Winchester Energy gears up for major Permian Basin drill program

Texas oil producer Winchester Energy (ASX: WEL) is readying itself to accelerate drilling at its Permian Basin acreage in Texas as it seeks to grow oil production and reserves.

During the December quarter, the company generated multiple exciting drilling prospects with gross prospective resources within its oil and gas leases located in Texas’ Eastern Permian Basin.

The company is aiming to prove up its initial exploration success this quarter, specifically at the El Dorado, Mustang and Spitfire prospects, with Winchester looking to define a cumulative best to high estimate prospective resource of 7.8 to 17.5 million barrels of recoverable oil via upcoming drilling.

Releasing its December quarter results to shareholders today, the company, which has offices in Houston and Perth, generated total revenue of US$227,347 for the three-month period. This compares to the US$224,206 in the September 2018 quarter.

Winchester produced 10,726 barrels of gross oil from its Texas acreage. At an average sale price per barrel of oil of US$54.18, the company generated US$218,641 in oil revenue alone.

To date, Winchester’s wells in Nolan County have produced 318,918 barrels of crude and 174 million cubic feet of gas in total, with cumulative net production to Winchester before royalties tipping in at 159,459 barrels of oil and 87 million cubic feet of gas.

On the financial end, the company announced a non-renounceable entitlement offer to raise up to $2.85 million before costs to fund its upcoming three-well vertical drilling campaign in the Permian Basin.

Once the rights offer closes in February, Winchester will move immediately to drill the prospective El Dorado, Mustang and Spitfire prospects.

Winchester closed out the quarter with cash reserves of about $436,000.

Upside potential remains in rich petroleum region

Winchester, which has an expansive 17,266 acre leasehold position in the prolific oil producing Permian Basin, sees significant upside from the area to assist it to grow production and reserve numbers.

The company currently derives oil production from the Ellenburger and Strawn formation at its White Hat Ranch acreage, including White Hat 20#2, which as a Strawn oil well has produced more than 30,000 barrels of oil in its 18 months of production.

As part of its upcoming exploration activities, the company will focus on the shallower Strawn formation, with planned fracking set to occur from February through to August.

As well as the Strawn 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.

A flurry of industry activity is already taking place to the north of the company’s leases in the Strawn Formation with horizontal drilling and multi-stage frack completions reporting initial flow rates of up to 1,431 barrels of oil per day.  In the past, industry was active in the Wolfcamp ‘D’ shales to the south west of Winchester’s holdings.

While past horizontal drilling in the Wolfcamp ‘D’ ceased when oil prices declined back in 2014, the US Energy Corporation of America has re-commenced testing in the company’s acreage of the Wolfcamp ‘D’ shale of Thomas 119-1H to determine its economic viability at current oil prices.

According to Winchester, success at Thomas 119-1H could potentially add significant value to its acreage as the Wolfcamp ‘D’, in particular the Lower Penn organic-rich shales, extend across much of its acreage.

The company plans to frack its Wolfcamp ‘D’ acreage in the second quarter of 2019.

Winchester’s shares were sitting at $0.02 in early morning trade.