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ASX:88E

88 Energy

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ASX:88E
- 88 Energy
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$0.002

Last Price

Investment Memo:

88 Energy (ASX:88E)

- LIVE

Opened: 20-May-2024

Shares Held at Open: 68,888,890


What does 88E do?

88 Energy Ltd (ASX:88E | OTC: EEENF) is an oil and gas exploration company with projects on the North Slope of Alaska and onshore Namibia.

What is the macro theme?

The last decade has seen massive underinvestment in new oil and gas projects in favour of renewable energy.

We think the sector is headed toward a medium-term supply/demand imbalance and expect oil and gas prices to remain elevated over the next 5-10 year period.

88E’s assets sit in the salem region as the USA’s biggest oilfield and in a part of the world that is emerging as one of the world’s most exciting oil and gas provinces.

Our Big Bet for 88E

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

Why did we invest in 88E?

Projects in the North Slope, Alaska in the USA

88E holds ground in one of the oiliest places in the USA. The North Slope is home to the USA’s biggest ever onshore discovery (Prudhoe Bay) which has produced the equivalent of ~12 billion barrels of oil since discovery.

88E has confirmed discoveries

88E made two discoveries with its 2023 drill program on the North Slope of Alaska, It has proven flowing oil from two reservoirs

Nearology to Pantheon Resources

One of 88E’s projects in the US is bordering Pantheon Resources which is working up the same reservoir systems 88E has on its ground. 88E is trading at a fraction of Pantheon’s market cap.

Namibia’s fast developing oil and gas industry

recent giant discoveries offshore by TotalEnergies and Shell have put Namibia on the map when it comes to new oil discoveries. Namibia is being touted as the next Guyana where US supermajors Exxon and Hess are making discovery after discovery.

88E is farming into an onshore Namibian asset next door to Recon Africa

88E is farming into a 45% interest in ground in the same region as Recon Africa. The ground was picked up in 2018, well before any of the major discoveries made in offshore Namibia.

Namibian onshore peer re-rated by over 40x

ReconAfrica drilled its first well at its onshore Namibian project back in 2021. Between 2020 and 2021 Recon’s share price went from CAD$0.30 to CAD$12.50+.

JV partners on the Namibian assets are linked to Invictus Energy (ASX: IVZ)

IVZ director Robin Sutherland is a part of the team that are JV’ed with 88E in Namibia. Robin was also involved in EnergyAfrica, which sold to Tullow Oil for $500M in 2004 and then again with Tullow Oil as it went on to make discoveries across East Africa.

Underinvestment in global oil and gas exploration

The transition to green energy technologies has meant investment capital has shunned fossil fuel investment opportunities. In the short to medium term, the world still needs a well-balanced supply of fossil fuels to ensure an abundance of energy sources for countries all around the world.

What do we expect 88E to deliver?

Objective #1: Contingent resource estimates at Project Phoenix, USA

We want to see 88E put out contingent resource estimates for its two recent discoveries.

Milestones

not done Contingent resource estimate #1 (SFS Reservoir)

not done Contingent resource estimate #2 (SMD Reservoir)

Objective #2: Farm-out/development studies for Project Phoenix, USA

We want to see 88E layout the commercial pathway for Project Phoenix either through a farm-out/JV deal or via economic studies

Milestones

not done Farm-out/JV MOU

not done Binding farm-out/JV deal

not done Capital light development studies

Objective #3: Farm-out Project Leonis, USA

We want to see 88E announce a maiden prospective resource number and sign a farm-out deal which sees a partner fund a well for the project.

Milestones

not done Maiden prospective resource estimate

not done Farm-out/JV MOU

not done Binding farm-out/JV deal

Objective #4: Firm up drill target at the Namibian asset

We want to see 88E run the 2D seismic data acquisition program on its Namibian JV. Once completed we want to see 88E lock in a primary drill target for the project.

Milestones

complete 2D seismic program starts

complete 2D seismic program completed

in-progress 2D seismic results & interpretation

not done Maiden prospective resource estimate

not done Primary drill target selected

What could go wrong?

Exploration risk

A large part of 88E’s project portfolio is still full of pre-discovery assets. There is always a risk that 88E fails to make a discovery on those projects which would in turn negatively impact 88E’s share price.

Commercialisation risk

88E has now flagged to the market that it is pursuing multiple farm-out deals across several of its US assets. If 88E is not able to lock in a farm-in agreement it may be forced to self-fund the development of these assets. If 88E isnt able to deliver successfull farm-out deals its projects could stay stranded until a capital partner is found for them.

Funding risk

88E will at some point need to raise capital to fund the drilling at its Namibian asset as part of its earn-in agreement. Depending on the markets interest in oil and gas drilling events, 88E may be forced to raise capital before the major drilling event at a discount to its market price. Funding requirements could put downard pressure on 88E’s share price.

Market risk

88E is still predominantly focused on running high risk exploration programs on a recurring basis. There is always a risk that a market wide sell off will hurt 88E’s share price the most, given investors will look to withdraw capital from the high risk high reward investments in their portfolios first.

Geopolitical risk

The Namibian oil & gas sector is still fairly new in terms of maturity, there is always a risk geopolitical instability puts projects in country on hold. 88E’s US assets are also susceptible to geopolitical risk from an environmental perspective. If the US government were to put a moratorium on oil & gas exploration/development this could impact the value of 88E’s assets significantly.

Capital Structure

88E has almost 29 billion shares on issue at the moment. The bigger the share count, the higher the volatility in market cap and the harder it becomes to raise cash. At some point 88E may need to consider a consolidation which may put pressure on the company’s share price momentarily.

What is our investment plan?

With our 88E Investment, we will follow our typical oil and gas Investment Strategy, where we Invest ahead of a drilling event and de-risk our position as the event approaches.

Our plan is to invest early, months before drilling, and hold as momentum increases in the story. We will look to increase our position in 88E over the coming months while the share price is depressed after the last result.

We then seek to free carry and take some profit at drilling. Generally we always look to hold a material portion of our position going into drilling results.

This suits our Investment strategy but may not suit yours.

Always seek professional advice when investing in speculative stocks like this one.


Disclosure: The authors of this article and owners of Next Investors, S3 Consortium Pty Ltd, and Associated Entities, own 68,888,890 88E shares and 6,296,297 options at the time of publication. S3 Consortium Pty Ltd has been engaged by 88E to share our commentary and opinion on the progress of our Investment in 88E over time.

Our Investment Summary

Date of Initial Coverage

23-Jul-20

Inital Entry Price

$0.007

Returns from Initial Entry

-71%

High Point

1257%