Questions And Answers from Dave

Shares Spotlight Interview Dave Wall 20/06/17 transcript

Transcript of interview with Mike Boydell, MD of AJ Bell Media and Dave Wall about 88 Energy. Courtesy of CO0pz.
Uploaded to Youtube on June 20th 2017.

MB: Hello and welcome to Shares Spotlight. And today’s guest is Dave Wall, he’s the CEO of 88 Energy. Welcome to Shares.

DW: Thanks for having me.

MB: I’d just like to start off really with a brief outline, perhaps you could give us a brief outline of 88 Energy, what you’re doing and your current prospects in Alaska.

DW: Ok, so we’re an oil and gas exploration company focused on the central north slope of Alaska we have a very large acreage position, up to 690,000 acres with our joint venture partner Burgundy Exploration which is a private company. We’re chasing 2 main plays, both chasing liquid hydrocarbons, oil and condensate. The major play is an unconventional play which is targeting a formation called the HRZ, which we are just about to flow test imminently. And the other play is a conventional play, but also targeting oil and that’s something that is the second string to the bow, so to speak.

MB: So, today’s RNS came out and said you’ve done the lower part of the HRZ stimulation and then you’re moving to the upper part, is that correct?

DW: That’s right, so we drilled a vertical well called ICEWINE2 to test the HRZ formation with a fracture stimulation operation, which is executed in 2 stages. The first stage is in the lower part of the HRZ and that has been successfully executed over the weekend. So that’s something that we’re very happy with, that was all done to plan. And now we’re in the process of stimulating the upper zone which is the stage 2.

MB: And timeline wise, when do you expect to have the initial flow test results coming out?

DW: So what we’ll do is we’ll flow back the upper zone, and really what we are trying to do there is get some of the stimulation fluid that we have used to open up the cracks in rock off the formation, and start to see some hydrocarbons flow to surface, and once that happens we will take a sample of those which gives us some good information about the characterisation of the hydrocarbons in the reservoir. And then we’ll drill out a plug in between the upper and lower zones and flow them both together, take another sample, and that will take several days to clean up as well. And then we’ll gradually open up the choke, because we don’t want to pull on the reservoir too hard because the sand can come out of the fractures that we have created, and we want those obviously to stay in there so that the oil can flow to the surface. Gradually open up that choke, and then after several weeks we will get a representative maximum potential flow rate from this formation.

MB: And will ICEWINE2 go to production, is it planned as a production well do you think for the future or is it literally just a test at this stage?

DW: It’s a test well, contingent upon the results it can go on a longer term test up to 6 months, and that will give us some useful information about how the pressure drops in the reservoir and then the performance once that happens in terms of decline rates and so forth. And then the follow up plans will be a horizontal well initially with a multi stage stimulation, and that will give us an idea of the relationship between the rate that we get in the vertical well, which we think if we get something in the order of 100 barrels per day is a good look through to a potentially commercial rate from one of those horizontal follow up wells.

MB: And that will be off the same pad, you’re not moving to a new location, it’s off the same pad?

DW: That’s correct, the first follow up well will be off the same pad, and then subsequent wells will have to be off a new pad that we’re in the process of permitting.

MB: And that’s in the locality of ICEWINE, current ICEWINE permits?

DW: That’s correct, so one of the key advantages of this project is that it is bisected by an all year round operational access road. And so all of our initial operations we have executed from that road, so the new pad will also be off the road as well.

MB: You acquired quite a lot more acreage recently with burgundy, obviously there’s plans to go further out I presume on your exploration in both seismic, and will you drill further out as well in the next 12 months or…?

DW: Yeah that’s right, so the plan would be, if we have success in this well we need to then delineate the potential of the HRZ across the wider acreage position that you pointed out. And ideally what we would do is we would drill a dual purpose well, one that could test one of our conventional prospects, which is the second play that we’re chasing on the acreage, but also test the HRZ as well, which sits beneath these conventional prospects. The main conventional potential that we see is out to the West, so that would be the likely location of one of those delineation wells. And at the same time obviously we would be drilling the follow up horizontal well that we mentioned before.

MB: And you raised an issue of funds in March, I think you then quoted a total of $39M AUD at that point. Clearly you are spending some cash now on the existing project. Do you think you need to raise funds in the next 6 months, 12 months, or do you think you’ve got sufficient capital base now?
DW: On the back of success we will need additional funding so, just to break it down; $30M USD, we tend to think in USD, our share of the costs of the well; 14M USD. And then, you know, overheads and everything like that. So we’ll have $12M to $13M USD left after the finalisation of this program and things are on budget, which is probably something that people will want to understand, it’s not over at the moment, and doesn’t look like it will go over. And then obviously any follow up wells that we drill we would need additional funding. So the horizontal follow up well would cost in the order of $25M USD of which our share would be around $20M USD and Burgundy would fund the remainder. And then the conventional test well out to the West also would cost in the order of $17M or $18M USD. So the $10M or $12M or $13M USD we have in the bank post the drilling of this well won’t cover that, either in the success or the failure case. So we would need to get additional funding from somewhere. So obviously in the success case, if the market cap goes up and it’s less dilutive for us to raise money and investors want us to raise money, rather than sell part of the acreage or farm it out, we would do that. And then in the failure case I think that funding that conventional test well is something that we would look to farm out that well rather than raise money because share price in the failure case would be lower and so the dilution associated with that would be harder to swallow. Whereas I think that in the success case a higher share price obviously affords a much less dilutive path.

MB: Obviously it’s been climbing the last few weeks, hopefully on the success of ICEWINE2. Looking 2 or 3 years out, do you think you’ll be producing, or do you think you’ll have probably sold the asset or farmed out the assets?

DW: There will be some production, but however our goal is to create as much value as we can over that 2 – 3 year period that you referred to. And then at that point in time it’s probably more appropriate for a larger company to come in to do a full field development of this asset because there are literally over a thousand wells that could be drilled into the HRZ on the unconventional side. And we’re not the company that would be doing that, unless we transform significantly over that period.

MB: And, you probably can’t answer this but I’m going to ask the question anyway and we can always strike it off the video, have you had approaches to get involved or partner in with you at this stage, or have you been out looking?
DW: We haven’t really actively tried to farm out, because fortunately the access capital that we’ve had from the market has been very strong, and we’ve always felt that retaining as much of the working interest as possible until we’ve actually created that definitive value point is something that in the medium and longer term would far outstrip, in terms of value for our shareholders, giving away a significant chunk at the front end. So we have talked to several companies, there is interest, we haven’t really tried to sell it, but we do know that there is a lot of interest in this well and this is something that a lot of companies are watching.

MB: That’s good, there’s a lot of big players, not only on the North Slope but other parts of Alaska as well, picking up things at the moment aren’t there, so it could be interesting times. And this final question is, for a potential investor, someone who hasn’t come across 88 Energy before, can you give us an idea of why people should consider 88 Energy as part of their investment portfolio?

DW: Yeah, so I think there’s a couple of things. 1; obviously the asset itself. We are a very large acreage position, there is a very large resource potential in the HRZ, several billion barrels of liquids potential. The conventional play which is a backup ostensibly also has by our estimation 1.5 billion barrels potential which on its own is significant. And then, in Alaska we have enjoyed the benefit of substantial credits from the State, which has helped us execute a program in a relatively lower dilution given the fairly challenging oil price environment we’ve found ourselves in, and we’ve been able to create value for shareholders. There’s a good above ground story there, we are located on an infrastructure, there’s a pipeline which runs through the acreage as well which needs more oil in it. And then I guess the second part is that we have managed to deliver on what we said we would do, operationally, we’ve been able to execute very efficiently in a safe manner and also in the timeframe that we have indicated to investors.

MB: Great. Dave, thank you very much for coming in and talking to Shares Magazine today.

DW: Thanks for having me, pleasure to be here.

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