Winchester Energy : Acquisition of 100% interest in Varn Oil Field and CryptoTherm MoU

Date: 3 December 2021

ASX Code: WEL

Capital Structure

Ordinary Shares: 1,008,212,215 Current Share Price: 1.5c Market Cap: $15M Debt: Nil

Directors

James Allchurch Non-Executive Director

Larry Liu Non-Executive Director

Tony Peng Non-Executive Director

Lloyd Flint

Company Secretary

Contact Details

Australia

Level 1

10 Outram Street

West Perth WA 6005

Australia

PO Box 641

West Perth WA 6872

Australia

Tel: [phone]

Fax: [phone]

USA

4900 Woodway, Ste. 780 Houston, TX 77056

Tel: [phone]

winchesterenergyltd.com

Acquisition of 100% interest in Varn Oil Field

Delivers Winchester 2P Reserves of over 1 MMBOE1

• Winchester has acquired a 100% working interest in the Varn Oil Field located 18 miles east of its existing production (611 boepd1 net to WEL) in the East Permian Basin, Texas
• The Varn Oil Field comprises Proven and Probable Reserves (2P) of 1.068 million barrels of oil equivalent (mmboe) - comprised of over 93% oil
• Payment of US$415,000 and drilling of all required wells constitute an up-frontgross acquisition and development cost of US$5.61/boe, which will be funded from existing cashflow
• MoU signed with US-based CryptoTherm ("CT") to commence a feasibility study to supply natural gas from Varn for a range of power-intensive computational applications including cryptocurrency mining, artificial intelligence, and deep learning
• CT produces "plug-and-play"self-containedimmersion-cooled hardware to harness power from well-head gas

Winchester Energy Limited (ASX: WEL) ("Winchester" or "the Company") is pleased to announce the acquisition of a 100% working interest in the Varn Oil Field, located 18 miles to the east of Winchester's existing producing assets in Nolan County, Texas.

Calculated Varn Oil Field Reserves - Mire Petroleum Consultants

	Reserves	Product	1P - Proved	2P - Proved + Probable	3P - Proved + Probable +
			Reserve	Reserve	Possible Reserve
	Upper and	BO	415,000	994,000	1,680,000
	Lower Fry
	MCF	169,000	442,000	894,000
	Sands
	BOE	443,000	1,068,000	1,829,000

BO - barrels of oil

BOE - barrel of oil equivalent1 MCF - thousand cubic feet of gas

Calculated Reserves incorporate WEL's net revenue interest of 77%

Further ASX Listing Rule 5.31 Information (Notes to Reserves) related to these reserves is provided in Attachment 1.

The Varn Oil Field contains existing Proven and Probable (2P) of 1,068,000 barrels of oil (boe) comprised of 994,000 barrels of oil and 442 thousand cubic feet of gas (mmcf). Production is derived from the Fry Sands (a sub-unit of the Strawn Sands) which, together with the Ellenburger Formation, is currently producing 611 barrels of oil equivalent per day net to the Company at Winchester's existing Nolan County operations.

1 boe (barrels of oil equivalent) - gas quantities are converted to boe using 6,000 cubic feet of gas to one barrel of oil. The conversion ratio is based on energy equivalency and does not represent value equivalency. Estimates are rounded to the nearest boe.

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With an up-front acquisition and development cost of US$5.61 per barrel of oil equivalent that will be exclusively funded from existing cashflow, Varn represents a significant advancement in Winchester's strategy of acquiring high-impact oil and gas projects that add substantial value.

Winchester Non-Executive Director James Allchurch commented:

"With the cashflow currently being generated from Winchester's net 611 boepd Nolan County operations, the Company has been reviewing a host of opportunities to which we think our highly-skilledHouston-based operations team can add immediate and significant value.

"At a gross upfront cost of US$415,000, the Varn transaction adds over 1 MBOE of 2P reserves to our inventory with the prospect of production commencing early next year. When combined with the MoU signed with leading US-based stranded gas technology company CryptoTherm, this is a compelling transaction in the current strong oil and gas market."

Varn Oil Field (100% WI)

Background

The Varn Oil Field is made up of nine leases comprising a total of 1,145 acres located in Taylor County, 18 miles east of Winchester's Nolan County operations. The nine leases are in the very advanced stages of being converted to one single oil and gas unit which, in its entirety, will be held by production (HBP) following the drilling of one well.

The Upper and Lower Fry Sands were discovered in the Varn Oil Field in 1957 with 20 wells drilled to 1962. The field produced oil until 1985 with total oil production of 1,424,060 barrels of oil from both sands together with 208 million cubic feet of gas. The initial flow rate on the early wells was 164-422 barrels of oil per day (bopd) at 200-300 psi with little initial water and only moderate water at the end of production.

All historic wells have been plugged and abandoned. The Proven and Probable (2P) Reserves at the Varn Oil Field calculated using the secondary recovery method of waterflooding are estimated at 1,068,000 boe.

Figure 1 - Varn Oil Field and Nolan County Operations

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Secondary Recovery - Waterflood

Waterflooding is a secondary recovery technique which injects water into an oil reservoir in a downdip position. The water repressurizes the field and provides energy to move unswept oil updip to crestal oil well producers.

Secondary oil recovery is extremely common, particularly in the US. In any given oil field, primary production accounts for the removal of 10-20% of all original oil in place (OOIP), secondary recovery (waterflooding) accounts for a further 10-20% recovery of OOIP whilst further oil is often recovered through tertiary recovery (enhanced oil recovery such as CO2 injection)2. An informative presentation produced by the University of North Dakota's Energy and Environmental Research Centre (EERC) entitled "The Phases of Oil Recovery - So Far" can be viewed at https://www.youtube.com/watch?v=kxBqKY36h7M.

Importantly, secondary recovery operations are encouraged by the Texas State Government, exemplified by the fact that they are exempt from the usual 4.6% severance tax that primary plays attract.

Numerous waterfloods have been carried out in Pennsylvanian-age Strawn sands throughout North Central Texas. In the local south-east Taylor area, three fields have been water flooded in the Fry Sand, providing direct analogues to the Varn Project.

Figure 2 - Varn Oil Field and surrounding analogue fields with successful waterflood secondary recovery

The analogue fields have similar reservoir properties, are of similar size, and are in the same sand formation, the Fry Sands. Most importantly all three fields, together with Varn, are isolated sand pods and do not have a natural water drive, making secondary production almost as effective as primary production.

2 Energy and Environmental Research Centre (EERC) - Primary, secondary, and tertiary oil recovery (using pressure, water, and CO2). North Dakota University.

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Winchester Waterflood Strategy and Cost

Winchester will be the operator at Varn, with 11 wells - six oil and gas producers and five water injectors - comprising the waterflood operation. The majority of these wells are planned for the central area where the Upper and Lower Fry Sand overlap while the rest of the wells capture oil from the more widespread Upper Fry Sand.

Figure 3 - Configuration of producer and injector wells at Varn

The total cost for the Varn Oil Field waterflood is approximately US$5.5M spread out over a period of six months giving a highly attractive acquisition and develoment cost of US$5.61 per boe. Operations will commence upon the successful "unitisation" of the requisite land packages into one lease. This process is over 90% complete with drilling expected to commence in early/mid 2022.

It is anticipated that existing cash flow from Winchester's Nolan County operations can fund the Varn operation.

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Figure 4 - Conceptual section showing the upper and lower Fry Sands

MoU with CryptoTherm ("CT")

In addition to the acquisition of Varn, Winchester has signed a memorandum of understanding (MoU) with US-based technology company CryptoTherm ("CT") to conduct a feasibility study that contemplates Winchester supplying natural gas from the field for a range of power-intensive computational applications including cryptocurrency mining, artificial intelligence and deep learning.

CT produces "plug-and-play"self-containedimmersion-cooled hardware to harness power from well-head gas to facilitate various activities and applications demanding high computational bandwidth.

The initial focus of the feasibility study will be determining the suitability of utilizing the 442 mmcf (million cubic feet) Proven 2P Reserve of gas at Varn to generate in-situ power using state-of-the-art low emission power generators. The next step will be the economic modelling of the viability of power-intensive computing applications, which will be variable according to scale and specific returns on the individual applications/activities.

Winchester commits to funding the feasibility study to a maximum of US$100,000. Thereafter, Winchester and CT agree to use best endeavors to enter into a full-form Heads of Agreement (HoA) to govern the partnership. The arrangement contemplates Winchester as the gas supplier only.

Varn Oil Field Acquisition Terms

The terms for the acquisition of a 100% working interest in the 1,145 acre lease (incorporating the Varn Oil Field) from Andress Oil & Gas Consulting, LLC and Alpha & Omega Exploration Co., Inc. (vendors) are as follows:

• US$415,000 cash payment3
• A 3% overriding royalty interest over all future oil and gas production from Varn

The initial payment and drilling of all the required producer and injector wells constitutes an up-front gross acquisition and development cost of US$5.61 per boe which will be funded from existing cashflow.

3 Should the vendors be unable to place 100% of the working interest for Varn by 1st day of September, 2022, or if there is an unresolvable title failure that would keep the unit from ever being formed, then the vendors agree to refund all monies within 10 business days of the date stated in this paragraph.

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