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Just how much oil can 88 Energy unearth in Alaska?

A scan of Icewine’s inventory reveals some very bold numbers: 3.6bn is estimated in shale, whereas conventional oil could exceed 750mln barrels.

oil barrels
Icewine is known to host oil, estimates say there's an awful lot of it

Up nearly 500% in the year to date 88 Energy Ltd (LON:88E) has been among AIM’s favoured stocks as the market recovers from the past turmoil of falling crude prices.

It all follows the success at Project Icewine, an area of Alaska’s North Slope that is now known to host oil, and is believed to host an awful lot of it.

Just a scan of Icewine’s inventory reveals some very bold numbers.

First and foremost Icewine is about shale. 88 Energy’s drilling has not only confirmed the presence of the targeted HRZ shale zone but well results have massively exceeded expectations.

The company’s own estimates put the discovery at around 3.6bn barrels, while an independent assessment of just a portion of the area yielded an estimate of 1.4bn.

New drilling plans are currently being drawn up, with the next programme slated for the first quarter of 2017.

Icewine’s HRZ shale is plainly a project of immense potential - albeit there is still much to do - but it is not the whole story.

Oil discoveries and big new targets in Alaska

Alaska is presently enjoying something of a boom in exploration, measured by successes in not total activity. And earlier this month came the announcement of a very significant discovery.

Caelus Energy, a privately owned oil firm, revealed that Alaska had a large new conventional oil discovery in the North Slope region.  It described the find as a “significant light oil discovery’.

Estimates, based on results of two wells and a seismic programme, put Caelus’s Smith Bay discovery in the order of 6bn barrels – that’s the company’s within own leasehold area, and it said there could be more than 10bn altogether including the broader play.

Significantly, Caelus says a recovery factor of 30-40% could be possible due to the “favourable fluids” it has observed. It reckoned some 200,000 barrels of oil per day could flow from a development in the future.

The discovery has particular significance for 88 Energy too, as the company has always identified the potential for conventional oil discoveries within its 271,000 contiguous acres of the North Slope.

88 Energy has now put more detail on these expectations, following the partial completion of analysis and interpretation of new seismic data.

Better than expected new seismic data has allowed the company to identify some 758mln barrels of prospective resources across its ‘top 5’ exploration leads.

It highlighted one in particular, the Alpha lead, which is estimated at 118mln barrels and is located in close proximity to both transport infrastructure and the Trans Alaskan Pipeline.  The Bravo lead, meanwhile, is the largest to be identified so far, estimated at 273mln barrels.

88 Energy told investors it is still only 50% through the seismic interpretation process. Analysis and interpretation of the data continues.

“Whilst the HRZ remains the company’s primary target and the focus of our short-term activity with the upcoming Icewine#2 well scheduled for spud in the first quarter of next year, the interim results from the 2D seismic acquired earlier this year have significantly exceeded our expectations,” said chief executive Dave Wall.

“It has taken a little longer than initially planned to process and interpret, as the number of features we are seeing is greater than anticipated.”

Wall told investors that the final findings from seismic are due to be announced later this year.

He added: “We expect the two recent billion barrel discoveries in the Brookian sequence by both Armstrong Oil & Gas and Caelus Energy to be a catalyst for increased industry interest in the region.

“Whilst not strictly analogous to the Brookian play potential at Project Icewine, these discoveries highlight the significant conventional oil resource on the North Slope yet to be discovered through utilisation of modern seismic technology.”

Icewine has matched or exceeded expectations

In spring 2016, Dave Wall used the word ‘astounding’ when describing the correlation of pre-drill expectations for the Project Icewine well with the actual results to date.

A project update in April, put the size of the prize sharply in focus for investors with an independent expert estimating ‘billion barrel’ potential in the HRZ shale.  It was the latest in a string of positive, albeit technical updates from the company.

The first Icewine well broke ground in Alaska about a year ago. Success and subsequent analysis confirmed that the HRZ shale formation is permeable, and it believes the shale is sufficiently porous.

Other analysis, meanwhile, indicated that a large part of the acreage is located in a ‘sweet spot’ for thermal maturity. The upshot of this is that the potential hydrocarbon resource is believed to comprise oil (with relatively low viscosity) and ‘wet’ gas.

Such details are still not conclusive of a commercial success, but are plainly encouraging.

88 Energy has understandably been a popular stock for investors, and that was further underlined in a A$25mln funding during 2016.

All has gone to plan at Project Icewine, so far

To understand the significance of the Icewine success to date it is important to understand what 88 Energy and its exploration partner Burgundy Exploration set out to achieve. Results from Icewine have to date either met or exceeded expectations – expectations set by out by shale expert Paul Basinski.

Basinski, staked in the project via vehicle Burgundy Xploration vehicle, is an esteemed geologist who was among the early pioneers of the Eagle Ford shale play.

His exploration concept predicted that the HRZ could be another large ‘play’ similar to those unearthed during the recent US shale boom, and, put simply, the findings from the Icewine well has have backed up his predictions.

It is a big shale discovery, the experts can agree that much

 A new independent resource estimate, unveiled on April 6, saw some 1.4bn barrels of oil equivalent in a ‘productive area’ of the HRZ shale that spanned around 42% of the Icewine project area.

The consultant, DeGolyer & MacNaughton (D&M), also upgraded its view on the ‘probability of geologic chance of success’ to 60%, from 40%.

Internally, meanwhile, 88 Energy and Basinski’s Burgundy Exploration estimate there is some 3.6bn barrels of resources, across a larger 70% of the Project Icewine area.

In a statement, 88 Energy highlighted that the assumptions used by D&M are largely consistent with the internal view of the project, and the main differences between the two relate to differing opinions of how much of the Icewine acreage will prove to be productive in the ‘success case’.

88 Energy added that the internal view is based on experience and past expertise within the joint venture relating to the development of the Eagle Ford shale. It added that the initial Icewine well’s confirmation of the pre-drill thermal maturity model was also a factor in the group’s more positive assessment.

“D&M's assumption is largely driven by statistical analysis over a larger selection of global shale plays at a similar stage of life cycle,” the company explained.

This Alaska shale could rival the Eagle Ford, so says Cenkos

City broker Cenkos earlier this year summed up the huge potential of Icewine, saying it could rival Texas’s colossal Eagle Ford shale

Analyst Jack Allardyce described the HRZ shale found in the Project Icewine well as “a major new play”, as he initiated a ‘buy’ recommendation for the AIM quoted explorer back in April.

Although the analyst points out this remains early days for 88 Energy – and he holds back from giving an indication of 88 Energy’s potential value– Allardyce does say that it is one of the most exciting stocks listed in the UK.

“While the still early-stage nature of Project Icewine makes valuation highly speculative, what is clear is that the company has already uncovered a potentially major new play in a relatively under explored, but hugely prolific region,” Allardyce said.

“As it continues to de-risk the HRZ and begins to quantify conventional prospectivity, we believe it will continue to add significant value to its acreage.”

He goes further, to highlight the high level of potential industry interest in the project. “Given the scope of a commercial development we would expect major oil companies and North American independents to be likely suitors for the project.

“In our view 88E is likely to have a captive audience were it minded to divest part of or its entire stake in the project, given the major operators on its doorstep.”

88 Energy’s recent record suggests there’ll be plenty more news to come, and it certainly looks to be a stock to watch closely.

Quick facts: 88 Energy Ltd

Price: 0.407 GBX

AIM:88E
Market: AIM
Market Cap: £43.15 m
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