TIDM88E
RNS Number : 4950V
88 Energy Limited
10 August 2022
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
Tel: +61 8 9485 0990
Email:investor-relations@88energy.com
Finlay Thomson , Investor Relations Tel: +44 7976 248471
Fivemark Partners , Investor and Tel: +61 410 276 744
Media Relations Tel: +61 422 602 720
Andrew Edge / Michael Vaughan
EurozHartleys Ltd Tel: +61 8 9268 2829
Dale Bryan
Cenkos Securities Tel: +44 131 220 6939
Neil McDonald / Derrick Lee
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 40 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 35 to 40 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 barrel(1) 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 GBP0.018) 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 YEARED 30 JUNE 2022
Note
30 June 30 June
2022 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
=============== ============
Other comprehensive income for the period
Other comprehensive income that may be recycled
to profit or loss in subsequent periods:
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
=============== ============
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
Note
30 June 31 December
2022 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
============= =============
Non-Current Assets
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
============= =============
LIABILITIES
Current Liabilities
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
============= =============
NET ASSETS 119,427,233 139,840,134
============= =============
EQUITY
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
============= =============
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 Reserves Accumulated Total
and fully losses equity
paid shares $ $ $
$
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 30 June
2022 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)
------------ ------------
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
------------ ------------
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)
------------ ------------
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.
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