REG - 88 Energy Limited - Interim Report
10/08/2022 07:00
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RNS Number : 4950V 88 Energy Limited 10 August 2022
This announcement contains inside information
10 August 2022
88 Energy Limited
Half Year Financials Release
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 2022.
A copy of the Company's Interim 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
Tel: +61 8 9485 0990
Email:investor-relations@88energy.com
Finlay Thomson, Investor Relations Tel: +44 7976 248471
Fivemark Partners, Investor and Media Relations Tel: +61 410 276 744
Andrew Edge / Michael Vaughan Tel: +61 422 602 720
EurozHartleys Ltd Tel: +61 8 9268 2829
Dale Bryan
Cenkos Securities Tel: +44 131 220 6939
Neil McDonald / Derrick Lee
OPERATING AND FINANCIAL REVIEW
During the period, the Group has continued its principal exploration
activities in Alaska and in February 2022 acquired a ~73% non - operated
working interest in production assets located in the Texas Permian Basin
through the 75% investment in Bighorn Energy LLC.
Project Icewine
88 Energy progressed further studies and analysis across the Icewine East
acreage, which included completing the mapping of the Shelf Margin Delta
(SMD), Slope Fan Set (SFS) and Basin Floor Fan (BFF) play fairways onto the
Project Icewine East acreage. In May 2022, the Company announced that Jordan
& Pay completed an independent evaluation of the play fairways, utilising
available well information from presentations publicly released by
neighbouring project proponent, Pantheon Resources plc (AIM:PANR) (Pantheon).
This was coupled with internal Company data (including Icewine-1 and Icewine-2
well logs and existing 2D seismic) and concluded that all Pantheon reservoir
units (SMD, SFS, BFF) extended onto the Project Icewine acreage.
The Company also commissioned an in-depth petrophysical re-evaluation of
Icewine-1 and the broader Icewine East area by independent petrophysical
consultants (Stimulation Petrophysics Consulting, LLC and Snowfall Energy
LLC). The consultants focussed on assessing Icewine-1 logs against intervals
that flowed oil in Pantheon's acreage to the north. Pleasingly, a comparison
of the tested interval in Alkaid-1 against a similar interval in Icewine-1
indicated favourable potential for a flow test of the same zone in the Icewine
East acreage.
Pantheon's wells - Alkaid-1, Talitha-A and Theta West-1 - all flowed 35 to
40⁰ API oil from multiple Brookian reservoirs. Pantheon's testing has
confirmed reservoir deliverability of light, sweet oil (see Pantheon releases
of 7 February and 21 February 2022), which 88 Energy believes is positive for
the prospectivity of the adjacent Project Icewine acreage. Data from the
Talitha-A and Theta West-1 wells are not yet publicly available and as a
result, only a qualitative comparison of these logs against Icewine-1 logs
have been carried out to date.
Given the favourable petrophysical comparison between Icewine-1 and Alkaid-1,
the Company is optimistic that a production test in the Icewine East acreage
could potentially yield a similar or better result than seen during the
testing of Alkaid-1. The Company also notes Pantheon's announcement of 7 July
2022 that it has spudded a horizontal production well in Alkaid, named
Alkaid#2, to prove up the development concept (see also Pantheon release of 24
January 2022 and Figure 2).
At the end of June, the Company signed a licensing agreement with SAE for the
use of SAE's Franklin Bluffs 3D seismic survey data (FB3D). The FB3D seismic
data was acquired in 2015 by SAE and covers approximately 86 square miles,
predominantly over the Icewine East acreage. More importantly, the FB3D
extends across an area where the SMD, SFS and BFF play fairways have been
independently mapped on the Icewine East acreage.
The FB3D data will assist the Company with carrying out its forthcoming
analysis, including Amplitude-variation-with-offset analysis (AVO analysis)
and simultaneous seismic inversion. These studies will aid the Company in
defining 'sweet spots' for each play and determining optimal drilling
locations for future exploration and appraisal wells.
88 Energy's initial license fee included US$2.0 in cash and US$1.0 million in
fully paid new ordinary shares in 88 Energy (approximately 181 million shares
at an issue price of A$0.008 per share, being the closing price of 88 Energy
shares on the ASX on 24 June 2022).
Other activities that the Company undertook in 2022 include:
· Finalised the maiden Project Icewine East prospective resource
estimate in August 2022.
· Planning operations for 2023, which are targeted to include an
exploration well to be drilled in the Icewine East acreage, and at least one
flow test from the multiple Brookian reservoirs that have been mapped on the
Icewine East acreage. These are the same reservoirs that nearby Pantheon wells
- Alkaid-1, Talitha-A and Theta West-1 - have flowed 35⁰ to 40⁰ API oil.
Project Peregrine
The Merlin-2 well was designed to appraise the N20, N19 and N18 horizons which
were encountered in the Merlin-1 well drilled in 2021. The well was spudded on
7th Match 2022 and reached Total Depth (TD) of 7,334 feet on 22nd March 2022.
All three Nanushuk targets (N20, N19 and N18) were penetrated during drilling,
with Logging While Drilling (LWD) data and physical cuttings collected
throughout the Merlin-2 program. Observations of LWD logs and drill cuttings
collected during drilling revealed target intervals were thicker than those
encountered in Merlin-1. Plugging, abandonment and demobilisation of the
Merlin-2 well was completed in April 2022
The results of Merlin-2 were largely consistent with the Merlin-1 exploration
well drilled in 2021. Strong fluorescence, oil sheen, petroliferous odour and
cut noted in the drilling cuttings, elevated C2-C5 mud gas readings over the
target zones with total gas significantly above background gas readings and
also evidence from the reservoir sampling tool of moveable hydrocarbons.
Both Merlin wells were drilled on sparse, vintage 2D seismic data, which
provides a narrow field of view of the reservoir and limited optionality on
drilling locations. 88 Energy will assess the merits of a future 3D seismic
acquisition program or an in-fill 2D program in order to define optimal play
fairways and determine the potential commerciality of the Project Peregrine
acreage. The Company has commenced detailed analysis of all data obtained from
the Merlin-2 drilling program and will evaluate potential future appraisal
activities within the Project Peregrine acreage, which include independent
drilling locations such as the Harrier-1 prospect to test the N14 and N15
horizons.
The Company also commenced an independent NPRA basin modelling study to
further improve 88 Energy's understanding of the geological history and how it
pertains to the Nanushuk reservoir quality across Project Peregrine. Coupled
with petrographic studies of Merlin side-wall cores, the modelling will
utilise available maximum Brookian uplift / erosion and burial depth data to
produce qualitative reservoir risk maps of the Nanushuk Formation which, will
help inform how the Project Peregrine reservoir quality varies Northward, away
from the Merlin-1 and 2 locations. This study is anticipated to be completed
by Q3, 2022.
Yukon Leases
The Yukon Leases contain the 82 million barrel(1) Cascade Prospect, which was
intersected peripherally by Yukon Gold-1 and classified as a historic oil
discovery.
The Company continues to complete due diligence and commercial assessment of a
joint development with near-by resource owners.
Umiat Oil Field (100% WI)
In Q1 2021, 88 Energy acquired the Umiat Oil Field. As part of the
acquisition, the Company received the Umiat data pack which includes Umiat 3D
seismic data. The Umiat 3D survey abuts the southern edge of the Project
Peregrine lease blocks. Integrating the Linc/Malamute seismic interpretation
has provided a better understanding of the Peregrine reservoir geometries to
the north as well as enriching the Company's petrophysical database with
additional well control (Umiat-8 and Umiat-23H).
Internal reinterpretation of modern 3D seismic is suggestive of untested
reservoirs at Umiat. Prospects have been mapped in the footwall of the Umiat
structure as well as downdip from the proven oil zone in the hanging wall.
Initial internal volumetric calculations suggest there may be multi-million
barrels of potentially recoverable oil combined in the hanging wall and
footwall. Both prospects are deeper than the current reserves at Umiat which
the Company expects will have a positive impact on producibility.
Initial development studies, focusing on the potential integration of Ultra
Low Sulphur Diesel (ULSD) production, suggests that this development option
adds further value to a future Umiat development, considering the high cost of
diesel (~US$6-7/gal) on the North Slope of Alaska.
A separate Umiat-23H well performance review concluded that this well
significantly underperformed due to poor drilling and completion techniques.
This well was drilled in 2014 by a previous owner and flowed at a sustained
rate of 200 BOPD with no water, and a maximum rate of 800 BOPD. Further review
of the historical data includes a more conventional trajectory and completion
design for a 5,000ft horizontal section that was modelled to produce at
stabilised rates of between 800 and 1,600 BOPD. The Company believes an
opportunity exists for the optimisation of historic subsurface development
plans.
During the period, the Company commenced discussions with an Alaskan drilling
operator regarding use of a new light weight rig and optimised operations to
drill a cost-effective exploration well designed to unlock further upside in
Umiat.
Project Longhorn (~73% WI)
On 21 February 2022, 88 Energy executed a binding Securities Purchase
Agreement (SPA) for the acquisition of a ~73% average net working interest in
established conventional oil and gas production assets in the proven Permian
Basin, onshore Texas, U.S. The oil and gas assets, collectively known as
Project Longhorn contain certified net 2P reserves of 2.05MMBOE. The purchase
price for the acquisition was US$9.7M, consisting of US$7.2M cash and US$2.5M
in 88 Energy shares (~98.1 million shares at an issue price of A$0.035 per
share).
The acquisition represents the Company's first move into producing oil and gas
assets and is in line with Company's strategy to build a successful oil and
gas exploration and production Company. The Project Longhorn assets are in the
attractive Permian Basin, with ~1,300 net acres and well understood geology
with low technical risk. The assets purchase consisted of 9 leases with 32
producing wells and associated infrastructure. Most of the existing production
wells have been in operation for several years. Lonestar I, LLC retained a
~24% net working interest in the assets and, through an affiliate, remained as
Operator, with the remaining working interests retained by existing Joint
Venture partners.
The Company has been pleased with the progress at Project Longhorn as Lonestar
has successfully completed the first three of seven planned capital-efficient
work-overs scheduled in 2022. These were completed on time and on budget and
have delivered a significant increase to the total oil and gas production
rates of Project Longhorn. Following the three completed workovers, daily
production from the Longhorn wells is anticipated to settle at around ~500 BOE
per day gross (over ~365 BOE per day net, of which approximately 70% is oil)
in Q3 2022, which represents an overall output increase of ~70% since the
completion of the acquisition in mid-February 2022. The production increase
provides additional direct exposure to the higher WTI oil and gas price
environment and accelerates payback on both the acquisition of the assets and
the capital investment in the work-overs. During the period to date, the
Company has received A$1.9M of cash flow distributions from Project
Longhorn.
Given the success of the initial three work-overs this year, as well as the
continued high oil and gas price environment, in June 2022, the joint venture
participants agreed to accelerate the capital development program and the
completion of the remaining four planned work-overs this year. As part of this
agreement, 88 Energy has agreed to part fund its share of the anticipated
US$3.5 million (net) in development capital through the issuance of US$3.0
million in 88 Energy shares (approximately 544 million shares at an issue
price of A$0.008 per share, being the closing price of 88 Energy shares on the
ASX on 24 June 2022) to Lonestar, to fund Longhorn's working capital
contributions.
Project Longhorn is now scheduled to complete the targeted seven capital
development activities earlier than planned during Q4 2022.
Table 1: Project Longhorn Reserves (barrels of oil equivalent; millions)
GROSS RESERVES NET 88 ENERGY REVENUE ENTITLEMENT
1P 2P 3P 1P 2P 3P
2.78 3.46 4.00 1.64 2.05 2.33
Corporate
On 19 January 2022, the Company advised that its application to join the OTCQB
Market in the United States had been accepted and the Company's shares were
listed for trading under the code EEENF. The OTCQB Venture Market is for
entrepreneurial and development stage US and international companies and 88
Energy sought OTCQB quotation to provide North American investors with
enhanced accessibility and liquidity in trading the Company's shares. The
quotation delivered 88 Energy access to one of the largest investment markets
in the world at relatively nominal cost (compared to traditional major
exchanges) and with practically no additional compliance requirements. The
OTCQB Market has robust financial reporting and corporate governance
regulations which are effectively satisfied by the Company, through its
ongoing compliance with ASX Listing rules and AIM rules.
On 14 February 2022, the Company advised that it had successfully completed an
oversubscribed bookbuild to domestic and international institutional investors
to raise A$32.1M before costs (the Placement). This was achieved through the
issue of 918,650,793 fully paid ordinary shares in the Company at an issue
price of A$0.035 (equivalent to £0.018) per New Ordinary Share. The funds
raised under the Placement, together with the Company's existing cash reserves
were used to fund the Merlin-2 well drilling and appraisal activities
including cost overruns, as well as new venture portfolio expansion
opportunities, and working capital. Merlin-2, like many other global projects,
experienced cost pressures including COVID-19 supply chain issues, labour
constraints and global commodity price increases (diesel, steel etc.) that
placed pressure on original budgeted costs. Euroz Hartleys Limited acted as
Sole Lead Manager and Sole Bookrunner to the Placement. Cenkos Securities Plc
acted as 88 Energy's 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 Harleys Limited, Inyati Capital Pty Ltd and Cenkos
Securities Plc. In addition, the Company issued 36,000,000 Unlisted Options
(exercisable at $0.06 on or before the date which is 3 years from the date of
issue) to the managers of the Placement.
Financial
For the period ended 30 June 2022 the Company recorded a loss of $67.3 million
(30 June 2021: $445,446 profit). The loss was largely attributable to the
impairment of the Merlin 1 and Merlin 2 wells of $67.62 million.
No dividends were paid or declared by the Company during the period.
As at 30 June 2022, the Group had cash on hand of $10.5 million (31 December
2021: $32.31 million) and no debt. Net assets totalled A$119 million (31
December 2021: $139.84 million). The decline in net assets is largely due to
impairment of exploration & evaluation assets and also the decrease in
cash on hand with cash being used primarily to fund the Merlin 2 activities.
The investment in Bighorn Energy increased Net Assets to the amount of A$22.1
million.
Events after the period
Other than as disclosed below, there were no significant events occurring
after balance date requiring disclosure.
The Company announced its maiden, independently certified prospective resource
estimate for Project Icewine East. The total prospective resource was
estimated at 1.03 billion barrels of oil by Lee Keeling & Associates, Inc
(LAK) with substantial oil volumes noted across all mapped play fairways, in
particular the Seabee - Lower Basin Floor (BFF) and the Shelf Margin Delta
(SMB reservoirs). LKA are an independent US based expert petroleum and
engineering consulting firm who have significant and recent experience in
providing resource estimates globally as well as more specifically in Alaska.
The initial total prospective resource follows a period of review of an
extensive data set that included seismic data, well logs from Icewine-1 and
nearby wells adjacent to the Icewine East acreage, recent petrophysical
analysis and mapping.
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE HALF YEAR ENDED 30 JUNE 2022
Note
30 June 30 June
2022 2021
$ $
Revenue and other income 3(a) 3,921 4,331,646
Share of profit/(loss) from equity accounted investment 8(b) 3,437,184 -
Administration expenses 3(b) (1,779,839) (1,794,435)
Occupancy expenses (26,073) (37,408)
Employee benefit expenses 3(c) (1,177,132) (704,958)
Share based payment expense 3(d) (487,739) (153,747)
Depreciation and amortisation expense (29,416) (55,606)
Finance cost (4,308) (1,160,411)
Realised/unrealised gain/(loss) on foreign exchange 394,343 (11,295)
Other income /(expenses) (7,608) 31,660
Exploration & Evaluation Impairment 3(e) (67,623,823)
Profit/(loss) before income tax (67,300,490) 445,446
Income tax benefit/(expense) - -
Net profit/(loss) attributable to members of the parent (67,300,490) 445,446
Other comprehensive income for the period
Other comprehensive income that may be recycled to profit or loss in
subsequent periods:
Exchange differences on translation of foreign operations 4,816,795 2,061,695
Total comprehensive profit/(loss) for the period (62,483,695) 2,507,141
Basic and diluted profit/(loss) per share (0.004) 0.00003
The consolidated statement of profit or loss and other comprehensive income
should be read in conjunction with the accompanying notes.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2022
Note
30 June 31 December
2022 2021
$ $
ASSETS
Current Assets
Cash and cash equivalents 5 10,469,843 32,317,887
Other receivables 6 1,009,487 935,930
Other Current Asset - 10,224,959
Total Current Assets 11,479,330 43,478,776
Non-Current Assets
Plant and equipment 11,664 9,675
Exploration and evaluation expenditure 7 90,081,683 101,357,767
Other assets 953,179 936,536
Equity accounted investments 8 (a) 22,151,413 -
Total Non-Current Assets 113,197,939 102,303,978
TOTAL ASSETS 124,677,269 145,782,754
LIABILITIES
Current Liabilities
Provisions 188,518 146,270
Trade and other payables 9 5,061,518 5,796,350
Total Current Liabilities 5,250,036 5,942,620
TOTAL LIABILITIES 5,250,036 5,942,620
NET ASSETS 119,427,233 139,840,134
EQUITY
Issued and fully paid shares 10(a) 327,142,111 285,809,214
Reserves 10(b) 28,628,936 23,074,244
Accumulated losses (236,343,814) (169,043,324)
TOTAL EQUITY 119,427,233 139,840,134
The consolidated statement of financial position should be read in conjunction
with the accompanying notes.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE HALF YEAR ENDED 30 JUNE 2022
Issued and fully paid shares Reserves Accumulated Total
$ losses equity
$ $ $
Balance at 1 January 2021 208,963,513 16,580,975 (166,633,135) 58,911,353
Profit for the period - - 445,446 445,446
Other comprehensive income - 2,061,695 - 2,061,695
Total comprehensive profit for the period, net of tax - 2,061,695 445,446 2,507,141
Shares issued during the period 33,683,839 - - 33,683,839
Equity raising costs (791,025) - - (791,025)
Share based payments - 153,747 - 153,747
Balance at 30 June 2021 241,856,327 18,796,417 (166,187,690) 94,465,054
Balance at 1 January 2022 285,809,214 23,074,244 (169,043,324) 139,840,134
Loss for the period - - (67,300,490) (67,300,490)
Other comprehensive income - 4,816,795 - 4,816,795
Total comprehensive loss for the period, net of tax - 4,816,795 (67,300,490) (62,483,695)
Shares issued during the period 43,624,106 - - 43,624,106
Equity raising costs (2,041,051) - - (2,041,015)
Share based payments and options valuation (250,158) 737,897 - 487,739
Balance at 30 June 2022 327,142,111 28,628,936 (236,343,814) 119,427,233
The consolidated statement of changes in equity should be read in conjunction
with the accompanying notes.
CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE HALF YEAR ENDED 30 JUNE 2022
30 June 30 June
2022 2021
$ $
Cash flows from operating activities
Interest 2,481 -
Interest Paid - (1,052,616)
Payments to suppliers and employees (3,081,727) (2,364,182)
Net cash outflows used in operating activities (3,079,246) (3,416,798)
Cash flows from investing activities (10,693,565) -
Payments for equity accounted investments
Payments for exploration and evaluation activities (41,556,424) (31,218,286)
Contributions from JV Partners in relation to Exploration 831,275 13,675,903
Payments for bonds - (387,270)
Proceeds sale of tax credits - 24,233,263
Distribution from Equity Accounted Investments 1,920,935 -
Net cash inflows / (outflows) used in investing activities (49,497,779) 6,303,610
Cash flows from financing activities
Proceeds from issue of shares 32,152,778 18,557,500
Share issue costs (2,151,520) (884,143)
Payment of borrowings - (20,909,692)
Net cash inflows/(outflows) from financing activities 30,001,258 (3,236,335)
Net increase/(decrease) in cash and cash equivalents (22,575,768) (349,523)
Net foreign exchange differences 727,724 266,675
Cash and cash equivalents at beginning of period 32,317,887 14,845,347
Cash and cash equivalents at end of period 10,469,843 14,762,499
The consolidated statement of cash flows should be read in conjunction with
the accompanying notes.
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