REG - 88 Energy Limited - Farm-out for Project Phoenix Horizontal Test Well

88 EnergyAnnouncement

17/02/2025 07:00

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RNS Number : 3282X  88 Energy Limited  17 February 2025

This announcement contains inside information

 

88 Energy Limited

Farm-out Agreed for Project Phoenix Horizontal Test Well

88 Energy Limited (ASX:88E, AIM:88E, OTC:EEENF) (88 Energy or the Company) is
pleased to announce that it has entered into binding terms for a Farmout
Participation Agreement (PA) with  Burgundy Xploration LLC (Burgundy) in
relation to Project Phoenix, located on the North Slope of Alaska. Under the
agreement, 88 Energy's wholly owned subsidiary, Accumulate Energy Alaska, Inc.
(Accumulate), will be provided with a full carry for all costs associated with
the upcoming horizontal well programme, including an extended flow test
currently scheduled for H1 CY26. 1  (#_ftn1)

Transaction Highlights

·    Burgundy to fully fund up to US$39 million (approx. A$60 million) of
Project Phoenix's total gross future work programme costs in exchange for up
to an additional 50% Working Interest (WI) in Project Phoenix from 88 Energy.

·    Provides a clear funding avenue to advance Project Phoenix towards a
final development decision via a two-phase farm-in arrangement.

·    Phase 1: Burgundy to fund US$29 million (approx. A$45 million) for
CY25/26 work programme, including drilling of a horizontal well and production
testing scheduled for H1 CY26 (88E fully carried, 88E WI post Phase 1 farmout
35%)

·    Phase 2: Upon Phase 1 Success; Burgundy to fund up to US$10 million
(approx. A$15 million) for an additional well or other CAPEX programme (88E
carry up to US$7.5 million, based on the current 75%, with 88E WI post Phase 2
farmout to 25%).

·    Upon completion of the PA, Burgundy will assume the role of operator,
allowing 88 Energy to focus on the advancement and de-risking of Project
Leonis.

·    The PA remains subject to conditions precedent customary for
transactions of this nature, including Burgundy securing necessary capital
during CY25.

Managing Director, Ashley Gilbert, commented:

"We are delighted to announce that we have reached a mutually beneficial
agreement with our long-term joint venture partner, Burgundy, to advance
Project Phoenix towards future production. Burgundy's commitment to the
project recognises 88 Energy's accomplishments since 2022 and value added to
the acreage during this time, as well as validation of the broader region and
the opportunity presented on the Alaskan North Slope.

Today's announcement crystalises a funding pathway for the asset, enabling
critical production testing at the Hickory-1 multi reservoir discovery - a key
step in proving the project's economics and potential future commerciality. To
have achieved a work-programme carry in just two years of exploration and
advancement since the drilling of Hickory-1, underscores the implied value of
the asset and serves as a blueprint for our strategy moving forward. We look
forward to our continued work with Burgundy as they progress towards assuming
operatorship of the project ahead of the scheduled CY26 drilling programme."

Detailed Transaction Terms:

The Farmout Participation Agreement (PA) is structured in two phases, under
which Burgundy will provide a full financial carry for 88 Energy's share of
costs for the CY25-27 work programme at Project Phoenix, funding up to US$29.5
million (approx. A$45 million) of 88 Energy's future share costs to earn up to
an additional 50% working interest (WI).

Phase 1:

·    Burgundy to provide a carry of ~US$22 million (approx. A$33 million)
of 88 Energy's share (based on current WI of ~75%) of the budgeted CY25/26
work programme (gross cost of US$29 million).

·    The Phase 1 programme includes lease costs, drilling a horizontal
well, and completing an extended flow test from the existing Franklin Bluffs
gravel pad.

·    In return, Burgundy will initially earn an approximately 39.3% WI in
Project Phoenix.

·    Upon completion of Phase 1, Burgundy's WI will increase to 65% (from
25%), while 88 Energy's WI will decrease to 35% (from 75%).

Phase 2 (Contingent of Phase 1 Results):

·    Burgundy will provide an additional financial carry to 88 Energy of
up to US$7.5 million (approx. A$11.6 million, based on 88E's 75% WI) to fund
the costs associated with drilling an additional well or an alternative
capital programme.

·    In return, Burgundy may earn an additional 10% WI, increasing its
total ownership to 75%, while 88 Energy's WI could decrease to 25%.

·    88 Energy retains the option to reduce the carry by US$3.75 million,
limiting the WI earn-in to 5%, allowing 88 Energy to retain a 30% WI in
Project Phoenix.

Conditions and Approvals:

·    The PA is subject to relevant government and other approvals, as well
as customary conditions precent for farm-out transactions.

·    The PA including a long-stop date of 31 December 2025 for Burgundy to
secure Phase 1 funding, unless extended by mutual consent.

·    88 Energy and Burgundy have agreed on a payment arrangement for the
remaining balance of outstanding cash calls, with Burgundy initiating a US$1
million payment prior to signing the PA and the residual balance, which
includes interest and fees, to be settled in conjunction with Burgundy's
funding activities.

 

 1  Burgundy's ability to provide a full carry to 88 Energy is contingent on
Burgundy successfully completing their fund-raising program  during CY25.

 

Strategic Impact:

The PA marks a key milestone for 88 Energy, aligning with its strategic
objectives by financially de-risking Project Phoenix while delivering
significant value for shareholders. This achievement has been realised in just
two years since the Company focused on the SMD, SFS and BFF multi-reservoir
opportunity in mid-CY22.

The agreed terms result in a transaction value that represent an ~50% uplift
of invested capital on 88 Energy's share of Project Phoenix since mid-CY22.
 

Upon completion of the PA, Burgundy will assume the role of operator, allowing
88 Energy to fully focus on the advancement and de-risking of Project Leonis.

 

 

 

Figure 1: Project Phoenix continues to advance, with the PA representing a
further key milestone achieved.

 

 

About Burgundy:

Burgundy Xploration LLC is a Texas-based private oil and gas company backed by
sophisticated energy investors. The company has already invested over US$26
million in Project Phoenix. Burgundy is currently securing funding to cover
residual balance of outstanding cash calls due to 88 Energy and to commence
procurement of long lead items for the planned CY26 horizontal drilling and
production test programme. The company has also expanded its Board and
Management team, bringing in highly experienced international oil and gas
professionals.

 

Project Phoenix: Forward Work-Program:

88 Energy will commence working with Burgundy on planning and permitting for
the horizontal test well and flow back operation scheduled for mid-CY26. In
parallel, the 88 Energy will work to ensure a smooth transition of
operatorship and securing the necessary approvals associated with the PA.

Experienced Alaskan service provider, Fairweather LLC has been retained to
manage project planning, permitting and operational support to ensure that
well objectives are met. Additionally, recent work completed by ResFrac will
be incorporated into the planning for the stimulation and flowback programme
of the planned horizontal well.

Key Details of the Planned Horizontal Well and Flowback Operation:

·   Location: Franklin Bluffs gravel pad

·   Planned Zone for Flow Test: SMD-B.

·   Lateral Length: ~ 3,500 ft

·   Operational Test Duration: ~ 90 days

·   Planned Spud Date: Mid-2026

 

 

Table 1: Indicative Project Phoenix Timeline

 Project Phoenix
 Indicative Project Phoenix timeline(1)                                    H1-24     H2-24     H1-25     H2-25     H1-26     H2-26
 Successful Hickory-1 flow test flows light crude oil to surface           P
 Post-well analysis and updated Contingent Resource Estimate                         P
 Targeted farmout to de-risk and provide pathway to production test                  P
 Planning/permitting/design for horizontal production test 2  (#_ftn2)               n         n         n         n
 Extended horizontal production test(1)                                                                            n         n

 

 

Figure 2:Project Phoenix oil flowed to surface during Hickory-1 flow testing
operations Q1 2024.

 

1This timeline is indicative and subject to change. The Company reserves the
right to alter this timetable at any time.

(2) Horizontal production test subject to farm-out/funding as well as
government and other approvals.

 

 

About Project Phoenix (~74.3% WI) and the Hickory-1 Discovery Well

The Hickory-1 discovery well was drilled in February 2023 and flow tested
during the Alaskan winter season in Q1/Q2 CY24. Testing focused on the two
shallower primary targets, the Upper SFS (USFS) reservoir, previously
untested, and the SMD-B (SMD) reservoir. Each zone was independently isolated,
stimulated, and flowed oil to the surface either naturally or using nitrogen
lift to facilitate efficient well clean-up. On the 18th of September, a
contingent resource for the SMD-B, Upper SFS and Lower SFS reservoirs was
issued by ERCE. This contingent resource is now added to the pre-existing
contingent resource in the BFF reservoir, issued by NSAI in 2023. The total
net 2C contingent resource at Project Phoenix is 239 MMBOE.

Figure 3: Alaska, North Slope, highlighting Project Phoenix and the location
of the Hickory-1 discovery well.

 

 

 

 

Figure 4: Project Phoenix 88 Energy Net Entitlement 2U Contingent Resources
with untested 2U Prospective Resource upside.

 

 

 

Table 2: Project Phoenix net entitlement to 88 Energy (63.3%) Contingent
Resources estimates by NSAI and ERCE

 Project Phoenix               NET (~63.3%) Contingent Resources (4,6)
 Reservoir  Auditor    UoM     Low (1C)        Best (2C)       High (3C)
 SMD-B      ERCE(1,3)  MMBOE   7               24              79
 Upper SFS  ERCE(1,3)  MMBOE   6               21              72
 Lower SFS  ERCE(1,3)  MMBOE   8               35              123
 BFF        NSAI(2,5)  MMBOE   62              158             367
 Total(7)                      83              239             640

 

 

Notes to table 2:

1.   ERCE: ERCE Australia Pty Ltd

2.   NSAI: Netherland, Sewell & Associates Inc.

3.   Refer to page 6, Appendix 2 and disclaimers for further details.

4.   Million Barrels of Oil Equivalent (MMBOE) of estimate contingent
resource. NGLs are converted to oil equivalent volumes on a constant ratio
basis of 1:1. Gas is converted to oil equivalent volumes on a constant ratio
basis of 5.5 BCF per 1 MMBOE.

5.   Please refer to page 7 and ASX announcement dated 6 November 2023 for
further details in relation to the BFF Contingent Resource estimate. Note the
Basin Floor Fan (BFF) reservoir was drilled and tested on adjacent acreage by
Pantheon Resources

6.   88 Energy net resource entitlement of ~63.3% has been calculated using
an average 74.3% working interest net of a 12.5% government royalty and a 4%
Overriding Royalty on 18 leases.

7.   Totals by reservoir rounded and project total may not sum due to
rounding.

 

 

 

Cautionary Statement: The estimated quantities of petroleum that may be
potentially recovered by the application of a future development project
relate to undiscovered accumulations. These estimates have both an associated
risk of discovery and a risk of development. Further exploration, appraisal
and evaluation are required to determine the existence of a significant
quantity of potentially movable hydrocarbons.

 

 

 

 

Figure 5: Project Phoenix multi-reservoir discoveries with significant light
oil resource confirmed.

 

 

This announcement has been authorised by the Board.

Media and Investor Relations:

 

88 Energy Ltd

Ashley Gilbert, Managing Director

Tel: +61 8 9485 0990

Email:investor-relations@88energy.com

 

Fivemark Partners, Investor and Media
Relations

Michael
Vaughan
Tel: +61 422 602 720

 

EurozHartleys Ltd

Dale
Bryan
Tel: + 61 8 9268 2829

 

Cavendish Capital Markets
Limited

Derrick Lee / Pearl
Kellie
Tel: + 44 131 220 6939

 

 

Pursuant to the requirements of the ASX Listing Rules Chapter 5 and the AIM
Rules for Companies, the technical information and resource reporting
contained in this announcement was prepared by, or under the supervision of,
Dr Stephen Staley, who is a Non-Executive Director of the Company. Dr Staley
has more than 40 years' experience in the petroleum industry, is a Fellow of
the Geological Society of London, and a qualified Geologist/Geophysicist who
has sufficient experience that is relevant to the style and nature of the oil
prospects under consideration and to the activities discussed in this
document. Dr Staley has reviewed the information and supporting documentation
referred to in this announcement and considers the resource and reserve
estimates to be fairly represented and consents to its release in the form and
context in which it appears. His academic qualifications and industry
memberships appear on the Company's website and both comply with the criteria
for "Competence" under clause 3.1 of the Valmin Code 2015. Terminology and
standards adopted by the Society of Petroleum Engineers"Petroleum Resources
Management System" have been applied in producing this document.

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