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88 Energy ltd: THE INVESTMENT CASE

88 Energy is setting up for success as new Icewine drilling looms

Drilling is due to start in the first quarter of 2017, but, the explorer is already preparing for success by snapping up more acreage in the area.
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INVESTMENT OVERVIEW: 88E The Big Picture
Icewine-2 is next on the agenda

As investors look forward to new drilling 88 Energy Ltd continues to set itself up for a big future in Alaska by snapping up yet more acreage in the North Slope

88 Energy told investors it has further expanded its footprint in Alaska’s North Slope through a bidding round.

It comes as the explorer is preparing a drill programme that will see the Icewine-2 kick off in the first quarter of 2017.

Alongside partner Burgundy Xploration it was named highest bidder on a package of 142,560 acres in the Central North Slope, with the AIM quoted exploration group receiving a 77% interest in the property.

At the same time Burgundy is being awarded 279,360 acres, and 88 Energy has a right to take up 30% of that acreage. It means 88 Energy now has 400,000 net acres in the region (the gross joint venture acreage amounts to 690,000 acres).

Managing director Dave Wall highlighted that with the new acreage the company has ‘maximised the potential upside exposure’ should upcoming work programmes prove successful.

"Our success in this bid round provides us with the ability to significantly increase our acreage position on the North Slope and highlights the confidence that management has in both the HRZ unconventional play as well as the conventional prospectivity at Project Icewine,” Wall said.

88 Energy is on-track to drill Icewine-2 in early 2017

The company told investors it is on track to drill its next shale well at Project Icewine, in Alaska’s North Slope, in the first quarter of 2017. The ongoing permitting process for the well has now passed major milestones with no problems and the documents should be in place well ahead of the scheduled spud date for Icewine-2, the company said.

Meanwhile, it anticipates that it will appoint key contractors, including for the rig, in coming weeks.

Icewine-2 is expected to provide further insight into the scale of the HRZ shale discovery that was unearthed in the first well. Significantly, it will be fracked and flow tested to determine the commercial potential of the shale, which is estimated to hold billions of barrels of oil.

“Operational activity associated with the near term spud of Icewine#2 is ramping up and the company is on the cusp of testing the flow potential of the HRZ resource play,” said managing director Dave Wall.

“Our large acreage position and the quality of the rock means that the potential resource prize is enormous and success would be truly transformational.”

Conventional prospects are stacking up

88 Energy updated investors on its conventional oil exploration programme, where seismic analysis has unearthed a range of preliminary leads.

It said that the forward work programme will mature prospects and leads, and high-grade the best ones into candidates for future drilling.

As part of this process 88 Energy expects to have estimates of the exploration inventory’s resource potential by the end of 2016.

“The conventional portfolio continues to firm up, exceeding our expectations,” Dave Wall said.

Final interpretation and the initial analysis of new seismic data was completed in November.

The first wave of leads are in the Brookian and Beaufortian sequences, which are proved to host hydrocarbons in the region. The company said it now has a diverse conventional Prospect and Lead inventory across the Icewine acreage, in Alaska’s North Slope.

The majority of the leads are seen to be stratigraphic – i.e. comprises multiple overlaying zones – with features such as the slope apron, basin floor fan systems and turbidites.

It also noted that a number of leads are associated with enhanced seismic amplitudes, which is particularly promising as that can indicate the presence of hydrocarbons, and to further investigate the company is conducting AVO (amplitude versus offset) analysis – and initial results are described as ‘encouraging’.

As well as de-risking ahead of drilling the AVO findings will also help the group rank its leads and prospects.

Broker says 88 Energy shares can double

Upcoming work programmes on the shale venture in Alaska can draw the attentions of ‘all the oil majors’, according to a report by Sydney based EverBlu research.

Analyst Gavin Van Der Wath, who says 88 Energy is a ‘buy’, reckons the upcoming drilling at project Icewine can double the explorer’s share price.

A successful appraisal well to confirm the shale project’s viability would give the company a value in the range of US$150mln and US$380mln (while upside scenarios approach US$1bn).

It can put 88 Energy in a strong position, according to the analyst.

“We believe that a successful appraisal well, the potential resource size and subsequent scope of commercial development would attract the attention of all the oil majors, placing 88E in a strong negotiating position and allowing the company its pick of partners, should it so choose.”

He added: “A successful outcome could see the share doubling to AUD 0.08 per share.”

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