Whitebark has some big oil plans as it turns the ASX taps back on

Oil and gas prices have soared in the past six months thanks to geopolitics and structural issues stemming from a sustained period of underinvestment in exploration and production.

With the benchmark Brent and WTI crude prices trading at US$122.88 and US$121.18 per barrel, and indications that prices will stay elevated for some time to come, it seems timely for Whitebark Energy (ASX:WBE) to come out swinging after 17 months out in the wilderness that is (voluntary) ASX suspension.

The company first went into suspension after its wholly-owned Canadian subsidiary Salt Bush Energy, which then held 87.5% of the Wizard Lake oil and gas field in Alberta, Canada, filed for bankruptcy.

Whitebark moved to establish a brand-new board and management structure with corporate finance specialist Duncan Gordon taking on the role of chairman and Bass Oil managing director Giustino Guglielmo and Business Initiatives managing director Matthew White joining as non-executive directors.

The new board recognised the potential of Whitebark and an ability to do things differently.

The board brought in Dr Simon Brealey, an experienced geologist with an oil and gas background from Beach Energy, Santos and Amoco, to conduct an independent review of Wizard Lake.

Dr Brealey outlined a pathway to optimise production, reduce costs and generate significant free cash flow and given his confidence in this upside, decided to join the company as interim chief executive officer shortly after.

The new team moved to acquire Salt Bush’s stake in the field and picked up the remaining interests that it didn’t already own – giving it full control of the producing asset.

The company also recently raised $2.5 million through an entitlement offer.

Wizard Lake oil drilling

With these matters settled, Whitebark is preparing to fund the first stage of its Rex-4 development well that is expected to boost production and cashflow.

Rex-4 is the first of two near-term development wells that the company has secured all approvals for and will make full use of its learnings from the first three wells.

It targets the northerly proven undeveloped location parallel to Rex-1 to exploit the more liquids-prone region of the reservoir and is expected to have initial production of about 300 barrels of oil and 1.4 million cubic feet of gas (530 barrels of oil equivalent) per day.

Rex-4 is expected to generate netback operating income of about $4.7m during the first 12 months of operation, assuming a US$85/bbl WTI price and gas price of C$4 per thousand cubic feet, which will fund development of Rex-5 in early 2023.

Adding further interest, these price assumptions look decidedly conservative in light of current elevated prices, which would deliver increased free cash flow.

Whitebark will take a conservative approach towards drilling Rex-4, which will include a 2,400m extended reach horizontal to confirm reservoir quality and oil saturation prior to committing to completion and a 50-stage hydraulic fracture stimulation.

Additional compression capacity has also been installed to accommodate the expected significant increase in production from both Rex-4 and Rex-5.

The “11-17” wellpad can also accommodate a further four wells – Rex-5 through to Rex-8 – meaning that no further infrastructure investment is required.

“WBE is extremely excited about the spud of the Rex-4 development well, and the achievement this represents so rapidly after our successful reinstatement onto the ASX,” Brealey said.

“I am confident in the team’s ability to put into effect lessons learnt from the wellbore management practices of previous wells and apply them not only at Rex-4 but at subsequent wells, as the Wizard Lake asset becomes capable of self-funding two to three new wells per year.

“I believe that the revised production and reserve assumptions adopted in our economic analyses reflect realistic, deliverable outcomes from our development program.”

Analogue highlights potential

To highlight the potential of Whitebark’s Rex-4 well, one need only look at the latest “Leo” wells drilled by Calima Energy (ASX:CE1) at the nearby Sparky Sand play, which is the nearest analogue to the targeted Rex sands at Wizard Lake.

The first three Leo wells produced at initial “clean-up” rates of between 200boe/d and 360boe/d with 90-day production (IP90) rates of 270-460boe/d. Post clean-up these rates are expected to increase.

This compares with Rex-4’s anticipated IP90 rates of 350-530boe/d thanks to Calima employing a development strategy of additional horizontal length, more openings to reservoir and more proppant pumped into each completion, a similar strategy to that used in Rex-3.