Texas Oil and Gas production assets update

Yesterday, our oil and gas investment 88 Energy (ASX:88E) put out an update on its newly acquired production assets in the Permian Basin, Texas, USA.

88E holds a ~73% non operated interest in the project meaning that the JV partner who owns the remaining ~27% of the project handles all of the operations, 88E only shares in the financial commitments for the project as well as the rewards.

In today’s announcement, 88E confirmed that the project is producing at ~300 barrels of oil equivalent per day (net to 88E), a ~30% increase in production since 88E first announced the acquisition.

At 300 barrels of oil equivalent per day (net to 88E) at the current oil price of US$95/barrel, that means ~US$28,500 in revenue per day or ~US$10.4M in revenues/year.

Given that the total cost to acquire the project was ~US$9.7M, the increased production rates will mean 88E’s payback period is improved. A first sign of this was the AU$600k in net cash received from the projects during March which is a relatively good return for less then a few months of ownership.

88E also hinted at seven capital development activities for 2022 which it expects could lead to a doubling in the current production rates by the end of CY2022.

The positive for 88E from its ownership of this project is that whilst the company is in between different exploration programs the cash flow producing assets can help to decrease cash burn in the interim periods.

We are still waiting on 88E to detail its forward plan with respect to its exploration projects. Just like we saw last year, we want to see all of the analysis and data interpretation works from the Merlin-2 appraisal well.

Once we have the final results and management interpretations from the Merlin-2 appraisal well, we will look to put together our revised Investment Memo.