company with exploration assets and an operational crushing and flotation mill. Co.'s principal activities are the exploration and development of O&G resources together with the evaluation and acquisition of other mineral exploration targets, principally gold, silver, uranium and copper, and the development and operation of mines in Mexico. In Co.'s O&G division, the area of focus is on two unconventional oil and gas basins in the U.S.: the Uinta Basin and the Paradox Basin. In its mining division, Co. continues its milling operations through its subsidiary, Minerales VANE S.A. de C.V., which owns the SDA Mill in Mexico.
Auctus Advisors is a specialist Equity Capital Markets and Advisory business with a focus in the Energy Sector.
The partners have complementary skill sets, with decades of experience across Equity Capital Markets, Investment Banking and the Energy industry. We have worked at Société Générale, Canaccord Capital, BMO Capital Markets and Schlumberger. Most recently we have worked together for many years at GMP FirstEnergy.
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