Alaskan explorer 88 Energy has increased its American presence with the purchase of a 75 per cent stake of Texas oil player Big Horn Energy who is currently producing around 300 barrels of Permian Basin oil per day. The company will spend US$9.7 million to take majority share of Bighorn Energy’s 32 wells across nine leasehold areas and is targeting a doubling of production by year’s end.
The 32 wells exist on Bighorn’s 1300 acre Longhorn project including “proved and probable” reserves of 2.1 million barrels of oil equivalent, or “mmboe” of conventional onshore oil production in the world famous Permian Basin.
The deal, backdated to January 1, provides 88 Energy immediate cash flows in addition to low-cost workover and drilling opportunities and further possible acreage acquisitions.
Well established Texan producer and operator of the Longhorn project, Lonestar 1, is selling down its interests in Bighorn, to give 88 Energy’s newly formed wholly-owned subsidiary Longhorn Energy Investments a 75 per cent ownership stake in Bighorn.
88 Energy estimates it is paying an “attractively low-cost” US$4.70 per boe for the certified reserves, with 70 per cent in oil. The US$9.7 million is made up of US$7.2 million cash and US$2.5 million in 88 Energy shares, approximately 98.1 million shares at an issue price of 3.5c per share.
The ASX-listed 88 Energy company remains in a strong financial position, having $32 million in the bank at December’s end along with $30 million from a recent capital raise. However, the Bighorn acquisition will provide immediate cash flow in order to keep its powder dry for its high impact Alaskan North slope projects. It is spudding a new well, Merlin 2, in March following its earlier Merlin 1 discovery.
Lonestar, too, remains in the game after keeping 25 per cent of Bighorn and maintaining the right to operate the fields. The partners have agreed on an immediate low-cost program of seven well workover that is expecting to approximately double current production rates by the end of the year with a 1300boe target in 2024.
Most of the existing Longhorn wells have been in production for several years with output in FY2021 totalling around 110,000 boe and banking an estimated, unaudited net profit before tax of US$1.6 million.
88 said the widening of its portfolio has been undertaken in a measured fashion through the purchase of a non-operated working interest with a single basin focus. It added the Permian is one of United States’ premiere oil provinces and the Longhorn project contains well understood geology with low technical risk and provides near-term upside via low-cost field development opportunities.
88 Energy Managing Director and CEO, Ashley Gilbert said: “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.”
Interestingly, 88 Energy will also issue a tranche of escrowed capital development shares for US$1.6 million in working capital for the proposed seven well workover program.
The two companies have also inked an MOU to work jointly towards landing more prospective development acreage.
With this move into the prolific Permian Basin, 88 Energy looks to be making effective use of its balance sheet, putting cash into solid production assets with low-cost upside and a proven regional operator as it chases its potential company making projects in Alaska.
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By Matt Birney
