88 Energy Announces Quarter Ended 31 March 2021

Source: www.gulfoilandgas.com 4/20/2021, Location: Not categorized

The Directors of 88 Energy Limited provide the following report for the quarter ended 31 March 2021.

Highlights

Project Peregrine
• Rig commissioning and mobilization of snow road construction equipment to the Merlin-1 drill site commenced in early January 2021;
• The Permit to Drill for the Merlin-1 exploration well was approved by the Bureau of Land Management and the Deputy Assistant Secretary for Land and Minerals Management on 29 January 2021;
• The Merlin-1 exploration well spudded on 10 March 2021 and drilled to a Total Depth of 5,267’;
• Interpretation of logging while drilling data (“LWD”) indicated multiple potentially hydrocarbon bearing zones had been encountered in the Nanushuk Formation whilst drilling Merlin-1, with the results considered encouraging and Joint Venture approving a wireline program to determine the presence of mobile hydrocarbons; and
• Subsequent to period end the Company announced that initial petrophysical interpretation of the wireline logging program indicates several potential pay zones in Merlin-1, however operational issues prevent hydrocarbon samples from two most prospective zones.
• Sidewall cores in Merlin-1 confirm presence of oil previously observed in cuttings

Project Icewine
• Nearby Talitha-A well early results encouraging – potential for extension into 88E leases; and
• Commercialisation options continue to be explored for gas discovered at Project Icewine.

Yukon Leases
• On 20th January, 88 Energy, via its wholly owned subsidiary Regenerate Alaska Inc, was notified of the formal award of lease AA095899 (associated with Tract 29);
• The addition of lease AA095899 which is adjacent to the existing Yukon Leases held by Regenerate Alaska Inc is anticipated to assist in advancing continuing discussions with nearby resource owners to optimise the monetisation strategy of the acreage; and
• Permitting and planning for future potential exploration drilling is ongoing – subject to farm-out.

Umiat Oil Field Acquisition • 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 (Sellers) to acquire the Umiat Oil Field (“Umiat”);
• Umiat is an historic oil discovery, made in 1945 in shallow Brookian (Nanushuk) sandstones, located immediately adjacent to southern boundary of Project Peregrine; and
• The final condition related to the acquisition of the Umiat was completed prior to period end with cement work associated with plugging and abandoning of two historical wells at the field.

Corporate
• Successful completion of two capital raises in the quarter totalling A$18 million (before costs).
• The Company announced the resignation of Managing Director David Wall and Board Changes

Project Peregrine
Merlin – 1 Exploration Well
Snow road construction to the Merlin-1 location commenced in the second half of December 2020, with the rig commissioning and mobilisation of snow road and pad construction equipment to the Merlin-1 drill site commencing in early January 2021.

The Permit to Drill for the Merlin – 1 well was approved by the Alaska Bureau of Land Management and the Deputy Assistant Secretary for Land and Minerals Management on 29 January 2021 ahead of the expected 12 February approval date.

Mobilisation of Rig-111 to the Merlin-1 drilling location commenced on 19 January 2021, with Rig111 commencing drilling of the Merlin –1 well at 0338 on 10th March 2021 (AK time). The Merlin-1 surface hole was successfully drilled to 1,512’ on 22 March as planned, and drilled to a Total Depth of 5,267’on 29 March 2021 having drilled through and logged all of the pre-drill targets.

The Nanushuk Formation, which contains the primary targets for the Merlin-1 well, was encountered ~600’ low to prognosis and is interpreted to be ~500’ thicker than that encountered in the wells drilled into the Willow Oil Field (“Analogue Wells”) to the north of the Project Peregrine acreage. Encouragingly, the gamma log indicates the presence of more sand packages than those in the Analogue Wells and that the sand packages in Merlin-1 are generally cleaner in nature.

Oil shows were recorded over multiple intervals in the Nanushuk while drilling Merlin-1, including the primary targets. Fluorescence ranged from relatively weak to moderate “dry” fluorescence with slow to moderate sometimes fast streaming cut when exposed to solvent. Mud gas peaks were also recorded and, although generally not of the same scale of the increase in total gas above background as that seen in the Analogue Wells, one of the prospective horizons in Merlin-1 did have substantially elevated total gas, similar to that in the Analogue Wells. Heavier gas components, including C5, were observed over multiple intervals. Resistivity was elevated over these intervals and is encouraging, particularly in the context that the Nanushuk is considered a low resistivity play type. Fluorescence was also observed in the drilling mud (“pops”) accompanied by a petroliferous odour over three of the target intervals. Significantly, one of these intervals is interpreted to be part of a, potentially separate, sand package that is also present in the Harrier prospect.

Interpretation of logging while drilling data (“LWD”) indicated multiple potentially hydrocarbon bearing zones had been encountered in the Nanushuk Formation whilst drilling Merlin-1, with the results considered encouraging and Joint Venture approving a wireline program to determine the presence of mobile hydrocarbons.

Subsequent to period end the Company announced that initial petrophysical interpretation of the wireline logging program indicates several potential pay zones in Merlin-1, however operational issues prevent hydrocarbon samples from two most prospective zones.

The first run of the wireline program included a standard triple combination log with nuclear magnetic resonance (“NMR”). These tools are designed to identify potential reservoir and resistivity (elevated resistivity is an indication of hydrocarbon saturation) as well as provide an estimate of the mobility of the fluid present. Multiple prospective zones were identified, consistent with the shows and logs obtained whilst drilling, and the NMR tool indicated good mobility across most of these zones.

The second run of the program was designed to take samples across these zones. Initial observations indicated the presence of an oil signature in the fluid using an optical fingerprint sensor in the downhole sampling tool, after communication was established with the reservoir in the deepest zone of interest. Slugging of hydrocarbon and water then occurred, which is often a precursor to hydrocarbon flow from the reservoir, however; a power outage due to equipment failure necessitated pulling out of the hole for repairs prior to any sample being obtained. After repairs were completed, the run back in hole encountered several sticky sections, indicating poor hole condition so a clean out run was undertaken. Re-entry with the sampling tool was then executed to move to the lowest zone for testing but good communication was not able to be re-established with the reservoir despite observation of a similar hydrocarbon signature on the optical fingerprint sensor. The time the hole had been open and consequent potential formation damage may have contributed to this issue.

A decision was made to move to the next shallowest prospective zone, which had exhibited good oil shows and petrophysical characteristics, but wellbore condition issues prevented a test as the tool became stuck. The tool was freed but the risk of returning to that zone was deemed too high.

Not being able to sample these two most prospective zones does not preclude a discovery;

however, analysis of sidewall cores and potentially further drilling may be required for confirmation.

Significantly, one of these zones is considered to be a new prospective horizon within the Nanushuk Formation that may be wholly within the Project Peregrine acreage and was not one of the pre-drill targets. The other zone is interpreted to be shared with one of the zones in the Harrier prospect, to the north of Merlin. Further work, integrating the results from logging with the seismic, is required to map / re-map the volumetric potential of these zones. Several samples were taken in zones interpreted to be less prospective on the way out of the hole, all of which contained low saturations of hydrocarbons, which will now be sent to a laboratory for testing. The presence of hydrocarbons in these zones is considered encouraging for regional prospectivity but does not constitute a discovery due to the low saturation levels.

The Joint Venture considered it too late in the season to initiate flow testing operations and the forward program will consist of plugging the well. The well may be re-entered in the future, if warranted, in order to drill a side track and conduct a flow test.

Refer to the announcement dated 6 April 2021 for further details in relation to the results from the Merlin – 1 well.

In addition, as per the announcement in April 2021, the sidewall cores taken in the Merlin-1 were analysed at surface prior to being sent to the laboratory for further testing. Fluorescence and cut were observed over several horizons (see images below), confirming the observations previously reported based on cuttings (see release dated 29th March 2021).

Project Icewine
During the quarter, the Company noted the high impact well, Talitha-A, was being tested on acreage adjacent to its Project Icewine, located on the Central North Slope of Alaska, by Pantheon Resources PLC. Several of the prospective horizons in Talitha-A are interpreted to extend into 88E acreage.

Talitha - A was scheduled to be flow tested over multiple horizons after encouraging log results. Subsequent to quarter end Pantheon announced that testing had commenced on the Kupurak horizon, with the Talitha #A well flaring natural gas as it cleans up. Pantheon cautioned that it is too early to make a definitive assessment as to the ultimate commerciality of the Kupurak horizon, with further results to be announced at the conclusion of testing operations.

In-house analysis continued in the quarter on various commercialisation options for the gas condensate discovered in the Torok Formation by 88E’s Charlie-1 well in 2020. The discovered resource comprises over 1 TCF of independently estimated gross mean prospective gas as well as associated condensate. The commercialisation options include, but are not limited to, possible local power generation, compressed natural gas as well as potential for conversion to hydrogen using steam methane reforming (SMR) with carbon capture and storage (CCS) processes. It is expected that this work will move to a formal feasibility stage during 2021.

Leases owned predominantly by Burgundy Xploration LLC in the eastern portion of Project Icewine area (where no money has been spent) were also relinquished as part of a rationalisation process in the quarter.

Yukon Leases
88 Energy, via its wholly owned subsidiary Regenerate Alaska Inc, was formally awarded the lease sale on Lease AA095899 in the recent Coastal Plain, effective 1 January 2021. The lease is considered highly prospective for oil and gas as several prospects on the Central North Slope side of the boundary are interpreted to extend into this area. It is considered likely that a significant portion of these oil pools may be accessed without surface access within the Coastal Plain area.

The acquisition of these leases represents a logical step in the Company’s aggregation strategy for oil resources in this part of the North Slope, where existing infrastructure provides a potential pathway to commercialisation, with the addition of lease AA095899 which is adjacent to the existing Yukon Leases held by Regenerate Alaska Inc anticipated to assist in advancing continuing discussions with nearby resource owners to optimise the monetisation strategy of the acreage Discussions continued during the quarter with nearby lease owners to optimise the monetisation strategy for existing discovered resources located in the vicinity of the 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. 88 Energy recently acquired 3D seismic (2018) over Cascade and, on final processing and interpretation, high-graded it from a lead to a drillable prospect. The Yukon Leases are located adjacent to ANWR and in close proximity to recently commissioned infrastructure.

Permitting and planning to continue ahead of a future possible drilling campaign – subject to farm-out.

Umiat Oil Field Acquisition
On 8th January, 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 (Sellers) to acquire the Umiat Oil Field. The consideration for the purchase was a 4% ORRI and assumption of the liability for the abandonment of the Umiat-18 and Umiat-23H wells, drilled by Linc Energy in 2013/2014. The estimated cost to abandon the two wells is approximately US$1m.

The Umiat Oil Field is covered by two leases comprising 17,633 acres, which are in a unit that was formed in September 2019 with an initial 10 year term. The current conditions of the unit stipulate a well commitment (exploration or appraisal) by 31st August 2022.

Umiat was discovered in the mid-1940s with 11 appraisal wells drilled by 1953, several of which were tested. Umiat-5 flowed 268 barrels per day on a 3 month test and Umiat-8 had a peak flow rate of 5.9mmcf/d of natural gas during a 4 day test. Little work was done until 2013/2014 when Linc Energy drilled two wells, Umiat-18 and Umiat-23H. Umiat-23H was tested with a maximum flow rate of 800 barrels per day and sustained flow of 200 barrels per day.

Substantial engineering and environmental work was also done by Linc Energy in support of a potential future development. One of the routes for access to infrastructure runs directly through 88 Energy’s Project Icewine leasehold where there are significant independently estimated resources of oil and gas.

Refer to the Company’s announcement on 8 January 2021 for further details. During March 2021, the final condition related to the acquisition of the Umiat Oil Field (“Umiat”) was completed with cement work associated with plugging and abandoning of two historical wells at the field now executed. Remedial site work will be finalised in April 2021.

Project Peregrine, in combination with the 100% owned Umiat Oil Field, has the potential to deliver substantial returns for shareholders, in the form of a potentially large oil field development. The Company will undertake a full field review to determine at what oil price Umiat may be commercial as a stand-alone development and whether optimisation of the previous development plan is possible.

Placements Completed to Raise a Total of A$18 million
On 12 February 2021, the Company announced that it had successfully completed a heavily oversubscribed bookbuild to domestic and international institutional and sophisticated investors to raise A$12.0 million before costs through the issue of 1,500 million ordinary shares at A$0.008 (equivalent to £0.0045) per New Ordinary Share.

In addition, the Company entered into a share subscription agreement on 22 March 2021 with ELKO International LLC (“ELKO”) to raise A$6.48 million, one of the major contractors for the Merlin-1 drilling operation. Under the agreement ELKO was issued 360 million ordinary shares at $0.018, which is a 225% premium to the placement undertaken on 12 February 2021. The were no fees associated with the placement.

Corporate
The ASX Appendix 5B attached to this report contains the Company’s cash flow statement for the quarter. The significant cash flows for the period were:
• Exploration and evaluation expenditure totalled A$15.2m gross (Dec’20 Quarter A$2.0m), primarily associated with expenditure on Project Peregrine Merlin - 1 well drilling.
• Lease rental payments totalled $3.0m in the quarter;
• Cash call proceeds received from Joint Venture partners in the quarter totalled A$7.7m (Dec’20 Quarter A$7.6m);
• Payments in relation to the debt facility interest totalled A$0.4 (US$0.3m) and debt repayment of A$0.4m;
• Proceeds from the capital raising during the quarter totalled $18.53m before costs; and
• Administration and other operating costs, net of government payments, totalled A$0.49m and staff costs of A$0.5m.

At the end of the quarter, the Company had cash reserves of A$20.06m, including cash balances held in Joint Venture bank accounts relating to Joint Venture Partner contributions totalling A$2.3m.


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