88 Energy Limited has provided an update on operations at its recently acquired Project Longhorn conventional oil and gas production assets in the proven Permian Basin, onshore Texas, U.S. 88 Energy has a circa 73% average net working interest in these established production assets, which have independently certified net 2P reserves of 2.05 MMBOE.
In March 2022, the Operator of the Longhorn production assets, Lonestar I, LLC , successfully completed the first of a series of capital-efficient work-overs planned after the completion of the Longhorn acquisition. This work-over was completed on time and on budget and has delivered an immediate increase to the total oil and gas production rates of the project.
Production from the Longhorn wells exceeded 400 BOE per day gross (over ~300 BOE per day net and approx. 70% oil) at the end of March 2022. This represents an increase of over 30% since the completion of the acquisition in mid-February 2022. The production increase provides additional direct exposure to the higher WTI oil price environment and accelerates pay-back on both the acquisition of the assets and the capital investment in the work-overs.
Project Longhorn has exceptionally low operating costs (lifting costs), which provides high margins from production. First cash receipts from Project Longhorn were received by 88 Energy in March 2022, which comprised a payment of approximately A$0.6 million (net to 88 Energy and net of OPEX/CAPEX).
Project Longhorn remains on track to complete the targeted seven capital development activities this year, which is expected to approximately double current production rates by the end of CY2022.
The acquisition of Project Longhorn in Q1 CY2022 represents 88 Energy's first move into producing oil and gas assets and is in line with the Company's strategy to build a successful exploration and production company. This initial step has been undertaken in a measured fashion via the purchase of a non-operated working interest with a single basin focus. Project Longhorn contains well understood geology with low technical risk and provides near-term upside via low-cost field development opportunities.
88 Energy Managing Director and CEO, Ashley Gilbert, commented:
"88 Energy is pleased with the production performance at Project Longhorn, especially in this high oil price environment. We are also highly encouraged by the successful delivery by the Operator of the first planned work-over, as well as the continued progress of the agreed capital development program for 2022. This program is expected to result in strong cash flow outcomes and further direct exposure to the current high energy prices."
"88 Energy is in a solid financial position, with zero debt and a healthy cash balance that is expected to be further strengthened with projected cash flows from Project Longhorn's Texas production assets."
Project Longhorn - conventional onshore oil and gas in Texas
88 Energy acquired the Project Longhorn assets in February 2022. Longhorn is located in the attractive and proven Permian Basin, and consists of a total landholding exceeding 1,300 net acres. The assets comprise 9 leases with 32 producing wells and associated infrastructure. Lonestar I, LLC retains an approximate 24% net working interest in the assets and, through an affiliate will remain Operator. The remaining working interests are retained by pre-existing joint venture partners.
As part of the acquisition, 88 Energy has agreed to a low-cost work program for CY2022 that includes seven work-overs. These initiatives are expected to approximately double production rates by the end of CY2022.
The acquisition of a working interest in Project Longhorn delivers 88 Energy immediate cashflow, as well as further low-cost capital development upside providing appealing forecast economics:
· Gross capital development activities costing: from US$0.7 million to US$1.4 million depending on the type of drilling or work-over performed.
· Target development IRRs: 75% to 400% depending on the type of drilling or work-over performed.
· Target capital expenditure payback: 7-18 months depending on the type of drilling and completion performed and future oil prices.
· Target break-even WTI oil price: US$21/bbl - US$28/bbl depending on the type of drilling or work-over performed.