Stonehorse Energy Launches Four-Well Drumheller Phase 2 Programme in Alberta

Stonehorse Energy Doubles Down on Drumheller: Phase 2 Four-Well Program Signals Growing Confidence in Alberta's Ellerslie Reservoir

Stonehorse Energy Limited (ASX: SHE) has announced it will participate in the Stonehorse Energy Drumheller Phase 2 four well program in Alberta — a direct follow-on to a successful Phase 1 program that is already on production. Paired with a strategic asset divestment that delivers immediate cash, the announcement reflects a company actively reshaping its portfolio toward oil and liquids while deploying capital into a proven, high-return play.

Phase 2 at Drumheller: Building on a Proven Track Record

The decision to commit to four new wells at Drumheller is underpinned by the performance of Phase 1. Wells #1 through #4, drilled with the same operator, are currently producing as planned — giving Stonehorse a clear line of sight on what the next phase is likely to deliver.

Key details of the Phase 2 program include:

• 4 new development wells to be drilled in the Drumheller area, Alberta
• ~C$8.0 million total investment by Stonehorse Canada Corporation
• Same operator as the successful Phase 1 four-well program
• Targeting the Ellerslie Reservoir — the same formation as Wells #1–#4
• Well #5 spud is set to commence imminently
• Drilling on an existing well pad with facilities already connected, enabling a faster path to first production and sales

The use of an existing pad is a meaningful operational advantage. With surface infrastructure already in place, the time and cost to bring each well to production is materially reduced compared to a greenfield drill. The Stonehorse Energy Drumheller Phase 2 four well program in Alberta represents a calculated expansion based on demonstrated reservoir performance.

The Ellerslie Reservoir: Why This Formation Commands Attention

What Is the Ellerslie Reservoir?

The Ellerslie is a well-understood, conventional oil-bearing formation in the Western Canadian Sedimentary Basin. It is a sandstone reservoir that produces light oil and liquids — typically characterised by relatively straightforward drilling and completion techniques, and a strong track record of consistent production performance.

Why Does It Matter to Investors?

For investors assessing Stonehorse's growth trajectory, the Ellerslie's basin-wide metrics provide important context:

A reservoir growing at 18% CAGR since 2017 and producing at over 40,000 boe/d with 77% liquids is not an emerging or speculative play — it is an established, high-performing formation. Stonehorse is targeting wells in an area of light oil and high liquids ratio, consistent with what was observed in Phase 1.

Furthermore, the Stonehorse Energy Drumheller Phase 2 four well program in Alberta is positioned to benefit from this proven production track record, with the operator targeting the same geological formation that supports such robust industry-wide metrics.

Key Oil and Gas Terms Explained

• boe/d — Barrels of oil equivalent per day; a standard unit for measuring combined oil, gas, and liquids production
• Working Interest — The percentage ownership a company holds in a well or lease, entitling it to a proportional share of production revenues and costs
• Ellerslie Reservoir — A conventional sandstone oil reservoir in the Western Canadian Sedimentary Basin, known for light oil and liquids-rich production
• CAGR — Compound Annual Growth Rate; the annualised rate of growth over a defined period
• Spud — Industry term for the commencement of drilling on a new well

Strategic Portfolio Reshaping: Divesting Gas, Growing Oil

Alongside the Drumheller expansion, Stonehorse has announced the divestment of a 26.25% working interest in land and production near Sundre, Alberta, for C$3.05 million cash.

This is a deliberate portfolio decision, not a distressed sale:

• The divested asset is a natural gas property
• Proceeds of C$3.05 million will be applied to general corporate purposes
• Following the divestment, Stonehorse's production will be weighted strongly to oil and liquids
• The Phase 2 Drumheller program directly continues to build on this oil-weighted strategy

The logic is straightforward: exit a gas-weighted exposure, recycle capital, and concentrate production in a liquids-rich, high-growth reservoir. For investors, this repositioning reduces commodity price risk relative to natural gas markets and aligns the company's revenue profile with the more stable and typically higher-margin oil and liquids segment.

Understanding Oil vs Gas Investment Dynamics

Why Oil and Liquids Matter to Investors

Oil and liquids typically command higher commodity prices compared to natural gas, providing companies with more stable and predictable revenue streams. Natural gas prices can be more volatile due to seasonal demand patterns and regional supply constraints.

For ASX-listed Canadian E&P companies like Stonehorse, the commodity mix directly affects:

• Revenue quality — Oil prices are typically higher and more stable than gas
• Market valuation — Investors often assign higher multiples to oil-weighted producers
• Cash flow predictability — Liquids provide more consistent cash generation
• Infrastructure flexibility — Oil can be transported by truck, rail, or pipeline, while gas requires pipeline connections

In addition, the Stonehorse Energy Drumheller Phase 2 four well program in Alberta aligns with this strategic shift toward higher-value hydrocarbon production.

Executive Chairman Rob Gardner commented: "We are extremely pleased with the results from the first four Drumheller wells. Stonehorse will continue to participate in further opportunity to partner with a strong operator for high impact and quick payback wells in Western Canada."

The phrase "quick payback" is notably significant — it signals that Drumheller wells are not long-dated capital projects but are structured for near-term cash flow return, consistent with the development nature of the program.

What Comes Next: Near-Term Milestones to Watch

With Well #5 spud imminent and the infrastructure already in place, the timeline to first production from Phase 2 is expected to be relatively compressed. Investors should track the following near-term developments:

1. Well #5 spud commencement — described as imminent at the time of announcement
2. Drilling and completion of Wells #5–#8 — following sequentially
3. First production from Phase 2 wells — facilitated by existing pad facilities and sales connections
4. Deployment of Sundre divestment proceeds — C$3.05m available for corporate purposes, which may support further activity
5. Production performance updates — comparing Phase 2 results against the Phase 1 baseline

However, timing will ultimately depend on operational conditions. The existing infrastructure and proven operator partnership are expected to keep the programme on track.

The Investment Thesis: Execution, Focus, and Compounding Growth

Stonehorse's announcement presents three distinct investment considerations working in combination.

1. Proven Execution, Not Exploration Risk

Phase 2 is a development programme following a Phase 1 that is already on production. The operator is the same, the reservoir is the same, and the well pad infrastructure already exists. The risk profile of a follow-on development programme in a producing formation is materially lower than a first-of-kind exploration drill.

2. Liquids-Focused Repositioning With Clear Strategic Logic

The simultaneous divestment of a natural gas asset and investment in an oil and liquids programme is a coherent, deliberate strategy. Investors in ASX-listed Canadian E&P companies benefit from understanding how a company's commodity mix affects revenue quality — and Stonehorse is actively improving that mix.

3. A Basin With Demonstrated Growth

The Ellerslie Reservoir's 18% CAGR since 2017 and over 40,000 boe/d production rate reflect a well-understood, actively developed formation. Stonehorse's exposure through development wells with a strong established operator provides access to this growth without the capital intensity of being a sole operator.

Why Investors Should Keep Stonehorse on Their Radar

Stonehorse Energy is an Australian-listed E&P company (ASX: SHE) with a focused onshore oil and gas strategy in Canada and the United States. With 684.4 million ordinary shares on issue, it is a small-cap company making targeted, repeatable capital allocations into a single proven reservoir with a consistent operator partner.

The combination of factors at play here is worth noting:

• A Phase 1 development programme already in production provides real-world validation of the Drumheller play
• Phase 2 commitment to four more wells demonstrates operator and company confidence in continued results
• An existing pad and connected facilities reduce time-to-production for Phase 2 wells
• The Sundre divestment generates C$3.05m in cash while sharpening the production portfolio's oil weighting
• The Ellerslie Reservoir's strong basin metrics — 18% CAGR, 77% liquids — support the underlying thesis

Stonehorse Energy has positioned itself as a focused, execution-driven oil and liquids producer in Western Canada, with direct exposure to the growth of the Ellerslie Reservoir through a proven operator partnership. With Phase 2 drilling imminent, a freshly divested gas asset recycling capital back into the business, and a clear strategy to build an oil-weighted production portfolio, upcoming well results represent a meaningful near-term catalyst for investors to monitor closely.

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