88 Energy Regulatory News (88E)

This announcement contains inside information

11 August 2021

88 Energy Limited

Half Year Financials Release

88 Energy Limited (ASX:88E, AIM:88E, OTC:EEENF) (88 Energy or the Company) is pleased to advise of the release of its financial results for the half-year ending 30 June 2021.

Highlights

· Successful drilling of Merlin-1 well at Project Peregrine in March 2021.

· Encouraging results from the Merlin-1 post well testing program received during half year.

· Acquisition of the Umiat oil field in January 2021, which is located adjacent to Project Peregrine.

· Acquisition of residual 50% working interest in Project Peregrine in June 2021.

· Sale of Alaskan Tax Credits for US$18.7M cash in June 2021, enabling full repayment of debt.

· Adoption of World Economic Forum (WEF) principles, the global standard for ESG reporting.

· At balance date, 88 Energy held A$14.8M cash and zero debt (excluding typical trade creditors).

· Subsequent to half end, received final cash call receipt on Merlin-1 of US$5.0M.

· Strengthened Board and management team in early August.

· Comprehensive Merlin-1 well results and interpretation to be released imminently.

A copy of the Company's Interim Report, extracts from which are set out below, has been lodged on the ASX and is also available on the Company's website at www.88energy.com .

Media and Investor Relations:

OPERATING AND FINANCIAL REVIEW

During the period, the Group has continued its principal activities in Alaska. A summary of significant activities is below:

Highlights for the first half of 2021:

Project Peregrine

· Rig commissioning and mobilisation of snow road construction equipment to the Merlin-1 drill site commenced in early January 2021;

· The Merlin-1 exploration well spudded on 10 March 2021 and drilled to a Total Depth of 5,267';

· In April 2021 the Project Peregrine Joint Venture announced the completion of the Merlin-1 drilling program, as it was too late in the season to initiate flow testing operations;

· Initial petrophysical interpretation of wireline logs indicated several potential pay zones in the Merlin-1 well and side wall cores obtained from the well confirmed presence of oil;

· Following completion of the drilling program, the post well testing program commenced on sidewall cores, cuttings, mud gas and fluid samples from Merlin-1;

· Geochemical analysis of fluid extracts from selected core samples definitively demonstrated presence of hydrocarbons;

· Initial mapping of additional prospective zones encountered in Merlin-1 delivers upside potential; and

· On 7th June 2021, the company announced that it had entered into an agreement with Alaska Peregrine Development Company, LLC ("APDC") to acquire a 50% working interest from APDC in Project Peregrine in exchange for a US$14 million in shares plus 1.5% ORRI and additional bonus payments (as disclosed in Note 15). As at 30 June 235,454,781 shares had been issued to APDC, with the remaining shares issued post June as per Note 14.

Umiat Oil Field

· In Q1 2021, 88 Energy, via its wholly owned subsidiary Emerald House LLC, entered into a Sale and Purchase Agreement with Malamute Energy, Inc and Renaissance Umiat LLC to acquire the Umiat Oil Field ("Umiat");

· In March 2021 the Company completed the abandonment of two historic wells, which was a condition of the acquisition;

· Further studies conducted in conjunction with the Merlin-1 post well testing and analysis have identified additional upside at the Umiat oil field; and

· Subsequent to Half Year period end, approval from the Bureau of Land Management was received to defer Umiat Year 2 Unit well commitment by 24 months to 31 August 2023.

Project Icewine

· The nearby Talitha-A well drilled by Patheon Resources showed encouraging results with the potential for the Theta West and the prospective sands of the Kuparuk formation extending onto the Icewine acreage. The internal geoscience team are to reassess the potential across the acreage following these results.

Yukon Acreage

· Tract 29 was awarded during the half-year as part of the 2021 Coastal Lease Sale;

· Discussions continue to advance with nearby lease owners for a joint development area; and

· Planning for potential future exploration drilling ongoing subject to farm-out and other discussions.

Corporate

· David Wall resigned as managing director during the half-year, Ashley Gilbert appointed Managing Director and Sarah Smith appointed Company Secretary;

· Sale of Alaskan Oil and Gas Tax Credits for US$18.7M; proceeds applied towards full repayment of outstanding 88E debt (US$16.1M); and

· Cash as at 30 June 2021 of A$14.8M and zero debt.

PROJECT PEREGRINE

Merlin - 1 Exploration Well

The Merlin-1 well was spudded in March 2021 and was drilled to a Total Depth of 5,267', with drilling operations completed in April 2021. The post well testing program on the samples and data obtained during the drilling of the Merlin-1 well commencing shortly thereafter, with key results up to half year as follows;

· Initial petrophysical interpretation of wireline logs indicated several potential pay zones in the Merlin-1 well and side wall cores obtained from the well confirmed the presence of oil;

· The sidewall cores taken in the Merlin-1 well were analysed at surface prior to being sent to the laboratory for further testing with fluorescence and cut observed over several key horizons;

· Phase one geochemical results were received for the original 18 specifically selected trims from the Merlin-1 side wall cores with 7 of these 18 trims confirming the presence of hydrocarbons which were at depths that were among the most prospective zones noted during drilling and also correspond with depths where good oil shows were noted during drilling, including petroliferous odour, fluorescence and cut. A further 10 trims were sent for analysis subsequent to half-year end also;

· High resolution gas chromatography analysis from a selection of the trims also showed evidence of hydrocarbons.

· Phase two of the geochemical analysis program on the sidewall core trims had commenced prior to half year, which included quantitative extraction, SARA, isotopes and biomarkers analysis;

· Geochemical analysis of fluid extracts from selected core samples has definitively demonstrated presence of hydrocarbons; and

· Initial mapping of additional prospective zones encountered in Merlin-1 delivers upside potential.

Costs associated with the Merlin-1 well have been finalized, with 88 Energy's net share of well costs approximately US$9 million, inclusive of wireline costs and additional costs associated with operational issues during the wireline program.

Acquisition of APDC 50% interest in Project Peregrine

On 7 June 2021, 88 Energy announced that it had entered into an agreement to acquire the 50% working interest in Project Peregrine held by Alaska Peregrine Development Company, LLC (APDC) in exchange for consideration of:

· US$14 million, payable in new 88 Energy shares, to be issued in several tranches and subject to a final reconciliation mechanism;

· 1.5% overriding royalty interest on future production from the Project Peregrine licences;

· US$10m cash payment on the achievement of gross 2P reserves of 100 million barrels within 36 months;

· Cash payments of US$2.5m per 50 million barrels on the achievement of gross 2P reserves added over 100 million barrels within 36 months (capped at 5 additional cash payments); and

· 10% of the gross sale proceeds in respect of an assignment of greater than 49% of Project Peregrine within 24 months, excluding a bona fide farm-out.

Final settlement in relation to the acquisition occurred post period end with all consideration shares being received by APDC. 88 Energy now holds a 100% working interest in Project Peregrine.

PROJECT ICEWINE

During the half-year, 88 Energy closely monitored activity nearby to the northern border of its Project Icewine acreage, where a flow of light oil from the Kuparuk has been reported from the Talitha-A well. (See Pantheon Resources AIM:PANR press release dated 19th April 2021).

Additional insights into the wettability of the Kuparuk formation have also been highlighted as part of the results from Talitha-A, which may have positive ramifications for 88 Energy's previous interpretation of this horizon.

All three wells drilled by 88 Energy at Project Icewine have encountered good quality reservoir in the Kuparuk formation, with indications of hydrocarbons. These had previously been interpreted as likely gas condensate or residual oil with no mapped targets being identified, as this was not a pursuing play by 88 Energy.

The results at Talitha-A are highly encouraging for the Kuparuk region Formation, including across Project Icewine. In light of these results, the 88 Energy internal geoscience team will reassess the potential across the acreage in the second half of 2021 ahead of a planned farm-out.

YUKON LEASES

The Yukon Leases contain the 86-million-barrel Cascade Prospect, which was intersected peripherally by Yukon Gold-1, drilled in 1994, and classified as an historic oil discovery.

In the half year Regenerate Alaska, a wholly owned subsidiary of 88 Energy, was awarded Tract 29 as part of the 2021 Coastal Lease Sale. In addition, the Company advanced discussions and negotiations with nearby lease owners to aggregate discovered resources located in the vicinity of the Yukon Leases as part of a joint development of the area.

* Refer announcement 7 November 2018

Cautionary Statement: The estimated quantities of petroleum that may be potentially recovered by the application of a future development project relate to undiscovered accumulations. These estimates have both an associated risk of discovery and a risk of development. Further exploration, appraisal and evaluation are required to determine the existence of a significant quantity of potentially movable hydrocarbons.

UMIAT OIL FIELD

In January 2021, 88 Energy, via its wholly owned subsidiary Emerald House LLC, entered into a Sale and Purchase Agreement with Malamute Energy, Inc and Renaissance Umiat LLC to acquire the Umiat Oil Field ("Umiat"), and in late March 2021 the Company completed the abandonment of two historic wells, which was a condition of the acquisition.

During the half-year, studies commenced to review the historical Umiat oil field development plans prepared by Linc Energy, which formed the basis of the Ryder Scott 2015 reserves report. Initial results of the internal review and studies have identified potential cost savings on planned development CAPEX, as well as alternative potential routes to market for the crude. This could include a potential tie-in to the Willow oil field development to the north of the acreage.

Subsequent to half year end, 88 Energy received notification from the Bureau of Land Management for approval of its request to a 24-month extension to the Year 2 Unit Obligations, and corresponding extensions for the Unit obligations in Years 3, 4 and 5.

The 24-month extension to the Year 2 Unit Obligations allows 88 Energy to optimise a full field development plan, which will include evaluating potential synergies with plans associated with the Project Peregrine acreage. It will also enable 88 Energy to use the knowledge gained from drilling the Merlin-1 well to plan an efficient operational program to optimize the potential for success at Umiat. Any discovery at Project Peregrine would contribute significant value to any development of the Umiat oil field.

CORPORATE

Following the resignation of Mr David Wall during the half year, the Company announced on 10 May 2021 that Mr Ashley Gilbert was appointed to the role of Managing Director and Ms. Sarah Smith to the role of Company Secretary.

Following the retirement of Chairman Michael Evans, the Company announced on the 2nd August the appointment Philip Byrne as Non-Executive Chairman. Joanne Kendrick was also appointed as a Non - Executive Director.

On 21st June 2021 the Company announced that it had entered into an agreement that would facilitate the sale of all the Alaskan Oil and Gas Tax Credits which were held by Accumulate Energy Alaska, Inc. ("Accumulate"), a 100% owned subsidiary of 88 Energy. The sale price of the Tax Credits was US$18.7 million cash, payable upon completion of the sale and transfer of the outstanding tax certificates. The deal accelerates the timeframe of Accumulate Energy Alaska's value realisation from the Tax Credits, which under current estimates would not have been fully paid out by the Alaskan state until 2026. The majority of the proceeds from the sale of the tax credits have been applied towards full repayment of 88 Energy's current outstanding debt of US$16.1 million with FCS Advisors, LLC (d/b/a Brevet Capital Advisors) ("FCS"), which was due to mature on 30 December 2022. The residual sale consideration of US$2.6m is to be receipted by Accumulate Energy Alaska, which will then be applied towards working capital requirements.

On 30th June 2021, 88 Energy Limited and its subsidiaries advised its shareholders and stakeholders that it will adopt the Environmental, Social and Governance (ESG) framework developed by the World Economic Forum (WEF). This framework is regarded as the global standard for ESG reporting and encompasses 21 core metrics and disclosures. The Company has engaged independent impact monitoring technology provider, Socialsuite, to assist with measuring, monitoring and reporting of these core ESG metrics.

FINANCIAL

For the period ended 30 June 2021 the Company recorded a profit of $445,446 (30 June 2020: $4.020 million loss). The profit was largely attributable to the sale of tax credits above their Fair Value.

No dividends were paid or declared by the Company during the period.

As at 30 June 2021, the Group had cash on hand of $14.762 million (31 December 2020: $14,845 million). Net assets totalled A$94.465 million (31 December 2020: $58.911 million), with the significant increase in net assets being largely due to the repayment of debt (31 Dec 2020 A$20.782 million) and shares to be issued in relation to the APDC transaction which were classified as liability (30 June 2021 A$13.441 million).

EVENTS AFTER THE PERIOD END

The following events occurred subsequent to the period end;

· The Company issued the following shares:

- 1.7.2021 - 235,454,781 @ $0.022 to APDC as part of the Peregrine purchase agreement;

- 6.7.2021 - 152,137,532 @ $0.035 to APDC as part of the Peregrine purchase agreement; and

- 12.7.2021 - 42,230,000 @ $0.032 to APDC as part of the Peregrine purchase agreement.

· On 2 August 2021, the Company announced the retirement of Michael Evans from the Board, and the appointment of Philip Byrne as Non-Executive Chairman and Joanne Kendrick as a Non-Executive Director.

· On 4 August the Company announced the approval from the BLM to defer Umiat Year 2 Unit well commitment by 24 months to 31 August 2023. Refer to ASX Announcement for further details.

There were no other subsequent events.

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOMEFOR THE HALF YEAR ENDED 30 JUNE 2021

The consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2021

The consolidated statement of financial position should be read in conjunction with the accompanying notes.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE HALF YEAR ENDED 30 JUNE 2021

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE HALF YEAR ENDED 30 JUNE 2021

The consolidated statement of cash flows should be read in conjunction with the accompanying notes.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE HALF YEAR ENDED 30 JUNE 2021

1. CORPORATE INFORMATION

The consolidated financial statements of the Company for the six months ended 30 June 2021 were authorised for issue in accordance with a resolution of the Directors on 11 August 2021.

88 Energy Limited is a for-profit, limited company incorporated and domiciled in Australia whose shares are publicly traded. The principal activities of the company and its subsidiaries (the Company) are oil and gas exploration with a portfolio of exploration interests in Alaska.

2. BASIS OF PREPARATION AND CHANGES TO THE COMPANY'S ACCOUNTING POLICIES

(a) Basis of Preparation

The half year financial report for the six months ended 30 June 2021 is a general-purpose financial report prepared in accordance with requirements of the Corporations Act 2001 and Australian Accounting Standard AASB 134: Interim Financial Reporting.

The half year financial report has been prepared on a historical cost basis, except for available for sale assets, which have been measured at fair value. Unless otherwise noted, the carrying value of financial assets and liabilities as disclosed in the half year financial report approximates their fair value. The company is domiciled in Australia and all amounts are presented in Australian dollars, unless otherwise noted.

For the purpose of preparing the half year financial report, the half-year has been treated as a discrete reporting period.

The accounting policies adopted in the preparation of the half year financial report are consistent with those followed in the preparation of the Company's annual financial report for the year ended 31 December 2020.

The half year financial report does not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Company's annual financial statements as at 31 December 2020, together with any public announcements made during the period.

(b) Adoption of new and revised accounting standards

The half yearly reports have not adopted any new or revised accounting standards which have a material impact on the Company.

4. SEGMENT INFORMATION

Identification of reportable segments

For management purposes during the period ended 30 June 2021 the Company was organised into the following strategic unit:

· Oil and Gas exploration in Alaska, USA.

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors.

The Board of Directors review internal management reports on a periodic basis that is consistent with the information provided in the statement of profit or loss and other comprehensive income, statement of financial position and statement of cash flows. As a result, no reconciliation is required, because the information as presented is used by the Board to make strategic decisions.

Management has determined, based on the reports reviewed by the Board of Directors and used to make strategic decisions, that the Group has one reportable segment being Oil & Gas Exploration in Alaska, USA. Such structural organisation is determined by the nature of risks and returns associated with each business segment and define the management structure as well as the internal reporting system.

Share-based payment reserve

The share-based payment reserve is used to record the value of share-based payments provided to outside parties, and share-based remuneration provided to employees and directors. Refer to Note 12 for further details.

Foreign currency translation reserve

The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations where their functional currency is different to the presentation currency of the reporting entity.

12. SHARE BASED PAYMENTS

Share-based payment transactions recognised during the reporting period were as follows:

Options issued to Directors during 2021 - 48,700,000.

Options granted to Employees/Contractors during 2021 - 91,068,000.

During the period Energy entered into an agreement with Alaska Peregrine Development Company, LLC (APDC) to acquire 50% working interest from APDC in Project Peregrine in exchange for US14 million in shares plus 1.5% ORRI and additional bonus payments. Refer Note 7 and Note 9.

13. ACQUISITION OF XCD ENERGY LTD

The net effect of the adjustments made to the values of assets and liabilities, as included at 30 June 2020, on the acquisition of XCD Energy Ltd are as follows: