The Directors of 88 Energy Limited ("88 Energy" or the "Company", ASX & AIM:88E) provide the following report for the quarter ended 31 December 2019.
Highlights
Project Icewine
· Farm-out with Premier Oil Plc ("Premier") finalised and completion documents executed in the quarter;
· The Alaska Department of Natural Resources approved the Plan of Operations for the Charlie-1 appraisal well in November 2019;
· Permit to Drill submitted - approval expected in January 2020; and
· All other contracting and logistical work is proceeding as planned ahead of the scheduled February 2020 spud date.
Yukon Acreage
· Discussions continue with nearby resource owners to optimise the monetisation strategy of the acreage; and
· Permitting underway ahead of potential drilling in 2021 - subject to farm-out.
Western Blocks
· Assessment of strategy for future of leases underway.
Project Icewine
· Project Icewine Conventional
Farm-out Update
All conditions precedent to the farm-out agreement between 88 Energy, Premier and Burgundy Xploration, signed in August 2019, have been satisfied. Consequently, execution of the final agreements took place on 26th November 2019.
Operations Update
88 Energy, via its 100% owned subsidiary Accumulate Energy Alaska, Inc ("Accumulate"), executed a rig contract with Nordic-Callista Services just prior to the beginning of the quarter, to utilise Rig-3 for the upcoming drilling of the Charlie-1 appraisal well. 88 Energy utilised Rig-3 for the drilling of the Winx-1 well in March 2019 and was extremely pleased with its safe and efficient performance throughout the course of operations.
The Alaska Department of Natural Resources approved the Plan of Operations for the Charlie-1 appraisal well on 22nd November. The Plan of Operations is one of the key major permits required for drilling.
The Permit to Drill was submitted prior to the end of 2019, as planned, and approval is expected towards the end of January. This is the last major permit required prior to spud of the Charlie-1 well.
As per the farm-out agreement, initial cash call was receipted into the Joint Venture account in December 2019.
All other contracting and logistical work is proceeding as planned ahead of the scheduled February 2020 spud date.
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 Oil Plc up to US$23m under the 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.
· Project Icewine Unconventional
Assessment of material from regional wells ongoing in order to conduct additional FIB-SEM analysis to confirm improved effective porosity and connectivity.
Additional analysis to be complimented by results from the Charlie-1 well, with the well designed to penetrate HRZ and gather additional data which will complement the ongoing additional analysis being conducted.
The Joint Venture plans to conduct a formal farm-out process to fund further appraisal.
Yukon Leases
Discussions are 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.
Permitting underway ahead of possible drilling in 2021 - subject to farm-out.
* 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
Assessment of strategy for future of leases underway, ahead of lease expiry in May 2021.
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:
· Exploration and evaluation expenditure totalled A$4.0m (gross), primarily associated with lease rentals and expenditure associated with the upcoming Charlie-1 appraisal well;
· Cash call proceeds received from Joint Venture partners totalled $12.4m;
· Payments in relation to the debt facility interest totalled A$0.6m (US$0.4m); and
· Administration and other operating costs A$0.9m (Sept'19 Quarter A$1.1m).
At the end of the quarter, the Company had cash reserves of A$15.9m, including cash balances held in Joint Venture bank accounts relating to Joint Venture Partner contributions totalling A$10.7m.