Quarterly Report and Appendix 5B

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 60km² 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 consideration¹

·      Acerage located four miles south of Project Longhorn with net 2P reserves of 1.1MMBOE¹

·      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 MMBOE¹), 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	Net Area (acres)	Interest at beginning of Quarter	Interest at end of Quarter
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	1,3632	~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: [phone] Email:[e-mail]
Fivemark Partners, Investor and Media Relations
Michael Vaughan	Tel: [phone]
EurozHartleys Ltd
Dale Bryan	Tel: + 61 8 9268 2829
Cenkos Securities Plc	Tel: [phone]
Derrick Lee	Tel: [phone]
Pearl Kellie	Tel: [phone]

 

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 $A'000	Year to date (6 months) $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 Other - Distribution from Project Longhorn Other - Return of Bond	- 1,076 -	1,462 1,405 585
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 securities	(20)	(1,180)
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 at the end of the quarter (as shown in the consolidated statement of cash flows) to the related items in the accounts	Current quarter $A'000	Previous quarter $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 in item 1	205
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 Note: the term "facility' includes all forms of financing arrangements available to the entity. Add notes as necessary for an understanding of the sources of finance available to the entity.	Total facility amount at quarter end $US'000	Amount drawn at quarter end $US'000
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) (item 2.1(d))	(15,501)
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
	Note: if the entity has reported positive relevant outgoings (ie a net cash inflow) in item 8.3, answer item 8.7 as "N/A". Otherwise, a figure for the estimated quarters of funding available must be included in item 8.7.
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

 

END