“Potential” hydrocarbon pay for 88E with more results expected in next 2 weeks

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 24,387,632 88E shares at the time of publishing this article. The Company has been engaged by 88E to share our commentary on the progress of our Investment in 88E over time.

So far, so good...

88 Energy (ASX :88E | OTC: EEENF) just put out an operations update on its Hickory-1 well that it is currently drilling on the North Slope of Alaska.

88E is drill testing a 647 million barrel prospective mean unrisked resource (net to 88E) via this appraisal well.

88E has just drilled through the first three primary reservoir targets and found “potential hydrocarbon pay”. This is based on the following indications:

✅ Presence of hydrocarbons evidenced by fluorescence under UV light in cuttings samples

✅ LWD data initial interpretation looking positive

✅ Oil shows noted

✅ Elevated mud gas readings

✅ High resistivity signatures and crossover of neutron density curves

Immediately after drilling reaches target depth (expected to take another 3-5 days), wireline logging preparations will commence.

Wireline logging will be where 88E determines net pay figures.

This wireline logging program is expected to take between 5-7 days.

All operations are expected to be completed around mid-April - i.e about 2 weeks away.

Here is more on what we know so far:

1. Primary reservoir targets intersected - 88E has hit all three SMD (A/B/C) reservoirs. Reservoir thickness is consistent with 88E’s pre-drilling expectations. The reservoirs are shallower than expected pre-drill.
2. Oil shows identified - Elevated resistivity, indicating potential hydrocarbon pay across primary targets. Initial data suggests oil shows. Final pay figures to be determined by wireline logging/coring program (post drilling).
3. Presence of hydrocarbons confirmed - Drilling has so far indicated reservoir permeability, elevated mud gas readings and identified fluorescence under ultraviolet light in cuttings samples.
4. Strategy for the rest of the drilling gives us clues about the primary targets - 88E has decided against drilling down to the lower priority Kuparuk reservoir target citing “the results in the primary SMD targets, and to preserve borehole condition”. This to us is a positive sign that 88E is satisfied with the results it has to date - but also likely because the drilling season is drawing to a close. If the results to date were poor then we would have likely seen 88E continue drilling into that lower priority target.

All in all - so far so good for 88E, with no operational issues encountered and drilling progressing on time.

Updated 88E drilling timeline - what’s next?

✅ Drilling started - 10th March 2023.

✅ Drilling down to 8,820 feet - Today, primary reservoirs intersected.

🔄 Drilling to total depth of ~11,000 feet - ~3-5 days more drilling from today.

🔲 Wireline logging program - This will start right after drilling is completed. The program is expected to take ~5-7 days to complete. After this, the well will be cased and suspended.

This means that we should have more 88E news by mid-next week and then the final results from the drill program within ~2 weeks from today.

Of course, this is assuming everything goes as planned and there’s no unforeseen delays.

88E expects all operations, including suspension and demobilisation from the well site to be completed by mid-April.

After this it will be all about the results from the well and whether or not 88E has enough positive data to warrant a flow test in late 2023-early 2024.

What we wanted to see & our Bull/Bear case expectations:

In our last note, we detailed what we would be looking out for from 88E’s drill program.

Below is how 88E performed relative to those expectations to date:

✅ Fluorescence (an indicator of oil presence) - 88E confirmed fluorescence today.

✅ Oil odour in samples - 88E noted oil shows today.

✅ Mud gas readings - 88E noted mud gas readings today.

🔲 Net pay/gross pay numbers (an indicator of the size of the reservoirs) - this is likely to be announced after 88E has completed its wireline logging programme (within ~2 weeks).

🔲 Most importantly, we want to see a commitment from 88E to case and suspend the well so it can return to it for flow testing at a later date.

Considering 88E has decided to flow test this year's well at a later date, our bull/bear case expectations for this well are relatively simple:

• Bull case = Drill results positive enough for 88E to commit to a flow test.
• Bear case = 88E decides not to flow test the well.

The ultimate commercial viability of the well will be determined by a flow test that 88E plans to run in the 2023-24 Alaskan drilling season.

This brings us to our “Big Bet” for 88E:

Our 88E Big Bet:

“88E makes a large oil discovery that is acquired by a major for over A$1BN.”

NOTE: our “Big Bet” is what we HOPE the ultimate success scenario looks like for this particular Investment over the long term (3+ years). There is a lot of work to be done, many risks involved - just some of which we list in our 88E Investment Memo. Success will require a significant amount of luck. There is no guarantee that our Big Bet will ever come true.

To monitor 88E’s progress since we first Invested and how the company is performing relative to our “Big Bet”, we maintain the following 88E Progress Tracker:

See our 88E Progress Tracker here:

Update on our Investment Plan

Since drilling started 88E’s share price has traded sideways in a range between 1c and 1.3c.

We de-risked around ~25% of our pre-drill position and we may consider selling a further ~25% if the share price runs between now and the wireline logging results.

As mentioned in our last 88E update, our plan has always been to hold the majority of our position and wait for the share price to re-rate off some positive drilling news.

So far we haven't seen a big move higher - but there is another ~3-5 days of drilling to go and ~5-7 days of wireline logging after that, where anything could happen.

We note that the big ~1,000% move during the Merlin-1 well back in 2021 happened just before wireline logging started.

In an ideal world, we would like to be Free Carried before 88E announces its final drill results, but we are prepared for the fact that this may not happen.

This is our Investment strategy, however, it's not right for everyone and may not suit your risk profile or circumstances. Always seek professional investment advice when investing in high risk small cap exploration stocks.

Where to watch for movements in 88E’s share price:

• USA - (OTC: EEENF) US OTC listing
• UK - (AIM: 88E) London AIM listing
• AUS - (ASX:88E) Australian ASX listing

What’s next for 88E?

Drilling of 88E’s Hickory-1 well

The drilling timeline is as follows:

✅ Drilling commencement - 10th March 2023.

✅ Drilling to 3,500 feet - As of today, 88E reached a depth of 8,820 feet.

🔄 Drilling through to a total depth of ~11,000m feet - ~3-5 days from here.

🔲 Wireline logging program - program to start after drilling is completed and is expected to take ~5-7 days to complete.

What could go wrong?

Today’s update showed that 88E had intersected the primary reservoirs and that drilling has been ongoing without any operational issues.

While the news is positive and a sign that the reservoir targets are present within 88E’s ground, this doesn't mean 88E have completely mitigated “exploration risk” just yet.

88E still has another week or so of drilling to go after which it will run a wireline logging program.

We will need to wait for the results from that wireline logging program to work out whether or not the exploration risk has been mitigated.

Exploration risk is therefore still a key risk to our Investment Thesis for 88E.

To see other risks we face see our Investment Memo here or by clicking on the image below:

Our 88E Investment Memo

Below is our 88E Investment Memo where you’ll find:

• Key objectives we want to see 88E achieve
• Why we Invested in 88E
• What the key risks to our Investment thesis are
• Our Investment plan