REG - 88 Energy Limited - 2024 Half Year Report

88 EnergyAnnouncement

02/09/2024 07:00

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RNS Number : 4824C  88 Energy Limited  02 September 2024

 

2 September 2024

88 Energy Limited

Half-Year Financial Report

88 Energy Limited (ASX:88E, AIM:88E, OTC:EEENF) (88 Energy or the Company) is
pleased to advise of the release of its financial results for the half-year
ending 30 June 2024.

 

A copy of the Company's Half-Year Financial Report, extracts from which are
set out below, has been lodged on the ASX and is also available on the
Company's website at www.88energy.com .

 

Media and Investor Relations:

 

 88 Energy Ltd

 Ashley Gilbert, Managing Director
 Ashley Gilbert, Managing Director
 Tel: +61 (8)9485 0990

 Email:investor-relations@88energy.com

 Fivemark Partners, Investor and Media Relations
 Michael Vaughan                                                 Tel: +61 (0)422 602 720

 EurozHartleys Ltd
 Dale Bryan                                                      Tel: +61 (8)9268 2829

 Cavendish Capital Markets Limited                               Tel: +44 (0)207 220 0500
 Derrick Lee                                                     Tel: +44 (0)131 220 6939
 Pearl Kellie                                                    Tel: +44 (0)131 220 9775

OPERATING AND FINANCIAL REVIEW

During the period, the Group continued its principal exploration and appraisal
activities in Alaska, complemented by a 75% owned, non-operated working
interest in onshore Texas Permian Basin production assets. The Group also
farmed-in and subsequently received transfer approval for a 20% working
interest in Petroleum Exploration Licence (PEL 93), Onshore Namibia.

 

Project Phoenix

Project Phoenix is an oil-bearing conventional reservoir play identified
during the drilling and logging of Icewine-1 and Hickory-1 and adjacent offset
drilling and testing. Project Phoenix is strategically located on the Dalton
Highway with the Trans-Alaskan Pipeline System (TAPS) bisecting the acreage.

 

Hickory-1 Discovery Well

The Hickory-1 discovery well was drilled in February 2023 and flow tested the
following Alaskan winter season in Q1/Q2 2024. The testing operations focussed
on the two shallower primary targets, the Slope Fan System (SFS) and Shelf
Margin Deltaic (SMD) reservoirs. Of the SFS series of reservoirs, the Upper
SFS (USFS) reservoir was targeted to be flow tested as it had not been
previously tested, whereas the Lower SFS has previously been flow tested and
therefore, the producibility of that reservoir, confirmed on adjacent acreage.
The USFS was followed by a targeted testing of the SMD-B reservoir. Each zone
was independently isolated, stimulated and flowed to surface using nitrogen
lift to assist in an efficient clean-up of the well.

Successful outcomes from the Hickory-1 flow test delivered a platform for
monetisation of Project Phoenix, justifying further advancement, with key
benefits including:

·      Potential capital-light modular Early Production System;

·      Production from horizontal wells typically produce 6-12 times
higher flow rates than vertical wells; and

·      An ability to produce concurrently from multiple reservoirs in a
single development scenario.

 

 

UPPER SFS Flow Test Results

The USFS produced at a peak flow rate of ~70 bopd. Oil cuts increased
throughout the flow back period as the well cleaned up, reaching a maximum of
15% oil cut. The Company expects that oil rates and cut would have likely
increased further should the test period have been extended. The well produced
at an average oil flow rate of ~42 bopd during the natural flow back period,
with instantaneous rates ranging from ~10-77 bopd with average rates
increasing through the test period.   Importantly, the USFS zone flowed oil
to surface under natural flow, with flow back from other reservoirs in
adjacent offset wells only producing under nitrogen assisted lift.

Multiple oil samples were recovered with measured oil gravities of between
39.9 to 41.4 API (representing a light crude oil).

For full details in relation to the USFS test results please refer to the ASX
announcement dated 2 April 2024.

 

SMD-B Flow Test Results

The SMD-B produced at a peak flow rate of ~50 bopd. Oil cuts varied throughout
the flow back period, reaching a maximum of 10% oil cut. The well produced at
an average oil cut of 4% following initial oil to surface, with instantaneous
rates observed during the 16-hour period as the well continued to clean up.
Unlike flow tests on adjacent acreage where multiple gas lift mandrels and
valves were used in completions designs, and nitrogen was unloaded in the
tubing in stages up the well bore, Hickory-1 utilised a single gas lift
mandrel where nitrogen was introduced via one valve at the deepest section.
This is viewed as positive indication for future potential rates and
performance.

Multiple oil samples were recovered, with measured oil gravities of between
38.5 to 39.5 API, representing a light crude oil.

Importantly, the SMD-B zone flowed oil to surface with little to no measurable
gas, representing a low GoR production rate.

For full details in relation to the SMD-B test results please refer to the ASX
announcement dated 15 April 2024.

 

Post-Flow Testing and Next Steps

Pressurised oil samples collected during both the USFS and SMD tests were
transported to laboratories for further analysis. The analyses are expected to
verify the reservoir fluid characteristics.

Following completion of the lab analyses, 88 Energy will commission an
Independent Contingent Resource assessment for the Upper SFS, Lower SFS and
SMD-B. This assessment is expected to be completed in Q4 2024.

Results from the post-flow test analyses will assist 88 Energy in the
optimisation and design of the next phase of advancement at Project Phoenix.
The Company, together with its Project Phoenix Joint Venture partner, are
currently assessing locations for the drilling of a horizontal well, including
the Franklin Bluffs gravel pad location (previously utilised for the Icewine 1
and 2 unconventional test wells), where a long-term flow test of either the
SFS or SMD reservoirs may be undertaken.

Table below is an indicative timeline for Project Phoenix development

 

Project Leonis [100% WI]

In June 2024, the Company reported a maiden internal Prospective Resource net
mean estimate of 381 million barrels (MMbbls) of recoverable oil in the newly
named Tiri Prospect (Upper Schrader Bluff (USB) Formation) for Project Leonis.
(Unrisked net 3U (high) of 671 MMbbls, 2U (best) of 338 MMbbls and 1U (low) of
167 MMbbls.1,2

The initial Prospective Resource estimate followed a review period of an
extensive data suite that included 3D and 2D seismic data, well logs from Hemi
Springs Unit-3 and Hailstorm-1, as well as nearby wells adjacent to the
Project Leonis acreage, along with extensive petrophysical analysis and
mapping.

Importantly, the USB formation is the same proven producing zone as nearby
Polaris, Orion and West Sak oil fields to the north-west as shown on Figure 2.

 

These proven USB producers served as important calibration points for the
Leonis petrophysical model. The Leonis USB prospect has been fully delineated
and mapped following a review of reprocessed 3D seismic data and a 3rd party
dedicated fault mapping study to assist in prospect definition.

 

Forward Program

88 Energy has engaged Hickory-1 project Management Company, Fairweather LLC,
to assist in planning and permitting for the newly named Tiri-1 exploration
well. The well will be designed to drill, log and test the Tiri Prospect in
the USB formation. The company intends to utilise the existing gravel pad at
the Hemi Springs Unit-3 well shown in Figure 3, to reduce costs.

 

 

Timing for the drilling of the Tiri-1 exploration well is dependent on
securing a successful farm-out partner and the Company has secured Stellar
Energy Advisors Limited (Stellar) in London to manage the farm-out process,
who have been engaged with multiple parties in advancing the assessment of the
farm-out opportunity. The process is ongoing.

 

Namibia PEL 93 (20% WI)

In November 2023 88 Energy, via its wholly-owned Namibian subsidiary, executed
a three-stage farm-in agreement (FOA) for up to a 45% non-operated working
interest in the onshore Petroleum Exploration Licence (PEL 93) covering
18,500km2 of underexplored acreage within the Owambo Basin in Namibia.

In February 2024, the Company announced the successful 20% working interest
(WI) transfer by operator Monitor Exploration Limited (Monitor) to 88 Energy
as part of Stage 1 of the FOA; this transfer has been approved by the Namibian
Ministry of Mines and Energy. Monitor now holds a 55% WI with the remaining
25% shared across local entities, Legend Oil Namibia Pty Ltd and NAMCOR. The
current and potential future PEL 93 Joint Venture partners and working
interests are as follows:

 Entity     Pre Farm-in  Stage 1 - Current       Stage 2        Stage 3

                         (Past costs & 2D)       (1(st) Well)   (2(nd) Well)
 Monitor    75.0%        55.0%                   37.5%          30.0%
 Legend     15.0%        15.0%                   15.0%          15.0%
 NAMCOR     10.0%        10.0%                   10.0%          10.0%
 88 Energy  -            20.0%                   37.5%          45.0%

Stage 1 schedule to earn a 20% working interest in the Licence is complete and
comprises:

·      1st instalment: US$0.28 million paid in cash on signing for
partial payment of back costs;

·      2nd instalment: US$1.25 million paid in 88 Energy shares on
signing for part payment of 2D seismic carry;

·      3rd instalment: US$1.25 million paid in 88 Energy shares upon
approval of PEL 93 WI transfer by the Namibian government, as final payment in
relation to the 2D seismic carry; and

·      4th Instalment: US$0.9 million paid in 88 Energy shares for final
back costs payment and 2024 work-program carry.

Namibia has been identified as one of the last remaining under-explored
onshore frontier basins and one of the World's most prospective new
exploration zones. PEL 93 is more than 10 times larger than 88 Energy's
Alaskan portfolio and more than 70 times larger than Project Phoenix.

Recent drilling results on nearby acreage has highlighted the potential of a
new and underexplored conventional oil and gas play in the Damara Fold belt,
referred to as the Damara Play. It is currently the subject of exploration
drilling by ReconAfrica in their nearby PEL 73 block. Historical assessment
utilised a combination of techniques and interpretation of legacy data to
identify the Owambo Basin, as having significant exploration potential.
Monitor utilised a range of geophysical and geochemical techniques to assess
and validate the significant potential of the acreage since award of PEL 93 in
2018, identifying ten (10) independent structural closures from airborne
geophysical methods and partly verified these using existing 2D seismic
coverage.

In May 2024, the Company announced that Polaris Natural Resources Development
Ltd (Polaris) was awarded, the 2D seismic acquisition program contract.
Polaris mobilised vibroseis units and recording equipment to location in late
June 2024 and the program was completed in July 2024. The fully funded 2D
Seismic acquisition program acquired ~200-line km of 2D data with data
processing now underway and anticipated to be finalised in Q4 2024.

Results of the new 2D seismic acquisition will be integrated with existing
historical exploration data to refine current prospect interpretation.
Anticipated outcomes include:

·      Validate up to 10 independent structural closures

·      Maiden certified prospective resource estimate

·      Identification of future potential drilling locations targeting
the Damara play

 

Project Longhorn (~65% WI)

The joint venture (Bighorn JV), which comprises Longhorn Energy Investments
LLC a 100% wholly owned subsidiary of 88 Energy with 75% ownership and
Lonestar I, LLC (Lonestar or Operator) with the remaining 25% ownership,
agreed to a development program that included five workovers in 1H 2024.

During the quarter, the Bighorn JV successfully executed four of the planned
five workovers within Budget with results below:

·      First workover production commenced in mid-April;

·      Second and third workovers commenced production in mid-May;

·      Fourth workover production began in the final week of June 2024;
and

·      The final workover encountered a tubing fish not recorded in the
well file. The operator tried several tools but could only clean out 75 feet
of the anticipated 1,500 feet of the tubing fish recovered. The Bighorn JV
decided to suspend operations and P&A the workover with sunk CAPEX capped
at A$0.5M compared to a budget of A$1.2M.

Completion of the workovers increased gross production from 328 BOE per day
(average Q1 2024) to 395 BOE per day (average Q2 2024) with production for
June averaging 456 BOE per day (~63% oil). The production volume declines of
the four successfully completed workovers are currently lower than initially
forecast.

Project Longhorn continued to provide strong cash flows towards lease and
corporate costs with the Company receiving cash flow distributions of A$1.2M
during H1 2024, post-workover expenditure.

Prior to commencement of the 2024 capital development program, the Bighorn JV
executed a a ~10% sell-down (gross, ~7% net to 88 Energy) of the 2023 acquired
acreage, in order to re-disk and accelerate development opportunities. The
transaction realised net to 88E, acquisition payments of ~A$0.3M and the
non-operated partners contributed their share of the five workover capital
development costs coupled with a 25% carry of their ownership share of the
five workovers. For full details refer to page 6-7 the Q1 2024 Quarterly ASX
announcement on 18 April 2024 including reserves update and cautionary
statement.

 

Focused Alaskan Strategy

In Alaska, 88 Energy has a strategic focus on infrastructure-led opportunities
which benefit from proximity to services at Prudhoe Bay, the Trans-Alaskan
Pipeline System (TAPS) and other key infrastructure. 88 Energy is focused on
advancing Project Phoenix and Project Leonis. Following Hickory-1 successfully
flowing light oil to surface, the Company is aiming to drill horizontal
production wells and generate cash flow within the next 24 months from Project
Phoenix as well as unlocking Project Leonis' potential through an appraisal
well program.

Following proposed new regulations governing the management of surface
resources in the National Petroleum Reserve-A, 88 Energy successfully
requested from the Bureau of Land Management Alaska initial 12-month
suspensions for Project Peregrine to December 2024 and the Umiat Unit to 30
June 2025. The suspensions allow 88 Energy to benefit from a reduction in
lease costs and to focus its efforts on unlocking value from its key strategic
acreage positions  - these are adjacent to infrastructure that should
accelerate commercialisation of the projects.

Acreage that was deemed non-core to 88 Energy was relinquished during 1H 2024,
including all of Icewine East (~23k acres/16 blocks) due to geographical
challenges near/over the SAG river, lack of prospectivity and an 8-year
primary term that expired on 31 May 2024 without being unitised. Additionally,
36 blocks at Icewine West covering ~51k acres with it's 8-year primary term
also expiring in May 2024 were relinquished. The Company has reviewed the
remaining Icewine West acreage and although it noted prospectivity across a
group of leases including Charlie-1, a combination of the Company's focus
being on assets that are adjacent to infrastructure, and the annual 'holding'
rental costs of acreage means there are no immediate plans for further
drilling at Icewine West. 88 Energy has requested relinquishment of the
remaining Icewine West acreage from the Department of Natural Resources and
approvals are expected in Q3 2024.

 

Corporate

Placement

On 24 April 2024, the Company successfully completed an oversubscribed share
placement to domestic and international institutional and sophisticated
investors to raise gross A$9.7 million (approx. £5.17 million) before costs
(the Placement). 3,231,974,839 new fully paid ordinary shares in the Company
(the New Ordinary Shares) were issued at an issue price of A$0.003 (£0.0016)
per New Ordinary Share (the Issue Price). The net proceeds augmented the
Company's existing cash balance to fund:

·       Hickory-1 discovery well flow test operations at Project
Phoenix, post-well studies, securing a contingent resource estimate for the
SFS and SMD reservoirs and other costs associated with commercialising Project
Phoenix;

·       Exploration activities including lease rentals across Alaskan
and Namibian acreage;

·       Permit and planning costs for Tiri-1 exploration well at
Project Leonis; and

·       Securing farmout partners to advance projects at Project
Phoenix and Project Leonis.

Euroz Hartleys Limited (Euroz Hartleys) acted as Sole Lead Manager and
Bookrunner to the Placement. Cavendish Capital Markets Ltd (Cavendish) acted
as Nominated Adviser and Sole Broker to the Placement in the United Kingdom.
Inyati Capital Pty Ltd (Inyati) acted as Co-Manager to the Placement.
Commission for the Placement was 6% (plus GST) of total funds raised across
Euroz Hartleys, Inyati and Cavendish. In addition, and subject to shareholder
approval, the Company will issue a total of 75,000,000 Unlisted Options
(exercisable at A$0.0055 on or before the date which is 3 years from the date
of issue) to Euroz Hartleys, Cavendish and Inyati.

The New Ordinary Shares were issued under the Company's available placement
capacity pursuant to Listing Rule 7.1 and are not subject to shareholder
approval. The Ordinary Shares ranked pari passu with the existing ordinary
shares in the Company and the Ordinary Shares were admitted to trading on AIM.

PEL 93 - Farm-In

Following approval by the Namibian Ministry of Mines and Energy of the 20%
working interest transfer by Monitor to 88 Energy in relation to PEL 93, under
the farm-in agreement, the Stage 1, third instalment payment of US$1.25
million was paid by issuing 397,947,229 new ordinary shares in the Company to
Monitor at an issue price of A$0.0048 per share on 22 February 2024.

Monitor also agreed to receive 88 Energy shares as settlement for the fourth
and final Stage 1 instalment of the farm-in agreement, as announced to the ASX
on 13 November 2023. This instalment covers the final back costs and the 2024
work program carry of US$0.92 million through the issuance of 476,634,546 new
ordinary 88 Energy Shares at an  issue price of A$0.003 per share on 24 April
2024.

General Meetings

The Company held a General Meeting on 15 January 2024 and all eleven (11)
resolutions were passed.

The Company held its Annual General Meeting on 13 May 2024 and all six (6)
resolutions were carried.

 

Events after the period

Other than as disclosed below, there were no significant events occurring
after balance date requiring disclosure.

Project Phoenix

Burgundy Xploration, LLC (Burgundy) met its 2023 financial obligations and
signed the Hickory-1 flow test Authority For Expenditure (AFE) on 15 February
2024. Under a standstill agreement executed in December 2023 with 88E's
subsidiary, Accumulate Energy Alaska, Inc (88E-Accumulate), Burgundy was due
to pay its share of the AFE cost (approximately US$3 million) by no later than
15 August 2024, through either a public listing or a private capital raise. If
the obligation remained unpaid, Burgundy was to transfer 50% of its working
interest in the Toolik River Unit leases to 88E-Accumulate.

As announced on 19 August 2024 on the ASX, 88E understands that Burgundy's
plans for a public listing are progressing well including the recent
recruitment of a board and senior oil and gas executive with significant
public company (AIM, TSX, and US markets) experience and success to facilitate
the company's potential public listing. After an extensive internal and
third-party review of the latest Project Phoenix data by Burgundy, advanced
discussions are underway in relation to a potential transaction whereby
Burgundy would provide a carry to 88E across an anticipated 2025/26 work
program to include (but not be limited to) the drilling, completion and
extended flow testing of a horizontal well on the Dalton Highway in return for
additional working interest in the Project. Any carry would be subject to
Burgundy raising the capital required.  Accordingly, at this stage there is
no guarantee that a transaction with Burgundy will be completed.

Given the deadline on the previous December 2023 standstill agreement,
Burgundy has committed to a payment of US$0.35 million in the near term in
return for the Company extending the December 2023 standstill agreement for
outstanding Flow Test AFE costs until December 31, 2024.  Given this
commitment, Burgundy's intentions to proceed with a listing public listing, as
well as the ongoing negotiations with the Company for a horizontal well carry,
88E has agreed to a further extension of the standstill arrangement.

Should Burgundy fail to meet its obligations by the revised deadline, the
Company retains its rights under the joint operating agreement to enforce its
terms if necessary.

Umiat Unit

88 Energy was successful in receiving a suspension for Project Peregrine on 1
December 2023 for an initial period of 12 months due to the proposed new
regulations governing the management of surface resources in the National
Petroleum Reserve-A (NPR-A). On 25 June 2024, the Company applied for
suspension to Umiat Unit and leases on the same basis as Project Peregrine
suspension, requesting an initial 1-year suspension that will be reviewed as
required. On 31 July  2024 The Bureau of Land Management Alaska approved a
12-month suspension of the Umiat Unit and leases from 1 July 2024 to 30 June
2025.

During the suspension period, 88 Energy will continue the refinement of
internal geological and geophysical models/interpretations. The suspension
will relieve 88 Energy of the obligation to pay lease rentals during the
suspension period of ~A$0.1 million due in Q4.

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