88E signs ~$60M farm-out deal in Alaska, USA

Our oil and gas Investment 88 Energy (ASX: 88E) just signed a ~AU$60M deal to farm-out one of its US assets.

The deal is on Project Phoenix, which is where 88E most recently drilled the Hickory-1 well and completed a successful flow test which flowed oil to surface.

Project Phoenix sits right next door to $1.4BN London listed Pantheon Resources:

The deal signed today is with 88E’s existing JV partner on the project Burgundy Xploration.

Burgundy, before today’s deal had a 25% interest in the project.

After a two phased farm-in Burgundy will hold 75% of the project - 88E will be free carried for their 25% share.

The deal is structured as follows:

• Phase 1 (65% ownership) - Burgundy to pay for ~A$33M of 88E’s share in budgeted CY25/26 costs. This includes lease costs, drilling a horizontal well and flow testing on the project.
• Phase 2 (75% ownership) - Burgundy to pay for another ~A$11.6M in costs (drilling another well or alternative capital programme) after which they will own 75% of the project and 88E 25%.

The look through valuation for the project based on the farm-out terms values it at ~AU$120M on a 100% basis. Based on 88E’s free carried 25% interest the farm-out terms are valuing 88E’s share at ~AU$30M.

We think that's a pretty good deal for 88E to sign especially considering the company’s current market cap at $57M.

It's also worth noting that this isn't 88E’s only project… (more on in this below).

It is worth pointing out though that the deal is conditional on Burgundy raising capital to pay for phase 1 of the farm-out by 31 December 2025.

So there is still a bit of work for Burgundy to do before the farm-out starts delivering actual newsflow.

Trump’s regulatory changes and 88E

When regulatory environments change, it can take some time for capital to find its way to projects.

And there could be significant amounts of capital on the sidelines, ready to be deployed to Alaska as a jurisdiction.

With Trump back in office in the US and coming in with a much more pro-oil & gas policy stance we think Burgundy should find it a lot easier to raise that cash relative to previous years.

In 2023, Biden signed an executive order to prevent exploration in ~3 million acres of the Arctic Ocean in the National Petroleum Reserve-Alaska, Biden announced that plan in conjunction with approving the Connoco Philips Willow oil development project. (Source)

During his first week in office Trump signed an executive order which was called Unleashing Alaska’s Extraordinary Resource Potential.

This order lifted many of the restrictions on exploration for mineral resources and oil & gas in the state which is good for 88E and especially good for Burgundy who are trying to raise capital to pay for the farm-in deal.

(Source)

Based on the indicative timeline in today’s announcement, 88E should be flow testing this project sometime in 2026 (with Burgundy paying for all the costs…).

88E also working on a farm-out for its other Alaskan asset:

88E is also looking to farm-out its other Alaskan project - Project Leonis.

The Leonis asset sits on ~25,600 acres immediately south of Prudhoe Bay - the USA’s biggest-ever oil discovery.

The project has a total net mean prospective resource to 88E of 664 million barrels of oil (MMbbl).

AND 88E wants to be drilling project Leonis in Q1 of 2026.

88E picked up Project Leonis back in April last year.

At the time of acquiring the project 88E knew that:

• The project was fully covered by existing 3D seismic data, AND
• The project had historic exploration data from the Hemi Springs Unit #3 well drilled by ARCO in 1985.

Since then, 88E updated its understanding of the project by:

• Reprocessing seismic data - improving the quality and resolution of the data to define the prospective areas inside the project
• Re-analysing all the data from the Hemi Springs Unit #3 well - so far 88E has calculated >200ft of net pay across one reservoir (USB) and is working with a theory that the field could be similar to the already producing fields to the north (Polaris, West Sak, and Orion fields).

88E’s plan has always been to mature and firm up a drill target on the project and then farm it out to a potential partner.

Recently, 88E confirmed that “planning and permitting for the tiri-1 exploration well” would start and that “Llamas and Bannister Energy Advisors” would work on finding a farm-out partner for the project.

88E already has old well data showing ~200 feet of pay from the project's main reservoir target so we think there is a pretty solid amount of data on the project - enough to get external parties interested in the asset.

So we could see 88E sign another farm-out deal which would put in place funding for 88E to have another well drilled in 2026.

What else is 88E up to?

🔄 Maiden prospective resource estimate for Namibian Asset (H1 2025)

88E is also currently farming into an onshore exploration block in Namibia, neighbouring ~$198M capped TSX listed Recon Africa.

We especially like 88E’s Namibian project because the company is a sort of “first mover” in the onshore Namibian exploration space.

Until today, most of the big exploration wins in Namibia have been offshore.

Oil supermajors Shell and Total Energies made some of the biggest discoveries in recent decades offshore - one discovery in 2022 estimated to be for ~11 billion barrels of oil.

So far all of the attention has been on offshore ground in Namibia, onshore assets have been fairly untouched.

We are hoping that the wave of exploration success offshore eventually leads to market interest in onshore blocks.

88E recently finished 2D seismic on its project and mapped ~10 independent structures with some of them individually covering ~100km^2 of ground.

The next major catalyst for this project is a maiden prospective resource estimate, expected inside the next two quarters ahead of a drill program planned for 2026.

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

Milestones

✅ 2D seismic program starts
✅ 2D seismic program completed
🔄 2D seismic results & interpretation
🔄 Maiden prospective resource estimate
🔲 Primary drill target selected

Source: “What we want to see 88E deliver” section - 88E Investment Memo 20 May 2024