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88 Energy Ltd: THE INVESTMENT CASE

88 Energy investors need to stay patient as Alaska operations go into hibernation

The programme won't resume until April or May 2018.
onshore drilling operation
INVESTMENT OVERVIEW: 88E The Big Picture
88 Energy released a quarterly update on Tuesday

88 Energy Ltd (LON:88E, ASX:88E) needs investors to be patient as it waits to get back to business at Project Icewine in Alaska.

The explorer last month announced it was shutting in the Icewine-2 well for the winter with a new programme slated to start again in April or May 2018.

READ: 88 Energy highlights “significant pressure build-up” in Icewine well

Tuesday’s quarterly activities report reflects the status-quo as Project Icewine essentially goes into winter hibernation but 88 Energy did give investors a couple of lines of encouraging (albeit unquantified) news regarding the Icewine-2 well.

It said that there has been significant pressure build up in the Icewine-2 well since the flow testing programme was suspended on September 18.

The company added that the rise is consistent with interpreted overpressure in the HRZ shale.

Recapping its operations the company highlighted its operations over the quarter, ended September 30, which had included the Icewine-2 flowback efforts. Across two testing periods the company recovered a total of 5,533 barrels or 19.9% of the fluid injected into the well during the fracking of the HRZ shale.

Icewine-2 on hold

In September, 88 Energy shares dropped around 40% after it announced the shut-in the Icewine-2 well for the winter, anticipating a new programme starting in April or May 2018.

READ: 88 Energy shuts down Icewine-2 programme for Alaskan winter

According to the company, the decision to hibernate the programme was based on logistical reasons associated with testing in Arctic conditions – namely the freezing of borehole fluid (predominantly fresh water from the frack) due to the low rate of fluid flow.

88 Energy’s next move will be to use artificial lift with a view to improving flows from the well, though it noted that winterised equipment suitable for executing such a programme isn’t presently available.

Consequently, it plans to carry out this work in the spring once weather conditions are more favourable.

“Whilst it is frustrating to have to wait over the winter season for the continued flow test of the HRZ, there are several encouraging signs observed from this most recent phase of testing,” managing director Dave Wall said last month.

Remaining open minded

“Given the early stage nature of our appraisal program, we need to have patience and remain open minded as there is no benchmark against which to track the progress of this particular unconventional play.”

At the same time the company highlighted what it described as positive trends in the testing.

The company said there were increasing levels of ‘heavy components’ in the flow, compared to the preceding project update. It noted a decrease in C1 components and an increase in C2 components, which it suggested may potentially represent a trending towards an interpreted phase of hydrocarbon in the reservoir.

Additionally, the company highlighted an increase in the gas-to-water ratio, with the water rate decreasing over time and the gas rate remaining relatively constant. That said, the company still interprets that additional fluid is required to be lifted off the formation before effective connectivity to the reservoir can be achieved with representative flowback.

88 Energy also noted its “strong position” in relation to its debt. It highlighted that the current Bank of America debt balance is US$17.7mln and it anticipates that it will be due US$23mln of cash credits from the State of Alaska.



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