Winchester Energy : Quarterly Activities/Appendix 5B Cash Flow Report - December 2021

ASX: WEL

ACN 168 586 445

QUARTERLY REPORT

For the period ending 31 December 2021

HIGHLIGHTS

• Positive cash flow of US$473,000 for the December 2021 quarterdriven by vastly improved oil and gas production coupled with cost reductions
• Outstanding oil price exposure- Winchester fully leveraged to oil and gas prices with January 2022 oil prices at a level not seen since 2014
• Net revenue was AUD$3,122,2141 - 430% increase from the September 2021quarter
• Production during the December 2021 quarter averaged 465 barrels of oil equivalent per day2 (boepd) net to Winchester's Working Interest (WI) - 126% increase from Sept quarter.
• Oil and gas production anticipated to increase with drilling activity to commence in the current quarter at the newly acquired Varn Oil Field

Acquisition and Work Completed

• Winchester acquired a 100% WI in the Varn Oil Field which 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 funded from existing cashflow
• MoU signed with CryptoTherm for a feasibility study to supply natural gas from Varn for a range of power-intensive computational applications including cryptocurrency mining
• Following the success in the Ellenburger Formation at White Hat 2106, a recompletion was performed at White Hat 3902 which is now producing 92 boepd for a total cost of US$100,000

1. Using exchange rate 1 AUD = 0.72 USD.
2. boe (barrels of oil equivalent) - gas quantities are converted to boe using 6,000 cubic feet of gas to one barrel of oil. Conversion ratio is based on energy equivalency and does not represent value equivalency. Rounded to the nearest boe.

PRODUCTION SUMMARY

Winchester Energy Limited's (ASX:WEL) ("Winchester", "the Company") gross and net Working Interest (WI) oil and gas production for the quarter ended 31 December 2021 is shown below:

Oil Production		December	September	June	March	December
(boe)		Quarter	Quarter	Quarter	Quarter	Quarter
		2021 (boe)	2021 (boe)	2021	2021 (boe)	2020 (boe)
				(boe)
Gross Oil Production		46,911	22,245	15,933	17,661	23,206
WEL WI Share*		42,713	18,784	11,857	13,055	17,184

*Winchester is entitled to its Working Interest share of revenue after royalty payments to the oil and gas mineral rights owners.

Winchester's average daily WI production in the December 2021 quarter was 465 barrels of oil equivalent per day (boepd)3, comprising 88% liquids (oil).

To the end of the December 2021 quarter, Winchester's Permian Basin wells in Nolan County, Texas have produced a total gross 623,403 barrels of oil and 344 million cubic feet of gas.

Figure 1: Location of the Company's acreage position in Nolan and Coke

Counties, Texas, USA

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

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REVENUE SUMMARY

Total WI oil and gas sales revenue for the December 2021 quarter was A$3,122,2144 (US$2,247,925). The average sale price per barrel of oil was US$76.34, a 10% increase from the September 2021 quarter.

During the quarter, West Texas Intermediate (WTI) oil prices continued to rise appreciably, with WTI oil currently selling at over US$88 per barrel, a level not seen since 2014.

STRATEGIC ACQUISITION

Varn Oil Field (100% WI)

During the December 2021 quarter Winchester announced 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.

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.

The total cost for the Varn Oil Field waterflood is estimated at 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 2022.

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 in the ASX release of 3 December 2021

Development of Varn 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.

4 Using exchange rate 1 AUD = 0.72 USD. Unlike previous reporting, Winchester is now quoting oil and gas revenue net of severance tax

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The Varn Oil Field contains existing Proven and Probable (2P) Resources 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 oil and gas at Winchester's existing Nolan County operations.

Background

The Varn Oil Field is made up of nine leases comprising a total of 1,145 acres. 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 bopd at 200-300 psi with little initial water and only moderate water at the end of production.

Figure 2 - Varn Oil Field and Nolan County Operations

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)5.

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

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

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.

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