Oil is Back: 88E is Drilling in Weeks.
Email Sent On: 11-01-2021
Oil has rallied to 10 month highs.
Surprisingly, Saudi Arabia decided to unilaterally cut production by 1 million barrels a day for February and March. Investors are also buoyed by a looming re-opening of the global economy.
So, it’s not a bad time for a junior oil explorer to make a large oil discovery - exactly what one of our long-term portfolio stocks is aiming to do in the coming weeks.
Momentum is clearly building in 88 Energy Ltd (ASX:88E | AIM: 88E), and that looks set to continue given the company has a highly active 6-8 weeks ahead of it.
88E’s drilling programme on the North Slope of Alaska - one of the oiliest places on earth - has been timed with investors’ renewed attraction to oil.
For 88E investors, the main event is the drilling of the Merlin-1 well on its Project Peregrine in mid-late February.
88E’s Project Peregrine has a 1.6 billion barrel gross mean unrisked recoverable prospective resource, located on trend to recent discoveries, including one by oil super major ConocoPhillips (NYSE: COP).
88E’s Merlin-1 well is the first to drill test this billion barrel plus gross prospective resource.
88E is currently capped at $95M: a large oil discovery at Project Peregrine has the potential to return many multiples of this.
To give you an idea of the potential value that could be unlocked, just take a look at what’s unfolding at ConocoPhillips discovery Willow - that's the discovery on trend to the north of Peregrine.
Willow has a resource estimate in the range of between 400-750 million barrels of oil, and it is estimated that the project could be producing in excess of 100,000 BOPD.
ConocoPhillips plans to build a large amount of infrastructure to support that oil production, and we think they’d be foolish not to be watching 88E’s drilling to the south and on trend to Willow.
Meanwhile to the south of 88E’s Peregrine sits the Umiat Oil Field, which 88E today confirmed it has opportunistically acquired.
Umiat’s gross 2P reserves were independently estimated at 123.7 million barrels of oil (94 million barrels attributable to 88E’s 76% net revenue interest).
We continue to hold a large position in 88E.
Similar to all speculative oil exploration stocks, our investment strategy will be to lighten our position prior to the spudding of the Merlin-1 in mid-late February, taking some money off the table. However, we will also hold a reasonable position into drilling, to capture the upside on drilling success.
As 88E edges closer to drilling Merlin-1, the company continues to tick off key milestones related to drilling. We are expecting a steady stream of newsflow from 88E to continue over the coming weeks.