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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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