Winchester Energy (ASX: WEL) is hoping to raise up to $2.85 million through a newly announced share issue to fund its upcoming three-well vertical drilling campaign in Texas’ Eastern Permian Basin.
The US-focused oil and gas junior lodged the non-renounceable entitlement offer with the ASX on Friday, offering one new fully paid ordinary share for every two shares held in the company, at an issue price of $0.02 per new share.
Winchester chairman John Kopcheff said in a chairman’s letter that funds raised from the entitlement offer would “complement cash on hand and future cash flows” from the company’s 50%-owned White Hat Ranch producing oilfield, as well as fund an exploration and development program on its acreage.
“The exploration program will commence with the drilling of three wells, one on each of the Mustang, El Dorado and Spitfire prospects located on Winchester’s leases in Nolan and Coke counties, Texas,” Mr Kopcheff said.
Winchester plans to spud the first well, Mustang, in early February, primarily targeting the Strawn formation.
The company currently derives oil production from this formation in other wells at its White Hat Ranch acreage, including White Hat 20#2, which has produced more than 30,000 barrels of oil in its 18 months of production.
Speaking with Small Caps, Mr Kopcheff said with exploration success in all three wells (Mustang, El Dorado and Spitfire), the company was anticipating a cumulative best estimate to high estimate prospective resource of 7.8 to 17.5 million barrels of recoverable oil.
“From the company’s point of view, the big upside for major future growth of the company’s production and reserve base may come from any exploration success in the Spitfire prospect, a stratigraphic trap with the potential to contain prospective resource for the best estimate to high estimate of 4.4 to 9.9 million barrels of recoverable oil,” he said.
Mr Kopcheff said any potential oil discoveries arising from the drilling program “could be candidates for initial vertical fracking and subsequent future horizontal drilling and multi-stage fracking”, both of which have been successfully utilised by other Permian Basin operators.
In recent months, Winchester refocused its exploration target from the deeper Ellenburger formation to this shallower Strawn formation after a horizontal drilling campaign did not produce oil as anticipated.
In addition to these new prospects, the company said it also planned Strawn recompletions of existing wells that were originally drilled to test the Ellenburger formation.
Mr Kopcheff said the company hopes this vertical drilling program will “get its production trend back on track and going up”.
However, he noted that Ellenburger still “remains a target and will therefore be penetrated in all planned exploration wells”.
Board confidence in drilling program
Mr Kopcheff said the “multiplicity of target horizons” enhances the chance of exploration and production success, which would enable Winchester to grow its oil reserves and production from its current modest levels.
“It can be seen that the chairman and fellow board directors are backing up their belief in the potential of the drilling program to success, as they are all taking up their rights in the issue,” Mr Kopcheff said.
The share issue is due to close in late January 2019, with the drilling program expected to commence shortly after.
The entitlement offer also allows shareholders to build their share position by taking up all of their rights plus apply for additional shares at $0.02 per share from any potential shortfall.