88E’s regional peer Recon Africa now drilling
88 Energy’s (ASX:88E) onshore Namibian peer, Recon Africa just kicked off its first well for the year.
This is the first well of a program where Recon is planning up to 4 wells.
Here is where 88E’s project sits relative to Recon:
Why we are watching Recon closely -
At the moment 88E is running a 2D seismic survey on its ground as part of its 45% farm-in agreement.
That means 88E is a while away from a drilling a well on its ground - thats expected sometime in 2025.
Even though 88E’s first well is a while away, the Recon drilling means 88E could still get some market interest off the back of its peers success.
IF Recon finds something in the coming months, it could be significant for 88E and onshore Namibia.
After new oil discoveries, we typically see a rush of interest into a region, from companies looking for exposure to a new oil and gas province OR from companies looking to make their own discoveries.
IF Recon is successful, we think it should lift the read-through value of 88E’s Namibia ground.
At the moment Recon trades with a market cap of ~$326M - ~6x bigger than 88E’s market cap which is ~$58M.
BUT Recon has rallied in the past when drilling a well - back in 2021 it hit a market cap >$1BN.
During that period Recon rallied from a COVID low of ~CAD$0.30 to a share price >CAD$12.
So over the next few months, in Namibia we have two key catalysts to look forward to:
- 88E’s 2D seismic program - results expected in Q4.
- Recon Africa’s drill results - Recon to drill up to 4 wells, the first is currently underway. The first well is expected to take ~90 days to complete.
We put out a detailed note on 88E yesterday in anticipation of Recon’s drill program.
Check out that note here:
88E starts 2D seismic, neighbour $438M ReconAfrica's spud is any day now…
How today’s news relates to our 88E Investment Memo:
One of the key reasons we hold 88E in our portfolio is because of its proximity to ReconAfrica.
As a result, we are very interested to see if Recon’s drilling campaign can be successful:
88E is farming into an onshore Namibian asset next door to Recon
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.
Source: “Reasons We Invested” Section - 88E Investment Memo 20 May 2024
Another reason we hold 88E is because of the markets previous response to Recon’s drill program back in 2021:
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+.
Source: “Reasons We Invested” Section - 88E Investment Memo 20 May 2024
What’s next for 88E:
In the short term we want to see 88E achieve two of the key objectives we set for the company as part of our 88E Investment Memo:
Objective #1 of our 88E IM: Contingent resource estimates at Project Phoenix, USA
Milestones
🔲 Contingent resource estimate #1 (SFS Reservoir)
🔲 Contingent resource estimate #2 (SMD Reservoir)
Objective #2: Farm-out/development studies for Project Phoenix, USA
Milestones
🔲 Farm-out/JV MOU
🔲 Binding farm-out/JV deal
🔲 Capital light development studies
Objective #3 of our 88E IM: Farm-out Project Leonis, USA
Milestones
✅ Maiden prospective resource estimate
🔄 Farm-out/JV MOU
🔲 Binding farm-out/JV deal
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
