Winchester Farms Out 30% Stake, Unlocks US$2.4M Funding for Varn

Farm-Out Agreement Unlocks Capital and Expertise

Winchester Energy Limited (ASX, WEL) has announced a significant farm-out deal, selling a 30% interest in its Varn waterflood project in Taylor County, Texas, to a consortium of private US investors led by Production Lending, LLC. This agreement provides Winchester with an upfront payment of US$112,000 and secures a funding commitment of approximately US$2.4 million towards the project's development costs, easing the capital burden on the company.

Winchester will maintain operational control with a 70% stake and benefit from a “third-for-a-quarter” promote arrangement on all planned wells, aligning incentives for successful project execution. The involvement of Production Lending, a Houston-based private equity and credit provider with deep experience in US oil and gas, is expected to bring valuable local expertise and networks to the venture.

Project Overview and Development Plan

The Varn Oil Field, acquired by Winchester in late 2021, contains proven and probable reserves exceeding one million barrels of oil equivalent, predominantly from the Fry Sands formation. The waterflood project aims to enhance recovery by injecting water to maintain reservoir pressure and mobilize additional oil, a common secondary recovery technique in mature US fields.

Development will proceed in four stages over roughly two years, with drilling of ten wells; five producers and five injectors; planned to optimize recovery. Production and revenue milestones must be met before advancing to subsequent stages, ensuring disciplined capital deployment. Existing infrastructure such as roads, flow lines, and facilities is largely in place, enabling rapid well tie-in and production ramp-up.

Strategic Implications for Winchester

CEO Rory McGoldrick highlighted the farm-out as a pivotal step to fund the Varn waterflood while continuing to explore new US opportunities. The deal not only mitigates financial risk but also leverages the farmin group's operational expertise, potentially accelerating project timelines and enhancing value.

Notably, Winchester’s US-based CFO, Ed May, will acquire a 2% interest in the project on arms-length terms, reflecting confidence in the venture and aligning management interests with project success.

With drilling rig slots targeted within the next month, the company is poised to transition from planning to execution, setting the stage for production growth from a key asset in its US portfolio.