88 Energy Limited (LON:88E) shares leapt higher on Monday after the explorer struck a deal which it said gives it access to one of the “most prospective oil plays” in the world.
88, along with its partners, Otto Energy and Red Emperor Limited (LON:RMP), has acquired the majority of Great Bear Petroleum Ventures’ working interest in four leases on the North Slope of Alaska which make up the Western Blocks.
The leases are immediately adjacent to the Horseshoe #1/1A well, which discovered oil last year.
88, which already has a substantial position in Alaska with the Icewine project, said the group is targeting a 400mln barrel prospect to be drilled in the first quarter of 2019.
"The Western Blocks transaction represents a significant opportunity for 88E shareholders to gain exposure to one of the most prospective oil plays available globally, complementing our existing conventional portfolio on the North Slope,” said managing director Dave Wall.
“Preparations for drilling are now underway and commencement of drilling of the exploration well is scheduled in less than nine months.”
In order to meet the requirements of the leases, 88 and its partners will have to provide a US$3mln performance bond to the stake of Alaska by the end of July and drill an exploration well before 31 May 2019.
Costs funded through existing cash
Once the deal goes through, 88 Energy will hold a 36% stake in the four leases, while Otto will hold 22.5%, Red Emperor 31.5% and Great Bear 10%.
As well as its 10% free carried interest, Great Bear will also receive US$500,000 once certain conditions are met as well as another US$500,000 once the final permits to drill the initial test are received (no later than 31 December 2018).
Great Bear will also have the option to acquire a further 10% working interest in the leases prior to the spud of the initial test well.
88 will fund its portion of the costs of the leases – estimated at around US$6.4mln – from its existing cash position.
In mid-morning trading, 88 Energy shares were 17.7% higher at 1.8p.
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