Winchester poised to benefit from oil price bounce with expanded production base, $5.4m in cash

Winchester Energy (ASX: WEL) has significantly expanded its Texas production base in just over 12 months as well as adding two new production horizons.

The company is now poised to benefit from improvements in oil prices based on a large lease position with low holding costs, describing its 17,500 acres (7,081 ha) as an “opportunity-rich portfolio with sizeable resource potential”.

Cost reductions made in reaction to the current oil industry downturn have further streamlined operations and increased flexibility, the company said.

Winchester’s report for the quarter ended 31 March shows it finished the period with $5.4 million in cash — the majority of that Australian currency amount held in US dollars which has insulated the company from recent currency fluctuations.

Winchester’s working interest average production for the quarter was 272 barrels of oil per day (bopd) with net gas and oil revenue over three months of US$854,000 ($1.4 million).

The average sale price per barrel was US$45.85.

Winchester’s report noted that the global oil price decreased by about 50% from December 2019 through to March 2020.

However, the company’s effective price for the quarter dropped by only 18%, from the previous US$55.83/bbl.

Region has long history of oil and gas output

Winchester’s ground is located in the highly productive eastern shelf of the Permian Basin in Texas.

The area has numerous productive units with a long-established history of oil and gas production.

In just over a year, the production base has been extended with two new production locations, Fry Sand in the Mustang oil field and Cisco Sands in the Lightning oil field.

Winchester said Mustang continues to perform and, so far, recently drilled wells have produced more than 137,000bbl of oil.

A new well, White Hat 20#6, came online in the quarter with initial output of 104bopd.

Detailed assessments have identified up to 10 additional potential well locations.

“Several highly attractive, low cost recompletion opportunities have been identified with existing wells and are standing by pending some recovery in commodity prices,” the company said.

Successful drilling at Lightning

Winchester has drilled and completed two wells on the Lightning oil field in the Cisco Sands, confirming the presence of oil.

The company said discovery well Arledge 16#2, with its 490ft (149m) oil column, opens up a “major” new stratigraphic play.

This well has produced more than 8,500bbl of oil to date.

“Detailed assessments are underway to determine future development options and allow the company to better optimise production rates,” the company added.

During the March quarter, Winchester acquired a 92% stake in 320 acres, known as the Bast oil field.

The acquisition includes three producing wells (aggregate production 10 bopd). These wells have the potential for inexpensive workovers to increase oil production.

Market improvement will present opportunities

In its March announcement detailing its COVID-19 response, Winchester said its management team had a proven track record in realising value from unconventional and conventional oil and gas developments

It expected quality assets coming on the market following oil price falls as operators burdened by debt were forced to rationalise their portfolios.

Winchester managing director Neville Henry reminded shareholders in March that, while a steep drop in oil prices was never helpful to producers and explorers, Winchester’s management team had navigated through a number of downturns in the past 40 years.

He was confident that the company would get through this latest crisis, “seeing it as an opportunity as much as a challenge”.