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88 Energy - Quarterly Report

The Directors of 88 Energy Limited ("88 Energy" or the "Company", ASX & AIM:88E) provide the following report for the quarter ended 30 September 2019. 


Highlights


Project Icewine


·    Project Icewine Conventional farm-out executed in the quarter with Premier Oil Plc ("Premier");


o   Under the terms of the Sale and Purchase Agreement ("SPA"), Premier will farm-in for a 60% interest in Area A and will pay the full costs of an appraisal well, designated as Charlie-1, (up to a total of US$23 million) to test the reservoir deliverability of the Malguk-1 discovery;


o   88 Energy will retain a 30% working interest in Area A with the remaining 10% working interest held by Burgundy Xploration LLC ("Burgundy");


o   Premier has an option to earn 50% working interest in Area B or C by spending US$15m, if the Charlie-1 (Malguk-1 appraisal) well in Area A is successful;


o   88 Energy to operate the Charlie-1 (Malguk-1 appraisal) well via its wholly owned Alaskan subsidiary, Accumulate Energy Alaska Inc, with the well to be drilled and tested in Q1 2020 using the already secured Nordic-Callista Rig-3 and with permitting work on track.


·    Project Icewine Unconventional;


o   Charlie-1 well designed to penetrate HRZ and gather additional data;


o   Application of FIB-SEM planned on regional well cuttings to firm up prospective fairway;


o   Icewine-2 well formally plugged and abandoned in the quarter;


o   Soft farm-out underway with continued third party interest.


Yukon Acreage


·      Discussions continue with nearby resource owners to optimise the monetisation strategy of the acreage;


·      Yukon lease bid on by the Company in the Dec'18 State of Alaska Licensing Round was formally awarded and taken up.


Western Blocks


·      Additional regional 3D purchased during the quarter, with reprocessing/reinterpretation of legacy 3D seismic planned to assess further prospectivity in acreage.


Corporate


·      Successfully completion of a capital raise of A$6.75 million (before costs).


Project Icewine


·    Project Icewine Conventional


88 Energy signed a SPA with Premier in the quarter, whereby Premier will farm-in for a 60% interest in Area A (also referred to as the Western Play Fairway) of the conventional Project Icewine acreage in the proven Alaska North Slope basin (see Fig. 1).


88 Energy will retain a 30% working interest in Area A with the remaining 10% working interest held by Burgundy Xploration LLC ("Burgundy").


Under the terms of the SPA, Premier will pay the full costs of an appraisal well, designated as Charlie-1, (up to a total of US$23 million) to test the reservoir deliverability of the Malguk-1 discovery. The well will be drilled and tested in Q1 2020 with Nordic Rig #3 secured in the quarter. On successful completion of the work programme, Premier will have the option to assume operatorship.


About the Charlie-1 Appraisal Well


The Charlie-1 appraisal well has been designed as a step out appraisal of a well drilled in 1991 by BP Exploration (Alaska) Inc called Malguk-1. Malguk-1 encountered oil shows with elevated resistivity and mud gas readings over multiple horizons during drilling but was not tested due to complications towards the end of operations, which resulted in lack of time before the close of the winter drilling season. It was also drilled using vintage 2D seismic, which was insufficient to adequately determine the extent of any of the prospective targets encountered.


88 Energy subsequently undertook revised petrophysical analysis, which identified what is interpreted as bypassed pay in the Malguk-1 well. 88E also completed acquisition of modern 3D seismic in 2018, in order to determine the extent of the discovered oil accumulations. Charlie-1 will intersect seven stacked prospects, four of which are interpreted as oil bearing in Malguk‑1 and are therefore considered appraisal targets. 88 Energy will operate Charlie-1, via its 100% owned subsidiary Accumulate Energy Alaska, Inc, with cost of the well to be funded by Premier up to US$23m under a recent farm-out agreement. Drilling is scheduled to commence in February 2020 with flow testing anticipated to conclude in April 2020. The total Gross Mean Prospective Resource across the seven stacked targets to be intersected by Charlie-1 is 1.6 billion barrels of oil (480 million barrels net to 88E). Refer announcement dated 23rd August.


Cautionary Statement: The estimated quantities of petroleum that may be potentially recovered by the application of a future development project relate to undiscovered accumulations. These estimates have both an associated risk of discovery and a risk of development. Further exploration, appraisal and evaluation are required to determine the existence of a significant quantity of potentially movable hydrocarbons.


Additional Details


•    Premier has an option to earn a 50% working interest in Area B or C by spending US$15m, if the Charlie-1 (Malguk-1 appraisal) well in Area A is successful;


•    88 Energy to operate the Charlie-1 (Malguk-1 appraisal) well via its wholly owned Alaskan subsidiary, Accumulate Energy Alaska Inc;


•    Standard completion documents have been agreed and are in the process of execution, including the Joint Operating Agreement and assignment forms;


During the quarter the Nordic-Callista Rig-3 was secured for the upcoming drilling of the Charlie-1 appraisal well. Rig-3 was used for the drilling of the Winx-1 well in March 2019 and 88 Energy was extremely pleased with its safe and efficient performance throughout the course of operations.


Significant progress has also been made on permitting, with only two key permits now outstanding; the Plan of Operations and Permit to Drill, which are both in the process of being finalised and approved. Additionally, tendering and finalisation of contracts for equipment and services required for Charlie-1 are advancing as planned.


The conditions precedent related to the recent farm-out with Premier are being completed according to schedule, with all conditions expected to be met prior to the end of November 2019.


·    Project Icewine Unconventional


The forward program consists of accessing material from regional wells in order to conduct additional FIB-SEM analysis to confirm improved effective porosity and connectivity. In addition, the Charlie-1 well is designed to penetrate HRZ and gather additional data which will complement the ongoing additional analysis being conducted.


During the quarter the Icewine-2 well was formally plugged and abandoned.

The Joint Venture continues to field unsolicited third party interest in the HRZ shale play and an informal farm-out process is underway.


Yukon Leases


Discussions ongoing with nearby lease owners to optimise the monetisation strategy for existing discovered resources located in the vicinity of the Yukon Leases. The Yukon Leases contain the 86 million barrel Cascade Prospect#, which was intersected peripherally by Yukon Gold-1, drilled in 1994, and classified as an historic oil discovery. 88 Energy recently acquired 3D seismic (2018) over Cascade and, on final processing and interpretation, high-graded it from a lead to a drillable prospect. The Yukon Leases are located adjacent to ANWR and in close proximity to recently commissioned infrastructure.


88 Energy, via its subsidiary Regenerate Alaska, Inc, has been formally awarded acreage it successfully bid on in the State of Alaska North Slope Licensing round December 2018. Lease documents have been executed and the balance of funds have been transferred to the State of Alaska Department of Natural Resources.


# Refer announcement 7th November 2018


Cautionary Statement: The estimated quantities of petroleum that may be potentially recovered by the application of a future development project relate to undiscovered accumulations. These estimates have both an associated risk of discovery and a risk of development. Further exploration, appraisal and evaluation are required to determine the existence of a significant quantity of potentially movable hydrocarbons.


Western Blocks


Additional regional 3D purchased during the quarter that will aid in the evaluation process for the Western Blocks. The forward program will be to continue to assess this data and potentially reprocess and reinterpret the 3D seismic. It is anticipated that the evaluation work will be completed towards the end of CY2019.


Placement to Raise A$6.75 million


On the 12th September, the Company announced that it had successfully completed a capital raise of A$6.75 million (before costs), with the placement made to domestic and international institutional and sophisticated investors through the issue of 540 million ordinary shares at A$0.0125 (equivalent to £0.007) per New Ordinary Share.


Funds raised pursuant to the Placement, together with the Company's existing cash reserves, will be used to fund the ongoing evaluation of the conventional and unconventional prospectivity of the Company's existing assets, including any potential costs in respect of the Charlie-1 well, which is due to be drilled in Q1 CY2020, and to enable it to identify and exploit new opportunities on the North Slope of Alaska.


Corporate


The ASX Appendix 5B attached to this report contains the Company's cash flow statement for the quarter.  The significant cash flows for the period were:


·      A$6.75m (before costs) was received in the quarter from the capital raise;


·      Exploration and evaluation expenditure totalled A$3.8m (gross), primarily associated with lease rentals;


·      Payments in relation to the debt facility interest totalled A$0.6m (US$0.4m); and


·      Administration and other operating costs A$1.1m (Jun'19 Quarter A$0.8m).

At the end of the quarter, the Company had cash reserves of A$10.1m, including cash balances held in Joint Venture bank accounts relating to Joint Venture Partner contributions totalling A$1.2m.

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