88 Energy (LON:88E) started a journey from hot and dusty Morocco to cold and icy Alaska last year when as Tangiers Petroleum it lost the confidence of major shareholders following drilling failures in Morocco.
In March 2014, a new managing director, David Wall, was appointed, the company was renamed 88 Energy and with a new management team in place left Morocco behind it and secured a huge tract of acreage in Alaska.
This is known as Project Icewine, where there's an exciting shale play as well as conventional oil targets on the acreage.
The area, on Alaska’s North Slope, is host to the massive Prudhoe Bay discovery. However, 88 Energy and its partner Burgundy Xploration, led by fracking-on-the-Eagle Ford-pioneer Paul Basinski, who believes there is huge untapped potential there.
An independent study by Degolyer and MacNaughton assessed the prospective oil resource across the HRZ, Hue, Kingak and Shublik shales.
Project Icewine is estimated as having an unconventional prospective resource (gross un-risked mean) of 492mln barrels (mmbbls) of oil. With a probability of geological success of 41%, the risked mean prospective resource is 200mmbbls (gross).
The area is also attractive in other ways. Alaska, keen to encourage investment to offset steep declines in the production that is the life blood of this Arctic state, offers a generous 75-85% exploration and development cash rebate.
Moreover the asset is bordered by an already-established hydrocarbon province in the Great Bear acreage of privately owned Great Bear Petroleum, immediately to the north of Project Icewine.
The trek north to new climes now seems to be working for 88 Energy insofar as the company has progressed Project Icewine to the point where it is in a position to spud its first well (Icewine #1) in mid-October.
Since the beginning of July, 88 has managed to raise capital and secure a US$50mln credit facility from Bank of America, meaning the Icewine #1 exploration well is now fully funded with a rig contract secured.
It will need to pre-fund US$5.7m (A$7.8m) of a budgeted well cost of approximately US$16m for the Icewine #1 well. Following the recent equity raise, 88E should have approximately US$8mln (A$11m).
88’s Aussie broker, Hartleys Limited, estimates the company will have US$2.9mln (A$4mln) in the cash post the spudding of the well, but may receive direct rebates should the well cost come in under budget.
The well will be a vertical pilot hole with the primary objective being the Hue/HRZ shale (contained within the Brookian sequence).
The Hue/HRZ shales compare favourably with other established US shale plays, based on the key (unconventional) success factors. These include, porosity, liquids potential, and over-pressure.
Hartleys believes that, given the extent of three prolific source rocks across the North Slope (including Project Icewine), there is a high likelihood of Icewine #1 delivering hydrocarbon shows.
The entry of Otto Energy (ASX:OEL) into the region should also be viewed as positive for the 88E story, Hartleys said. Otto has farmed into the Great Bear acreage.
Great Bear Petroleum together with partners Haliburton and now Otto hold 579,374 gross acres.
To date Great Bear has drilled three wells and collected 1800-square kilometres of 3D seismic. The company believes the data is promising in terms of finding hydrocarbons.
The Alkaid #1 well, spud in February this year, was targeting both conventional and unconventional reserves in the Shublik and Kingak formations. A successful outcome from Alkaid #1 would obviously be positive for 88, Hartley says. Great Bear plans to drill a further two wells in early 2016.
Hartley concludes: “Over the next 12-months should 88 be able to complete its exploration program, then the stock could appreciate towards 2cents per share.” The current price is a 52-week low of 1cent.
In London the shares have fared rather better. They were trading at 0.61 pence on Wedneday, comfortably above the 52 week low of 0.35 pence. But they have been 1.3 pence in the past year so a successful well could provide a useful fillip for the shares.