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OIL & GAS | Winchester Energy | ASX

WINCHESTER

Austra


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R ENERGY

alian junior taking on the Permian heavyweights


OIL & GAS | Winchester Energy | ASX

Since RGN last spoke to Winchester Energy the Australian oil and gas junior has been busy developing its position in one of the most bounteous oil basins in the US, the gigantic Permian Basin stretching across Texas and New Mexico, along with further building its board and management team. ASX-listed Winchester was formed in 2014 and quickly snapped up 17,400 net acres in the Permian, a bold and unprecedented move for a junior cap company in the middle of the lowest global oil prices seen in at least a decade. Winchester’s acreage in the Permian’s Eastern shelf provides a multitude of conventional and unconventional oil targets from two ancient formations, which have been subject to extensive drilling in the last year.

prolific basin outside of the Middle East, and we’ve got great leases and expect great drilling opportunities going forward,” asserts managing director Neville Henry. Over the last year, Winchester’s drilling programme has focused on a range of wells, achieving significant success with two vertical

The company’s activity thus far has resulted

wells of over 200 bpd. However, as is the case

in eight producing wells, operating at

with most drilling programmes, results have

varying rates from just a couple of barrels

been hit and miss with other wells returning

per day (bpd) up to 200 bpd, with a view to

in the range of 50 bpd.

completing further drilling on the wells to provide a more uniform overall output.

The greatest basin outside the Middle East “We have eight wells all on production in the Permian, which is probably the most

As a result, the company has had to reconsider its understanding of the reservoir variability of the Ellenburger Formation, one of the oldest oil producing rock formations in the world at close to 400 million years old.


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The ancient formation has undergone

company with a relatively inexpensive, viable

multiple surface erosional events and then

technique with which to significantly enhance

alteration from hydrothermal fluids prior to

the intersection of oil productive porosity,

the deposition of Pennsylvanian and Permian

fracturing and permeability within the oil-

sequences. Consequently, Winchester has

saturated Ellenburger Formation.

extensively utilised 3D seismic mapping technology to improve its understanding of

In the first well, where the USR technique

the geological formation.

has been successfully used, it has provided Winchester with a ten-fold exposure to oil

“We are currently in the middle of drilling a

and gas bearing zones within the Ellenburger

series of short horizontals from an existing

Formation when compared to a standard

vertical well using ultra-short radius (USR)

vertical well and, as such, is a potential game

drilling technology, exclusive to us in our

changer for the company.

leasehold the company has completed three horizontal lateral legs in its first operation

“Where we are today, we are on the brink of

with USR Drilling as Winchester’s partner.”

proving the viability of this technology as a way to significantly enhance oil production

Drilling results to date have provided

rates and we are preparing to drill a multi-

proof that USR lateral drilling provides the

well programme which will include both


OIL & GAS | Winchester Energy | ASX


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similar short multiple horizontal wells and

Henry approached Kopcheff with an offer

limited vertical wells over the next nine

to join the board at Winchester based

months.

on his expertise in the junior cap sector, having taken independent Australian oil

“We believe the enhanced production from

explorer Victoria Petroleum from a market

the USR drilling method at the end of the

capitalisation of US$10 million in 1984 to

initial USR drilling program will create an

around $330 million.

increased positive cash flow that should selffund drilling from that point onwards,” says

“I’d been approached by several junior

Henry.

explorers since my retirement but nothing took my fancy, until Neville approached me,”

Another significant development within the

says Kopcheff.

company in the last year arrived with the appointment of supremely experienced

“They say you should always back people, so

geologist John Kopcheff as non-executive

with Neville and Winchester I agreed to come

chairman.

on board to direct the public announcements side of things and keep the company in the

Kopcheff is well-known across the industry

profile of the investment public in Australia.”

for his exploits spanning a 39-year career, prior to his retirement in 2010.

In addition to having the right people in place


OIL & GAS | Winchester Energy | ASX

at Winchester, Kopcheff also saw that the

Having Kopcheff at the helm of Winchester’s

company was in a unique position as a junior

public profile has opened up a new dynamic

with a large acreage position in the Permian

for the company while Henry continues to

Basin and production from the get-go, but

lead the process of drilling wells, although

felt it just needed a greater injection of

the former has also been influential in the

publicity across investor markets.

application of a more aggressive drilling programme.


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Henry and Kopcheff agree that an aggressive

Consequently, Winchester has drilled, and

drill programme is what will deliver results

plans to drill, lots of targets and some

(especially in the Permian Basin where

wildcats across the net acreage, but crucially

it is almost impossible to drill a dry hole

has married this aggressive programme with

according to Kopcheff) and ultimately what

a highly technical approach.

shareholders want to see.


OIL & GAS | Winchester Energy | ASX


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A technological approach With the use of 3D seismic technology, the company has been able to define some enticing stratigraphic traps in the Strawn Formation, particularly at a prospect called Crystal Falls which has a significant resource potential of up to 15 million barrels.

Therefore, Henry and Kopcheff recently visited London and received a welcome reception, attracting interest from a couple of institutional investors. Follow-up road shows in Australia have also resulted in a successful $2.6 million raising from professional investors.

“We are looking at lots of different technological approaches, including how we

Winchester also hired experienced

can improve productivity and recovery from

independent geologist Peter Strachan to

the wells by using chemical treatments to

undertake an independent financial review

get the highest rates of recovery per dollar

of the company, the results of which were

spent,” says Henry.

published in the Strachan Report.

By combining these technical approaches

Kopcheff asserts that Strachan has a ‘healthy

with a large acreage position, Winchester

cynicism’ of oil and gas firms from an

hopes to deliver significantly increased

investment perspective, which is somewhat

shareholder value over the next 18 months

reflected in his valuation of the company at

in a layered fashion, drilling vertical wells,

10.3 cents a share, with a ceiling of 55 cents a

followed by horizontals and laterals.

share.

“If we can layer all the drilling up, you can

“Some of the investors and board members

build a pretty substantial resources base for

thought this was a bit low but I said this is

the company and for the shareholders to

reality, we operate off a low base and go

hang their hat on, with a very low downside,”

upwards,” says Kopcheff. “Certainly, with the

Henry adds.

type of plays we’ve adopted we are looking

at giving the shareholders the opportunity of The company currently finds itself in a

having a higher price and if we are successful

healthy financial position with available cash

we will see it rise.”

and no debt, but needs sustained capital to fund its aggressive drilling plans in the

The Strachan Report was also published

coming years.

without incorporating the Crystal Falls play

“IF WE CAN LAYER ALL THE DRILLING UP, YOU CAN BUILD A PRETTY SUBSTANTIAL RESOURCES BASE FOR THE COMPANY AND FOR THE SHAREHOLDERS TO HANG THEIR HAT ON, WITH A VERY LOW DOWNSIDE,” NEVILLE HENRY, MANAGING DIRECTOR

170


OIL & GAS | Winchester Energy | ASX

and prior to a successful round of lateral

think people are now becoming aware that

well drilling, which should add an extra slice

there has been a stabilising in the price and

of value on the share price in the eyes of

investors will turn to this sector and see that

shareholders and investors.

there is potential for an improvement in

A changing climate in the oil sector

value.” Winchester is well protected from oil price

The recovery of the oil price, which has

fluctuations on the downside, down to

spilled over the $60 a barrel mark in recent

the mid-$30s thanks to the low costs of its

months will prove to be an additional boon to ongoing activity and the attractive leases it the company, as investors realise that value

has negotiated during the oil price downturn.

is returning to the sector. Winchester hopes that greater pools of capital will be available

“The particular leases we’ve been able to

to be pumped into its drilling programmes.

negotiate during the down turn, when the lessors were willing to negotiate and not be

“I believe the climate is changing within the

too hard on us, has meant we’ve ended up

industry,” contends Kopcheff. “The oil sector

with five leases and each one has a one well

has been beaten down for a long time, but I

per year commitment to extend the entire acreage.”


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These deals will allow Winchester to maintain position in the Permian, with the potential to its growth even if the oil price was to move

extract a gross resource of up to 30 million

downwards significantly, whereas other

barrels of recoverable oil trapped across two

companies in the Permian have countless

formations.

leases and would have to drill continuously or risk losing their acreage position they spent

With a series of successful drill results under

thousands of dollars on, even if the oil price

its belt, the aim for Henry and Kopcheff is

remains stable.

for Winchester to continue its aggressive drill programme, build production, prove up

Winchester has not only weathered the

its total resource figure across the acreage

storm of the 2014 oil price crash, but turned

and open up new exploration channels with

adversity into opportunity during the down

the ultimate goal of significantly increasing

time to secure a significant net acreage

shareholder value.

j


Published by Anderson Murray Media Ltd

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RGN | Winchester Energy  
RGN | Winchester Energy