REG - 88 Energy Limited - Acquisition of Texas Oil & Gas Production Assets
15/12/2023 07:00
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RNS Number : 8904W 88 Energy Limited 15 December 2023
This announcement contains inside information
15 December 2023
88 Energy Limited
Acquisition of Additional Texas Oil and Gas Production Assets
Highlights
· Expanded footprint in Texas Permian Basin with acquisition of further
non-operated working interest in leases and wells with conventional onshore
production and development opportunities.
· ~64.4% net working interest (WI) acquired by 88 Energy in 1,262 net
acres, located ½ mile south and ¼ mile north of existing Project Longhorn
assets (Longhorn) connecting the acreage position.
· Joint Venture partner and Operator, Lonestar I, LLC (Operator or
Lonestar), also acquired a ~21.5% WI in the new assets with remaining WI
retained by existing non-operated partners.
· Purchase price of US$0.35M (net to 88 Energy: US$0.26M) paid in cash
by the Joint Venture, Bighorn Energy LLC (Bighorn) which comprises of Longhorn
Energy Investments LLC (LEI) a 100% wholly owned subsidiary of 88 Energy (75%
ownership) and Lonestar (25% ownership).
· Attractive low-cost entry of ~US$0.33 per BOE based on the
independently certified net 2P reserves position of 0.68 MMBOE(1,2).
· Nine (9) low-producing existing wells (~26 BOE/day gross) and 10
development opportunities with potential identified in multiple zones and
classified as Gross Undeveloped 2P Reserves (1.2 MMBOE(1,2)), along with
Contingent and Prospective Resources which are yet to be quantified.
· Coupled with the additional acreage announced in July 2023, Bighorn
has reviewed its development opportunities and will now target lower-cost
workovers ahead of new drills. Bighorn has approved 5 workovers to be
completed in 1H 2024 and upon successful execution are expected to increase
production to 180 - 220 BOE gross per day (~75% oil).
· Once the workovers are completed, Bighorn will consider for approval
the 2 new production wells, as previously announced, in 2H 2024, which are
expected to increase production by an additional 160-200 BOE gross per day
(~75% oil).
· Upon successful completion of the workovers and new wells across its
acreage, together with the existing producing wells, 88 Energy expects
Longhorn total gross production to reach approximately 600 - 675 BOE per day
(~75% oil) by year end 2024.
· The new acreage contains 2 injection wells that will be assessed for
restoration so that Bighorn has optionality for water disposal, particularly
as production increases when new wells come online.
· Bighorn recently secured a US$5 million line of credit facility to
assist in cash flow management associated with the development opportunities.
(1) Refer to page 3 for initial reserves estimates and assumptions.
(2) Net Revenue Entitlement to 88 Energy.
88 Energy Limited (ASX:88E, AIM:88E, OTC:EEENF) (88 Energy or the Company) is
pleased to announce the execution of binding agreements for the acquisition of
a new non-operated working interest (WI) (~64% net to 88 Energy) in leases and
wells with conventional onshore production and development assets within the
Permian Basin of Texas, U.S.
The new oil and gas production and development assets (Bighorn Phase 3) will
form an extended footprint with the initial assets acquired in February 2022
(Bighorn Phase 1) coupled with the new assets acquired in July 2023 (Bighorn
Phase 2), all together known as Project Longhorn (Longhorn) as shown in figure
1 below. The new acreage is located approximately ½ mile south of Bighorn
Phase 1 and ½ mile north of Bighorn Phase 2. The newly acquired acreage is
estimated to contain independently certified net 2P reserves of 0.68
MMBOE(1,2).
Figure 1: Project Longhorn acreage
Importantly and alike to the July 2023 acquisition, all proposed well
locations have been classified as low-risk, accessing net Proven reserves
totalling 0.56 MMBOE(1,2-), given the production histories from existing wells
on the newly acquired leases as well as adjacent leases. The development
opportunities should intersect multiple potentially oil-bearing intervals
which have been successfully developed in the vicinity of Longhorn and the
upside has been identified and classified as Contingent or Prospective
Resource and will be quantified.
Purchase price of US$0.35M (net to 88 Energy: US$0.26M) paid in cash by the
Joint Venture, Bighorn Energy LLC (Bighorn) which comprises of Longhorn Energy
Investments LLC (88E-LEI) a 100% wholly owned subsidiary of 88 Energy (with a
75% ownership interest) and Lonestar I, LLC (Operator or Lonestar) holding a
25% ownership interest.
The acquisition provides 88 Energy with additional flexibility over
development capital opportunities including 4 lower-cost workovers (Bighorn
CAPEX of ~US$800-950k/each) along with 6 new drill targets to accompany at
least 14 new drill targets on existing acreage.
Bighorn has agreed a forward capital development program as part of its 2024
WP&B which includes 5 workovers in 1H 2024 and contingent on successful
workovers, 2 new drills in 2H 2024. The 2 new wells (on leases which Longhorn
has a ~75% WI), are each anticipated to deliver IP30 of approximately 80-100
BOE per day gross (~75% oil) and cost ~US$1.5 million each, net to 88E-LEI.
Bighorn secured a US$5 million line of credit facility in Q3 2023 to assist in
cash flow management associated with the development opportunities. The
facility is supported by a local Texas Bank, with interest at Prime and
contains no cash lock up, with security over the Longhorn assets. Hedging is
required at 50% of production required to secure the drawdown required.
Longhorn assets in November produced ~370 BOE per day gross (~61% oil) and
upon successful completion of the 2024 work program and budget which includes
5 recompletions and contingent 2 new wells planned on the 2023 acquired
acreage, 88 Energy anticipates Longhorn total gross production to reach
approximately 600 - 675 BOE per day (~75% oil) by year end 2024.
Acquisition details
On 14 December 2023, the Company, via its 75% ownership interest in the Joint
Venture subsidiary Bighorn Energy, LLC (Bighorn), acquired an interest in the
new leases and wells (Bighorn Phase 3) from Endeavor Energy Resources, L.P.,
for consideration of US$0.35 million gross to be paid in cash by Bighorn.
Bighorn will acquire interests in Bighorn Phase 3 of between 51% - 100%
working interest of the leases and wells.
Project Longhorn: Conventional onshore oil & gas production
Project Longhorn assets are in the attractive Texas Permian Basin and
following the acquisition, cover approximately 2,625 net acres (of which 1,262
acres relates to the newly acquired leases). The combined portfolio of
assets consists of 18 leases (5 newly acquired) with 49 producing wells (9
within newly acquired leases) and associated infrastructure. Lonestar I, LLC
will continue to have a working interest in the assets, and through an
affiliate will continue as Operator for the existing and new leases and wells,
with the remaining working interests retained by existing non-operated
partners.
New acreage production
The existing production wells in the newly acquired acreage have been in
operation for several years. Production from the newly acquired leases in
CY2022 totalled approximately 6,200 BOE gross, which had an estimated
attributable net profit before tax for the project of ~$0.2 million
(unaudited). Current average production is approximately 26 BOE per day
gross (88 Energy's net WI: ~17 BOE per day), of which approximately 75% is
oil.
Gross (100%) and Net Entitlement Reserves to 88 Energy (~64.4% net working or
net revenue interest ~45%) have been independently assessed by PJG Petroleum
Engineers LLC as of 30 September 2023 as follows:
Table 1: Project Longhorn - Bighorn Phase 3 - Reserves (MMBOE)
GROSS RESERVES NET 88 ENERGY REVENUE ENTITLEMENT
1P 2P 3P 1P 2P 3P
1.00 1.20 1.49 0.57 0.68 0.84
Further ASX Listing Rule 5.31 Information (Notes to Reserves) related to these
Reserves is provided in Appendix 1.
Reserves Cautionary Statement
Oil and gas reserves and resource estimates are expressions of judgment based
on knowledge, experience and industry practice. Estimates that were valid when
originally calculated may alter significantly when new information or
techniques become available. Additionally, by their very nature, reserve and
resource estimates are imprecise and depend to some extent on interpretations,
which may prove to be inaccurate. As further information becomes available
through additional drilling and analysis, the estimates are likely to change.
This may result in alterations to development and production plans which may,
in turn, adversely impact the Company's operations. Reserves estimates and
estimates of future net revenues are, by nature, forward looking statements
and subject to the same risks as other forward-looking statements.
This announcement has been authorised by the Board.
Media and Investor Relations:
88 Energy Ltd
Ashley Gilbert, Managing Director
Tel: +61 8 9485 0990
Email:investor-relations@88energy.com
Fivemark Partners, Investor and Media Relations
Michael Vaughan Tel: +61 422 602 720
EurozHartleys Ltd
Dale Bryan Tel: + 61 8 9268 2829
Cavendish Capital Markets Limited Tel: +44 (0)20 7397 8900
Derrick Lee Tel: +44 (0)131 220 6939
Pearl Kellie Tel: +44 (0)131 220 9775
Glossary
Bbl = barrels Mbo/Mbbl = thousand barrels of oil
Bcf = billion cubic feet MMbo/MMbbl = million barrels of oil
Bcfg = billion cubic feet of gas Mboe = thousand barrels of oil equivalent
Boe = barrels of oil equivalent MMboe = million barrels of oil equivalent
Bopd = barrels of oil per day Mcf = thousand cubic feet
Btu = British Thermal Units MMcf = million cubic feet
mcfg = thousand cubic of gas mmbtu = million British Thermal Units
mmcfg = million cubic feet of gas psi = pounds per square inch
mcfgpd = thousand cubic feet of gas per day UoM = unit of measure
mmcf = million cubic feet IP30 = Average production rate over the first 30 days of production
Appendix 1 - ASX Listing Rule 5.31 Information (Notes to Reserves)
Reserve Evaluation; Project Longhorn -Bighorn Phase 3 Leases
Highlights:
· PJG Petroleum Engineers LLC (PJG) has prepared the reserve estimates
and a forecast of prices and costs evaluation of the oil and gas properties of
Project Longhorn - Bighorn Phase 3 leases (New Leases). The effective date of
the reserve estimates and cash flow forecasts presented in this release is 30
September 2023.
· The PJG reserve evaluation has been prepared for 88 Energy in
accordance with reserves definitions, standards and procedures contained in
the Society of Petroleum Engineers' Petroleum Resources Management System
(SPE-PRMS) and reported in the most specific resource class in which the
prospective resource can be classified under 2018 SPE-PRMS. The reserves
presented in the PJG report are based on forecast prices and costs. Economic
Limit Tests (ELTs) used to estimate Reserves shown above were carried out
assuming a constant WTI crude oil price of US$75/bbl and a constant
US$3.50/mmbtu for the NYMEX gas price. All oil prices used in the evaluation
have been adjusted from the reference price for quality and transportation,
which is -$0.71/bbl based on historical averages. Gas prices account for NGL's
in the gas and have been adjusted for heating value by a factor of 1.30
mbtu/cf based on historical averages. As a result, the net oil and gas prices
used in this report are US$74.29/bbl and US$3.13/mcf respectively.
· The Proved reserves (1P) net of royalties is 0.42 million bbl of oil
and 0.76 bcf of gas, or 0.57 million BOE, net to 88 Energy.
· The Proved plus Probable reserves (2P) net of royalties are 0.50
million bbl of oil and 0.90 bcf of gas, or 0.68 million BOE, net to 88 Energy.
· The Proved plus Probable plus Possible reserves (3P) net of royalties
are 0.61 million bbl of oil and 1.12 bcf of gas, or 0.84 million BOE.
Background
88 Energy, via its wholly owned subsidiary, Longhorn Energy Investments LLC,
has a 75% ownership interest in Bighorn energy, LLC (Bighorn) and Lonestar I,
LLC has a 25% ownership interest in Bighorn, acquired the new leases from
Endeavor Energy Resources, L.P. on 14 December 2023. The leases comprise
approximately 1,683 Bighorn net acres across 5 leases with 9 producing wells
and associated infrastructure.
Table 2: Developed Reserves of Acquisition
RESERVES GROSS NET ENTITLEMENT
UoM 1P 2P 3P 1P 2P 3P
OIL MMBO 0.02 0.03 0.04 0.01 0.01 0.01
GAS BCF 0.02 0.03 0.05 0.01 0.01 0.02
TOTAL reserves MMBOE 0.03 0.04 0.05 0.01 0.01 0.02
Table 3: Undeveloped Reserves of Acquisition
RESERVES GROSS NET ENTITLEMENT
UoM 1P 2P 3P 1P 2P 3P
OIL MMBO 0.71 0.85 1.05 0.41 0.49 0.60
GAS BCF 1.30 1.56 1.93 0.75 0.89 1.10
TOTAL reserves MMBOE 0.97 1.16 1.44 0.56 0.67 0.82
Table 4: Total Reserves of Acquisition
RESERVES GROSS NET ENTITLEMENT
UoM 1P 2P 3P 1P 2P 3P
OIL MMBO 0.74 0.88 1.10 0.42 0.50 0.61
GAS BCF 1.32 1.59 1.98 0.76 0.90 1.12
TOTAL reserves MMBOE 1.00 1.20 1.49 0.57 0.68 0.84
The subsequent sections detail the field and reserves/ resources information
for compliance with ASX listing rules pertaining to the first announcement of
material oil and gas projects.
Assumptions and Notes
a) The reserves information in this document is effective as of 30
September 2023 (Listing Rule (LR) 5.25.1).
b) The reserves information in this document has been estimated and is
classified in accordance with SPE‐PRMS (Society of Petroleum Engineers ‐
Petroleum Resources Management System) (LR 5.25.2).
c) The reserves information in this document is reported according to
the Company's economic interest in each of the reserves net of royalties (LR
5.25.5).
d) The reserves information in this document has been estimated and
prepared using the deterministic method (LR 5.25.6).
e) The reserves information in this document has been estimated using a
5:1 BOE conversion ratio for gas to oil; 5:1 conversion ratio is based on an
energy equivalency conversion method and does not represent value equivalency
(LR 5.25.7).
f) The reserves information in this document has been estimated on the
basis that products are sold on the spot market with delivery at the sales
point on the production facilities (LR 5.26.5).
g) The method of aggregation used in calculating estimated reserves was
the arithmetic summation by category of reserves. As a result of the
arithmetic aggregation of the field totals, the aggregate 1P may be a
conservative estimate and the aggregate 3P may be an optimistic estimate due
to the portfolio effects of arithmetic summation (LR 5.26.7 & 5.26.8)
h) Project Longhorn - Bighorn Phase 3 reserves are located in the
Permian Basin, Texas, USA.
ASX LR 5.31 Reserves - Project Longhorn - Bighorn Phase 3 Leases
Project Longhorn - Bighorn Phase 3 Leases
LR 5.31.1 - Material economic assumptions used to calculate the estimates of Oil and gas prices - Oil prices used in this report were kept constant at
petroleum reserves US$75/bbl to end of field life for WTI crude oil. This was then adjusted to
account for transportation and quality differences based on historical actual
prices achieved, which averaged a $0.71/bbl deduction.
Natural gas prices used in this report were kept constant at US$3.50/mmbtu for
the NYMEX benchmark to the end of field life. Gas prices account for NGL's in
the gas and have been adjusted for heating value by a factor of 1.30 mbtu/cf
based on historical averages. Consequently, the net gas price used in this
report is US$3.13/mcf.
Capex - gross capital costs were estimated by the Operator covering drilling
and completion, recompletion and abandonment costs considered necessary to
recover the reserves. Capital costs were considered reasonable by PJG, which
cost between US$0.8 million and US$2.0 million depending on the type of
activity performed.
Opex - gross operating costs were based on historical lease operating
statements. These forecasts were reasonable by PJG.
Discount rate - pre-tax discount rate of 10%
LR 5.31.2 Operator or non-operator interests Longhorn Energy Investments LLC, a wholly owned subsidiary of 88 Energy
Limited, is a non-operator of Project Longhorn and has an average 64.4%
working interest across the newly acquired leases, based on area. Table 5
shows lease working interests for the new acreage - Bighorn Phase 3 leases.
LR 5.31.3 Permits or Licenses The reported reserves relate to the acquisition of 5 leases located in the
Permian Basin, Texas, USA. All leases are Held by Production, have no expiry
date and no drilling obligations.
LR 5.31.4 Description of:
· Basis for confirming commercial producibility and booking Economic Limit Tests were performed and project NPVs calculated to satisfy the
reserves. commerciality requirements of the PRMS. PJG carried out these analyses for all
wells - current and proposed, based on pricing noted above under LR 5.31.1,
Operator provided third party gas plant and oil purchaser statements, Operator
provided current royalty rates and all applicable State of Texas oil and gas
taxation roles applicable to the specific areas of operations. Future capital
requirements and actual historical operating costs were obtained from the
Operator's projections and were accepted as reasonable.
The commercial producibility of undeveloped reserves is based on stabilised
production rates from existing wells and production analogues from the same
formations.
· Analytical procedures used to estimate the petroleum reserves PJG has relied on Decline Curve Analysis techniques for this evaluation.
Production decline analysis was performed using all available production/well
test data to estimate a range (Low, Best and High Cases) of production
forecasts, which were used as the basis for estimating reserves. An
uncertainty range in both the decline rate and the exponent factor of the
hyperbolic decline fit was applied to forecast different decline trends
attributable to uncertainty in reservoir performance, and to estimate the oil
production volumes for the 1P, 2P and 3P reserves categories. These reserves
were sense checked against volumetric reserve calculations based on log
derived parameters.
Production records were obtained from the Texas Railroad Commission (TRRC)
on a lease basis, or when applicable, by combining Operator identified API
Number well data historical records, to serve as the basis of the production
volumes in our decline curve analysis. This data matched Operator provided
data.
· Proposed extraction method and any specialised processing All current and proposed wells will utilize sucker rod pumping systems to
required following extraction required artificially lift the oil to surface. The reservoirs are largely depletion /
solution gas drive with some reservoirs having water aquifer support.
LR 5.31.5 - Estimated quantities to be recovered See Tables 2-4 inclusive at the start of Appendix 1.
LR 5.31.6 - Undeveloped petroleum reserves; a brief statement regarding:- All undeveloped reserves are all located within 1320 ft (40 acres spacing) of
existing production; hence development of these reserves simply requires a
· Status of the project completed well and tie back to existing production. Two new wells are budgeted
to be drilled and completed in 2024. The eight remaining development
· When development is anticipated activities are planned for the 2024-2026 period. All existing marketing
arrangements, transportation infrastructure and approvals are planned and
· Marketing arrangements budgeted to be utilized.
· Access to transportation infrastructure
· Environmental approvals required
LR 5.31.7 - Unconventional petroleum resources Not applicable.
LR 5.32 - Project estimates that have materially changed from when the Not applicable; this report constitutes first time reporting for Project
estimates were previously reported Longhorn - Bighorn Phase 3 leases.
Definitions
· Reserves are those quantities of petroleum that are anticipated to be
commercially recoverable by application of development projects to known
accumulations from a given date forward under defined conditions. Reserves
must further satisfy four criteria, based on the development project(s)
applied: discovered, recoverable, commercial and remaining (as of the
evaluation date).
· 1P is defined as Proven reserves. 2P is defined as Proven plus
Probable reserves. 3P is defined as Proven plus Probable plus Possible
reserves.
· 1P or Proven Reserves are those quantities of petroleum that, by
analysis of geoscience and engineering data, can be estimated with reasonable
certainty to be commercially recoverable from a given date forward from known
reservoirs and under defined economic conditions, operating methods, and
government regulations. This is typically considered to have more than a 90%
likelihood of occurring.
· Probable Reserves are those additional reserves that analysis of
geoscience and engineering data indicates are less likely to be recovered than
proved reserves but more certain to be recovered than possible reserves. This
is typically considered to have approximately a 50% likelihood of occurring.
· Possible Reserves are those additional reserves that are less certain
to be recovered than probable reserves. It is unlikely that the actual
remaining quantities recovered will exceed the sum of the estimated proved
plus probable plus possible reserves. This is typically considered to have
approximately a 10% likelihood of occurring.
· Developed reserves are expected to be recoverable from existing wells
and facilities. Undeveloped reserves will be recovered through future
investments (e.g. through installation of compression, new wells into
different but known reservoirs, or infill wells that will increase recovery).
Total reserves are the sum of developed and undeveloped reserves at a given
level of certainty.
· Contingent Resources (2C) are those quantities of petroleum
estimated, as of a given date, to be potentially recoverable from known
accumulations by application of development projects, but which are not
currently considered to be commercially recoverable owing to one or more
contingencies.
· Prospective Resources are those quantities of petroleum that are
estimated, as of a given date, to be potentially recoverable from undiscovered
accumulations.
Qualified petroleum reserves and resources evaluator statement
The petroleum reserves and resources information in this announcement are
based on, and fairly represents, information and supporting documentation
prepared by Paul J Griffith. Mr. Griffith has over 35 years of experience in
senior technical positions in reservoir, production, and field engineering. He
is a registered Professional Engineer in the State of Texas (Credential ID
68149), United States of America, his Firm PJG Petroleum Engineers, LLC is
registered to provide Petroleum Engineering services by the State of Texas
Board of Professional Engineers under Firm #F-23307. Mr Griffith is a
Lifetime Member of the Society of Petroleum Engineers. Mr Griffith is not an
employee of 88 Energy or any of its subsidiaries and has consented in writing
to the inclusion of the petroleum reserves and resources information in this
announcement in the form and context in which it appears.
Table 5: Working Interest
Lease Bighorn Energy 88 Energy LEASE 88 Energy Revenue Interest
WI
WI NRI
L2-1 100% 75% 85% 64%
L2-2 71% 53% 49% 26%
L2-3 98% 73% 73% 54%
L2-4 * 75% 56% 59% 33%
L2-5 51% 38% 85% 32%
Area Weighted Average 86% 64% 70% 45%
*Working interest in well.
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