88 Energy ends March quarter in ‘solid financial position’

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[source: 88 Energy]

In an update for the quarter to March 31, 2022 (1Q22), 88 Energy (88E TO FOLLOW ) announced its first cash inflows from the Longhorn Project of A$0.6 million net of OPEX/CAPEX and successfully drilled to a depth of 7,334 feet at the Merlin-2 appraisal well in Alaska.

Longhorn Project

Meanwhile, the company said its conventional oil and gas producing assets at the recently acquired Longhorn Project in the battered Permian Basin have performed well to date.

88E signed a binding equity purchase agreement (SPA) to acquire an average net equity interest of approximately 73% in the Longhorn project in February 2022. The purchase price for the acquisition was $9.7 million , consisting of $7.2 million in cash and $2.5 million in 88 Energy shares. .

The acquisition represented 88 Energy’s first step into producing oil and gas assets and is part of its strategy to build a successful oil and gas exploration and production company.

As part of the acquisition, 88 Energy agreed to a low-cost works program for FY22. These initiatives are expected to approximately double production rates by the end of the year.

The acquisition of his working interest generated an immediate cash flow of 88E, as well as additional low-cost capital development, providing “attractive” economic forecasts. The project’s first cash receipts received last month included a payment of around A$0.6 million.

The project remains on track to complete all seven targeted investment development activities this year, which is expected to approximately double current production rates by the end of FY22.

Peregrine Project (100%)

The Alaska-focused explorer drilled the Merlin-2 appraisal well, which is at the Peregrine Project in the NPR-A region of Alaska’s North Slope, on Tuesday, March 8, 2022.

The Arctic Fox rig had exceeded expectations for drilling performance, with the well hitting TD safely and efficiently. All three Nanushuk targets (N20, N19 and N18) were penetrated during drilling, with high mud gas readings and oil showings noted in the cuttings.

Merlin-2 was largely consistent with the Merlin-1 well drilled in 2021, showing strong fluorescence, oil sheen, petroleum odor and cut noted in drill cuttings, elevated C2 mud gas readings -C5 on target areas with total gas significantly higher than bottom gas readings and evidence from Mobile Hydrocarbon Reservoir Sampling Tool

The decision to cap the well and begin demobilization of the Merlin-2 site was made just before the end of the quarter. 88 Energy will now undertake a detailed analysis of all data obtained and assess potential future assessment activities within the Peregrine acreage.

Icewine Project

During 1Q22, 88 Energy entered into discussions regarding a possible divestiture of the Icewine Project acreage. Currently, the company says due diligence activities and negotiations are progressing with a third party, including the terms and structure of the related work program.

He said the initial selection economics of the Umiat oilfield, which 88E acquired in 1Q21, suggests that this development option adds value to a future Umiat development, given the high cost of diesel ( currently ~6-7 USD/gal) on the North. Slope of Alaska.

Positive market momentum

88 Energy said it was also benefiting from recent increases in oil prices, which have bolstered cash returns from high-margin oil production within this portfolio.

During 1Q22, 88 Energy entered into discussions regarding a possible divestiture of the Icewine Project acreage. Currently, the company says due diligence activities and negotiations are progressing with a third party, including the terms and structure of the related work program.

The company says initial economic analysis of the Umiat oilfield, which 88E acquired in 1Q21, suggests that this development option adds value to a future Umiat development, given the high cost of diesel (currently ~6-7 USD/gal) on the North Slope of Alaska.

View of VOX

1Q22 financial review

From a cash flow analysis perspective, we can see cash outflow from operations of A$1.7m, which is broadly flat from 1Q21 of A$1.5m ( see figure 1). However, investment in production and development assets during the period increased to A$27 million (1Q21: A$11.2 million), primarily related to exploration and development expenditure. valuation of A$16.4 million and primarily associated with the Company’s Merlin-2 drilling operational activities at the project. Pilgrim in Alaska.

To maintain its strong balance sheet, 88E has raised A$32.1 million, which together with existing cash reserves will be used to fund the evaluation and drilling activities of the Merlin-2 well, including cost overruns as well as new ventures, portfolio expansion opportunities, and jobs. Capital city.

Other significant cash outflows included 88E’s investment in Longhorn of A$10.7 million, rent of A$0.8 million and administration, personnel and other costs of A$1.7 million. Australian dollars. As of March 31, 2022, 88 Energy therefore holds A$32.6 million in cash and remains debt free.

Figure 1 – Consolidated Statements of Cash Flows
Net increase / (decrease) in cash and cash equivalents for the period 1Q22 YTD
Cash and cash equivalents at the beginning of the period 32,317 32,317
Net cash from/(used in) operating activities (1,727) (1,727)
Net cash from/(used in) operating activities (27,374) (27,374)
Net cash from / (used in) financing activities 30,001 30,001
FX effect (586) (586)
Cash and cash equivalents at the end of the period 32,631 32,631

Shares of 88 Energy fell in late March 2022 after a wireline logging program at the company’s Merlin-2 well demonstrated target areas had lower porosity/permeability than expected, making it difficult to obtain significant fluid samples.

Commenting at the time of the wired program, 88E Managing Director Ashley Gilbert told investors: “We are aware that this result will be disappointing news for shareholders, as we were again unable to obtain a surface fluid sample or perform a flow test.

He further commented: “However, we will now take the time necessary to fully analyze the data from the Merlin-2 well. This will provide a basis upon which the Company can provide further updates on the potential future assessment program for the Peregrine Project acreage.”

Since then, 88 Energy has told investors it remains in “a solid financial situation”, with zero debt and a healthy cash balance which should be further strengthened with the projected cash flows from the Longhorn production assets in Texas. This program should generate significant cash flow as well as additional direct exposure to high energy prices.

88 Energy Managing Director and CEO Ashley Gilbert added: “We are also very encouraged by the Operator’s successful delivery of the first planned work-over, as well as the continued progress of the agreed capital development program for 2022.”

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