88E upgrades contingent resources in the USA

88 Energy (ASX: 88E) just upgraded its contingent resources for its Project Phoenix on the North Slope of Alaska, USA.

88E added ~50% to its existing resource base taking its project-wide 2C contingent resource of ~378 Million Barrels of Oil Equivalent (MMBOE).

That puts 88E’s net entitlement for the contingent resources at ~239 MMBOE.

Before today’s announcement, 88E had only booked contingent resources on one of the three reservoirs it tested at its Hickory-1 well earlier this year.

After today, 88E has contingent resources booked across four different reservoirs:

• SMD-B reservoir - 38 MMBOE
• Upper SFS reservoir - 34 MMBOE
• Lower SFS reservoir - 56 MMBOE
• BFF reservoir - 250 MMBOE

Across the four reservoirs, the total is ~378 MMBOE (of which ~63.3% is 88E’s net entitlement).

The resource upgrade comes after 88E finished flow testing two of the three reservoirs earlier in the year and bringing oil samples to surface.

From a technical perspective we think 88E managed to make a lot of progress, especially considering the flow test came from a vertical well. 88E can still increase those flow rates by drilling horizontal wells in the future.

In today’s announcement 88E mentioned that the company was currently planning a flow test from a horizontal well across its SMD reservoir in 2025-2026.

While the horizontal well is being designed 88E is looking to sure up a deal with its JV partner Burgundy which is planning a listing of its own.

88E’s plan is to “enter into an agreement to provide a carry to 88E for the anticipated 2025/26 work program, in exchange for an additional working interest in Project Phoenix”.

Farm-out news on Project Phoenix will be the next major catalyst for this project.

What else is 88E upto?

88E also recently completed a 2D seismic acquisition program at its Namibian asset.

88E is currently farming in a 45% interest into the assets onshore in Namibia.

The seismic is targeting ~10 independent leads that 88E’s JV partner had already identified. 88E’s target will be to turn those targets into a maiden prospective resource for the project.

The program finished on the 24th of July, and the final results are expected by Q4-2024.

88E could deliver a prospective resource at the right time…

88E could time its prospective resource announcement well IF its regional peer Recon Africa has any exploration success from its project next door to 88E.

Recon is currently in the middle of a multi-well drill program (planning to drill up to four wells).

Recon is currently ~2,400m into the first exploration well so we could see news from Recon at arbitrary times over the coming months. See the latest update from Recon here.

Recon recently signed a deal with BW Energy to farm-down a 20% interest in their project for US$13M - as part of a CAD$35M financing deal.

The deal is a solid signal to us that corporate interest in onshore Namibian assets is growing.

With 88E capped at just ~$28M (0.1c share price), we think that there is plenty of upside not being priced into 88E’s valuation based on its Namibian assets alone.

For now, we will be keeping a close eye on Recon’s drill program over the next few months.

Why we like 88E’s Namibian asset:

• Huge ground position - ~70x the size of 88E’s Project Phoenix in the North Slope of Alaska, USA. The project is large enough to host a large resource base.
• Namibia’s fast developing oil and gas industry - recent giant discoveries offshore by TotalEnergies and Shell have put Namibia on the map. Namibia being touted as the next Guyana where US supermajors Exxon and Hess are making discovery after discovery.
• 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+.
• Project vendors linked to Invictus Energy (ASX: IVZ) - IVZ director Robin Sutherland is a part of the team doing the deal with 88E. Robin was also involved in EnergyAfrica, which sold to Tullow Oil for $500M in 2004 and then again with Tullow Oil as it went onto make discoveries across East Africa.
• Early stage with plenty of upside - 88E is getting in on the project at a very early stage. There is scope for 88E to run the seismic surveys, define a large prospective resource and firm up a drill program over the next 12-24 months.
• Strategically located - Sits next to one of Africa’s largest economies, South Africa, which is looking to replace its retiring coal-fired energy generation fleet.

See our deep dive note on the Namibian asset here: 88E heading to Africa on frontier oil hunt - following Shell and Totals 11 billion barrel lead

What’s next for 88E?

In the short term the two key objectives we are tracking are as follows:

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
🔄 Farm-out/JV MOU
🔲 Binding farm-out/JV deal
🔲 Capital light development studies

Source: “What do we expect 88E to deliver” - 88E Investment Memo 20 May 2024

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 do we expect 88E to deliver” - 88E Investment Memo 20 May 2024