Interim Report

RNS Number : 1507N

88 Energy Limited

04 August 2017

 

88 Energy Limited

Interim Report

88 Energy Limited (ASX: 88E; AIM: 88E) ("88 Energy" or "the Company") is pleased to announce its interim results for the half year ended 30 June 2017.

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 and at the link at the foot of this announcement.

Media and Investor relations:

88 Energy Ltd	Email: [e-mail]
Dave Wall, Managing Director	Tel: [phone]
Finlay Thomson, Investor Relations	Tel: [phone]
Hartleys Ltd
Dale Bryan	Tel: + 61 8 9268 2829
Cenkos Securities
Neil McDonald/Derrick Lee	Tel: [phone]

OPERATING AND FINANCIAL REVIEW

During the period, the Group has continued its principal activities in Alaska. A summary of significant activities is below:

Highlights for the first half of 2017:

·    Conventional prospectivity review completed in the half year identifying resource potential in conventional leads, based on internal estimates totalling;

o  1.5 billion barrels of gross mean Prospective Resources (unrisked)

o  1.1 billion barrels of net mean Prospective Resources to 88 Energy (unrisked)

·   Spud of Icewine#2 Production Test well to evaluate the HRZ shale play occurred on 24^th April 2017, with the following key project milestones;

o  Rig contract with Doyon Drilling Inc. for the Artic Fox rig executed in February 2017, with the rig  mobilising to site in March 2017;

o  Icewine#2 Permit to Drill approved in April 2017, with spud occurring shortly thereafter;

o  The Arctic Fox drilling rig reached a Total Depth of 11,450' MD on 15^th May 2017, on schedule and without  incident;

o  Wireline logging successfully completed throughout the production interval;

o  Stage 1 and Stage 2 stimulation operations completed successfully, with over 98% of the intended  proppant volume placed in the HRZ reservoir;

o  Flowback commenced on 19^th June 2017 from Stage 2 (upper zone) with 8% of total stimulation fluid  recovered,

o  Rate and pressure observations indicated that the upper zone was likely in communication with Stage 1  (lower zone) consequently the plug separating the two zones was drilled out

o  ~16% of the stimulation fluid was recovered from the combined zones prior to shut in on 10^th July 2017,  with trace hydrocarbons encountered during flowback; and

o  Drilling and production testing expenditure at Icewine#2 is anticipated to be within budget.

·    Oversubscribed placement to domestic and international institutional and sophisticated investors raised A$ 17 million in the half year.

Conventional Prospectivity Review Complete

Additional resource potential was identified for conventional leads across Project Icewine acreage, based on internal estimates and was announced in Q12017:

o  710 million barrels of gross mean Prospective Resources (unrisked)

o  550 million barrels of net mean Prospective Resources to 88 Energy (unrisked)

The overall Conventional Resource Potential for Project Icewine, including previously reported leads, now totals:

o  1.47 billion barrels gross mean Prospective Resources (unrisked)

o  1.14 billion barrels net mean Prospective Resources to 88 Energy (unrisked)

88 Energy completed the interpretation of the 2D seismic data acquired by the Company early in 2016 across Project Icewine and is encouraged by the results of the technical evaluation. The principal objective of the seismic acquisition program, to evaluate the conventional prospectivity across Project Icewine, has been achieved. A conventional Prospect and Lead Portfolio has been developed to complement the unconventional Prospective Resource potential already recognised in the HRZ liquids rich resource play. Stacking of Leads mapped in the Central region and on the Western margin of Project Icewine may, on maturation, offer the opportunity to test multiple stacked objectives with one exploration well.

On completion of the conventional prospectivity portfolio review, the Alpha and Bravo Leads remain the most significant given their seismic relief and geometries. Of note, the Alpha Lead is located close to the transportation corridor and mature infrastructure so could be developed relatively quickly, in the event of exploration success. The Bravo Lead is the most significant Lead in the Western Play Fairway, with closure delineated on the Company's new 2016 seismic database. 

The conventional leads mapped are predominantly stratigraphic and the majority are considered to be associated with slope apron, turbidites and basin floor fan development. The Tarn Oil Pool, Kuparuk River Unit to the norwest of Project Icewine is considered a proven and productive analogue. The Tarn Oil Pool comprises multiple stacked sands within the Seabee Formation.

Project Icewine Conventional Prospectivity Summary

Prospective Oil Resources - Unrisked Recoverable - MMBO

PROJECT ICEWINE CONVENTIONAL LEAD SUMMARY                                                  Prospective Oil Resources - Unrisked Recoverable - MMBO
Lead	Low	Best	High	Gross Mean	Net Mean to 88E    (WI: 77.5%)
Eastern Play Fairway
Alpha	19	71	263	118	91
Romeo	2.1	3.4	5.3	3.6	2.8
Sierra	1.1	2.0	3.4	2.2	1.7
Central Play Fairway
Golf	60	115	210	128	99
Hotel	10	18	31	19.8	15.3
India	61	116	212	129	100
Juliet	52	99	181	110	85
Western Play Fairway
Bravo	129	245	449	273	212
Oscar	14.5	26.6	47	29.2	22.6
Papa	7.6	13.9	24.6	15.3	11.9
Charlie*	147	257	432	277	215
Delta*	74.7	131	219	141	109
Foxtrot*	40.9	71.5	120	77	60
Mike*	50	87.5	147	94	73
November*	24.8	45.6	80.4	50.1	39
FINAL TOTAL				1,468	1,137

Prospective resources classified in accordance with SPE-PRMS as at 13^th January 2017 using probabilistic and deterministic methods on an unrisked basis. Leads identified from interpretation of modern 2D seismic acquired in 2015/2016 across Project Icewine, which comprises 271,119** gross acres on the Central North Slope of Alaska. 88 Energy is Operator of record at Project Icewine (through its wholly owned subsidiary Accumulate Energy Alaska, Inc) with a 77.5% working interest.

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.

*Conceptual leads extend into previously open acreage to the west of Icewine Project, which was successfully bid on by 88 Energy in the recent State of Alaska Licensing round, December 2016. Currently delineated on Icewine 2D seismic data and extending onto sparse vintage 2D. Further technical work is required to define the full potential of the Western Play Fairway conceptual leads.

** An additional ~420,000 gross acres (~190,000 net to 88E) is subject to formal award, which is expected in 2017.

Icewine#2 Operations

On 16th February 2017, Accumulate Energy Alaska Inc. entered into a contract with Doyon Drilling Inc to utilise the Arctic Fox rig to drill the Icewine#2 appraisal well, with the rig mobilised to site in late March 2017.

On 6^th April 2017, approval of the Permit to Drill was granted by the Alaskan Oil and Gas Conservation Commission ('AOGCC') and shortly thereafter on 24^th April the Icewine#2 well was spudded with the Arctic Fox rig.

The well reached a Total Depth ('TD') of 11,450' on the 15^th of May, on schedule and without incident.  Wireline logging, cementing the 4.5" production liner and demobilisation of the Artic Fox rig was completed by the end of May.

Log interpretation to finalise the stimulation design was completed in early June, and the two stage artificial stimulation of the HRZ reservoir was successfully completed on 19^th June, with over 98% of the intended proppant volume placed into the HRZ reservoir.

Flow back from the upper zone commenced on 19^th June, with approximately 8% of the total stimulation fluid recovered before it became apparent that the upper and lower zones were in communication, which consequently resulted in the drill out of the plug between the upper and lower zones. 

Subsequent to period end the well was shut in on 10^th July 2017 for an anticipated period of 6 weeks, with ~16% of stimulation fluid recovered prior to shut in.

Oversubscribed Placement to Raise A$17 million

On the 6^th of March, the Company announced that it had successfully completed a capital raise of A$17 million, with the placement made to domestic and international institutional and sophisticated investors through the issue of 463,513,514 ordinary shares of no par value at A$0.037 (equivalent to £0.023) per New Ordinary Share.

Funds raised under the Placement strengthen the Company's balance sheet ahead of the drilling of the Icewine#2 well. Specifically, the proceeds will provide the Company with the financial flexibility to cover any unexpected costs arising from the drilling of Icewine#2, lease payments due in respect of the significant new acreage awarded and ongoing exploration activities.

Financial

For the period ended 30 June 2017 the Company recorded a loss of $7.84 million (30 June 2016: $8.06 million loss). The loss was largely attributable to general and administrative costs, share based payments expense and foreign exchange movements.

No dividends were paid or declared by the Company during the period.

As at 30 June 2017, the Group had cash on hand of $31.55 million (31 December 2016: $27.30 million) which includes A$13.3 million in cash held which is restricted for JV operations, net assets of $58.7 million (31 December 2016: $48.01 million). The significant increase in net assets is largely due to the capital raising in March 2017 and the subsequent investment in expenditure on the Icewine Project.

During the year, the Company raised approximately A$17.6 million before costs through the issue of new shares and exercise of options.

Note, the Bank of America debt will be maturing on 30 June 2018 and as a result the Group will be required in the next 12 months to restructure or raise alternative debt, or funding, ahead of this maturity date.

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE HALF YEAR ENDED 30 JUNE 2017

	Note
		30 June 2017 $	30 June 2016 $
Income	3(a)	61,679	65,742
Administration expenses	3(b)	(675,337)	(1,269,010)
Occupancy expenses		(82,100)	(88,805)
Employee benefit expenses	3(c)	(815,679)	(682,012)
Share based payment expense	12	(2,020,772)	(100,000)
Depreciation and amortisation expense		(3,473)	(5,163)
Finance cost		(1,727,795)	(966,162)
Realised/unrealised loss on foreign exchange		(619,539)	(222,154)
Other expenses		(88,271)	(4,659,461)
Loss before income tax		(5,971,287)	(7,927,025)
Income tax benefit/(expense)		-	-
Net loss attributable to members of the parent		(5,971,287)	(7,927,025)
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		(1,864,050)	(129,642)
Total comprehensive loss for the period		(7,835,337)	(8,056,667)
Basic and diluted loss per share (cents)		(0.001)	(0.001)

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2017

	Note
		30 June 2017 $	31 December 2016 $
ASSETS
Current Assets
Cash and cash equivalents	5	31,554,192	27,303,178
Other receivables	6	765,181	312,644
Total Current Assets		32,319,373	27,615,822
Non-Current Assets
Plant and equipment		5,054	6,131
Exploration and evaluation expenditure	7	49,635,828	38,227,059
Other assets	10	10,463,695	11,158,742
Total Non-Current Assets		60,104,577	49,391,932
TOTAL ASSETS		92,423,950	77,007,754
LIABILITIES
Current Liabilities
Provisions		135,515	90,085
Trade and other payables	8	10,711,942	6,127,943
Borrowings	9	22,853,144	-
Total Current Liabilities		33,700,601	6,218,028
Non-Current Liabilities
Borrowings		-	22,779,313
Total Non-Current Liabilities		-	22,779,313
TOTAL LIABILITIES		33,700,601	28,997,341
NET ASSETS		58,723,349	48,010,413
EQUITY
Issued and fully paid shares	11	141,685,466	125,157,965
Reserves	11	16,425,707	16,268,985
Accumulated losses		(99,387,824)	(93,416,537)
TOTAL EQUITY		58,723,349	48,010,413

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE HALF YEAR ENDED 30 JUNE 2017

		Issued and fully paid shares $	Reserves $	Accumulated losses $	Total equity $
Balance at 1 January 2016		90,654,560	14,848,766	(84,015,273)	21,488,053
Loss for the period		-	-	(7,927,025)	(7,927,025)
Other comprehensive income		-	(129,642)	-	(129,642)
Total comprehensive loss for the period, net of tax		-	(129,642)	(7,927,025)	(8,056,667)
Shares issued during the period		26,480,660	-	-	26,480,660
Shares cancelled		-	-	-	-
Share based payments		-	100,000	-	100,000
Equity raising costs		(1,151,562)	-	-	(1,151,562)
Balance at 30 June 2016		115,983,658	14,819,124	(91,942,298)	38,860,484
Balance at 1 January 2017		125,157,965	16,268,985	(93,416,537)	48,010,413
Loss for the period		-	-	(5,971,287)	(5,971,287)
Other comprehensive income		-	(1,864,050)	-	(1,864,050)
Total comprehensive loss for the period, net of tax		-	(1,864,050)	(5,971,287)	(7,835,337)
Shares issued during the period		17,766,774	-	-	17,766,774
Shares cancelled		-	-	-	-
Share based payments		-	2,020,772	-	2,020,772
Equity raising costs		(1,239,273)	-	-	(1,239,273)
Balance at 30 June 2017		141,685,466	16,425,707	(99,387,824)	58,723,349

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE HALF YEAR ENDED 30 JUNE 2017

	Note
		30 June 2017 $	30 June 2016 $
Cash flows from operating activities
Interest		4,976	47,345
Other Income		101,792	18,397
Interest Paid		-	(1,420,568)
Payments to suppliers and employees		(1,941,695)	(1,019,638)
Net cash outflows used in operating activities		(1,834,927)	(2,374,464)
Cash flows from investing activities
Payment for property plant & equipment		-	(3,404)
R&D refund		-	249,295
Payments for exploration and evaluation activities		(15,004,914)	(23,817,141)
Contributions from JV Partners in relation to Exploration		6,626,363	-
Net cash outflows used in investing activities		(8,378,551)	(23,571,250)
Cash flows from financing activities
Proceeds from issue of shares		17,636,774	26,480,660
Share issue costs		(1,250,296)	(1,151,562)
Proceeds from drawdown of facility		-	11,281,381
Payment of borrowing costs		(665,868)	-
Net cash inflows from financing activities		15,720,610	36,610,479
Net increase in cash and cash equivalents		5,507,133	10,664,765
Net foreign exchange differences		(1,256,119)	(221,373)
Cash and cash equivalents at beginning of period		27,303,178	9,604,249
Cash and cash equivalents at end of period	5	31,554,192	20,047,641

Click on, or paste the following link into your web browser, to view the associated PDF document.

http://www.rns-pdf.londonstockexchange.com/rns/1507N_-2017-8-4.pdf

 

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