Why did we invest in 88E?
North Slope in Alaska
88E is exploring for oil on the North Slope in Alaska - one of the “oiliest” places on the planet. This region is home to some of the largest oil fields in the US, including Prudhoe Bay - the largest onshore oil field in North America, having produced over 12 billion barrels of oil since discovery. 88E holds multiple assets with 3.4B+ barrels of oil equivalent discovery potential.
88E generally drills once a year in high risk / high reward events
88E has drilled five wells in just over 6 years targeting large oil discoveries. We are invested in 88E because it provides exposure to a high-risk high-reward drilling program every year. The 88E share price tends to perform well as 88E goes into a new drilling program. 88E is gearing up to drill the Merlin-2 Well in March 2022 targeting 652 million barrels of oil.
Nearology to ConocoPhillips Willow Oil Field
88E’s 652 million barrel prospective resource at its Peregrine Project is analogues to the Willow Oil Field owned by ConocoPhillips, the #1 oil producer in Alaska. The Willow Oil Field has a resource between 400-750 million barrels of oil equivalent and is a planned 160k barrels/day over 30-years. 88E’s exploration at the Peregrine Project is targeting a similar discovery.
Oil out of favour
Fossil fuels are becoming increasingly shunned by investors and is leading to a lack of investment in oil and gas exploration. The transition to green energy is expected to take longer than the markets are expecting. Oil demand is expected to remain strong in the medium-term. COVID-19 demand shock shutdown a lot of barely profitable wells and as the demand-side of the equation recovers, supply is struggling to catch up.
What do we expect 88E to deliver in 2022?
THE Key Objective we want to see from 88E is to drill the Merlin-2 appraisal well at Project Peregrine.
88E will be drilling a 652 million barrels of oil equivalent target at the Merlin-2 Well in Q1-2022. The Merlin-1 well drilled in 2021 confirmed a petroleum system. Project Peregrine is analogous to ConocoPhillips Willow Oil field.
A discovery here would put 88E on the radar of the majors in the area. A lot is riding on the results of the Merlin-2 well, which is being drilled in March 2022 - the results of this well will determine what we want to see the company deliver for the rest of the year.
What could go wrong?
Drilling Risk: 88E is still in the exploration stage so big drilling events can have binary outcomes, risk needs to be managed going into these large binary outcomes.
88E’s upcoming Merlin-2 well is an appraisal well however. Whilst not an ‘exploration’ well it is still inherently high-risk. The purpose of an appraisal well is to test a previously discovered oil and gas show. There is a chance the appraisal well returns no oil and gas.
Funding Risk: Oil and gas is a fossil fuel, with commitments from countries all over the world to decarbonise. ESG mandates for capital are forcing some investors to divest or move capital away from the space, 88E is still in the exploration stage and requires financing to get its assets commercialised.
Regulatory risk: Whilst this is not part of 88E’s acreage, the Biden Administration suspended oil drilling licenses in Alaska’s Arctic National Wildlife Refuge earlier this year. ConocoPhillips are facing legal setbacks in bringing the Willow oil field project to production.
What is our investment plan?
We have observed an increase in market speculation on the outcome of 88E drilling events every year.
We are anticipating a rise in the 88E share price either just before the drilling of Merlin-2, or going into the Merlin-2 drill results.
Our plan has been to invest early, months before drilling, and hold as momentum increases in the story.
We then seek to free carry and take some profit at drilling.
We hold a portion of our position going into the Merlin-2 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 6,610,000 88E shares at the time of writing this investment memo. S3 Consortium Pty Ltd has been engaged by 88E to share our commentary on the progress of our investment in 88E over time.