88 Energy Ltd (AIM:88E, ASX:88E, OTC:EEENF) new farm-out deal has shone a light on the asset value that’s currently unrecognised by the share price.
The Alaska-focused explorer on Monday announced it had agreed a new farm-out deal for the Project Phoenix horizontal test well, on Alaska’s North Slope.
Burgundy will fund up to $39 million of future work costs in return for up to a 50% working interest in the project.
In Phase 1, Burgundy will invest $29 million in the 2025/2026 campaign which will include a horizontal well and production test. At this point, 88 Energy’s working interest in the project will reduce from 75% to 35%.
In Phase 2, Burgundy has the option to invest a further $10 million for an additional well or on alternative programmes, and, 88 Energy’s working interest will reduce to 25%.
Implied valuation uplift
The deal terms, meanwhile, imply a significant valuation uplift of around 50% compared to the amount invested in Project Phoenix in recent years ($38 million since 2022), stockbroker Cavendish said in a note.
It pitches the valuation of 88 Energy’s 75% stake in Phoenix at around $60 million, the broker highlighted, which Cavendish also points out is more than twice the AIM-quoted share’s enterprise value.
The broker has a target price of 1.1p, versus the current price of 0.08p.
“The agreement, which is subject to funding, provides a funding pathway for Project Phoenix without the need for any shareholder dilution and highlights the value that has been created at Project Phoenix over the past two years,” Cavendish analyst James McCormack said in a note.
He added: “88 Energy and Burgundy will commence work on the planning and permitting for a 3,500ft horizontal well targeting the SMD-B reservoir which is scheduled for mid-2026.
“Fairweather LLC, an experienced Alaskan service provider, will manage project planning, permitting and operational support, whilst recent work completed by ResFrac will be incorporated into the planning for the stimulation and flowback programme of the planned horizontal well.”
Cavendish notes also the previous estimates which pencilled in some 378 million barrels oil equivalent (boe) of contingent resources, plus the potential upside amounting to 247 million boe of prospective resources.
Burgundy, a Texas-based exploration company and 88 Energy’s long-term partner elsewhere in Alaska, is expected to go for a listing in North America later this year. It has already invested some $26 million into the Phoenix asset, Cavendish noted.
A mutually beneficial deal
88 Energy managing director Ashley Gilbert said he was ‘delighted’ and called the agreement ‘mutually beneficial’.
“Burgundy's commitment to the project recognises 88 Energy's accomplishments since 2022 and value added to the acreage during this time, as well as validation of the broader region and the opportunity presented on the Alaskan North Slope,” Gilbert said in a statement.
He added: “Today's announcement crystalises a funding pathway for the asset, enabling critical production testing at the Hickory-1 multi-reservoir discovery - a key step in proving the project's economics and potential future commerciality.
“To have achieved a work-programme carry in just two years of exploration and advancement since the drilling of Hickory-1, underscores the implied value of the asset and serves as a blueprint for our strategy moving forward.”