PERMIAN BASIN - PROJECT DETAILS

Winchester was established in 2014 with the preliminary objective of acquiring oil and gas leases and working interests (WI) in areas situated on the Eastern Shelf of the Permian Basin in Texas, USA, a location which offers several prospective conventional unconventional oil opportunities at shallow depth together with attractive conventional oil targets in the Ellenburger Formation at slightly greater depth (between 6,000 and 7,500ft). The existence of several known oil and gas producing horizons (‘stacked pay’) within Winchester’s dominant acreage position represents tremendous opportunity and upside for the Company going forward. Concurrent with establishing a dominant land position in the Permian Basin, Winchester commenced exploration drilling with subsequent oil and gas production achieved in 2015.

As at 31 December 2016 Winchester had acquired 19,110 net acres incorporated within five leases in the highly productive Eastern Shelf of the Permian Basin in Texas, USA.

Figure 1: Location of the Company’s 19,110 net acres in Texas, USA

 

OIL AND GAS LEASES

The Company has 19,110 net acres of oil and gas leases situated in Nolan County and Coke County in Texas, USA across six oil and gas leases.

LEASE AREAS GROSS ACRES MIN. INT. LEASE NET ACRES WI CO. NET AC.
White Hat Ranch 7,588.20 97.23% 7,378.20 75.00% 5,463.65
Bridgford Ranch 2,311.94 100.00% 2,311.94 100.00% 2,311.94
Thomas Ranch 3,564.60 95.53% 3,401.86 100.00% 3,401.86
McLeod 4246.4 87.48% 3,924.80 100.00% 3,924.80
Arledge 3,816.30 91.77% 3,502.23 100.00% 3,502.23
Coke 505.40 100.00% 505.40 100.00% 505.40

 

OIL PRODUCTION

In conjunction with operator, Carl E Gungoll Exploration LLC (CEGX), Winchester has drilled a total of eight vertical oil wells within its White Hat oil and gas lease.

Six of these wells have been completed in the deeper Ellenburger Formation, one well completed in the shallower Strawn Formation with the final well currently awaiting recompletion. Winchester’s wholly owned USA subsidiary, Winchester Energy USA Holdings Inc., owns a 75% working interest in the oil and gas mineral rights of the 7,058 acres which surround and adjoin these existing eight White Hat wells (Winchester 50% WI). CEGX own the remaining 25% WI in these 7,058 acres.

Importantly, on 1 March 2017, the 50%:50% WI arrangement transitioned to Winchester 75% WI:CEGX 25% WI in all areas outside the eight presently drilled 40 acre drilling units (save for one additional vertical well that CEGX can drill at a time of its choosing on a 50:50 basis). Thus, as of 1 March 2017, Winchester is operator of the 7,058 acres of the White Hat ranch oil and gas lease outside of the eight presently drilled 40 acre drilling units (being a total of 320 acres).

The following table outlines the oil production of the Company, on a quarter by quarter basis.

Gross Oil Production (bo)* March Quarter 2017 December Quarter 2016 September Quarter 2016 June Quarter 2016 March Quarter 2016
Oil Production (Gross 100%WI) 28,633 37,876 35,428 26,159 26,761
Oil Sales (Gross 100%WI) 28,467 37,642 35,113 26,537 26,839
Net Oil Production to Winchester (bo) (50% Working Interest)*
Quarterly Oil Production (Net) 14,316 18,938 17,714 13,080 13,380
Quarterly Oil Sales (Net) 14,233 18,821 17,556 13,269 13,420

* Please note that all production from the White Hat ranch oil and gas lease is subject to royalty payments of 23.5% to the oil and gas rights owners of the White Hat ranch. The figures represented above are pre-royalty.

Ellenburger Formation - Continued Development Leading to Increased Production

The Company has established an area of 10,000 acres (see map below) which extends over three oil and gas leases and partially a fourth, where the Ellenburger Formation has been proven productive in several wells and is expected to be productive based on recent drilling results, new technologies and 3D seismic interpretations.

The Ellenburger Formation is variable in its reservoir characteristics, its porosity and permeability, its fracture density and the ratio of dolomite and limestone. The Company plans to test and evaluate several completion techniques (such as ultra-short radius multiple laterals and small vertical fracture stimulations) to improve well productivity when required. This is anticipated to improve the economics of wells which have low initial productivity with standard completions.

In the nearby 12,000 acre Suggs Oil Field, total oil production to date is around 10 million barrels of oil (bo) from just over 100 wells, indicating an average of 100,000 barrels of oil per well. There were several excellent wells within the Suggs Oil Field with the highest producing over 400,000 barrels of oil over 30 years. 15% of wells recovered over 200,000 barrels of oil and 30% of the wells produced under 50,000 barrels of oil and were sub economic. The highest IP rate was 432 barrels of oil per day (bopd) and the average initial production (IP) of the top 6% of wells was 364 bopd.

Winchester’s technical team believes its Ellenburger play will have similar characteristics to the Suggs Oil Field and that utilising modern techniques to improve well productivity will significantly enhance field economics.

To this end, Winchester is presently investigating improved completion techniques and new drilling approaches including ultra-short radius lateral drilling that allows for multiple short distance laterals to be drilled from a single well bore. By applying some or all of these modern techniques, Winchester plans to improve well productivity at relatively low cost.

Figure 2: Aerial extent of interpreted 10,000 acre Ellenburger Formation oil trap area

Other Conventional Oil Plays other than the Ellenburger Formation

To date, Winchester has focussed on drilling and producing oil and gas from its deeper Ellenburger Formation discovery but from the founding of the Company, it has recognised the potential for oil in a number of shallower reservoirs (“stacked pays”), including the Strawn Formation.

Importantly, the prolific oil producing Strawn Formation is expected to occur within Winchester’s 19,110 net acres in Nolan County, Texas, USA.

Winchester has previously announced that oil is being produced on pump from a sand unit within the Strawn Formation in the White Hat 20#2 well which is being operated by CEGX. Winchester has a 50% working interest in White Hat 20#2. CEGX has the other 50%WI.

The specific interval in question is a sand play that is deposited on the basin- ward shelf margin in the Strawn Formation. These sands occur at several stratigraphic levels and have produced significant oil from stratigraphic traps in the nearby Suggs Oil Field and White Hat ranch area and beyond and have been labelled or referred to as Fry, Gardner, Lazarus, Jennings Lime, and Goen sand units.

The result in White Hat 20#02 constitutes a significant new oil discovery in a sand unit within the Strawn Formation. The current significant oil production rate in the range of 100 to 120 bopd has arisen from simple, low cost, small scale fracking. This result constitutes a new, valuable oil play across Winchester’s 19,110 net acres.

Winchester is evaluating logs, well samples and seismic data across all its 19,110 net acres in order to attempt to identify Strawn Formation sand packages which have properties analogous to those in the White Hat 20#2 well.

Other Shallow Formations

It should be noted that all eight wells drilled to date by CEGX as operator targeting the Ellenburger Formation have obtained promising oil and gas shows in several of the overlying formations, many of which have a strong history of oil production in the East Permian Basin.

These overlying formations (being shallower than the Ellenburger Formation), include the Upper Cline (otherwise called the “Three Fingers Black Shale”), the Lower Cline (otherwise called the “Lower Penn Shale”) and the Barnett Shale Equivalent. All three shale oil plays are blanket resource plays across all of Winchester’s 19,110 net acres. That equates to 57,330 net acres of shale drilling units, which at drill spacing of 640 acres, results in 89 horizontal well locations.

The result in White Hat 20#02, which constitutes a significant new oil discovery in a sand unit within the Strawn Formation, is the only well of the eight wells drilled to date by CEGX as operator, which has seen a test of one of these overlying formations.