88 Energy Regulatory News (88E)

29 April 2016

QUARTERLY REPORT

Report on Activities for the Quarter ended 31 March 2016

The Directors of 88 Energy Limited ("88 Energy" or the "Company", ASX & AIM:88E) provide the following report for the quarter ended 31 March 2016.

Highlights

Phase I Evaluation of Icewine#1 Exploration Well Successfully Completed

· Key "Achilles' Heels" for HRZ Liquids Rich Resource Play substantially mitigated, including:

o Brittleness:

* Analogous to Haynesville and Marcellus plays

* Highly amenable to fracture stimulation operations

o Hydrocarbon Phase / Thermal Maturity:

* Volatile oil vapour phase with higher liquids content than forecast

o Bottom Seal / Overpressure:

* Elevated pore pressure materially above hydrostatic gradient

o Matrix Permeability:

* Analogous to Haynesville & substantially higher than Eagle Ford

o Porosity

* Excellent by comparison to other successful shale plays, including Eagle Ford

Phase II: Appraisal Program for HRZ Play Initiated

· Appraisal: Icewine#2H (Horizontal with Multi-Stage Frac) HRZ Production Test

o Preliminary AFE and drilling design launched

o Detailed core-based fraccing, completion, and production profile design commenced

· 2D Seismic program initiated in March 2016 post funding approval by Bank of America

Key Events Subsequent to the Quarter 

· Independent Resource Report released on 6th April 2016 confirming large upgrade to Project Icewine recoverable liquids potential

· Commitments received from Institutions and Sophisticated Investors in Australia, Asia and UK for strongly oversubscribed A$25m capital raising

· Change to Executive Services Contract for Managing Director, post Independent Peer Remuneration Review and achievement of key milestones: base salary increased from A$300,000 to A$400,000 per annum, effective 1st May 2016

Upcoming Events

Evaluation and integration of the core from Icewine#1 is now focused on fine tuning of the Phase II Appraisal Program that is ongoing, with results expected on key variables over the coming period, including:

· Proppant Embedment - to determine the optimal size and type of proppant

· Fluid Sensitivity - determines the best fluid type for carrying proppant and minimising chemical interaction with the rock

· Borehole Stability - confirmation of stress direction for optimisation of orientation of lateral section

· Completion of 2D Seismic Acquisition and Commencement of Processing and Interpretation

· Finalisation of Icewine#2H Well Design

· Integration of Evaluation Parameters from Icewine#1 Core into Well Performance Simulation

· Formal Award of Additional ~174,000 Acres Successfully Bid on in November 2015

The ASX Appendix 5B attached to this report contains the Company's cash flow statement for the quarter. The significant elements for the period were:

· exploration and evaluation expenditure of A$9.559m, related to drilling costs for the Icewine#1 exploration well as well as commencement of the 2D seismic program (December 2015 A$15.770m):

o Borrowings of A$6.265 (Bank of America Credit Facility) were used to fund the majority of the exploration expenditure such that the net cash outflow to the Company was A$3.294m

o These borrowings are secured against State of Alaska credit rebates with those related to Icewine#1 costs expected to be fully repaid this calendar year with a small refund net to the Company, once the credits are issued. Seismic rebates are expected next calendar year;

· administration and other operating costs A$0.662m (December 2015 of A$1.186m);

· cash raised via option exercise A$1.339 (after costs);

· a net cash outflow of A$2.329m recorded by the Company.

At the end of the quarter, the Company had net cash reserves of A$7.491 million.

Post the end of the quarter, the Company announced a strongly oversubscribed capital raising of A$25 million.

Project Icewine Highlights

In November 2014, the Company entered into a binding agreement with Burgundy Xploration (BEX) to acquire a significant working interest (87.5%, reducing to 78% on spud of the first well on the project) in a large acreage position on a multiple objective, liquids rich exploration opportunity onshore Alaska, North America, referred to as Project Icewine. In November 2015, the gross acreage position was expanded by 174,240 acres (to be awarded in due process by the State of Alaska).

Subject to final payment on the expanded acreage, 88 Energy will have a 272,422 gross contiguous acre position with 212,489 acres net to the Company. The Project is located on an all year operational access road with both conventional and unconventional oil potential. The primary term for the State leases is 10 years with no mandatory relinquishment and a low 16.5% royalty.

The HRZ liquids-rich resource play has been successfully evaluated based on core obtained in the recently completed (December 2015) Icewine #1 exploration well, marking the completion of Phase I of Project Icewine. Phase II has now commenced, with planning for a horizontal multi-stage fracture stimulated well, Icewine#2H, currently underway.

Figure 1: Project Icewine Location (please refer to the pdf of this announcement available from the Company's website)

Generous exploration incentives are provided by the State of Alaska with up to 85% of exploration expenditure in 2015 cash refundable, dropping to 75% until mid 2016 and thereafter 35%.

The primary objective is an untested, unconventional liquids-rich shale play in a prolific source rock, the HRZ shale (Brookian Sequence), that co-sourced the largest oil field in North America; the giant Prudhoe Bay Oil Field Complex. Internal modelling and analysis indicates that Project Icewine is located in a high liquids vapour phase sweetspot analogous to those encountered in other Tier 1 shale plays e.g. the Eagle Ford, Texas.

Conventional play potential can be found at Project Icewine within the same Brookian petroleum system and shallow to the HRZ shale and includes high porosity channel and deep water turbiditic sands. The Brookian conventional play is proven on the North Slope; the USGS (2013) estimate the remaining oil potential to be 2.1 billion barrels just within the Brookian sequence. Additional conventional potential exists in the deeper Kuparuk sands and the Ivashuk Formation.

Drilling in (2012), on the adjacent acreage to the north, confirmed that the HRZ shales, along with the underlying Kingak & Shublik shales, were all within the oil window which is extremely encouraging for the unconventional potential at Project Icewine. In addition, a conventional oil discovery was reported in the Kuparuk sandstones.

A Prospective Resources Report by DeGolyer and MacNaughton, was commissioned by 88 Energy to evaluate the unconventional resource potential of Project Icewine in February 2016 and was released to the market on 6th April 2016.

About 88 Energy: 88 Energy has a 78% working interest and operatorship in ~272,000 acres (~174,000 acres subject to formal award) onshore the prolific North Slope of Alaska ("Project Icewine"). The North Slope is the host for the 15 billion barrel Prudhoe Bay oilfield complex, the largest conventional oil pool in North America. The Company, with its Joint Venture partner Burgundy Xploration, has identified three highly prospective play types that are likely to exist on the Project Icewine acreage - two conventional and one unconventional. The large resource potential of Project Icewine was independently verified by leading international petroleum resource consultant DeGolyer and MacNaughton. In addition to the interpreted high prospectivity, the project is strategically located on a year-round operational access road and only 35 miles south of Pump Station 1 where Prudhoe Bay feeds into the TransAlaska Pipeline System. The Company is currently acquiring seismic to take advantage of the globally unique fiscal system in Alaska, which allows for up to 75% of 1H2016 exploration expenditure to be rebated in cash. The Company recently completed its maiden well at the project, Icewine#1, with excellent results from analysis of core obtained in the HRZ shale. A followup well with a horizontal section and multi stage frac, Icewine#2H, is planned for 1Q2017.

http://www.rns-pdf.londonstockexchange.com/rns/7505W_-2016-4-28.pdf

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