88E makes second oil discovery in the USA

Our US oil & gas Investment 88 Energy (ASX: 88E) just made a second discovery at its Hickory-1 well on the North Slope of Alaska.

88E flowed light oils from the SMD-B reservoir at ~50 barrels of oil per day.

This adds to the ~70 barrels of oil per day 88E got from the Upper SFS reservoirs a week or so ago.

88E now has discoveries in three different reservoirs (SMD-B, Upper SFS, BFF).

Next 88E will be looking to add to its existing ~250 million barrel contingent resource in the lower BFF reservoir by announcing resource estimates across the SMD-B and Upper SFS reservoirs.

How do today’s results stack up against our expectations?

We went into this flow test wanting to see 88E replicate the success’ that its $XM neighbour Pantheon Resources had from wells immediately to 88E’s north.

Pantheon across its three tests produced between 45 and 108 barrels of oil per day.

As a result we set up our expectations as follows:

(Source)

88E managed to get peak flow rates of 50 BOPD and 70 BOPD which puts the results at our base case expectation.

What a development scenario looks like:

88E mentioned in today’s announcement that “Commercialisation options” would begin being advanced.

88E’s strategy has always been to develop the project with horizontal wells that increase flow rates to level that make them economically viable.

88E’s project sits right next to the Dalton Highway and the and Trans-Alaskan Pipeline System (TAPS) which means there would be very minimal CAPEX to get the wells tied into infrastructure.

Instead it is all about how high 88E can get the flow rates - the higher they are the stronger the project economics.

The video below gives a quick overview of what a development plan would look like:

When it comes to flow rates 88E has mentioned before the potential to increase flow rates by drilling horizontal wells.

Horizontal wells have the potential to increase flow rates by ~6-12x.

So in theory 88E’s Upper SFS could flow ~420 to 840 barrels of oil per day & the SMD-B could flow ~300 to 600 barrels of oil per day from horizontal wells.

The basic schematic below shows why horizontal wells have stronger flow rates then vertical wells - primarily because they capture a bigger area of a reservoir:

88E’s funding position:

88E went into the flow test with a cash balance of ~A$18.2M (at 31 December 2023).

In today’s announcement 88E confirmed the flow test cost a total of US$14.5M which would be a total cost of ~A$21.75M on a 100% basis.

88E has a 75% working interest in Project Phoenix and would technically be up for ~75% of the costs of the program.

88E should therefore have enough funding to pay for its share of the flow test BUT will almost definitely need to raise funds to top up its balance sheet and cover working capital for the first half of the year.

88E also has exploration programs coming for its Namibian assets which the company will need to fund.

What’s next for 88E?

Contingent resource estimates for SFS and SMD reservoirs 🔄

Now that 88E has discoveries across the SFS and SMD reservoirs we want to see the company define a maiden resource across the two structures.

88E expects contingent resource to be completed in Q2 2024.

Commercialisation discussions 🔄

88E mentioned in today’s announcement that it would now start advancing commercilisaition work for Project Phoenix.

88E specifically mentioned a “farm-out to a strategic development partner and/or early, capital-lite production”.

We think commercialisation news is an important catalyst for 88E.

Now 88E will transition over to testing the SMD-B reservoir.

The SMD-B is a reservoir which 88E’s neigbour Pantheon has tested in the past - during its flow test Pantheon managed to produce at ~45 barrels of oil per day.

So we are hoping for an improvement on those numbers from 88E.