REG - 88 Energy Limited - Acquisition of Texas Oil and Gas Production Assets
03/07/2023 07:00
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RNS Number : 6561E 88 Energy Limited 03 July 2023
This announcement contains inside information
3 July 2023
88 Energy Limited
Acquisition of Additional Texas Oil and Gas Production Assets
Highlights
· Acquisition of further non-operated working interest (WI) in leases
and wells with conventional onshore production and in development assets
within the Permian Basin of Texas, U.S.
· Average net working interest acquired by 88 Energy of approximately
45% based on 88E WI in 435 net acres.
· New acreage is located approximate 4 miles south of existing Project
Longhorn production assets.
· Operator of the Project Longhorn assets, Lonestar I, LLC, will also
acquire a working interest in the new assets and will operate the new field
through an affiliate, with the remaining interests retained by existing joint
venture partners.
· The purchase price of US$1.5M (net to 88E US$1.1M) to be paid in cash
by 88 Energy and the JV partner Lonestar I, LLC (the Operator).
· Attractive low-cost entry of ~US$1.00 per BOE across net 2P reserves
of 1.1MMBOE(1,2).
· Additional upside potential identified in multiple zones and
classified as Possible Reserves (0.3 MMBOE(1,2)), along with Contingent and
Prospective Resources which are yet to be quantified.
· Operator targeting 2 new production wells in 2H 2023 expected to
increase production to 160-200 BOE gross per day (~75% oil). Limited existing
production of approx. 12 BOE per day gross (~75% oil) across 8 historical and
depleted wells).
· Complements the further 2 work-overs planned in 2H 2023 on the
existing Longhorn acreage.
· Upon successful completion of the new wells and work-overs across all
its Texan acreage, together with the existing producing wells, 88 Energy
expects Project Longhorn total gross production to reach approximately 500 BOE
per day (~75% oil) by year end 2023.
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 (averaging ~45% net to 88 Energy) in
leases and wells with conventional onshore production and in development
assets within the Permian Basin of Texas, U.S.
The new oil and gas production and development assets will form an expansion
of the existing Project Longhorn (Longhorn) acreage and are located
approximately 4 miles to the south. The newly acquired acreage is estimated to
contain independently certified net 2P reserves of 1.1 MMBOE(1,2).
(1) Refer to page 3 for initial reserves estimates and assumptions.
(2) Net Revenue Entitlement to 88 Energy
Importantly, all proposed well locations have been classified as low risk,
accessing Proven reserves totalling 0.97 MMBOE(1,2-), given the production
histories from existing wells on the newly acquired leases as well as adjacent
leases. Additionally, these wells should intersect multiple potentially
oil-bearing intervals which have been successfully developed in the vicinity
of Project Longhorn. Consequently, upside has been identified and classified
as Contingent or Prospective Resources and will be quantified in due course.
The purchase price for the acquisition is US$1.5 million (net to 88E US$1.1
million) to be to be paid in cash by 88 Energy and Lonestar I, LLC.
The acquisition provides 88 Energy with immediate production upside through 2
new wells planned in 2H 2023 (on leases which Longhorn will have ~75% working
interest), each anticipated to deliver IP30 of approximately 80-100 BOE per
day gross (~75% oil), with each well anticipated to cost ~US$1.5 million net
to 88E (to be funded primarily through forecasted cash flow from existing
Longhorn production assets).
The existing Project Longhorn assets are currently producing ~400 BOE per day
gross (~ 75% oil), which together with the two new wells planned on the newly
acquired acreage, as well as 2 work-overs on the existing Longhorn acreage,
are anticipated to deliver a gross production rate of approximately 500 BOE
per day by the end of 2023.
Figure 1: Project Longhorn existing and new acreage
The acquisition represents a further expansion of 88 Energy's move into
producing oil and gas assets and is in line with the Company's strategy to
build a successful exploration and production company. This further step has
again been undertaken in a measured fashion via the purchase of a non-operated
working interest whilst retaining a single basin focus. Project Longhorn
contains well understood geology with low technical risk and provides
near-term upside via low-cost field development opportunities.
Project Longhorn: Existing and New Acreage - conventional onshore oil &
gas in Texas
The existing and newly acquired Project Longhorn assets are in the attractive
Permian Basin; they cover approximately 1,399 net acres (of which 435 acres
relates to the newly acquired leases). The combined portfolio of assets
consists of 14 leases 5 newly acquired leases) with 40 producing wells (8
within the newly acquired leases) and associated infrastructure. Lonestar I,
LLC will 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 Joint Venture partners.
The existing production wells in the newly acquired acreage have been in
operation for several years. Production from the new Project Longhorn leases
in FY2022 totalled approximately 5,000 BOE, which had an immaterial estimated
attributable net profit/loss before tax for the project (unaudited). Current
average production is approximately 12 BOE per day (88 Energy's net working
interest: ~10 BOE per day), of which approximately 75% is oil.
As part of the acquisition, 88 Energy has agreed to a low-cost 2 well work
program for 2H CY2023 (on leases in which Longhorn has a ~75% working
interest). These initiatives are expected to deliver initial production
rates of approximately 160-200 BOE per day gross (~75% oil).
Gross (100%) and Net Entitlement Reserves to 88 Energy (~45% net working or
net revenue interest ~38%) have been independently assessed by PJG Petroleum
Engineers LLC as at 1 June 2023 as follows:
Table 1: Project Longhorn - Bighorn Phase 2 - Reserves (MMBOE)
GROSS RESERVES NET 88 ENERGY REVENUE ENTITLEMENT
1P 2P 3P 1P 2P 3P
2.25 2.74 3.37 0.97 1.14 1.35
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.
Acquisition details
On 1 July 2023 the Company, via its 75% ownership interest in subsidiary
Bighorn Energy, LLC (Bighorn), acquired an interest in the new leases (Bighorn
Phase 2 leases) from Oxy USA WTP LP for consideration of US$1.5 million gross
to be paid in cash by 88 Energy and Lonestar I, LLC. Bighorn will acquire
interests in the Bighorn Phase 2 leases of between 8% - 100% gross working
interest of the leases and wells.
Lonestar I, LLC is a privately held oil and gas production company located in
Texas U.S., with significant experience in operating profitable oil and gas
assets. Lonestar I, LLC and its affiliates have built a team of experienced
oil and gas professionals with broad technical and commercial skills that will
continue to Operate the assets on behalf of the Joint Venture. Together with
88 Energy they will work to improve production and profitability of the assets
and have the capacity to both financially and technically deliver on future
development work programs. 88 Energy has completed customary due diligence
on both the assets and Lonestar I, LLC.
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
Cenkos Securities Plc 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 2 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 2 leases (New Leases). The effective date of
the reserve estimates and cash flow forecasts presented in this release is
June 1, 2023.
· The PJG evaluation has been prepared for 88 Energy in accordance with
reserves definitions, standards and procedures contained 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$2.50/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 -$6.80/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 1.60 mbtu/cf based on historical
averages. As a result, the net oil and gas prices used in this report are
US$68.20/bbl and US$4.00/mcf respectively.
· The Proved reserves (1P) net of royalties are 0.69 million bbl of oil
and 1.4 bcf of gas, or 0.97 million boe, net to 88 Energy.
· The Proved plus Probable reserves (2P) net of royalties are 0.82
million bbl of oil and 1.6 bcf of gas, or 1.1 million boe, net to 88 Energy.
· The Proved plus Probable plus Possible reserves (3P) net of royalties
are 0.97 million bbl of oil and 1.9 bcf of gas, or 1.4 million boe.
Background
88 Energy, via its 75% ownership interest in Bighorn (and Lonestar who have a
25% ownership interest in Bighorn), acquired the New Leases from Oxy USA WTP
LP on 1 July 2023. The leases comprise approximately 581 Bighorn net acres
across 5 leases with 8 producing wells and associated infrastructure.
Table 2: Developed Reserves
RESERVES GROSS NET ENTITLEMENT
UoM 1P 2P 3P 1P 2P 3P
OIL MMBO 0.05 0.09 0.11 0.01 0.02 0.03
GAS BCF 0.21 0.30 0.46 0.06 0.08 0.12
TOTAL reserves MMBOE 0.09 0.14 0.20 0.03 0.04 0.05
Table 3: Undeveloped Reserves
RESERVES GROSS NET ENTITLEMENT
UoM 1P 2P 3P 1P 2P 3P
OIL MMBO 1.54 1.88 2.29 0.67 0.80 0.94
GAS BCF 3.07 3.57 4.38 1.33 1.50 1.78
TOTAL reserves MMBOE 2.16 2.60 3.17 0.94 1.10 1.30
Table 4: Total Reserves
RESERVES GROSS NET ENTITLEMENT
UoM 1P 2P 3P 1P 2P 3P
OIL MMBO 1.59 1.97 2.40 0.69 0.82 0.97
GAS BCF 3.28 3.86 4.83 1.39 1.57 1.89
TOTAL reserves MMBOE 2.25 2.74 3.37 0.97 1.14 1.35
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 1 June
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 2 leases reserves are located in the
Permian Basin, Texas, USA.
ASX LR 5.31 Reserves - Project Longhorn - Bighorn Phase 2 Leases
Project Longhorn - Bighorn Phase 2 Leases, 88 Energy
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 $6.80/bbl deduction.
Natural gas prices used in this report were kept constant at US$2.50/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 1.60 mbtu/cf
based on historical averages. Consequently, the net gas price used in this
report is US$4.00/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$0.55 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 considered to be 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 62% working
interest across the leases, based on area. Table 5 shows lease working
interests for the new acreage - Bighorn Phase 2 leases.
LR 5.31.3 Permits or Licenses Project Longhorn consists of 14 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 2023. The fifteen 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 2leases.
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 50% 38% 85% 32%
L2-3 50% 38% 75% 28%
L2-4 * 60% 45% 75% 34%
L2-5 8% 6% 75% 4%
Area Weighted Average 61% 45% 83% 38%
*Working interest in well.
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