Highlights
- Acquisition of a ~73% average net non-operated working interest in the leases and wells in established conventional onshore production assets within the Permian Basin of Texas, U.S.
- Assets acquired provide immediate cash flow to 88 Energy.
- Purchase price of US$9.7M comprised of US$7.2M cash and US$2.5M in 88 Energy shares.
- Attractively low-cost entry of ~US$4.70 per BOE across net 2P reserves of 2.1 MMBOE.
- Current average production of approx. 300 BOE per day gross (approx. 70% oil) across 32 wells; capital-efficient doubling of output targeted from seven planned work-overs.
- The Seller, Lonestar I, LLC will retain a ~24% net working interest in the assets and will also remain Operator of the assets through an affiliate, with the remaining interests retained by existing Joint Venture partners.
Further to the announced recent signing of a non-binding Memorandum of Understanding (see 88E ASX/AIM releases dated 14 February 2022), 88 Energy Limited (ASX:88E, AIM:88E, OTC:EEENF) ( 88 Energy or the Company ) is pleased to announce the execution of a binding Securities Purchase Agreement ( SPA ) for the acquisition of a circa 73% average net working interest in established conventional oil and gas production assets in the proven Permian Basin, onshore Texas, U.S..
The oil and gas production assets, collectively known as Project Longhorn, are located in the Permian Basin and contain independently certified net 2P reserves of 2.1 MMBOE. The purchase price for the acquisition is US$9.7 million, comprising US$7.2 million cash and US$2.5 million in 88 Energy shares (approximately 98.1 million shares at an issue price of A$0.035 per share) .
The acquisition delivers immediate cash flows, with current gross production from Project Longhorn of approximately 300 BOE per day (approximately 70% oil). Near-term capital-efficient production upside exists from seven planned work-overs, which are scheduled to commence in March 2022. These initiatives are targeted to approximately double current output rates by late 2022.
The acquisition represents 88 Energy’s first move into producing oil and gas assets and is in line with the Company’s strategy to build a successful exploration and production company. This step has been undertaken in a measured fashion via the purchase of a non-operated working interest with a single basin focus. Project Longhorn contains well understood geology with low technical risk and provides near-term upside via low-cost field development opportunities.
88 Energy’s financial advisor was Miro Capital and its legal advisor was Freeman Mills PC.
88 Energy Managing Director and CEO, Ashley Gilbert, commented:
“While our core focus remains exploration of our world-class Alaskan North Slope acreage, the acquisition of Project Longhorn provides 88 Energy with immediate cash flow and direct exposure to any further strengthening in energy prices. It also delivers optionality for incremental, low-capital, rapid payback reinvestment in the region.”
Project Longhorn – conventional onshore oil and gas in Texas
The Project Longhorn assets are located in the in the attractive Permian Basin, with over approximately 1,300 net acres. The assets consist of 9 leases with 32 producing wells and associated infrastructure. Lonestar I, LLC will retain a ~24% net working interest in the assets, and through an affiliate will remain Operator, with the remaining working interests retained by existing Joint Venture partners.
Most of the existing production wells have been in operation for several years. Production from Project Longhorn in FY2021 totalled approximately 110,000 BOE, which returned an estimated attributable net profit before tax for the project of US$1.6 million (unaudited). Current average production is approximately 300 BOE per day (88 Energy’s net working interest: ~220 BOE per day), of which approximately 70% is oil.
As part of the acquisition, 88 Energy has agreed to a low-cost work program for CY2022 that includes seven work-overs. These initiatives are expected to approximately double current production rates by the end of CY2022.
The acquisition of a working interest in Project Longhorn provides 88 Energy with immediate cash flows, as well as further low-cost capital development upside providing appealing forecast economics:
· Gross capital development activities costing: from US$0.7 million to US$1.4 million depending on the type of drilling or work-over performed.
· Target development IRRs: 75% to 400% depending on the type of drilling or work-over performed.
· Target capital expenditure payback: 7-18 months depending on the type of drilling and completion performed.
· Target break-even oil price: US$21/bbl – US$28/bbl depending on the type of drilling or work-over performed.
Gross (100%) and Net Entitlement Reserves to 88 Energy (~73% average net working interest) have been independently assessed by Odin Reservoir Consultants Pty Ltd as at 31 December 2021 as follows:
Table 1: Project Longhorn Reserves (barrels of oil equivalent; millions)
Further Information related to these Reserves is provided in Appendix 1.
Reserves Cautionary Statement
Oil and gas reserves and resource estimates are expressions of judgment based on knowledge, experience and industry practice. Estimates that were valid when originally calculated may alter significantly when new information or techniques become available. Additionally, by their very nature, reserve and resource estimates are imprecise and depend to some extent on interpretations, which may prove to be inaccurate. As further information becomes available through additional drilling and analysis, the estimates are likely to change. This may result in alterations to development and production plans which may, in turn, adversely impact the Company’s operations. Reserves estimates and estimates of future net revenues are, by nature, forward looking statements and subject to the same risks as other forward-looking statements.
Acquisition details
Further to the non-binding Memorandum of Understanding referred the ASX/AIM releases of 14 February 2022, the Company is pleased to announce that on 18 February 2022, 88 Energy, via its newly formed wholly owned subsidiary Longhorn Energy Investments LLC, entered into a binding SPA with Lonestar I, LLC ( Lonestar ), to acquire a 75% ownership interest in Bighorn Energy, LLC ( Bighorn ) the owner of the assets, as follows;
- Acquisition of an initial 70% ownership interest in Bighorn and its wholly owned subsidiary which owns between 89.7% – 100% gross working interest of the leases and wells in the Project Longhorn assets;
- At the same time, acquisition of a further 5% ownership interest in Bighorn resulting from the simultaneous execution by Bighorn of letter agreements with two parties;
- Upon closing of the transactions, 88 Energy via its wholly owned subsidiary Longhorn Energy Investments LLC, will hold a 75% ownership interest in Bighorn (which results in an approximate 73% net working interest in the leases and wells);
- Lonestar will have a 25% ownership interest in Bighorn (which results in an approximate 24% net working interest in the leases and wells).
Total consideration for the purchase is US$9.7 million, to be paid as US$7.2 million in cash from existing cash reserves and US$2.5 million in shares (at an issue price of A$0.035 per share, which is the same issue price as the recent 88 Energy equity raising announced on 14 February 2022).
88 Energy will issue a further US$1.6 million in shares (approximately 57.4 million shares at an issue price of A$0.039 per share, being the closing price of 88 Energy shares on ASX on 18 February 2022) to Lonestar for working capital contributions towards an approved CY2022 capital development program ( Capital Development Shares ).
The Capital Development Shares will be held in escrow and subject to certain restrictions. These Capital Development Shares will only be released from escrow following approval by 88 Energy. Lonestar has the option to dispose of Capital Development Shares, subject to certain restrictions under the escrow arrangement, with any proceeds to be held on trust for 88 Energy until the associated invoices are received and approved by 88 Energy for the capital development program. A reconciliation and final payment of any outstanding invoices (in cash) is to occur following completion of the CY2022 capital development program.
A total of 155,480,417 new ordinary shares will be issued in respect of the acquisition and the capital development program to Lonestar.
The effective date of the acquisition is 1 January 2022.
Longhorn Energy Investments LLC also entered into a Memorandum of Understanding with Lonestar where both parties agreed to work jointly towards securing additional future acreage focusing on expanding and increasing oil and gas production.
Lonestar I, LLC is a privately held oil and gas production company located in Texas U.S., with significant experience in operating profitable oil and gas assets. Lonestar I, LLC and its affiliates have built a team of experienced oil and gas professionals with broad technical and commercial skills that will continue to Operate the assets on behalf of the Joint Venture and together with 88 Energy will work to improve production and profitability of the assets and has the capacity to both financially and technically deliver on future development work programs. 88 Energy has completed customary due diligence on both the assets and Lonestar I, LLC.
A graphic of the Project Longhorn asset is viewable in the PDF version of this announcement available on the Company’s website ( www.88energy.com ) along with a presentation titled Project Longhorn Acquisition.
Media and Investor Relations:
88 Energy Ltd
Ashley Gilbert, Managing Director
Tel: +61 8 9485 0990
Email:[email protected]
