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- Oil and gas producer Winchester Energy (WEL) has flagged improved margins and cash flow as crude oil prices surge
- The company says it had positive cashflow of US$473,000 (A$641,500) over the December 2021 quarter when oil prices averaged US$76.34 (A$103) per barrel
- Over recent weeks, West Texas Intermediate (WTI) has spiked to well over US$100 (A$137), and Winchester says it is directly exposed to the spot price increase
- Winchester plans to begin development drilling of its recently purchased Varn project in Texas next month
- Shares in Winchester Energy are up 10.51 per cent to 2.1 cents
US-focused oil and gas producer Winchester Energy (WEL) is trading higher on the ASX as surging oil prices widen the company’s margins.
The company today told investors it had “outstanding” operating costs of US$4.04 (A$5.50) per barrel of oil from its producing wells, resulting in positive cashflow of US$473,000 (A$641,500) over the December 2021 quarter.
During this time, West Texas Intermediate (WTI) crude oil averaged US$76.34 (A$103) a barrel. Over the past two weeks, the price of oil has skyrocketed over supply concerns following Russia’s invasion of Ukraine.
WTI topped US$130 (A$176) in early March, and though the US oil benchmark has since retreated, futures have still consistently traded at over US$100 (A$137).
While Winchester did not offer any guidance about what exactly the high oil prices will mean for its bottom line, it said its low operating costs amid the high prices underpinned “significant” margins and cashflow.
“Winchester has no debt and is 100 per cent exposed to the WTI spot price, which has meant that the recent uptick in production and favourable oil price movement has ushered in a period of strong positive cash flow growth reflected by increasing cash reserves,” Winchester Non-Executive Director James Allchurch said.
Looking ahead, Winchester said it was planning to apply heavy perforations and acid to the Ellenburger interval of its White Hat 3902 well in the US state of Texas to maximise oil production from this zone.
The company said it expected this workover to cost less than US$80,000 (A$108,500).
Meanwhile, Winchester announced in December last year the US$415,000 (A$563,000) purchase of the Varn oil field in Texas. The company said with 2P probable reserves of 1.06 million barrels of oil equivalent, the project was expected to cost US$5.61 (A$7.61) per barrel to acquire and develop.
WTI was trading for around US$65.44 (A$88.74) per barrel when Winchester signed the papers to buy the project.
“With the benefit of hindsight, the acquisition of the Varn project has proven to be a bargain and I look forward to converting these 2P reserves to flowing barrels,” Mr Allchurch said.
Development drilling at the Varn project is slated to begin next month.
Shares in Winchester Energy were up 10.51 per cent to 2.1 cents at 1:29pm AEDT.
