Last checked at 10 Aug 2022 07:00
This announcement contains inside information
10 August 2022
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 2022.
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:
88 Energy Ltd Ashley Gilbert, Managing Director |
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Tel: +61 8 9485 0990 Email:investor-relations@88energy.com |
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Finlay Thomson, Investor Relations | Tel: +44 7976 248471 |
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Fivemark Partners, Investor and Media Relations Andrew Edge / Michael Vaughan | Tel: +61 410 276 744 Tel: +61 422 602 720 |
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EurozHartleys Ltd Dale Bryan | Tel: +61 8 9268 2829 |
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Cenkos Securities Neil McDonald / Derrick Lee | Tel: +44 131 220 6939 |
OPERATING AND FINANCIAL REVIEW
During the period, the Group has continued its principal exploration activities in Alaska and in February 2022 acquired a ~73% non - operated working interest in production assets located in the Texas Permian Basin through the 75% investment in Bighorn Energy LLC.
Project Icewine
88 Energy progressed further studies and analysis across the Icewine East acreage, which included completing the mapping of the Shelf Margin Delta (SMD), Slope Fan Set (SFS) and Basin Floor Fan (BFF) play fairways onto the Project Icewine East acreage. In May 2022, the Company announced that Jordan & Pay completed an independent evaluation of the play fairways, utilising available well information from presentations publicly released by neighbouring project proponent, Pantheon Resources plc (AIM:PANR) (Pantheon). This was coupled with internal Company data (including Icewine-1 and Icewine-2 well logs and existing 2D seismic) and concluded that all Pantheon reservoir units (SMD, SFS, BFF) extended onto the Project Icewine acreage.
The Company also commissioned an in-depth petrophysical re-evaluation of Icewine-1 and the broader Icewine East area by independent petrophysical consultants (Stimulation Petrophysics Consulting, LLC and Snowfall Energy LLC). The consultants focussed on assessing Icewine-1 logs against intervals that flowed oil in Pantheon's acreage to the north. Pleasingly, a comparison of the tested interval in Alkaid-1 against a similar interval in Icewine-1 indicated favourable potential for a flow test of the same zone in the Icewine East acreage.
Pantheon's wells - Alkaid-1, Talitha-A and Theta West-1 - all flowed 35 to 40⁰ API oil from multiple Brookian reservoirs. Pantheon's testing has confirmed reservoir deliverability of light, sweet oil (see Pantheon releases of 7 February and 21 February 2022), which 88 Energy believes is positive for the prospectivity of the adjacent Project Icewine acreage. Data from the Talitha-A and Theta West-1 wells are not yet publicly available and as a result, only a qualitative comparison of these logs against Icewine-1 logs have been carried out to date.
Given the favourable petrophysical comparison between Icewine-1 and Alkaid-1, the Company is optimistic that a production test in the Icewine East acreage could potentially yield a similar or better result than seen during the testing of Alkaid-1. The Company also notes Pantheon's announcement of 7 July 2022 that it has spudded a horizontal production well in Alkaid, named Alkaid#2, to prove up the development concept (see also Pantheon release of 24 January 2022 and Figure 2).
At the end of June, the Company signed a licensing agreement with SAE for the use of SAE's Franklin Bluffs 3D seismic survey data (FB3D). The FB3D seismic data was acquired in 2015 by SAE and covers approximately 86 square miles, predominantly over the Icewine East acreage. More importantly, the FB3D extends across an area where the SMD, SFS and BFF play fairways have been independently mapped on the Icewine East acreage.
The FB3D data will assist the Company with carrying out its forthcoming analysis, including Amplitude-variation-with-offset analysis (AVO analysis) and simultaneous seismic inversion. These studies will aid the Company in defining 'sweet spots' for each play and determining optimal drilling locations for future exploration and appraisal wells.
88 Energy's initial license fee included US$2.0 in cash and US$1.0 million in fully paid new ordinary shares in 88 Energy (approximately 181 million shares at an issue price of A$0.008 per share, being the closing price of 88 Energy shares on the ASX on 24 June 2022).
Other activities that the Company undertook in 2022 include:
· Finalised the maiden Project Icewine East prospective resource estimate in August 2022.
· Planning operations for 2023, which are targeted to include an exploration well to be drilled in the Icewine East acreage, and at least one flow test from the multiple Brookian reservoirs that have been mapped on the Icewine East acreage. These are the same reservoirs that nearby Pantheon wells - Alkaid-1, Talitha-A and Theta West-1 - have flowed 35⁰ to 40⁰ API oil.
Project Peregrine
The Merlin-2 well was designed to appraise the N20, N19 and N18 horizons which were encountered in the Merlin-1 well drilled in 2021. The well was spudded on 7th Match 2022 and reached Total Depth (TD) of 7,334 feet on 22nd March 2022. All three Nanushuk targets (N20, N19 and N18) were penetrated during drilling, with Logging While Drilling (LWD) data and physical cuttings collected throughout the Merlin-2 program. Observations of LWD logs and drill cuttings collected during drilling revealed target intervals were thicker than those encountered in Merlin-1. Plugging, abandonment and demobilisation of the Merlin-2 well was completed in April 2022
The results of Merlin-2 were largely consistent with the Merlin-1 exploration well drilled in 2021. Strong fluorescence, oil sheen, petroliferous odour and cut noted in the drilling cuttings, elevated C2-C5 mud gas readings over the target zones with total gas significantly above background gas readings and also evidence from the reservoir sampling tool of moveable hydrocarbons.
Both Merlin wells were drilled on sparse, vintage 2D seismic data, which provides a narrow field of view of the reservoir and limited optionality on drilling locations. 88 Energy will assess the merits of a future 3D seismic acquisition program or an in-fill 2D program in order to define optimal play fairways and determine the potential commerciality of the Project Peregrine acreage. The Company has commenced detailed analysis of all data obtained from the Merlin-2 drilling program and will evaluate potential future appraisal activities within the Project Peregrine acreage, which include independent drilling locations such as the Harrier-1 prospect to test the N14 and N15 horizons.
The Company also commenced an independent NPRA basin modelling study to further improve 88 Energy's understanding of the geological history and how it pertains to the Nanushuk reservoir quality across Project Peregrine. Coupled with petrographic studies of Merlin side-wall cores, the modelling will utilise available maximum Brookian uplift / erosion and burial depth data to produce qualitative reservoir risk maps of the Nanushuk Formation which, will help inform how the Project Peregrine reservoir quality varies Northward, away from the Merlin-1 and 2 locations. This study is anticipated to be completed by Q3, 2022.
Yukon Leases
The Yukon Leases contain the 82 million barrel1 Cascade Prospect, which was intersected peripherally by Yukon Gold-1 and classified as a historic oil discovery.
The Company continues to complete due diligence and commercial assessment of a joint development with near-by resource owners.
Umiat Oil Field (100% WI)
In Q1 2021, 88 Energy acquired the Umiat Oil Field. As part of the acquisition, the Company received the Umiat data pack which includes Umiat 3D seismic data. The Umiat 3D survey abuts the southern edge of the Project Peregrine lease blocks. Integrating the Linc/Malamute seismic interpretation has provided a better understanding of the Peregrine reservoir geometries to the north as well as enriching the Company's petrophysical database with additional well control (Umiat-8 and Umiat-23H).
Internal reinterpretation of modern 3D seismic is suggestive of untested reservoirs at Umiat. Prospects have been mapped in the footwall of the Umiat structure as well as downdip from the proven oil zone in the hanging wall. Initial internal volumetric calculations suggest there may be multi-million barrels of potentially recoverable oil combined in the hanging wall and footwall. Both prospects are deeper than the current reserves at Umiat which the Company expects will have a positive impact on producibility.
Initial development studies, focusing on the potential integration of Ultra Low Sulphur Diesel (ULSD) production, suggests that this development option adds further value to a future Umiat development, considering the high cost of diesel (~US$6-7/gal) on the North Slope of Alaska.
A separate Umiat-23H well performance review concluded that this well significantly underperformed due to poor drilling and completion techniques. This well was drilled in 2014 by a previous owner and flowed at a sustained rate of 200 BOPD with no water, and a maximum rate of 800 BOPD. Further review of the historical data includes a more conventional trajectory and completion design for a 5,000ft horizontal section that was modelled to produce at stabilised rates of between 800 and 1,600 BOPD. The Company believes an opportunity exists for the optimisation of historic subsurface development plans.
During the period, the Company commenced discussions with an Alaskan drilling operator regarding use of a new light weight rig and optimised operations to drill a cost-effective exploration well designed to unlock further upside in Umiat.
Project Longhorn (~73% WI)
On 21 February 2022, 88 Energy executed a binding Securities Purchase Agreement (SPA) for the acquisition of a ~73% average net working interest in established conventional oil and gas production assets in the proven Permian Basin, onshore Texas, U.S. The oil and gas assets, collectively known as Project Longhorn contain certified net 2P reserves of 2.05MMBOE. The purchase price for the acquisition was US$9.7M, consisting of US$7.2M cash and US$2.5M in 88 Energy shares (~98.1 million shares at an issue price of A$0.035 per share).
The acquisition represents the Company's first move into producing oil and gas assets and is in line with Company's strategy to build a successful oil and gas exploration and production Company. The Project Longhorn assets are in the attractive Permian Basin, with ~1,300 net acres and well understood geology with low technical risk. The assets purchase consisted of 9 leases with 32 producing wells and associated infrastructure. Most of the existing production wells have been in operation for several years. Lonestar I, LLC retained a ~24% net working interest in the assets and, through an affiliate, remained as Operator, with the remaining working interests retained by existing Joint Venture partners.
The Company has been pleased with the progress at Project Longhorn as Lonestar has successfully completed the first three of seven planned capital-efficient work-overs scheduled in 2022. These were completed on time and on budget and have delivered a significant increase to the total oil and gas production rates of Project Longhorn. Following the three completed workovers, daily production from the Longhorn wells is anticipated to settle at around ~500 BOE per day gross (over ~365 BOE per day net, of which approximately 70% is oil) in Q3 2022, which represents an overall output increase of ~70% since the completion of the acquisition in mid-February 2022. The production increase provides additional direct exposure to the higher WTI oil and gas price environment and accelerates payback on both the acquisition of the assets and the capital investment in the work-overs. During the period to date, the Company has received A$1.9M of cash flow distributions from Project Longhorn.
Given the success of the initial three work-overs this year, as well as the continued high oil and gas price environment, in June 2022, the joint venture participants agreed to accelerate the capital development program and the completion of the remaining four planned work-overs this year. As part of this agreement, 88 Energy has agreed to part fund its share of the anticipated US$3.5 million (net) in development capital through the issuance of US$3.0 million in 88 Energy shares (approximately 544 million shares at an issue price of A$0.008 per share, being the closing price of 88 Energy shares on the ASX on 24 June 2022) to Lonestar, to fund Longhorn's working capital contributions.
Project Longhorn is now scheduled to complete the targeted seven capital development activities earlier than planned during Q4 2022.
Table 1: Project Longhorn Reserves (barrels of oil equivalent; millions)
GROSS RESERVES | NET 88 ENERGY REVENUE ENTITLEMENT | ||||
1P | 2P | 3P | 1P | 2P | 3P |
2.78 | 3.46 | 4.00 | 1.64 | 2.05 | 2.33 |
Corporate
On 19 January 2022, the Company advised that its application to join the OTCQB Market in the United States had been accepted and the Company's shares were listed for trading under the code EEENF. The OTCQB Venture Market is for entrepreneurial and development stage US and international companies and 88 Energy sought OTCQB quotation to provide North American investors with enhanced accessibility and liquidity in trading the Company's shares. The quotation delivered 88 Energy access to one of the largest investment markets in the world at relatively nominal cost (compared to traditional major exchanges) and with practically no additional compliance requirements. The OTCQB Market has robust financial reporting and corporate governance regulations which are effectively satisfied by the Company, through its ongoing compliance with ASX Listing rules and AIM rules.
On 14 February 2022, the Company advised that it had successfully completed an oversubscribed bookbuild to domestic and international institutional investors to raise A$32.1M before costs (the Placement). This was achieved through the issue of 918,650,793 fully paid ordinary shares in the Company at an issue price of A$0.035 (equivalent to £0.018) per New Ordinary Share. The funds raised under the Placement, together with the Company's existing cash reserves were used to fund the Merlin-2 well drilling and appraisal activities including cost overruns, as well as new venture portfolio expansion opportunities, and working capital. Merlin-2, like many other global projects, experienced cost pressures including COVID-19 supply chain issues, labour constraints and global commodity price increases (diesel, steel etc.) that placed pressure on original budgeted costs. Euroz Hartleys Limited acted as Sole Lead Manager and Sole Bookrunner to the Placement. Cenkos Securities Plc acted as 88 Energy's Nominated Adviser and Sole Broker to the Placement in the United Kingdom. Inyati Capital Pty Ltd (Inyati) acted as Co-Manager to the Placement. Commission for the Placement was 6% (plus GST) of total funds raised across Euroz Harleys Limited, Inyati Capital Pty Ltd and Cenkos Securities Plc. In addition, the Company issued 36,000,000 Unlisted Options (exercisable at $0.06 on or before the date which is 3 years from the date of issue) to the managers of the Placement.
Financial
For the period ended 30 June 2022 the Company recorded a loss of $67.3 million (30 June 2021: $445,446 profit). The loss was largely attributable to the impairment of the Merlin 1 and Merlin 2 wells of $67.62 million.
No dividends were paid or declared by the Company during the period.
As at 30 June 2022, the Group had cash on hand of $10.5 million (31 December 2021: $32.31 million) and no debt. Net assets totalled A$119 million (31 December 2021: $139.84 million). The decline in net assets is largely due to impairment of exploration & evaluation assets and also the decrease in cash on hand with cash being used primarily to fund the Merlin 2 activities. The investment in Bighorn Energy increased Net Assets to the amount of A$22.1 million.
Events after the period
Other than as disclosed below, there were no significant events occurring after balance date requiring disclosure.
The Company announced its maiden, independently certified prospective resource estimate for Project Icewine East. The total prospective resource was estimated at 1.03 billion barrels of oil by Lee Keeling & Associates, Inc (LAK) with substantial oil volumes noted across all mapped play fairways, in particular the Seabee - Lower Basin Floor (BFF) and the Shelf Margin Delta (SMB reservoirs). LKA are an independent US based expert petroleum and engineering consulting firm who have significant and recent experience in providing resource estimates globally as well as more specifically in Alaska. The initial total prospective resource follows a period of review of an extensive data set that included seismic data, well logs from Icewine-1 and nearby wells adjacent to the Icewine East acreage, recent petrophysical analysis and mapping.
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE HALF YEAR ENDED 30 JUNE 2022
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| 30 June 2022 $ | 30 June 2021 $ | |
Revenue and other income | 3(a) | 3,921 | 4,331,646 |
Share of profit/(loss) from equity accounted investment | 8(b) | 3,437,184 | - |
Administration expenses | 3(b) | (1,779,839) | (1,794,435) |
Occupancy expenses | (26,073) | (37,408) | |
Employee benefit expenses | 3(c) | (1,177,132) | (704,958) |
Share based payment expense | 3(d) | (487,739) | (153,747) |
Depreciation and amortisation expense | (29,416) | (55,606) | |
Finance cost | (4,308) | (1,160,411) | |
Realised/unrealised gain/(loss) on foreign exchange | 394,343 | (11,295) | |
Other income /(expenses) | (7,608) | 31,660 | |
Exploration & Evaluation Impairment | 3(e) | (67,623,823) | |
Profit/(loss) before income tax | (67,300,490) | 445,446 | |
Income tax benefit/(expense) | - | - | |
Net profit/(loss) attributable to members of the parent | (67,300,490) | 445,446 | |
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Other comprehensive income for the period Other comprehensive income that may be recycled to profit or loss in subsequent periods: |
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Exchange differences on translation of foreign operations | 4,816,795 | 2,061,695 | |
Total comprehensive profit/(loss) for the period | (62,483,695) | 2,507,141 | |
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Basic and diluted profit/(loss) per share | (0.004) | 0.00003 | |
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 2022
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30 June 2022 $ | 31 December 2021 $ | ||
ASSETS | |||
Current Assets | |||
Cash and cash equivalents | 5 | 10,469,843 | 32,317,887 |
Other receivables | 6 | 1,009,487 | 935,930 |
Other Current Asset | - | 10,224,959 | |
Total Current Assets | 11,479,330 | 43,478,776 | |
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Non-Current Assets |
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Plant and equipment | 11,664 | 9,675 | |
Exploration and evaluation expenditure | 7 | 90,081,683 | 101,357,767 |
Other assets | 953,179 | 936,536 | |
Equity accounted investments | 8 (a) | 22,151,413 | - |
Total Non-Current Assets | 113,197,939 | 102,303,978 | |
TOTAL ASSETS | 124,677,269 | 145,782,754 | |
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LIABILITIES |
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Current Liabilities |
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Provisions | 188,518 | 146,270 | |
Trade and other payables | 9 | 5,061,518 | 5,796,350 |
Total Current Liabilities | 5,250,036 | 5,942,620 | |
TOTAL LIABILITIES | 5,250,036 | 5,942,620 | |
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NET ASSETS | 119,427,233 | 139,840,134 | |
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EQUITY |
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Issued and fully paid shares | 10(a) | 327,142,111 | 285,809,214 |
Reserves | 10(b) | 28,628,936 | 23,074,244 |
Accumulated losses | (236,343,814) | (169,043,324) | |
TOTAL EQUITY | 119,427,233 | 139,840,134 | |
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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 2022
Issued and fully paid shares $
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$ | Accumulated losses $ | Total equity $ | |
Balance at 1 January 2021 | 208,963,513 | 16,580,975 | (166,633,135) | 58,911,353 |
Profit for the period | - | - | 445,446 | 445,446 |
Other comprehensive income | - | 2,061,695 | - | 2,061,695 |
Total comprehensive profit for the period, net of tax | - | 2,061,695 | 445,446 | 2,507,141 |
Shares issued during the period | 33,683,839 | - | - | 33,683,839 |
Equity raising costs | (791,025) | - | - | (791,025) |
Share based payments | - | 153,747 | - | 153,747 |
Balance at 30 June 2021 | 241,856,327 | 18,796,417 | (166,187,690) | 94,465,054 |
Balance at 1 January 2022 | 285,809,214 | 23,074,244 | (169,043,324) | 139,840,134 |
Loss for the period | - | - | (67,300,490) | (67,300,490) |
Other comprehensive income | - | 4,816,795 | - | 4,816,795 |
Total comprehensive loss for the period, net of tax | - | 4,816,795 | (67,300,490) | (62,483,695) |
Shares issued during the period | 43,624,106 | - | - | 43,624,106 |
Equity raising costs | (2,041,051) | - | - | (2,041,015) |
Share based payments and options valuation | (250,158) | 737,897 | - | 487,739 |
Balance at 30 June 2022 | 327,142,111 | 28,628,936 | (236,343,814) | 119,427,233 |
The consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE HALF YEAR ENDED 30 JUNE 2022
30 June 2022 $ | 30 June 2021 $ | |
Cash flows from operating activities | ||
Interest | 2,481 | - |
Interest Paid | - | (1,052,616) |
Payments to suppliers and employees | (3,081,727) | (2,364,182) |
Net cash outflows used in operating activities | (3,079,246) | (3,416,798) |
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Cash flows from investing activities Payments for equity accounted investments | (10,693,565) | - |
Payments for exploration and evaluation activities | (41,556,424) | (31,218,286) |
Contributions from JV Partners in relation to Exploration | 831,275 | 13,675,903 |
Payments for bonds | - | (387,270) |
Proceeds sale of tax credits | - | 24,233,263 |
Distribution from Equity Accounted Investments | 1,920,935 | - |
Net cash inflows / (outflows) used in investing activities | (49,497,779) | 6,303,610 |
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Cash flows from financing activities | ||
Proceeds from issue of shares | 32,152,778 | 18,557,500 |
Share issue costs | (2,151,520) | (884,143) |
Payment of borrowings | - | (20,909,692) |
Net cash inflows/(outflows) from financing activities | 30,001,258 | (3,236,335) |
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Net increase/(decrease) in cash and cash equivalents | (22,575,768) | (349,523) |
Net foreign exchange differences | 727,724 | 266,675 |
Cash and cash equivalents at beginning of period | 32,317,887 | 14,845,347 |
Cash and cash equivalents at end of period | 10,469,843 | 14,762,499 |
The consolidated statement of cash flows should be read in conjunction with the accompanying notes.