WINCHESTER ENERGY LIMITED ASX: WEL
ACN 168 586 445
QUARTERLY REPORT
For the period ending 31 March 2022
HIGHLIGHTS
• Positive cash flow of AUD$391,6671 for the March 2022 quarter
• Total WI revenue was AUD$3,580,5721 - 14.7% increase from the December 2021 quarter
• Outstanding oil price exposure - Winchester fully leveraged to oil and gas prices with 2022 oil prices at a level not seen since 2014
• Production during the March 2022 quarter averaged 313 barrels of oil equivalent per day2 (boepd) net to Winchester's Working Interest (WI)
Work Completed and Forthcoming
• Winchester has commenced a multi-well workover programme, starting with White Hat 2106 and White Hat 3902, before moving onto several other wells with significant upside - oil and gas production is anticipated to increase
• Following a successful unitisation hearing, Winchester will next month commence work on its 100% WI Varn Oil Field comprising Proven and Probable Reserves (2P) of 1.068 million barrels of oil equivalent (mmboe) - comprised of over 93% oil
• In the current US oil and gas inflationary environment, Winchester has pre-purchased a significant inventory of long lead items, at a total cost of AUD$842,4921, for the forthcoming Varn program, constituting a significant saving for the Company
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 March 2022 is shown below:
Oil Production (boe) | March Quarter 2022 | December Quarter 2021 | September Quarter 2021 | June Quarter 2021 | March Quarter 2021 |
Gross Oil Production | 31,043 | 46,911 | 22,245 | 15,933 | 17,661 |
WEL WI Share* | 28,313 | 42,713 | 18,784 | 11,857 | 13,055 |
*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 March 2022 quarter was 313 barrels of oil equivalent per day (boepd)3, comprising 89% liquids (oil).
To the end of the March 2022 quarter, Winchester's Permian Basin wells in Nolan County, Texas have produced a total gross 651,623 barrels of oil and 360 million cubic feet of gas.
Figure 1: Location of Winchester Operations in Texas, USA
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REVENUE SUMMARY
Total WI oil and gas sales revenue for the March 2022 quarter was A$3,580,5724 (US$2,578,012) - a 14.7% increase from the December 2021 quarter. The average sale price per barrel of oil was US$93.50 - a 22.5% increase from the December 2021 quarter.
March 2022 quarterly revenue resulted in positive cash flow of AUD$391,667 (US$282,000) for the quarter. Winchester notes that approx. AUD$842,492 has been spent acquiring production casing and production tubing (enough for 5 wells) for the forthcoming Varn drilling program. The sourcing and pre-purchase of long lead items has resulted in significant savings for the Company given recent inflationary pressures on US oil and gas consumables.
During the quarter, West Texas Intermediate (WTI) oil prices continued to rise appreciably, with WTI oil currently selling at over US$100 per barrel.
EXPLORATION & DEVELOPMENT OPERATIONS
Well Summary
Well ID | Drilled | Formation | Oil Field | WEL WI | Status |
White Hat 2002 | Apr 2017 | Strawn | Mustang | 50% | Producing |
White Hat 2003 | Mar 2019 | Strawn | Mustang | 75% | Producing |
White Hat 2005 | Aug 2019 | Strawn | Mustang | 75% | Producing |
White Hat 3902 | Dec 2019 | Ellenburger | - | 100% | Producing |
White Hat 2006 | Jan 2020 | Strawn | Mustang | 75% | Producing |
Arledge 1602 | Jul 2019 | Cisco Sands | Lightning | 100% | Producing |
McLeod 1703 | Dec 2019 | Cisco Sands | Lightning | 100% | Producing |
Bast 1 | 1985 | Strawn | Bast | 92% | Producing |
Bast 2 | 1985 | Strawn | Bast | 94% | Producing |
Bast A-1 | 1985 | Strawn | Bast | 93% | Producing |
McLeod 1705 | June 2021 | Strawn | - | 100% | Producing |
White Hat 2106 | July 2021 | Ellenburger | - | 100% | Producing |
Multi-Well Workovers (100% WI)
Winchester has commenced a multi-well workover programme, starting with White Hat 2106 and White Hat 3902, before moving onto several other wells with significant upside. The programme is designed to increase production in the immediate term.
White Hat 2106 is undergoing workover which includes a separator and pump swap-out as well as re-acidisation of the well anulus. The simple and inexpensive workover is expected to optimize well performance and significantly enhance oil production from Winchester's best performing well.
4 Using exchange rate 1 AUD = 0.72 USD. Oil and gas revenue net of severance tax
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White Hat 3902 was drilled by the Company in December 2019 targeting the Fry Sand, returning a modest initial production rate of 30 bopd before failing to maintain a commercial flow rate.
White Hat 3902 penetrated the Ellenburger Formation to a total depth of 7,061 feet with logs run over all prospective formations.
During the December 2021 quarter, in a programme costing less than US$100,000, the Company successfully perforated 74 feet of the Ellenburger Formation identified as prospective by logs. The interval was then acidised to clean up the annulus and swabbed to remove the spent acid.
White Hat 3902 was placed on production and initially averaged 92 boepd has comprised 73 bopd and 114 thousand cubic feet gas per day (mmcfpd)5 but has since decreased to approximately 20 boepd.
White Hat 3902 will be further perforated in the Ellenburger and treated with a cutting-edge high viscosity acid designed to greatly increase oil flow.
Varn Oil Field (100% WI)
In December 2021 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.
Calculated Varn Oil Field Reserves - Mire Petroleum Consultants
Reserves | Product | 1P - Proved Reserve | 2P - Proved + Probable Reserve | 3P - Proved + Probable + Possible Reserve |
Upper and Lower Fry Sands | BO | 415,000 | 994,000 | 1,680,000 |
MCF | 169,000 | 442,000 | 894,000 | |
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
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Development of Varn will be exclusively funded from existing cashflow and will contribute significant production over the life of the field.
The Varn Project unitisation hearing before the Texas oil regulatory body, the Texas Railroad Commission (TRC), was successfully completed in mid-April with no issues identified by the Panel. As a formality, Winchester is now awaiting final approval. Operations will commence next month.
EXPLORATION POTENTIAL
The Eastern Shelf of the Permian contains several vertically-stacked oil productive units (vertical pay). The recent results from the Strawn, Cisco and Ellenburger Formations have proven that the Winchester leases hold significant potential at several formation levels.
As well as the Strawn, Cisco and Ellenburger Formations, other prospective units include the, Wolfcamp 'D' high total organic carbon shale intervals, Three Fingers Shale, Lower Penn Shale and several intervals within the Canyon Sands package as well as the Odom sands and carbonates.
Winchester has identified, from both 3D seismic and well control, the Mustang and Lightning Oil Fields in the Strawn, Ellenburger and Cisco formations. Furthermore, Winchester has numerous additional locations identified for potential future exploration.
The Winchester technical team continues to review and assess new project/play opportunities. Winchester is progressing several discussions and will inform the market if and when any transaction is completed.
Fig 5: Stratigraphic Column - East Permian Basin
CORPORATE
Winchester recorded positive cash flow of US$282,000 for the March 2022 quarter driven by vastly improved oil and gas production coupled with cost reductions.
As of 31 March 2022, Winchester Energy had 1,010,219,792ordinary shares on issue and cash reserves of approximately AUD$3.95 million6.
6 Using exchange rate 1 AUD = 0.72 USD
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Winchester Energy Ltd. published this content on 28 April 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 01 May 2022 23:06:01 UTC.
