Winchester Energy well positioned to withstand virus outbreak
Texan oil producer Winchester Energy (ASX: WEL) said it is well positioned to withstand the recent sharp drop in oil prices due to the spread of the COVID-19 virus.
It is also poised to benefit from any market improvement, the company said today.
Winchester expects quality assets coming on the market as operators burdened by debt are forced to rationalise their portfolios.
Even at prevailing low oil prices, the oil and gas company is continuing to produce and able to maintain a positive cash flow.
Winchester managing director Neville Henry reminded shareholders that, while a steep drop in oil prices is never helpful to producers and explorers, the company’s management team has navigated through a number of downturns in the past 40 years.
He is confident the company will get through this latest crisis, “seeing it as an opportunity as much as a challenge”.
As of 29 February, Winchester had more than $6.5 million cash on hand, was receiving all revenues in US dollars, and was free of debt.
Its portfolio of leases range from low cost behind-pipe opportunities to multi-target prospects with sizeable resource potential. Testing would be low cost, as are the holding costs on leased areas.
Drilling paused before COVID-19
Drilling had been paused before the virus hit in order to allow a review; this process has now been extended to all operations to find new cost savings.
Winchester said the emphasis is now on belt tightening, optimising revenue, and focusing on lowest cost, lowest risk behind-pipe options to increase production.
Approaches are being made to vendors to seek “appropriate” price adjustments and new prospect drilling will have risk reduced by farm-out partnering.
More acreage, higher output
In early February, Winchester announced it acquired additional acreage in Texas’ East Permian Basin.
The December quarter saw a 50% increase over the third quarter in oil and gas revenue to $1.79 million.
Attributable oil production for the three months to 31 December came to 312 barrels of oil per day, an increase of 40% on the September quarter.
In the latest quarter, Winchester had four producing wells, three in which it has a 75% interest, the fourth a 50% stake.