88 Energy Ltd (ASX:88E; AIM:88E) this week executed its drilling contract to drill the Merlin-1 and Harrier-1 wells for Project Peregrine on the North Slope of Alaska.

In fact, the Alaska North Slope is home to the US’s largest two oil fields and it hosts some of the world’s largest discoveries over recent years, featuring both onshore and conventional (not shale) with enormous potential.

With excellent infrastructure and low royalty rates it is a good place to do business.

Project Peregrine has a 1.6 billion barrel mean unrisked recoverable prospective resource, located on trend to recent discoveries, including one by oil super major ConocoPhillips (NYSE: COP).

The project has multiple compelling targets, that are shallow to drill test – which means relatively low cost drilling.

An independent resource assessment arrived at an unrisked prospective oil resource of over 1.6 billion barrels at Project Peregrine, across three prospects, two in the Nanushuk formation (Merlin and Harrier), with a Harrier Deep prospect located in the deeper Torok formation.

Recent further seismic analysis increased the company’s confidence at the Project, which identified several similarities between 88E’s Merlin and Harrier prospects and existing discovered oil fields nearby.

Merlin-1 drilling is imminent

88E is on track for its scheduled spud date of the Merlin-1 well February 2021, which is planned to be drilled to a total depth of 6,000 ft, and aims to intersect the shallower Nanushuk topset horizons listed above.

88E recently confirmed a farm out partner who will contribute US$11.3M toward the cost of the Merlin-1 well, and earn 50% of the Project. The estimated gross cost is US$12.6M.

88E’s farm-out partner is the Alaska Peregrine Development Corporation LLC (APDC), a high calibre group of private US individuals that have experience in oil and gas, including owning businesses that directly operate in the sector.

88E only needs to contribute US$1.3M, representing its 50% ownership share over and above a US$10M carry. All additional costs associated with the project above the US$10M carry will be borne equally by both and 88E.

This is a good deal for a small cap oil explorer like 88E, as it allows the company to retain 50% of the upside of drilling success, without having to outlay a large sum for drilling. It is close to a 2 for 1 deal for 88E investors and effectively gives 88E a low cost shot at a potentially large oil discovery early next year.

88 Energy has executed a rig contract with All American Oilfield, LLC for the use of Rig 111 to drill the Merlin-1 and Harrier-1 wells at its Project Peregrine in the NPR-A region of the North Slope of Alaska.

Managing director Dave Wall said of the spud, “The farm-out was finalised late last week and now the rig contract is executed.

“Drilling at Project Peregrine is moving ahead as planned and we are only three months away from spud on what will be a potentially company-making prospect for our shareholders.”

Pantheon’s spud could propel 88E forward

88E operates the majority of the vast 475,000 acre Project Icewine, targeting oil on the world class North Slope of Alaska. The company’s goal is to build a successful exploration and production company that delivers material benefits to its shareholders and contributes to the development of the regions in which it works.

Within the region is the £211 million (AU$380) Pantheon Resources (AIM: PANR), which will spud its Talitha-A well, located close to the northern border of the 88E central acreage position, in January.

Several of the prospective horizons in Talitha-A are interpreted to extend into 88E acreage as indicated below.

As Pantheon’s drilling is ahead of the Merlin-1 spud, 88 Energy’s share price could receive some support for 88E, increasing the perceived value of Project Icewine’s real estate.

Support for 88E is already strong

88E has found strong support in the December quarter, with liquidity in the stock building as interest in its drilling plans grows.

The company was trading between A$0.005 and A$0.006 in late September, and since then has raised A$10M at A$0.006 per share.

The stock has traded as high as A$0.009 in late November.

News of the spud and farm-out should provide further momentum with significant near-term catalysts in the lead up to the spudding of the Merlin-1 well. A significant oil discovery would drive a substantial rerating of 88E.

Southern Africa is facing an energy crisis.

Rolling power outages and blackouts throughout the day caused by electricity shortages are hampering both industry and investment.

This is not short term issue either. The ways things are going, by 2030 some 530 million Africans will still lack adequate power supply.

The combination of large population growth and very little new investment in traditional coal fired power generation has heightened the situation.

Driven by ESG concerns from both government and financiers there’s been a move away from coal fired power. Now with the region’s coal fired generators at the end of their lives — being 40, 50 or even 60 years old — they are not being replaced.

That means more than 10,000 MW, or 20% of the power supply will be lost in next few years.

The region does have a budding renewables sector, yet it is underdeveloped and often affected by drought.

So while working towards more sustainable power sources, the pressure is on to find a solution to the growing regional power shortages.

For now, the supply gap is being at least partially filled in the short to medium term by expensive diesel fired power generation. However, all signs point to Gas to Power being a more permanent solution to Southern Africa’s energy woes.

ASX-listed Invictus Energy (ASX: IVZ) has a project that could hold the answer to Southern Africa’s energy issues.

The company’s Cabora Bassa Project in northern Zimbabwe comprises a massive nine trillion cubic feet of gas (Total Prospective Resource of 9.25 Tcf, plus 294 million barrels of conventional gas / condensate),and sits in close proximity to the underserved Southern African energy market.

 

It’s early days for Invictus Energy, and the company has not yet undertaken exploration drilling on its acreage, however what it does know at this stage is that its project contains potentially the largest, seismically defined, undrilled structure onshore Africa.

Here, and elsewhere around the world, gas is becoming an increasingly important supply of reliable and clean energy.

EY, in its report “Natural gas in Africa, The frontiers of the Golden Age”, speculate that the “world may be poised at the beginning of the Golden Age of Gas”, as natural gas is the only fossil fuel whose share of the global energy mix is expected to grow, driven by developments on both the demand and the supply side.

While the industry is still in its early stages, small scale LNG is being trucked to mining operations, displacing diesel at ~40% of the cost.

Also convenient is that a number of large smelters and refiners in Zimbabwe, Zambia and South Africa are equipped to switch from coal to natural gas.

All in all, Gas to Power is a very elegant solution and is increasingly important to the regional power needs in this part of the world.

Yet, current gas supplies are nowhere near enough to even meet current regional power demand.

In South Africa alone, independent studies estimate that by 2030 the country will face a daily gas shortfall of around 1 billion cubic feet — the size of Australia’s entire East Coast gas market.

Yet despite the current supply limitations, extensive infrastructure is in place to support the regional gas industry.

The Southern Africa power pool (SAPP) — a cooperation of the national electricity companies in Southern Africa — is a common power grid between countries and a common market for electricity in the region.

The SAPP connects the electricity grid from Cape Town all the way through to the DRC. Energy producers located anywhere along that line can export electricity to any country within that region. It operates as a virtual pipeline, exporting molecules by generating electricity with no need to pipe the gas directly to site in South Africa, Zambia, or Botswana.

The spine of that grid runs right through Zimbabwe — home Invictus’ underexplored gas project of elephant scale potential.

Located in northern Zimbabwe, IVZ’s project sits within the Cabora Bassa Basin which has all the ingredients of a working petroleum system and comes with a robust dataset.

Here, Invictus Energy is progressing what looks to be the largest undrilled seismically defined structure onshore Africa.

Representing one of the largest conventional exploration targets globally, the project’s Mzarabani Prospect is estimated to contain 8.2 Tcf + 250 million barrels of conventional gas / condensate (gross mean unrisked) across five horizons.

The project’s second prospect, the Msasa Prospect, also has elephant scale potential — estimated to contain 1.05 Tcf + 44 million barrels of conventional gas / condensate (gross mean unrisked) across three horizons.

Invictus is now in active discussions with multiple parties regarding the farmout of the Cabora Bassa Project.

Zimbabwe’s past exploration  

Back in the early 90s, Mobil was exploring for oil in Zimbabwe when it came across large resources in the Cabora Bassa Basin.

The petroleum giant explored over an area extending all the way from Victorian Falls in the west of the country through to the Cabora Bassa Basin in the east. It identified and mapped the massive Mzarabani anticline in Africa, which has an area of more than 200 square kilometres, under closure, at favourable depths to host a conventional gas target.

Eventually, Mobil concluded that the petroleum system was more likely to be gas prone rather than oil prone.

This is not the result that Mobil was after — there was no structured market for gas in the region at the time.

Highlighting this fact was the Pande and Temane gas fields onshore Mozambique of four to five trillion cubic feet. Discovered decades earlier, in the 1960s by Gulf Oil, these gas projects had changed hands multiple times by the time Mobil came to Zimbabwe, yet they were not developed as they couldn’t be monetised.

Against that backdrop, Mobil saw little point in trying to discover more gas so relinquished the Cabora Bassa project.

The early 1990s saw a pullback in exploration in Africa, particularly in frontier jurisdictions onshore. Majors that had been exploring across the continent left as petroleum prices crashed. BP left Tanzania, while Shell left Kenya.

 

Nearby countries, including Kenya and Uganda, have since promoted their petroleum potential. This, along with previous exploration programs, attracted a number of juniors that picked up where the majors left off in the Albertine Graben in Uganda.

These junior explorers re-evaluated the data left behind by the majors and saw some overlooked potential in these rift basin plays. That work encouraged the likes of Tullow Oil to farm-in to their acreage, acquire some additional seismic data and drill exploration wells, leading to discoveries.

Zimbabwe, meanwhile, never bothered to promote its petroleum potential, instead promoting its mineral riches including gold, platinum, diamonds at the time.

IVZ’s Cabora Bassa Project

For years Invictus’ Cabora Bassa Project, which comprises 250,000 acres in the most prospective part of the Cabora Bassa Basin, remained untouched and overlooked and Mobil’s extensive project data and reports were never made public.

The country’s political and economic situation and changes to investment laws under former President Mugabe also worked against the petroleum sector — Zimbabwe was essentially uninvestable from a foreign investment point of view.

In 2010, 25 years after Mobil left Zimbabwe, Zimbabwean national, Scott Macmillan (a former Woodside Energy And AWE Ltd engineer and now Invictus MD) got his hands on Mobil’s $30 million dataset.

The extensive exploration undertaken by Mobil made evident the significant size and technical merits of the Cabora Bassa project.

Here, Invictus has a total prospective resource of 9.25 Tcf plus 294 million barrels of conventional gas / condensate (gross mean unrisked) across the Cabora Bassa Project (Special Grant 4571).

The project contains the world class multi-TCF Mzarabani and Msasa conventional gas-condensate prospects.

The Mzarabani Prospect, a multi-TCF and liquids rich conventional gas condensate target, is potentially the largest, undrilled seismically defined structure onshore Africa (200km² under closure) at 8.2 Tcf.

Not only is there a lot of gas but potentially also a lot of liquid associated with it as well, with 249 million barrels of conventional gas-condensate.

With this liquid condensate resource, the Mzarabani Prospect could be even bigger than the famous Dorado oil discovery — the largest oil discovery in Australia this century, which led to Santos acquiring Quadrant Energy last year.

In addition, IVZ’s Msasa Prospect also has elephant scale potential — estimated to contain 1.05 Tcf + 44 million barrels of conventional gas / condensate (gross mean unrisked) across three horizons.

The Mzarabani and Msasa prospects are both stacked targets, having several prospective horizons that can each be tested by a single well. This greatly enhances chance of success with multiple potential combinations of reservoir traps and seals.

New geological and geophysical work has de-risked the acreage, adding to the historical the Mobil dataset.

Gas sale MOUs

Invictus entered a MoU with Tatanga Energy late last year. Under the agreement, and in the event of a commercial gas discovery, the Cabora Bassa Project will provide gas supply for a 500-megawatt gas-to-power plant.

The minimum gas supply covered by the MoU is about 11Bcf per annum and could be increased to about 36.5Bcf.

The parties will work together to investigate the economic and commercial viability of supplying gas from the project to the plant.

The gas will then be sold to the national grid and to other captive clients including mines, industrial and other large consumers of energy in Zimbabwe, Mozambique and Zambia.

This is Invictus’ second offtake MOU, the first signed in May 2019 with sable Chemicals to investigate the economic and commercial viability of supplying natural gas from to the Sable fertiliser plant located in Kwekwe, Zimbabwe.

Under a 20-year supply term, Sable would be contracted to take 13 billion cubic feet of gas per year with an option to increase to 26 billion cubic feet.

While Invictus and its Cabora Bassa Project is early-stage and not without risk, the company currently has a market capitalisation of just $30 million.

88 Energy (ASX: 88E | AIM: 88E) last week released a substantial upgrade to the Net Pay encountered on the Charlie-1 appraisal well, drilled earlier this year on the North Slope of Alaska.

The dual listed oil junior drilled seven stacked targets with a total gross mean prospective resource of 1.6 billion barrels (480 million barrels net to 88E) in the Charlie-1 well at its Project Icewine.

Multiple billion barrel oil discoveries have made on the North Slope to date, and 88 Energy continues it to work towards finding the next one.

In early April, the company reported that the Charlie-1 appraisal well had proved the presence of mobile hydrocarbons, in the form of condensate gas. However, the timing couldn’t have been worse as fear gripped global markets.

An oil price war between Saudi Arabia and Russia resulted in oil prices falling hard and fast — WTI Crude dropped from above $60 per barrel in January to just $20 per barrel in less than three months to the end of March. Oil futures contracts even fell into negative territory on April 20 – where producers had to pay customers to take oil off their hands. Not good timing for an ambitious oil explorer.

However, despite the initial market reaction to the immediate well results, analysis of the data continues to show Charlie-1 made large oil discoveries, with the extend of oil accumulations to be estimated over the coming weeks.

This will follow last week’s results from the final petrophysical interpretation which substantially upgraded the net hydrocarbon pay in the Charlie-1 well to 398 feet from the earlier reported 280 feet.

Of particular note is the results from the Seabee formation intercepted in the Charlie-1 well, described by Managing Director Dave Wall as “outstanding”, despite the well not being drilled in the optimal location for that target.

The new data and years of exploration the company has undertaken to date on the North Slope, via three wells Icewine-1, Icewine-2, and Charlie-1 wells drilled at Project Icewine, means company management has a much clearer picture of what they have on their hands, ahead of a planned farm out for a follow up well to Charlie-1.

Plus, with the now completed acquisition of XCD Energy, 88 Energy control multiple world class exploration/appraisal assets on the North Slope of Alaska.

 

Charlie-1 appraisal well continues to provide additional data

88 Energy confirmed in April 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.

Final third party petrophysical interpretation from the recently drilled Charlie-1 well have now been received.

This petrophysical interpretation, using sophisticated Laminated Sand Analysis, substantially upgrades net hydrocarbon pay in the Charlie-1 well to 398 feet from 280 feet.

The largest contribution comes from the Lima discoveries in the Seabee Formation. Both Upper and Lower Lima (in the Seabee formation) are confirmed as large oil discoveries by this interpretation and the lab results.

Seabee hydrocarbons are proven in the historical Malguk-1 well by oil observed over the shakers at surface and in cores from Heavenly-1 and now Charlie-1.

The reservoir quality is clearly evident to be higher away from the Charlie-1 location, both updip and downdip.

The results are particularly significant as these targets are the most extensive of the Icewine conventional horizons as well as being relatively shallow, by comparison to the Torok Formation.

88E Managing Director, Dave Wall, said, “The results from the Seabee, despite Charlie-1 not being optimally located, are outstanding. Whilst these may appear as a serendipitous by-product of the well, internal analysis prior to drilling had already significantly high graded this formation; however, it was too late to change the objectives/location of the well, meaning that work remained largely on the drawing board.

“This final interpretation is a strong vindication of that internal effort. We are now looking forward to the conclusion of the evaluation of the Seabee oil discoveries as we integrate the petrophysics into the seismic inversion and subsequent mapping, which will ultimately yield updated volumetrics for our resources that will feed into the Icewine farm-out process.”

Over the coming weeks, the extent of the accumulations will be estimated as these final petrophysical numbers are integrated into the updated seismic inversion product.

The Stellar targets in the Torok Formation are also confirmed as hydrocarbon discoveries with good liquid hydrocarbon content.

There remains some uncertainty about the gas to oil ratio as the liquid hydrocarbon saturations measured from the Charlie-1 cores in the lab imply much lower gas to oil ratio than that observed during the downhole tests, which recovered gas condensate.

It is possible that these liquids may be unlocked by stimulation of the reservoir.

The Kuparuk also remains a prospective target, with anomalously good reservoir quality for its depth, however, no mapping has been done for this horizon and it is considered more gas prone than the Torok Formation.

Armed with more data, 88E has identified a new preferred well location to test the conventional targets at Project Icewine. This is an ‘oilier’ location, with better reservoir quality.

88 Energy will be shopping the project around to farm in partners once again and have another crack at striking flowing hydrocarbons.

Further upside potential remains from the 0.8-2.0 billion barrel prospective HRZ shale resources at Project Icewine. Two unconventional exploration wells have been drilled that have de-risked and improved understanding of the large shale potential here. This is consistent with early stage results from other successful plays.

The confirmation of the ideal thermal maturity for the HRZ shale is encouraging and will form the basis of further work to continue to unlock its large potential.

The results from Charlie-1 analysis of HRZ liquids rich resource play expected to facilitate farm-out process.

88E’s expanded North Slope portfolio

The company has acquired the previously ASX listed XCD Energy in an off market takeover.

The result is that Project Peregrine, XCD’s flagship asset, is now 100% owned by 88 Energy.

Project Peregrine spans 195,000 acres of prime exploration ground, in which three onshore prospects are been identified — Merlin (Nanushuk), Harrier (Nanushuk), Harrier Deep (Torok).

Combined, these prospects have a mean unrisked recoverable prospective resource of 1.6 billion barrels of oil located on trend to recent discoveries.

Conoco Phillips’s 0.75 billion barrel Willow discovery is to north, and Umiat, a recent Brookian oil discovery with over a billion barrels of oil, to the south show that Project Peregrine is in the right place. The Willow oil discovery is considered a direct analogy to the Project Peregrine’s Merlin prospect.

88 Energy plans on drilling in early 2021 and has identified two primary prospects — Merlin and Harrier that total over 1 billion barrels. Permitting commenced and farm-out discussions underway for drilling of the two wells in the first half of 2021.

88E will seek a farm in partner looking for exposure to near term discovery potential to fund the drilling. This could be a very compelling opportunity on the 1 billion barrel plus opportunity presented at Peregrine.

All in all, 88 Energy is gearing up for a highly active exploration season in 2021 across its expanded North Slope portfolio.