Paradox Basin test lights the fuse for Zephyr’s next phase
Zephyr Energy’s H1 2025 update is all about the Paradox Basin. The State 36-2 LNW-CC-R extended lateral well delivered a peak flow rate of 2,848 boepd during production testing, without any fracture stimulation and with no material drop in bottom hole pressure. Management says that puts the well in the top 6% of horizontal resource play gas wells drilled in the Lower 48 since 2000. That’s a meaningful datapoint in a basin that management believes can be developed at scale.
The test suggests that future 10,000-foot laterals at Paradox could achieve a P50 (mid-case) estimated ultimate recovery of 3.6 million boe per well, with a modelled NPV-10 of US$25.2 million per well. A conceptual development plan points to 20 more Cane Creek horizontals (plus the State 16-2 and State 36-2 wells already drilled), for a total Cane Creek gross resource range of 32.5-112.5 mmboe, or 25.6-89.5 mmboe net to Zephyr. A new independent Competent Person’s Report (CPR) from Sproule is due “imminently” and will be key for validating these estimates.
Near term, Zephyr is focused on turning that test into commercial production: completing gas marketing, upgrading on-site gas processing, and finalising agreements to tie into a nearby 16-inch third-party pipeline. The plan is to bring the Federal 28-11 and State 16-2 wells online as part of the early production system, and to keep leasing acreage and testing additional overlying reservoirs for upside.
Quick jargon buster
- boepd: barrels of oil equivalent per day – standardised oil and gas production rate.
- PDP/PUD: proved developed producing (already onstream) and proved undeveloped (drillable, not yet onstream).
- CPR: Competent Person’s Report – an independent reserves and resources audit.
- NPV-10: net present value discounting future cash flows at 10% – common oil and gas valuation metric.
- 2P/2C/2U: proven plus probable reserves, contingent resources, and unrisked prospective resources.
Key numbers at a glance
| Metric | H1 2025 / Update |
|---|---|
| Paradox peak test rate | 2,848 boepd (no frac) |
| Per-well P50 EUR and NPV-10 | 3.6 million boe; US$25.2 million |
| Cane Creek conceptual gross EUR | 32.5-72.5-112.5 mmboe (low-mid-high) |
| Cane Creek conceptual net EUR | 25.6-57.7-89.5 mmboe (low-mid-high) |
| H1 2025 revenue | US$6.3 million |
| H1 2025 gross profit | US$3.1 million |
| H1 2025 net loss after tax | US$13.0 million |
| Cash (30 June 2025) | US$5.8 million |
| July 2025 fundraise proceeds | US$7.0 million gross |
| Gross borrowings (30 June 2025) | US$23.4 million |
| Borrowing base (Sept 2025) | US$22.1 million reaffirmed |
| Non-operated H1 sales volumes | 684 boepd (123,798 boe) |
| Strategic partnership | Up to US$100 million CAPEX funding |
| Acquisition (Aug 2025) | US$7.3 million for ~400 boepd, 600,000 boe PDP |
| Equity placing (June/July 2025) | ~US$13.5 million at 3 pence per share (+US$0.9m subscriptions) |
Williston Basin cash engine: softer first half, potential H2 uplift
Zephyr’s non-operated Williston portfolio is designed to fund group G&A and contribute to Paradox capex. H1 2025 revenue was US$6.3 million, down from US$13.6 million, reflecting lower commodity prices, portfolio decline, and curtailed production from six Slawson-operated wells. H1 sales volumes averaged 684 boepd versus 1,240 boepd in H1 2024.
Management expects an H2 2025 improvement from the recently completed US$7.3 million acquisition (effective 1 June 2025) and potentially from Slawson wells coming back online. That acquisition adds around 400 boepd of PDP, 600,000 boe of PDP reserves and is forecast to add US$4 million of operating income in its first 12 months based on 29 May 2025 strip prices. Zephyr held interests in 228 producing wells at period end, averaging 7% working interest per well.
US$100 million strategic partnership and new PDP deal: why it matters
The US$100 million Zephyr Hawk partnership is a clear statement of intent. The investor funds 100% of drilling, completion and equipment CAPEX on newly acquired non-operated opportunities within a defined Programme Area, earning a majority of cash flows until a hurdle is met. Zephyr can elect to fund up to 33% to retain more upside.
In simple terms, this structure could accelerate cashflow-accretive growth in the non-operated base without diluting focus or capital away from Paradox. Layering the US$7.3 million PDP acquisition on top gives immediate barrels, plus PUD upside that could be funded through the partnership.
Financials and balance sheet: comfort and constraints
H1 gross profit was US$3.1 million. The net loss of US$13.0 million includes US$11.8 million of non-cash items: US$6.0 million DD&A and a US$5.8 million foreign exchange charge from sterling strength on intercompany loans. Admin costs were flat year-on-year at US$2.9 million.
Cash at 30 June was US$5.8 million, with a further US$7.0 million gross received in July from the second tranche of the equity raise. Gross borrowings were US$23.4 million across term loans and a revolving facility. Importantly, in September, FIBT reaffirmed Zephyr’s borrowing base at US$22.1 million and the Group reports compliance with its debt service coverage covenant.
On hedging, Zephyr protected 40,000 barrels in H1 – 34,000 barrels at an average US$69.06 per barrel and 6,000 barrels via collars with a US$63 floor and US$69.92 ceiling. Sensible, if modest in scale.
What could go right – and what could go wrong
Positives to watch
- Independent CPR from Sproule due imminently – a potential catalyst if it uplifts reserves and resources.
- Finalising gas processing and pipeline access – the bridge from test rates to sustained sales.
- Farm-in or strategic partner at Paradox – could accelerate a multi-well programme.
- Non-operated uplift – the new PDP deal and Slawson wells returning could improve cash generation in H2 2025.
Key risks
- Execution risk at Paradox – gas marketing, plant upgrades and pipeline contracts are not yet completed.
- Commodity prices – Williston revenues and partner decisions are price sensitive; Slawson curtailments show the exposure.
- Leverage and cost of capital – US$23.4 million gross debt with parts at 10% interest; continued discipline required.
- Resource conversion – the conceptual development plan is management’s estimate pending the new CPR.
My take: a pivotal half-year with clear de-risking at Paradox
This reads like a turning point. The State 36-2R test – top-tier rate, no frac, stable pressure – materially de-risks the play and points to commerciality. If the CPR confirms the scale suggested by management’s conceptual plan, Paradox moves from promise to plan.
On the flip side, H1 financials were soft, weighed by lower prices and Slawson curtailments. The non-cash FX and DD&A charges make the headline loss look worse than the underlying picture, but the balance sheet will be watched closely until Paradox cashflows arrive. The reaffirmed borrowing base, equity raise and the US$100 million partnership all help.
Bottom line: Zephyr has put strong technical markers down at Paradox and is now into the nuts and bolts – gas sales access, contracts and partners. Deliver those, and the path to a multi-well development becomes tangible. Near-term news flow should be rich: CPR, commercial agreements, and potentially partner updates.
