TIDM88E
RNS Number : 6060T
88 Energy Limited
21 July 2020
21 July 2020
88 Energy Limited
Quarterly Report
and Appendix 5B
Report on Activities for the Quarter ended 30 June 2020
The Directors of 88 Energy Limited ("88 Energy" or the
"Company", ASX & AIM:88E) provide the following report for the
quarter ended 30 June 2020.
Highlights
Project Icewine
-- The Charlie-1 exploration well confirmed a large condensate
discovery in the Torok formation, in both the Middle Stellar and
Lower Stellar targets;
-- Initial petrophysical interpretation indicated hydrocarbon
pay in both the Torok and Seabee formations, with additional
confirmatory work underway;
-- Post well analysis ongoing to confirm the composition and gas
to liquid ratio of the Torok discovery, with excellent Vertical
Seismic Profile data obtained from the well which will be used in
conjunction with other log data and the existing 3D seismic to
remap targets, and conduct other post well analysis;
-- Detailed logs and sidewall cores were also acquired in the
HRZ formation, which will now be analysed over the coming months;
and
-- The well was plugged and abandoned in April, with the cost of the well within budget.
Off-market Takeover Bid for XCD Energy Limited
-- 88 Energy announced its intention to make an off-market
takeover offer to acquire all of the fully paid ordinary shares and
listed options on issue in XCD Energy Limited on 27 April 2020,
with XCD Energy shareholders entering into pre-bid acceptance
agreements with 88 Energy in respect of 18.5% of shares on issue
and 6.8% of listed options on issue;
-- The Board of Directors of XCD Energy on 7 May unanimously
recommended that XCD Energy securityholders accept the improved
Offers from 88 Energy, in the absence of a superior proposal and
subject to the independent expert concluding that the offer is fair
and reasonable, or not fair but reasonable. 88 Energy and XCD
Energy also announced they had entered into a Bid Implementation
Agreement;
-- As at the end of the quarter with 88 Energy had a relevant
interest in 85.67% of XCD Energy's shares and 81.35% of XCD
Energy's listed options, with the Offer was extended to July
13th;
-- Subsequent to quarter end, 88 Energy announced it will
compulsorily acquire the remaining shares and listed options in XCD
having reached over 90% of acceptances in the Offers.
-- The merger creates an Alaska focused oil explorer with:
-- a diversified portfolio of 3 key project areas; Project
Icewine, Yukon Leases and Project Peregrine at various stages of
project maturity;
-- Board, management and technical team with a proven capability
and track record; and
-- Increased scale, market presence, funding capability and
share trading liquidity.
Yukon Acreage
-- Discussions continue with nearby resource owners to optimise
the monetisation strategy of the acreage, with permitting
continuing for future potential exploration drilling - subject to
farm-out.
Project Icewine
-- Project Icewine Conventional
Charlie-1 Exploration Well
88 Energy confirmed that the Charlie-1 appraisal well had proved
the presence of mobile hydrocarbons, in the form of condensate gas,
in the Torok Formation in both the Middle Stellar and Lower Stellar
targets. Hydrocarbons were successfully recovered to surface from
both targets using a state-of-the-art downhole sampling tool (Ora).
Further post-well analysis is being undertaken to confirm the
composition and gas to liquid ratio. Upper Stellar was not tested
due to the sub optimal location that it was intersected by the
well.
Initial petrophysical interpretation also indicated hydrocarbon
pay in the Seabee Formation and additional confirmatory analysis is
under way. An attempt was made to take a sample from the Lower Lima
target, being the better of the two Lima targets. This attempt was
unsuccessful due to insufficient reservoir quality; however, given
that these targets were not intersected optimally, there is good
potential for higher quality reservoir at a different location.
Excellent Vertical Seismic Profile ("VSP") data was obtained in the
well, which is being used in conjunction with other log data and
the existing 3D seismic, to remap these targets. Sidewall core
analysis will also assist with determining where improved reservoir
is likely to exist. Mud gas, observed while drilling, in the Seabee
indicated that the hydrocarbons at this horizon are heavier than
those in the Torok and this is the horizon where "live oil" was
observed across the shakers in the nearby Malguk-1 well.
Sampling was also completed in the Schrader Bluffs Formation
from the base of the Indigo target, which was found to be water
bearing. The Charlie prospect was found to be poorly developed and
was not sampled. Oil shows in this interval are likely to be
related to residual oil that is not trapped in the system.
Premier informed the Joint Venture during the quarter that it
will withdraw from the project, as the well did not meet their
pre-drill expectations.
The cost of the well remains within the expected budget and
Premier Oil is continuing to pay costs in relation to the drilling
operations and post well testing and site clean up.
The well was plugged and abandoned ("P&A") in line with
standard industry practice in April.
-- Deferral of Project Icewine Lease Rental Payments
On 4 May 2020, Alaska Department of Natural Resources ("DNR")
extended the time for Accumulate Energy Alaska, Inc to make
payments on annual oil and gas lease rentals due to the State of
Alaska in 2020. For oil and gas lease rentals due in June, July,
and September of 2020, a 6-month extension was given to make rental
payments due in these periods. For oil and gas lease rentals due in
October and November of 2020, a 3-month extension was given.
-- Project Icewine Unconventional
Detailed logs and sidewall cores were also acquired in the HRZ
formation, which will be analysed over the coming months.
The HRZ remains a viable target and options to commercialise
this potentially large resource continue to be pursued.
The Joint Venture plans to conduct a formal f arm-out process to
fund further appraisal .
Yukon Leases
Discussions continued during the quarter with nearby lease
owners to optimise the monetisation strategy for existing
discovered resources located in the vicinity of the Yukon Leases.
The Yukon Leases contain the 86 million barrel Cascade Prospect(*)
, which was intersected peripherally by Yukon Gold-1, drilled in
1994, and classified as an historic oil discovery. 88 Energy
recently acquired 3D seismic (2018) over Cascade and, on final
processing and interpretation, high-graded it from a lead to a
drillable prospect. The Yukon Leases are located adjacent to ANWR
and in close proximity to recently commissioned infrastructure.
Permitting continued ahead of a future possible drilling
campaign - subject to farm-out.
(*) Refer announcement 7 November 2018
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.
Western Blocks
The Western Block leases were relinquished in the quarter by the
Joint Venture.
Off-market Takeover Bid for XCD Energy Limited
On 27 April 2020 88 Energy announced its intention to make an
off-market takeover offer to acquire all of the fully paid ordinary
shares and listed options on issue in XCD Energy Limited, an oil
exploration company with operations on the North Slope of Alaska,
USA.
88 Energy had entered into pre-bid acceptance deeds with major
XCD Energy shareholders and listed option holders in respect of
18.5% of the XCD Energy shares and 6.8% of the XCD Energy listed
options on issue. Pursuant to these deeds, the Shareholders have
undertaken to accept the Proposed Offers, in the absence of a
superior proposal.
The transaction creates an Alaska-focused oil exploration and
appraisal company with a diversified portfolio of three highly
prospective project areas: Project Icewine, Yukon Leases and
Project Peregrine and provides an attractive investment proposition
for existing and new shareholders.
Key benefits of the transaction include:
o the creation of an established oil exploration and appraisal
company with an attractive and complementary portfolio of
exploration assets - at various stages of project maturity;
o enhanced strategic, commercial, technical and financial
strength to optimise funding of operations, including an increased
level of liquidity and exposure to a larger global investor base
giving greater financing flexibility;
o the ability to optimise operational activity across the
combined group's highly prospective exploration / appraisal
portfolio with potential synergies associated with future project
development and infrastructure requirements; and
o a strong board, management and technical team with a proven
track record for advancing projects and delivering on milestones,
including two 3D and one 2D seismic survey, drilling of four
exploration wells safely and on budget over a 5 year period as well
as execution of farm-in/farm-out transactions.
A map of the 88 Energy and XCD Energy assets is available at the
link below:
http://www.rns-pdf.londonstockexchange.com/rns/6060T_1-2020-7-21.pdf
On 7 May 2020, 88 Energy and XCD Energy Limited announced they
had agreed to merge and had entered into a Bid Implementation
Agreement, with the Board of Directors of XCD Energy unanimously
recommend to XCD Energy shareholders and listed optionholders that
they accept the Offers, in the absence of a superior proposal and
subject to the independent expert concluding that the offer is fair
and reasonable or not fair but reasonable.
The Offers are subject to only a limited number of conditions,
including a 90% minimum acceptance condition. The full list of
conditions to the Offers are set out in the announcement of 7 May
2020 in Schedule 2 of the BIA provided in Annexure A to the
announcement.
Further details regarding the Offers are contained in the
Bidder's Statement, which was announced and sent to XCD Energy
securityholders on 25 May 2020.
On 18 June 2020, 88 Energy announced that it has declared its
recommended off-market takeover offers for all of the ordinary
shares and listed options in XCD Energy free from all defeating
conditions, having reached a relevant interest in 59.27% of XCD
Energy's shares and 28.53% of XCD Energy's listed options on 17
June.
In addition, 88 Energy announced that XCD Energy shareholders
and listed option holders who validly accepted the Offers made to
them before they were declared unconditional will be issued their
consideration by 26 June 2020. Any XCD Energy shareholders and
listed option holders who are yet to validly accept the Offers made
to them will be issued with their 88 Energy shares and listed
options within 7 business days of their acceptance being
processed.
88 Energy also noted its Offers of:
-- 2.4 new 88 Energy shares for every 1 of your XCD Energy shares; and
-- 0.7 new 88 Energy shares for every 1 of your XCD Energy listed options,
are 88 Energy's BEST AND FINAL OFFERS which will not be
increased.
Further, 88 Energy stated in its announcement of 18 June that if
the Company acquires a relevant interest in XCD Energy of 90% or
more, 88 Energy intends to proceed with compulsory acquisition of
any outstanding XCD Energy shares and listed options under Part 6A
of the Corporations Act. If this occurs, XCD Energy security
holders who have their XCD Energy shares and listed options
acquired compulsorily will NOT be eligible for accelerated payment
terms.
Prior to quarter end, the Offers were extended to 13 July 2020,
and as at the end of the quarter with 88 Energy had a relevant
interest in 85.67% of XCD Energy's shares and 81.35% of XCD
Energy's listed options, with the Offer was extended to July
13th;
Subsequent to quarter end, on 9(th) July 88 Energy announced it
will compulsorily acquire the remaining shares and listed options
in XCD having reached over 90% of acceptances in the Offers.
Corporate
The ASX Appendix 5B attached to this report contains the
Company's cash flow statement for the quarter. The significant cash
flows for the period were:
-- Exploration and evaluation expenditure totalled A$20.1m gross
(Mar'20 Quarter A$15.1m), primarily associated with expenditure on
the Charlie-1 appraisal well;
-- Cash call proceeds received from Joint Venture partners in
the quarter totalled A$1.7m (Mar'20 Quarter A$21.9m);
-- Payments in relation to the debt facility interest totalled A$0.6m (US$0.4m);
-- Payments in relation to the XCD takeover totalled $0.16m; and
-- Administration and other operating costs, net of government
payments, totalled A$0.581m (Mar'20 Quarter A$0.620m).
At the end of the quarter, the Company had cash reserves of
A$6.840m, including cash balances held in Joint Venture bank
accounts relating to Joint Venture Partner contributions totalling
A$0.498m.
In light of the current low oil price environment and
uncertainties related to the COVID-19 pandemic, the Company has
implemented prudent cost cutting measures, including salary
reductions in the quarter.
Note, the reported cash flows do not include any amounts in
relation to XCD Energy Limited, which at 30 June 2020 88 Energy had
a 85.67% relevant interest. For details in relation to XCD Energy's
cash flows please refer to their Q2 2020 quarterly cash flow
statement and report. As at 30 June 2020 XCD had $0.434 million in
cash.
Information required by ASX Listing Rule 5.4.3:
Project Name Location Area (acres)
-------------- ------------
Interest Interest
at beginning at end of
of Quarter Quarter
----------------- ----------------------------- ------------- -------------- ------------
Project Icewine Onshore, North Slope Alaska 482,000 64% 64%
Yukon Gold Onshore, North Slope Alaska 15,235 100% 100%
Western Blocks Onshore, North Slope Alaska - 36% NIL
Onshore, North Slope Alaska
XCD Energy* (NPR-A) 195,373 NIL 85.67%
----------------- ----------------------------- ------------- -------------- ------------
* As at 30 June 2020, 88 Energy held a 85.67% relevant interest
in XCD Energy Limited, which through XCD's 100% owned subsidiaries
has a 100% working interest in 195,373 gross acres in Project
Peregrine on the North Slope of Alaska (NPR-A).
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 35
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 prospective resource 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.
Media and Investor Relations:
88 Energy Ltd
Dave Wall, Managing Director Tel: +61 8 9485 0990
Email: admin@88energy.com
Finlay Thomson, Investor Relations Tel: +44 7976 248471
Hartleys Ltd
Dale Bryan Tel: + 61 8 9268 2829
Cenkos Securities
Neil McDonald/Derrick Lee Tel: +44 131 220 6939
Appendix 5B
Mining exploration entity or oil and gas exploration entity
quarterly cash flow report
Name of entity
-----------------------------------------------------
88 Energy Limited
ABN Quarter ended ("current quarter")
--------------- ----------------------------------
80 072 964 179 30 June 2020
----------------------------------
Consolidated statement of cash Current quarter Year to date
flows ( 6 months)
$A'000 $A'000
1. Cash flows from operating
activities
1.1 Receipts from customers - -
1.2 Payments for
(a) exploration & evaluation
(if expensed) (88) (88)
(b) development - -
(c) production - -
(d) staff costs (336) (687)
(e) administration and corporate
costs (269) (538)
1.3 Dividends received (see note - -
3)
1.4 Interest received 1 2
Interest and other costs of
1.5 finance paid (582) (1,188)
1.6 Income taxes paid - -
Government grants and tax
1.7 incentives 24 24
1.8 Other (provide details if - -
material)
---------------- -------------
Net cash from / (used in)
1.9 operating activities (1,250) (2,475)
----------------- -------------------------------------------- ---------------- -------------
2. Cash flows from investing
activities
2.1 Payments to acquire:
(a) entities - -
(b) tenements (216) (260)
(c) property, plant and equipment - -
(d) exploration & evaluation
(if capitalised) (20,095) (35,207)
(e) investments - -
(f) other non-current assets - -
2.2 Proceeds from the disposal
of:
(a) entities - -
(b) tenements - -
(c) property, plant and equipment - -
(d) investments - -
(e) other non-current assets - -
2.3 Cash flows from loans to other - -
entities
2.4 Dividends received (see note - -
3)
2.5 Other - Joint Venture Contributions 1,722 23,666
* XCD Energy takeover costs (160) (160)
---------------- -------------
Net cash from / (used in)
2.6 investing activities (18,749) (11,961)
----------------- -------------------------------------------- ---------------- -------------
3. Cash flows from financing
activities
Proceeds from issues of equity
securities (excluding convertible
3.1 debt securities) - 5,000
3.2 Proceeds from issue of convertible - -
debt securities
3.3 Proceeds from exercise of - -
options
Transaction costs related
to issues of equity securities
3.4 or convertible debt securities - (362)
3.5 Proceeds from borrowings - -
3.6 Repayment of borrowings - -
3.7 Transaction costs related - -
to loans and borrowings
3.8 Dividends paid - -
3.9 Other (provide details if - -
material)
---------------- -------------
Net cash from / (used in)
3.10 financing activities - 4,638
----------------- -------------------------------------------- ---------------- -------------
4. Net increase / (decrease)
in cash and cash equivalents
for the period
Cash and cash equivalents
4.1 at beginning of period 28,114 15,903
Net cash from / (used in)
operating activities (item
4.2 1.9 above) (1,250) (2,475)
Net cash from / (used in)
investing activities (item
4.3 2.6 above) (18,749) (11,961)
Net cash from / (used in)
financing activities (item
4.4 3.10 above) - 4,638
Effect of movement in exchange
4.5 rates on cash held (1,275) 735
---------------- -------------
Cash and cash equivalents
4.6 at end of period* 6,840 6,840
----------------- -------------------------------------------- ---------------- -------------
*Note: Cash flows and closing cash balance does not containing
any balances associated with XCD Energy Limited bank accounts. At
30 June 2020, 88 Energy had a 85.67% relevant interest in XCD
Energy Limited shares.
5. 1.1 Reconciliation of cash Current quarter Previous quarter
and cash equivalents $A'000 $A'000
at the end of the quarter
(as shown in the consolidated
statement of cash flows) to
the related items in the accounts
5.1 Bank balances 6,840 28,114
5.2 Call deposits - -
5.3 Bank overdrafts - -
5.4 Other (provide details) - -
---------------- -----------------
Cash and cash equivalents
at end of quarter (should
5.5 equal item 4.6 above) 6,840 28,114
----------------- ----------------------------------- ---------------- -----------------
(a)
6. 1.2 Payments to related parties of the entity Current quarter
and their associates $A'000
Aggregate amount of payments to related
parties and their associates included in
6.1 item 1 12
----------------
6.2 Aggregate amount of payments to related -
parties and their associates included in
item 2
----------------
Note: if any amounts are shown in items 6.1 or 6.2, your quarterly
activity report must include a description of, and an explanation
for, such payments
-------------------------------------------------------------------------------------
6.1 Payments relate to Director and consulting fees paid to
Directors. All transactions involving directors and associates were
on normal commercial terms.
7. 1.3 Financing facilities Total facility Amount drawn
Note: the term "facility' amount at quarter at quarter end
includes all forms of financing end $US'000
arrangements available to $US'000
the entity. 1.4 Add notes
as necessary for an understanding
of the sources of finance
available to the entity.
7.1 Loan facilities 16,126 16,126
------------------- ----------------
7.2 Credit standby arrangements - -
------------------- ----------------
7.3 Other (please specify) - -
------------------- ----------------
7.4 Total financing facilities 16,126 16,126
------------------- ----------------
7.5 Unused financing facilities available at -
quarter end
----------------
7.6 Include in the box below a description of each facility
above, including the lender, interest rate, maturity date
and whether it is secured or unsecured. If any additional
financing facilities have been entered into or are proposed
to be entered into after quarter end, include a note providing
details of those facilities as well.
----------------- --------------------------------------------------------------------------
On the 23rd of March 2018, 88 Energy Lt's 100% controlled subsidiary
Accumulate Energy Alaska Inc entered into a US$ 16.5 million
debt refinancing agreement to replace the existing Bank of
America debt facility. The key terms to the facility are noted
in the ASX announcement released on 26th of March 2018. The
facility is secured by available Production Tax Credits.
8. 1.5 Estimated cash available for future $A'000
operating activities
Net cash from / (used in) operating activities
8.1 (Item 1.9) (1,250)
8.2 Capitalised exploration & evaluation (Item (20,095)
2.1(d))
8.3 Total relevant outgoings (Item 8.1 + Item (21,345)
8.2)
8.4 Cash and cash equivalents at quarter end 6,840
(Item 4.6)
8.5 Unused finance facilities available at quarter -
end (Item 7.5)
8.6 Total available funding (Item 8.4 + Item 6,840
8.5)
Estimated quarters of funding available
8.7 (Item 8.6 divided by Item 8.3) 0.3
----------------- -------------------------------------------------------------
8.8 If Item 8.7 is less than 2 quarters, please provide answers
to the following questions:
1. Does the entity expect that it will continue to have
the current level of net operating cash flows for the
time being and, if not, why not?
--------------------------------------------------------------------------
Answer: Item 8.2 noted above predominately relates to
costs associated with the Charlie-1 well. 88E anticipates
incurring net costs in Q3 2020 of A$0.35m in relation
to post well testing and site clean-up. The Joint Venture
partners have been cash called for their remaining share
of costs associated with the well. Taking into consideration
the above, as well as operating costs noted at item 1.9
the estimated quarters of funding available ratio would
be greater than 2.
--------------------------------------------------------------------------
2. Has the entity taken any steps, or does it propose
to take any steps, to raise further cash to fund its operations
and, if so, what are those steps and how likely does it
believe that they will be successful?
--------------------------------------------------------------------------
Answer: No, there is no requirement to raise further cash
based on the anticipated future expenditure as noted in
8.8 (1).
--------------------------------------------------------------------------
3. Does the entity expect to be able to continue its operations
and to meet its business objectives and, if so, on what
basis?
--------------------------------------------------------------------------
Answer: Yes, refer to response at 8.8 (1).
--------------------------------------------------------------------------
1.6 Compliance statement
1 This statement has been prepared in accordance with accounting
standards and policies which comply with Listing Rule 19.11A.
2 This statement gives a true and fair view of the matters disclosed.
Date: 21 July 2020
Authorised by: By the board
(Name of body or officer authorising release - see note 4)
1.7 Notes
1. This quarterly cash flow report and the accompanying activity
report provide a basis for informing the market about the entity's
activities for the past quarter, how they have been financed and
the effect this has had on its cash position. An entity that wishes
to disclose additional information over and above the minimum
required under the Listing Rules is encouraged to do so.
2. If this quarterly cash flow report has been prepared in
accordance with Australian Accounting Standards, the definitions
in, and provisions of, AASB 6: Exploration for and Evaluation of
Mineral Resources and AASB 107: Statement of Cash Flows apply to
this report. If this quarterly cash flow report has been prepared
in accordance with other accounting standards agreed by ASX
pursuant to Listing Rule 19.11A, the corresponding equivalent
standards apply to this report.
3. Dividends received may be classified either as cash flows
from operating activities or cash flows from investing activities,
depending on the accounting policy of the entity.
4. If this report has been authorised for release to the market
by your board of directors, you can insert here: "By the board". If
it has been authorised for release to the market by a committee of
your board of directors, you can insert here: "By the [name of
board committee - eg Audit and Risk Committee]". If it has been
authorised for release to the market by a disclosure committee, you
can insert here: "By the Disclosure Committee".
5. If this report has been authorised for release to the market
by your board of directors and you wish to hold yourself out as
complying with recommendation 4.2 of the ASX Corporate Governance
Council's Corporate Governance Principles and Recommendations, the
board should have received a declaration from its CEO and CFO that,
in their opinion, the financial records of the entity have been
properly maintained, that this report complies with the appropriate
accounting standards and gives a true and fair view of the cash
flows of the entity, and that their opinion has been formed on the
basis of a sound system of risk management and internal control
which is operating effectively.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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