The Directors of 88 Energy Limited (“88 Energy” or the “Company”, ASX & AIM:88E) provide the following report for the quarter ended  30 September 2017.   

Highlights

• Icewine-2 Production Test operations continued in the quarter, with the following key project milestones;
  • The well was shut in on 10th July 2017 (AK time) for a period of 7 weeks to allow for pressure build up and imbibition to occur.  Prior to shut in, 16% of the stimulation fluid had been recovered from the reservoir under natural flowback;
  • Flow testing recommenced on 31st August 2017 (AK time);
  • Average flow during the test period was 1.85mcf/d with an increasing ratio of heavy components measured in the gas;
  • The cumulative amount of stimulation fluid produced from both testing periods was 5,533 barrels, 19.9% of fluids injected, prior to the winter shut in on 18th September 2017 (AK time);
  • Since shut in there has been significant pressure build up which is consistent with interpreted overpressure in the HRZ.
• Project Icewine Joint Venture acquired and paid for an additional 76,996 gross acres (48,864 net to 88E);
  • A decision was made to accept 76,996 out of the 109,817 gross acres awarded from the December 2016 Bid Round, based on the where the coincidence of prospectivity was the greatest for both the conventional and unconventional opportunities.

Icewine-2 Operations

On 10th July 2017 the Icewine-2 well was shut in for a period of 7 weeks, to allow for pressure build up and imbibition (or soaking) to occur.  Imbibition has proven effective in other plays by allowing frac fluid to be absorbed and displacing in-situ water that may be blocking hydrocarbon molecules from being able to flow through the reserviour.

Prior to the initial shut in on 10th July 2017, 16% of the stimulation fluid had been recovered from the reservoir under natural flowback, with the fluid composition comprising 100% water.

Flow testing of Icewine-2 recommenced on 31st August, with the well initially flowed back on a 6/64 inch choke which was subsequently reduced to 4/64 inch choke to maintain pressure. Approx. 370 barrels of frac fluid had been recovered as at 17:30 on 3rd September at an average rate of 100 barrels/day. The choke was subsequently stepped up to 8/64 inch on 10 September.

Flow back fluid was run through the test separator due to minor gas indications being evident.  The rate of flow achieved was unstabilised ranging from 2 to 4mcf of gas/ day, made up of 76% hydrocarbons, 20% atmospheric gases and 4% inorganics. The produced hydrocarbons comprised 93% methane with 7% heavier fractions.The choke was increased to lower the bottom hole pressure below reservoir pressure to increase drawdown on the formation. The well head pressure fell below that required to support flow and Icewine-2 stopped flowing naturally. The well was shut in on 18 September 2017 for a planned extended period over winter.

Average flow during the test period was 1.85mcf/d with an increasing ratio of heavy components measured in the gas. A total of 5,533 barrels, 19.9%,  of injected stimulation fluids were recovered during the overall testing period prior to shut-in. Results are not considered representative of potential flow rate nor hydrocarbon composition at Icewine#2 due to low recovery of stimulation fluids to date. To achieve connectivity to the reservoir a minimum of 30% recovery of stimulation fluids injected is anticipated to attain representative flowback from the reservoir.

During the winter shut-in period, further evaluation and analysis will be conducted to determine the impact, if any, of the productivity performance of the Icewine#2 well on the probability of success of the HRZ play at the Franklin Bluffs location and over the wider acreage position. Flow testing of the HRZ at Icewine#2 will recommence in April/ May 2018 via an optimised completion and artificial lift.  

Lease Position Expanded

The Project Icewine Joint Venture was awarded 109,817 gross acres on the 7th July as part of a broader package of successful bids submitted in the December 2016 North Slope lease sale.  Of these 109,817 gross acres, 76,996 gross acres (48,864 net to 88E) were taken up and paid for. Given the ongoing testing and analysis of Icewine-2, a decision was made to accept award on acreage where the coincidence of propspectivity for both the conventional and unconventional was greatest.

The current lease position for the Joint Venture as at 31 September 2017 is summarised below:

Corporate

Company’s cash flow statement for the quarter. The significant cash flows for the period were:

• Exploration and evaluation expenditure of A$9.1m primarily relating to Icewine#2 operations and lease rental payments to the State of Alaska;
• Payments to the Bank of America in relation to the debt facility interest totalled A$0.3m (US$0.25m);
• Administration and other operating costs A$1.0m (June’17 Quarter A$1.0m); and
• Payments for the acquisition of further acreage totalled A$2.1m.

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