REG - 88 Energy Limited - Quarterly Report and Appendix 5B
31/07/2023 07:00
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RNS Number : 6451H 88 Energy Limited 31 July 2023
31 July 2023
QUARTERLY ACTIVITIES REPORT
For the quarter ended 30 June 2023
88 Energy Limited (ASX:88E, AIM:88E, OTC:EEENF) (88 Energy, 88E or the
Company) provides the following report for the quarter ended 30 June 2023.
Highlights
Project Phoenix (~75% WI)
· Hickory-1 spudded on 9 March 2023 and drilled to Total Depth (TD)
of 10,650 feet with successful wireline and coring program completed and the
well cased and suspended ahead of flow testing
· Pre-drill expectations met or exceeded:
ü Multiple hydrocarbon-bearing pay zones confirmed across all targets
ü High reservoir quality (higher porosity in SFS: 10.5-16.0% and BFF:
9.5-12.0%)
ü Thickness (higher total gross and net reservoir, higher total net pay of
450 feet)
ü New Upper SFS reservoir identified with abundant oil shows in cuttings
· Quarterly Hickory-1 activities:
Ø Permitting and planning commenced, with the flow testing program scheduled
to begin as early as possible during the 2023/2024 Alaskan winter operational
season
Ø Rig selection expected to be concluded imminently
Ø Post-well analysis of cores, mud gas isotubes and wireline data is ongoing;
initial results encouraging with good correlation to migration and thermal
maturity models for Project Phoenix
· Multiple zones planned to be tested, all expected to flow based
on reservoir characteristics
Project Leonis (100% WI)
· Independent reprocessing of the Storms 3D data during the quarter
has improved seismic resolution and data quality and provided an initial
assessment of the USB prospect boundary
· Upcoming activities include obtaining an independent certified
prospective resource report, advance planning and permitting for a potential
exploration well, coupled with a targeted farm-out
Project Longhorn (~62% WI)
· On 1 July, acquired ~45% non-operated net working interest (WI)
of 435 net acres located four miles south of Project Longhorn with net 2P
reserves of 1.1MMBOE for net US$1.1M in cash.(1)
· Operator targeting two new production wells which are expected to
increase production by 160-200 BOE gross per day (~75% oil). Limited existing
production of ~12 BOE per day gross (~75% oil) across eight wells. Project
Longhorn now has 40 producing wells.
· Commenced two planned workovers on the existing Longhorn acreage
· Quarterly production averaged 370 BOE per day gross (~70% oil)
due to gas line maintenance
· Company received cash flow distribution of A$1.1M in June 2023
1. Refer announcement released to ASX on 3 July 2023 including initial
reserves estimates and assumptions and net revenue entitlement to 88 Energy.
Corporate
· Cash balance of A$7.3M and no debt (as at 30 June 2023)
· Expenditures related to Hickory-1 drilling were closed out with
final payments of A$0.9M in July.
Project Phoenix (~75% WI)
Project Phoenix is focused on the oil-bearing conventional reservoirs
identified during the drilling and logging of Icewine-1 and adjacent offset
drilling and testing. Project Phoenix is strategically located on the Dalton
Highway with the Trans-Alaskan Pipeline System running through the acreage.
Hickory-1 Well
The Hickory-1 well is cased and suspended ahead of the upcoming flow testing
program for the 2023/2024 winter operational season. The flow test and well
stimulation program is being developed in consultation with flow test design
experts, who are utilising available regional information in combination with
a detailed evaluation of the drilling and wireline logging data from
Hickory-1.
One aspect of the flow testing design of particular importance is the choice
of fluids used to stimulate the reservoir. The chemical composition of these
fluids can interact with certain clay types in the reservoirs, thus having
significant implications for each reservoir's performance. Using the rock-type
information obtained from Hickory-1, the Company is collaborating with
technical consultants to determine the optimal fluids to be used to stimulate
the reservoir in conjunction with the overall flow test program design to
ensure the best possible outcomes.
Program planning is on schedule and will include rigorous technical and
economic optimisation prior to finalisation. Rig selection and contract
negotiation is expected to conclude imminently, and the key, long lead items
are being ordered.
Post well analysis is ongoing with results from the testing programs
anticipated to be fully completed and received in early Q3 2023. The summary
below provides an overview of the planned program of post well analysis of
results and pre-planning for flow testing:
· Geological Analysis
Ø Including refining the depositional model and thin sections analysis
· Geophysical Analysis
Ø Refining current interpretations, updating AVO analysis +/- seismic
inversion to integrate Hickory-1 shear data
· Routine and Special Core Analysis
Ø Including porosity and permeability testing to calibrate petrophysical
models
· Geochemical Analysis
Ø Including High Resolution Gas Chromatography and mud gas carbon isotope
analysis
· Geomechanical Analysis
Ø Azimuthal rock property analysis including strength testing for stimulation
modelling
· Flow Testing Planning
Ø Stimulation modelling and design
Ø Tender for services and award
Project Leonis (100% WI)
Awarded in April 2023, Project Leonis is superbly located adjacent to TAPS and
the Dalton Highway, enhancing future potential commercialisation pathways. The
acreage is covered by an existing data suite including Storms 3D seismic data
and Hemi Springs Unit #3 (HS-3) exploration well drilled by ARCO in 1985,
which logged 200 feet of interpreted bypassed net pay in the Upper Schrader
Bluff (USB) reservoir with good porosity and oil shows including oil over
shakers at multiple depths.
The investment rationale for Project Leonis was underpinned by the HS-3 well
targeting deep reservoirs rather than the producing USB reservoir that has
been successfully developed at nearby Orion, Polaris and West Sak since HS-3
was drilled by ARCO. Independent studies to identify pay in laminated or
shaley sand systems have confirmed that the USB reservoir in HS-3 possesses
similar characteristics to these producing fields to the north. These studies
also confirmed a good seismic tie between HS-3 and the Storms 3D using sonic
velocities.
An initial internal review and interpretation of the Storms 3D seismic data
has revealed a strong seismic-well tie and a clear seismic amplitude at the
USB prospect level. To further assess the reservoir potential and improve
imaging of local and regional faulting, noted as part of the initial
assessment, an independent expert reprocessed the Storms 3D data which
successfully improved the data quality and seismic resolution (refer to the
announcement on 27th June 2023).
An initial interpretation of the reprocessed data has enabled the Company to
assess the USB prospect boundary to enclose up to 60km(2) and to confirm the
potential for a significant resource within Project Leonis. The Company has
engaged an independent expert utilising specialist fault and horizon
interpretation software to better understand the petroleum system at Project
Leonis. This includes identifying and capturing finer stratigraphic and
structural features. Once completed in Q3, 88 Energy intends to commission an
independent maiden prospective resource estimate over the acreage.
Further petrophysical work is ongoing, including an integrated review of all
available log, core and test data from numerous offset exploration wells as
plus the nearby producing wells within the West Sak, Polaris and Orion oil
pools.
Figure below outlines an indicative forward work program for Project Leonis.
Project Longhorn (~62% WI)
· Acquisition of a ~45% non-operated net working interest (WI) over
435 net acres completed 1 July for US$1.1M net cash consideration(1)
· Acerage located four miles south of Project Longhorn with net 2P
reserves of 1.1MMBOE(1)
· Operator of the Project Longhorn assets, Lonestar I, LLC, also
acquired a WI and will operate the new field through an affiliate, with the
remaining interests retained by existing joint venture partners
· Attractive low-cost entry of ~US$1.00 per BOE
· Additional upside potential identified in multiple zones and
classified as Possible Reserves (0.3 MMBOE(1)), along with Contingent and
Prospective Resources to be quantified
· Operator targeting two new production wells in 2H 2023 expected
to increase production by 160-200 BOE gross per day (~75% oil). Limited
existing production of ~12 BOE per day gross (~75% oil) across 8 wells
· Compliments the two workovers commmenced in Q2
· Upon successful completion of the new wells and work-overs,
together with the 40 existing producing wells, 88 Energy expects Project
Longhorn total gross production to reach ~500 BOE per day (~75% oil) by year
end 2023.
· Quarterly production averaged 370 BOE per day gross (~70% oil)
due to gas line unplanned maintenance and cash flow distribution of A$1.1M was
received in June 2023
1. Refer announcement released to ASX on 3 July 2023 including initial
reserves estimates and assumptions and net revenue entitlement to 88 Energy.
Project Peregrine and Umiat Unit (100% WI)
An update to the Peregrine prospective resources is ongoing with completion
expected Q3.
The Company is also currently assessing possible forward work-programs,
subject to potential farm-out.
The focus at Project Peregrine will be on the untested Harrier prospect (N14
and N15 targets) and the N14 south reservoir target. The N14 corresponds with
ConocoPhillips' Harpoon prospect fifteen miles to the north of the Project
Peregrine leases. The northernly Peregrine leases are modelled to have better
porosity and permeability and are closer to infrastructure.
Subsequent to quarter end, the Bureau of Land Management (BLM) Alaska State
Office approved a 30-month extension of the initial development obligation
from September 2024 to February 2027, allowing the Company additional time to
plan and drill an exploration well by the 2025/2026 Alaska winter season.
Yukon (100% WI)
The Company completed its strategic review of the prospectivity and
commerciality of the Yukon leases as well as near-acreage synergies and has
decided to relinquish all acreage to the State of Alaska. 88E deemed Yukon to
be a non-core acreage position due to the lower resource potential and
barriers to commercialisation including high exploration and development
costs. Relinquishment before the annual US$150,000 lease rentals fall due
provide immediate cost savings.
Toolik River Unit Option Agreement
In June, the Company through its subsidiary Accumulate Energy Alaska, Inc
(Accumulate) entered into a standstill and option agreement with its Project
Phoenix JV partner, Burgundy Xploration, LLC (Burgundy). The agreement
provides Burgundy additional time to raise funds to pay its outstanding 2023
cash calls by 31 October 2023 (Standstill Period). As part of the agreement,
Burgundy grants an exclusive option to Accumulate to acquire up to 10%
additional working interest in the Toolik River Unit where Hickory-1 is
located (which may only be exercised if Burgundy fails to pay its outstanding
cash calls by the end of the Standstill Period) (Option). The exercise price
for the Option will be US$500,000 per 1% working interest acquired. The Option
is exercisable at any time within 3 months following expiry of the Standstill
Period (or any further default of unpaid cash calls), so long as the cash
calls remain outstanding. The agreement also requires Burgundy's support of
the 2024 work program and budget that includes the flow testing of up to four
zones at Hickory-1.
Finance
The ASX Appendix 5B attached to this quarterly report contains the Company's
cash flow statement for the quarter. The material cash flows for the period
were:
· Exploration and evaluation expenditure of A$15.5M (March 2023
quarter: A$4.8M), primarily associated with the Hickory-1 exploration well.
· Lease rental payments of A$3.2M, associated with acreage lease
rentals for Phoenix, Icewine West and Leonis.
· Administration, staff, and other costs of A$1.5M. Including fees
paid to Directors and consulting fees paid to Directors of A$0.2M.
· Project Longhorn cash distribution receipt of A$1.1M
At quarter end, the Company's cash balance is A$7.3M and no debt, and A$0.9M
was paid in July to close out the Hickory-1 drilling program expenditures.
Information required by ASX Listing Rule 5.4.3
Project Name Location Interest at beginning of Quarter Interest at end of Quarter
Net Area (acres)
Project Phoenix Onshore, North Slope Alaska 62,324 ~75% ~75%
Project Icewine West Onshore, North Slope Alaska 121,996 ~75% ~75%
Project Peregrine Onshore, North Slope Alaska (NPR-A) 125,735 100% 100%
Project Longhorn Onshore, Permian Basin Texas 1,363(2) ~73% ~62%(2)
Project Leonis Onshore, North Slope Alaska 25,431 100% 100%
Umiat Unit Onshore, North Slope Alaska (NPR-A) 17,633 100% 100%
Yukon Leases Onshore, North Slope Alaska -(1) 100% 0%(1)
Pursuant to the requirements of the ASX Listing Rules Chapter 5 and the AIM
Rules for Companies, the technical information and resource reporting
contained in this announcement was prepared by, or under the supervision of,
Dr Stephen Staley, who is a Non-Executive Director of the Company. Dr Staley
has more than 35 years' experience in the petroleum industry, is a Fellow of
the Geological Society of London, and a qualified Geologist / Geophysicist who
has sufficient experience that is relevant to the style and nature of the oil
prospects under consideration and to the activities discussed in this
document. Dr Staley has reviewed the information and supporting documentation
referred to in this announcement and considers the prospective resource
estimates to be fairly represented and consents to its release in the form and
context in which it appears. His academic qualifications and industry
memberships appear on the Company's website and both comply with the criteria
for "Competence" under clause 3.1 of the Valmin Code 2015. Terminology and
standards adopted by the Society of Petroleum Engineers "Petroleum Resources
Management System" have been applied in producing this document.
1. Project Yukon leases formally relinquished on 27(th) June 2023, are
disclosed in this quarterly announcement, as leases were non-core and not
deemed material to 88 Energy.
2. Additional acreage acquired on 1 July 2023. Refer announcement
released to ASX on 3 July 2023 including initial reserves estimates and
assumptions and net revenue entitlement to 88 Energy.
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
Appendix 5B
Mining exploration entity or oil and gas exploration entity
quarterly cash flow report
Name of entity
88 Energy Limited
ABN Quarter ended ("current quarter")
80 072 964 179 30 June 2023
Consolidated statement of cash flows Current quarter Year to date (6 months)
$A'000
$A'000
1. Cash flows from operating activities - -
1.1 Receipts from customers
1.2 Payments for - -
(a) exploration & evaluation
(b) development - -
(c) production - -
(d) staff costs (633) (1,517)
(e) administration and corporate costs (888) (1,461)
1.3 Dividends received (see note 3) - -
1.4 Interest received 21 38
1.5 Interest and other costs of finance paid - -
1.6 Income taxes paid - -
1.7 Government grants and tax incentives - -
1.8 Other - -
1.9 Net cash from / (used in) operating activities (1,500) (2,940)
2. Cash flows from investing activities - -
2.1 Payments to acquire or for:
(a) entities
(b) tenements (3,305) (3,907)
(c) property, plant and equipment - -
(d) exploration & evaluation (15,501) (20,277)
(e) investments - -
(f) other non-current assets - -
2.2 Proceeds from the disposal of: - -
(a) entities
(b) tenements - -
(c) property, plant and equipment - -
(d) investments - -
(e) other non-current assets - -
2.3 Cash flows from loans to other entities - -
2.4 Dividends received (see note 3) - -
2.5 Other - Joint Venture Contributions - 1,462
Other - Distribution from Project Longhorn 1,076 1,405
Other - Return of Bond - 585
2.6 Net cash from / (used in) investing activities (17,730) (20,732)
3. Cash flows from financing activities - 17,500
3.1 Proceeds from issues of equity securities (excluding convertible debt
securities)
3.2 Proceeds from issue of convertible debt securities - -
3.3 Proceeds from exercise of options - -
3.4 Transaction costs related to issues of equity securities or convertible debt (20) (1,180)
securities
3.5 Proceeds from borrowings - -
3.6 Repayment of borrowings - -
3.7 Transaction costs related to loans and borrowings - -
3.8 Dividends paid - -
3.9 Other (provide details if material) - -
3.10 Net cash from / (used in) financing activities - 16,320
4. Net increase / (decrease) in cash and cash equivalents for the period
4.1 Cash and cash equivalents at beginning of period 26,310 14,123
4.2 Net cash from / (used in) operating activities (item 1.9 above) (1,500) (2,940)
4.3 Net cash from / (used in) investing activities (item 2.6 above) (17,730) (20,732)
4.4 Net cash from / (used in) financing activities (item 3.10 above) (20) 16,320
4.5 Effect of movement in exchange rates on cash held 261 550
4.6 Cash and cash equivalents at end of period 7,321 7,321
5. Reconciliation of cash and cash equivalents Current quarter Previous quarter
at the end of the quarter (as shown in the consolidated statement of cash flows) to the related items in the accounts
$A'000
$A'000
5.1 Bank balances 7,321 26,310
5.2 Call deposits - -
5.3 Bank overdrafts - -
5.4 Other (provide details) - -
5.5 Cash and cash equivalents at end of quarter (should equal item 4.6 above) 7,321 26,310
6. Payments to related parties of the entity and their associates Current quarter
$A'000
6.1 Aggregate amount of payments to related parties and their associates included 205
in item 1
6.2 Aggregate amount of payments to related parties and their associates included -
in item 2
Note: if any amounts are shown in items 6.1 or 6.2, your quarterly activity
report must include a description of, and an explanation for, such payments.
6.1 Payments relate to Director and consulting fees paid to
Directors. All transactions involving directors and associates were on normal
commercial terms.
7. Financing facilities Total facility amount at quarter end Amount drawn at quarter end
Note: the term "facility' includes all forms of financing arrangements available to the entity.
$US'000
$US'000
Add notes as necessary for an understanding of the sources of finance available to the entity.
7.1 Loan facilities - -
7.2 Credit standby arrangements - -
7.3 Other (please specify) - -
7.4 Total financing facilities - -
7.5 Unused financing facilities available at quarter end -
7.6 Include in the box below a description of each facility above, including the
lender, interest rate, maturity date and whether it is secured or unsecured.
If any additional financing facilities have been entered into or are proposed
to be entered into after quarter end, include a note providing details of
those facilities as well.
8. Estimated cash available for future operating activities $A'000
8.1 Net cash from / (used in) operating activities (item 1.9) (1,520)
8.2 (Payments for exploration & evaluation classified as investing activities) (15,501)
(item 2.1(d))
8.3 Total relevant outgoings (item 8.1 + item 8.2) (17,021)
8.4 Cash and cash equivalents at quarter end (item 4.6) 7,321
8.5 Unused finance facilities available at quarter end (item 7.5) -
8.6 Total available funding (item 8.4 + item 8.5) 7,321
8.7 Estimated quarters of funding available (item 8.6 divided by item 8.3) 0.4
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7.
8.8 If item 8.7 is less than 2 quarters, please provide answers to the following
questions:
8.8.1 Does the entity expect that it will continue to have the current
level of net operating cash flows for the time being and, if not, why not?
Answer: Yes
The total outgoings are significantly higher in Q2 than expected in Q3 mainly
due to the bulk of the payments associated with Hickory-1 drilling program
being paid in Q2. The comparatively low amount of A$0.9M was paid in July to
close out the Hickory-1 drilling program expenditures.
The entity expects to fund its planning and permitting for Hickory-1 flow
test, planning and studies for project Leonis and G&A from current cash
reserves and Project Longhorn cash distributions.
8.8.2 Has the entity taken any steps, or does it propose to take any
steps, to raise further cash to fund its operations and, if so, what are those
steps and how likely does it believe that they will be successful?
Answer: Yes, the Company has launched a non-renounceable rights issue to raise
up to approximately A$12 million to fund its operations.
8.8.3 Does the entity expect to be able to continue its operations and
to meet its business objectives and, if so, on what basis?
Answer: Yes.
The entity's business objectives are on track with sufficient cash available
for its planning and permitting for Hickory-1 flow test as well as planning
and studies for project Leonis. Project Longhorn provides cash flow
distributions towards G&A. To meet its longer-term objectives, the Company
has the usual potential funding avenues available including cash, debt,
farmouts and equity markets.
The Company has launched a non-renounceable rights issue to fund its
operations.
Note: where item 8.7 is less than 2 quarters, all of questions 8.8.1, 8.8.2
and 8.8.3 above must be answered.
Compliance statement
1 This statement has been prepared in accordance with accounting
standards and policies which comply with Listing Rule 19.11A.
2 This statement gives a true and fair view of the matters
disclosed.
Date: 31 July 2023
Authorised by: By the Board
(Name of body or officer authorising release - see note 4)
1.1 Notes
1. This quarterly cash flow report and the accompanying
activity report provide a basis for informing the market about the entity's
activities for the past quarter, how they have been financed and the effect
this has had on its cash position. An entity that wishes to disclose
additional information over and above the minimum required under the Listing
Rules is encouraged to do so.
2. If this quarterly cash flow report has been prepared in
accordance with Australian Accounting Standards, the definitions in, and
provisions of, AASB 6: Exploration for and Evaluation of Mineral Resources and
AASB 107: Statement of Cash Flows apply to this report. If this quarterly cash
flow report has been prepared in accordance with other accounting standards
agreed by ASX pursuant to Listing Rule 19.11A, the corresponding equivalent
standards apply to this report.
3. Dividends received may be classified either as cash flows
from operating activities or cash flows from investing activities, depending
on the accounting policy of the entity.
4. If this report has been authorised for release to the
market by your board of directors, you can insert here: "By the board". If it
has been authorised for release to the market by a committee of your board of
directors, you can insert here: "By the [name of board committee - eg Audit
and Risk Committee]". If it has been authorised for release to the market by a
disclosure committee, you can insert here: "By the Disclosure Committee".
5. If this report has been authorised for release to the
market by your board of directors and you wish to hold yourself out as
complying with recommendation 4.2 of the ASX Corporate Governance Council's
Corporate Governance Principles and Recommendations, the board should have
received a declaration from its CEO and CFO that, in their opinion, the
financial records of the entity have been properly maintained, that this
report complies with the appropriate accounting standards and gives a true and
fair view of the cash flows of the entity, and that their opinion has been
formed on the basis of a sound system of risk management and internal control
which is operating effectively.
Information required by ASX Listing Rule 5.4.3 - Lease Schedules as at 30 June
2023
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