Opened: 21-Feb-2022
Closed: 09-Jun-2022
Shares Held at Open: 6,610,000
Shares Held at Close: 3,800,000
Reason Memo Closed: This memo was closed off due to Key Objective #1 failing. We have provided commentary on each of the memo items and it has been replaced by a new memo for 2022 - Update June 9 2022.
What does 88E do?
88 Energy Ltd (ASX: 88E | OTC: EEENF) is an oil and gas exploration company focussed on a portfolio of assets in the North Slope of Alaska, USA.
What is the macro theme?
The world is moving into a period of oil and gas scarcity following multiple years of underinvestment.
The demand shock caused by COVID-19 and the subsequent oil price falls lead to a destruction in activity on the supply side. With demand now recovering, the supply-side hasn't responded, which we think will lead to oil price pressures to the upside in the medium-term.
[Memo Assessment - 09-Jun-2022]: Sentiment = Unchanged
Our Big Bet for 88E
88E makes a large oil discovery that is acquired by a major for over A$1BN
Why did we invest in 88E?
North Slope in Alaska
88E is exploring for oil on the North Slope in Alaska - one of the “oiliest” places on the planet. This region is home to some of the largest oil fields in the US, including Prudhoe Bay - the largest onshore oil field in North America, having produced over 12 billion barrels of oil since discovery. 88E holds multiple assets with 3.4B+ barrels of oil equivalent discovery potential.
[Memo Assessment - 09-Jun-2022]: Sentiment = Unchanged
88E generally drills once a year in high risk / high reward events
88E has drilled five wells in just over 6 years targeting large oil discoveries. We are invested in 88E because it provides exposure to a high-risk high-reward drilling program every year. The 88E share price tends to perform well as 88E goes into a new drilling program. 88E is gearing up to drill the Merlin-2 Well in March 2022 targeting 652 million barrels of oil.
[Memo Assessment - 09-Jun-2022]: Grade = A
Despite the Merlin-2 drilling results returning no commercial discovery, 88E did manage to get its annual high risk high reward drilling event completed. We have therefore given it an A for living up to one of the key reasons we held 88E in our portfolio.
Nearology to ConocoPhillips Willow Oil Field
88E’s 652 million barrel prospective resource at its Peregrine Project is analogues to the Willow Oil Field owned by ConocoPhillips, the #1 oil producer in Alaska. The Willow Oil Field has a resource between 400-750 million barrels of oil equivalent and is a planned 160k barrels/day over 30-years. 88E’s exploration at the Peregrine Project is targeting a similar discovery.
[Memo Assessment - 09-Jun-2022]: Grade = C
This was one of the key reasons we were holding 88E in our portfolio leading up to the Merlin-2 drilling event. Unfortunately as is the case with most “nearology” exploration Investments, this reason failed to materialise. The Merlin-2 well failed to deliver a new discovery analogous to ConocoPhillips Willow field. We are still hoping in the future 88E re-visits Project Peregrine and tests the remaining independent prospects (Harrier/Harrier Deep).
Oil out of favour
Fossil fuels are becoming increasingly shunned by investors and is leading to a lack of investment in oil and gas exploration. The transition to green energy is expected to take longer than the markets are expecting. Oil demand is expected to remain strong in the medium-term. COVID-19 demand shock shutdown a lot of barely profitable wells and as the demand-side of the equation recovers, supply is struggling to catch up.
[Memo Assessment - 09-Jun-2022]: Grade = A
Over the course of the year, with the Russia/Ukraine conflict continuously escalating this reason for Investing has in fact strengthened. The oil price is up from ~US$78/barrel when we launched our memo to now trade at ~US$122/barrel.
What do we expect 88E to deliver?
Objective #1: THE Key Objective we want to see from 88E is to drill the Merlin-2 appraisal well at Project Peregrine.
88E will be drilling a 652 million barrels of oil equivalent target at the Merlin-2 Well in Q1-2022. The Merlin-1 well drilled in 2021 confirmed a petroleum system. Project Peregrine is analogous to ConocoPhillips Willow Oil field.
A discovery here would put 88E on the radar of the majors in the area. A lot is riding on the results of the Merlin-2 well, which is being drilled in March 2022 - the results of this well will determine what we want to see the company deliver for the rest of the year.
[Memo Assessment - 09-Jun-2022]: Grade = F
The only key objective we set for 88E as part of this Investment Memo was for the company to try and make a discovery with the Merlin-2 well, unfortunately the drilling program returned no commercial discovery and our key objective failed to deliver what we expected.
What could go wrong?
Drilling Risk
88E is still in the exploration stage so big drilling events can have binary outcomes, risk needs to be managed going into these large binary outcomes.
88E’s upcoming Merlin-2 well is an appraisal well however. Whilst not an ‘exploration’ well it is still inherently high-risk. The purpose of an appraisal well is to test a previously discovered oil and gas show. There is a chance the appraisal well returns no oil and gas.
[Memo Assessment - 09-Jun-2022]: Grade = F
This was the major risk ahead of the Merlin-2 drilling program. This risk materialised and the binary outcome went against us with no commercial oil & gas discovery being made.
Funding Risk
Oil and gas is a fossil fuel, with commitments from countries all over the world to decarbonise. ESG mandates for capital are forcing some investors to divest or move capital away from the space, 88E is still in the exploration stage and requires financing to get its assets commercialised.
[Memo Assessment - 09-Jun-2022]: Grade = B
We think that 88E managed funding risk relatively well leading up to the drilling program. Ideally we would have liked to see 88E look to bring in a farm in partner who would have funded some of the drilling costs but the fact that 88E has managed to move away from the drilling program and still have some cash left over + some cash flow producing projects acquired, we think this risk was well managed by 88E.
Regulatory risk
Whilst this is not part of 88E’s acreage, the Biden Administration suspended oil drilling licenses in Alaska’s Arctic National Wildlife Refuge earlier this year. ConocoPhillips are facing legal setbacks in bringing the Willow oil field project to production.
[Memo Assessment - 09-Jun-2022]: Grade = A
88E didn't have any regulatory risks pop up leading up to the Merlin-2 well, but it did face some time delays due to environmental concerns from local environmental lobbyists. The risk was well managed with the drilling program being done only a few weeks late.
What is our investment plan?
We have observed an increase in market speculation on the outcome of 88E drilling events every year.
We are anticipating a rise in the 88E share price either just before the drilling of Merlin-2, or going into the Merlin-2 drill results.
Our plan has been to invest early, months before drilling, and hold as momentum increases in the story.
We then seek to free carry and take some profit at drilling.
We hold a portion of our position going into the Merlin-2 results. This suits our investment strategy but may not suit yours.
Always seek professional advice when investing in speculative stocks like this one.
[Memo Assessment - 09-Jun-2022]: Grade = B
In the lead up to the drill results we sold a portion of our Total Position in 88E in line with our Investment Plan enough to Free Carry. This de-risking before the drilling results limited our downside, whilst still providing enough upside exposure in the event that drilling was a success.
Note: this grade and assessment on the Investment plan is based on how well we stuck to our investment plan, not the outcome of the investment itself.
Disclosure: The authors of this article and owners of Next Investors, S3 Consortium Pty Ltd, and associated entities, own 6,610,000 88E shares at the time of writing this investment memo. S3 Consortium Pty Ltd has been engaged by 88E to share our commentary on the progress of our investment in 88E over time.
Opened: 09-Jun-2022
Shares Held at Open: 3,800,000
What does 88E do?
88 Energy Ltd (ASX: 88E | OTC: EEENF) is an oil and gas exploration company focussed on a portfolio of assets in the North Slope of Alaska, USA.
What is the macro theme?
The world is moving into a period of oil and gas scarcity following multiple years of underinvestment.
The demand shock caused by COVID-19 and the subsequent oil price falls lead to a destruction in activity on the supply side. With demand now recovering, the supply-side hasn't responded, which we think will lead to oil price pressures to the upside in the medium-term.
Our Big Bet for 88E
88E makes a large oil discovery that is acquired by a major for over A$1BN
Why did we invest in 88E?
North Slope in Alaska - one of the most oil rich places on the planet
88E holds ~420,000 acres of exploration ground in the North Slope in Alaska. This part of the US is home to the USA’s biggest ever onshore discovery (Prudhoe Bay) which has produced the equivalent of ~12 billion barrels of oil since discovery. We want to see 88E make the next big Alaskan oil discovery.
Nearology to Pantheon Resources
88E’s Project Icewine is next door to Pantheon Resources. Pantheon has drilled three wells that all flowed light oil, demonstrating a reservoir system right along its project border with 88E. Pantheon remains active here and continues to explore near 88E. We think there is a chance 88E’s project area could be home to an extension of Pantheon’s reservoirs.
88E does recurring high impact exploration programs
88E has drilled six wells in just over 6 years targeting large oil discoveries. We are Invested in 88E because it provides exposure to a high-risk high-reward drilling program almost every year. In the lead up to these major drilling events, we generally see the share price of 88E rise as investors start to speculate on the potential upside from the exploration event.
Underinvestment in global oil and gas exploration
The transition to green energy technologies has meant investment capital has shunned fossil fuel investment opportunities. In the short to medium term, the world still needs a well balanced supply of fossil fuels to ensure an abundance of energy sources for countries all around the world.
What do we expect 88E to deliver?
Objective #1: Prospective resource update for Project Icewine
Milestones
Independent prospective resource update (due mid-2022)
Objective #2: Funding partner for Project Icewine
Milestones
MOU for funding agreement
Binding funding agreement
Capital Raise Complete
Objective #3: Clear Exploration Program laid out for Project Icewine
[New 27-Mar-2023] Considering 88E has decided to flow test this year's well at a later date, our bull/bear case expectations for this well are relatively simple:
Milestones
Exploration program detailed
Drill Permits Secured
Drill Rig Mobilised
Drilling Commences at Hickory-1
Drilling Results
Objective #4: Forward program for Project Peregrine detailed
We want to see the final results from the Merlin-2 well and a forward exploration program detailed.
Milestones
Merlin-2 results analysis
What could go wrong?
Exploration risk
88E is still in the exploration stage so big drilling events can have binary outcomes, risk needs to be managed going into these large binary outcomes.
Funding risk
Oil and gas is a fossil fuel, with commitments from countries all over the world to decarbonise. ESG mandates for capital are forcing some investors to divest or move capital away from the space, 88E is still in the exploration stage and requires financing to get its assets commercialised.
Regulatory risk
Whilst this is not part of 88E’s acreage, the Biden Administration suspended oil drilling licences in Alaska’s Arctic National Wildlife Refuge earlier this year. ConocoPhillips is facing legal setbacks in bringing the Willow oil field project to production.
Market risk
88E is still predominantly focused on running high risk exploration programs on a recurring basis. There is always a risk that a market wide sell off will hurt 88E’s share price the most, given investors will look to withdraw capital from the high risk high reward investments in their portfolios first.
What is our investment plan?
We have observed an increase in market speculation on the outcome of 88E drilling events every year.
We are anticipating a rise in the 88E share price either just before the next drilling event or going into the drill results.
Our plan has been to invest early, months before drilling, and hold as momentum increases in the story - we will look to increase our position in 88E over the coming months while the share price is depressed off the back of the last result.We then seek to free carry and take some profit at drilling.
We hold a portion of our position going into the drill results.
This suits our Investment strategy but may not suit yours.
Always seek professional advice when investing in speculative stocks like this one.
Disclosure: The authors of this article and owners of Next Investors, S3 Consortium Pty Ltd, and Associated Entities, own 3,800,000 88E shares at the time of publication. S3 Consortium Pty Ltd has been engaged by 88E to share our commentary and opinion on the progress of our Investment in 88E over time.
88E heading to Africa on frontier oil hunt - following Shell and Totals 11 billion barrel lead
Nov 14, 2023
Nov 14, 2023 |
10 min
Our oil and gas investment - 88 Energy (ASX: 88E) - has just farmed into 18,500 km2 onshore acreage in Namibia, which is 45% of the overall project via staged milestones.
88E Flow Test Approaching - why is next door neighbour up 100%?
Sep 12, 2023
Sep 12, 2023 |
12 min
Our oil & gas exploration Investment 88 Energy (ASX:88E | LSE: 88E | OTC: EEENF) is gearing up for a flow test at a previously drilled well, on the North Slope of Alaska, in the USA.
88E flow test this drilling season as rights issue announced
Aug 1, 2023
Aug 1, 2023 |
9 min
88 Energy (ASX: 88E 🇦🇺| OTC: EEENF 🇺🇸) is planning to run its flow test on the Hickory-1 well later this year/early 2024 and this week announced a rights issue to help fund the drilling.
88E delivers 450 feet (~137m) of net pay - now we wait for the flow test…
Apr 12, 2023
Apr 12, 2023 |
11 min
88 Energy (ASX: 88E 🇦🇺| OTC: EEENF 🇺🇸) hit an estimated 450 feet (~137m) of net pay across all pay zones on its just concluded drilling campaign. 88E is now planning a flow test for the multiple pay zones as early as possible in the next winter drilling season, late 2023 / early 2024.
88E / EEENF shows oil blobs under fluorescent light - net pay 5-7 days away
Apr 3, 2023
Apr 3, 2023 |
10 min
Our long-time oil and gas investment 88 Energy (ASX: 88E) has reached target depth in their recent drilling campaign and there have been colourful, fluorescent blobs showing for oil. A new reservoir unit has also been discovered, which is a pleasant surprise.
88E confirms a discovery on the North Slope of Alaska, USA.
Nov 6, 2023
Nov 6, 2023 |
49.1 seconds
88 Energy (ASX: 88E) has just declared a discovery from one of the six reservoirs drilled earlier this year.
88E to confirm an oil & gas discovery off the back of Hickory-1?
Oct 30, 2023
Oct 30, 2023 |
1 min
88 Energy (ASX: 88E) could officially declare a discovery from its well drilled earlier this year.
88E flow test now scheduled for Q1 2024
Sep 21, 2023
Sep 21, 2023 |
2 min
Our oil and gas exploration Investment 88 Energy (ASX: 88E) has just put out an update on its upcoming flow test on the North Slop of Alaska, USA.
88E rig contract executed - flow test later this year/early 2024
Sep 5, 2023
Sep 5, 2023 |
31.7 seconds
Our oil and gas exploration Investment 88 Energy (ASX: 88E) has just signed a rig contract to flow test its Hickory-1 well in the North Slope of Alaska, USA. 88E expects the flow test to start in late 2023/early 2024.
How two big updates from Pantheon Resources affect 88E
Aug 31, 2023
Aug 31, 2023 |
4 min
Our oil & gas exploration Investment 88 Energy (ASX:88E) is gearing up for a flow test at its Hickory-1 well scheduled for later this year/early 2024.
Tax loss selling over, market back in August?
Jul 2, 2022
Jul 2, 2022 |
19 min
Tax loss selling over, catalysts in, market back in August? A selection of 10 of the most beaten up stocks in our Portfolio in the last six months
Share price moves on expected vs unexpected announcements
May 28, 2022
May 28, 2022 |
24 min
We invest for 1,000% gains — holding a basket of small cap stocks where we hope a couple will deliver an outsized return over time.
Investing in Early Stage, High Risk Companies in 2022
Apr 4, 2022
Apr 4, 2022 |
10 min
We like to back a basket of early stage, high risk companies, in the hope that one or two of them will deliver outsized returns over time.
Mainstream Media Catching on to the Commodities Supercycle
Mar 5, 2022
Mar 5, 2022 |
26 min
It looks like the commodities supercycle we have been predicting is now underway. We’ve been saying it's coming for a long time but are now seeing firm evidence that it's here across further recent commodity price spikes and mainstream media reports.
The War Begins, Cybersecurity, Food Security, Energy Independence and Precious Metals
Feb 26, 2022
Feb 26, 2022 |
17 min
The Russian troop build-up had been happening for the last couple of months and we think the market had slowly been pricing in a potential conflict, especially one that could accelerate the “west versus east” tensions and all the ramifications that come with it.
