Gulf Oil and Gas accountACCOUNT

Report on Activities for the Quarter ended 30 September 2020

Source: www.gulfoilandgas.com 10/22/2020, Location: Europe

The Directors of 88 Energy Limited provide the following report for the quarter ended 30 September 2020.

Highlights

Project Icewine
• Condensate discovery in the Torok Formation announced April 2020, with oil pay interpreted in Seabee Formation;
• Final petrophysical interpretation, using sophisticated Laminated Sand Analysis, substantially upgrades net hydrocarbon pay in the Charlie-1 well;
• Final petrophysical interpretation will now be integrated into revised mapping of the Seabee and Torok discoveries to determine resource estimates;
• Thermal maturity of the HRZ shale confirmed as in the peak oil generation window; and
• Farm out process to be relaunched in the near term with integration of positive Charlie-1 data. Off-market Takeover Bid for XCD Energy Limited & Project Peregrine
• 88 Energy compulsorily acquire the remaining shares and listed options in XCD Energy having reached over 90% of acceptances in the Offers;
• The merger has created an Alaska focused oil explorer with a diversified portfolio of 3 key project areas; Project Icewine, Yukon Leases and Project Peregrine at various stages of project maturity;
• Advanced seismic attribute work has identified several similarities between the key prospects at Project Peregrine and existing discovered fields nearby;
• Permitting and planning work related to drilling of up to two wells at Project Peregrine, commencing 1Q 2021, remains on schedule; and
• Project Peregrine farm-out has now been open for several weeks, with multiple parties at various stages of technical due diligence, several of whom are now progressing to commercial discussions.

Yukon Acreage
• Discussions continue with nearby resource owners to optimise the monetisation strategy of the acreage, with permitting continuing for future potential exploration drilling – subject to farmout.

Project Icewine
• Final Petrophysical Interpretation Substantially Upgrades Charlie-1 Net Pay
The final third party petrophysical interpretation from the recently drilled Charlie-1 well was completed in the quarter, and is detailed in the table below. These values consider data from logs obtained during drilling using a sophisticated logging suite as well as multiple laboratory analyses of sidewall cores taken from the key horizons in the Charlie-1 well. Encouragingly, the final interpretation provides a significant increase in net pay, compared to the initial interpretation, of 398’ (vs 280’), with the largest contribution coming from the Lima discoveries in the Seabee Formation. These improvements are despite using higher cut-offs for both reservoir and net pay.

Both Upper and Lower Lima are confirmed as large oil discoveries by this interpretation and the lab results. The results are particularly significant as these targets are the most extensive of the Icewine conventional horizons as well as being relatively shallow, by comparison to the Torok Formation. The extent of the accumulations will be estimated over the coming weeks as these final petrophysical numbers are integrated into the updated seismic inversion product. Similarly, the Stellar targets in the Torok Formation are also confirmed as hydrocarbon discoveries with good liquid hydrocarbon content. There remains some uncertainty about the gas to oil ratio as the liquid hydrocarbon saturations measured from the Charlie-1 cores in the lab imply much lower gas to oil ratio than that observed during the downhole tests, which recovered gas condensate. It is possible that these liquids may be unlocked by stimulation of the reservoir.

The Kuparuk also remains a prospective target, with anomalously good reservoir quality for its depth, however, no mapping has been done for this horizon and it is considered more gas prone than the Torok Formation.

Reporting requirements under LR 5.30;
The Charlie-1 well is located on the North Slope of Alaska, ADL 393380, where 88 Energy has a 30% working interest (increasing to 75%). The well penetrated sandstones in seven stacked targets and shale in one target. No flow tests were undertaken; however, gas condensate samples were retrieved to surface from the Torok formation at 10,506’ and 10,656’ using a downhole sampling tool (Ora) run during the wireline operation.

• HRZ Thermal Maturity – Peak Oil Generation Window
Measurements taken from both core and cuttings have confirmed that the HRZ shale at the Charlie-1 location has a vitrinite reflectance value of 0.9 (VRo %), which is within the peak oil generation window. This was also confirmed by isotope analysis of mud gases recovered whilst drilling. The confirmation of the thermal maturity model is very encouraging and further work is ongoing regarding producibility of the shale.

Off-market Takeover Bid for XCD Energy Limited Completed
On 27 April 2020 88 Energy announced its intention to make an off-market takeover offer to acquire all of the fully paid ordinary shares and listed options on issue in XCD Energy Limited, an oil exploration company with operations on the North Slope of Alaska, USA. Subsequently on 9th July 88 Energy announced it would compulsorily acquire the remaining shares and listed options in XCD having reached over 90% of acceptances in the Offers with completion the acquisition occurring on 17th August 2020.

The transaction has created an Alaska-focused oil exploration and appraisal company with a diversified portfolio of three highly prospective project areas: Project Icewine, Yukon Leases and the newly acquired Project Peregrine.

Project Peregrine
In 2019, seismic reprocessing work was undertaken over 88E’s Project Peregrine as well as on strategically selected regional 2D lines that extended into the Willow oil field to the north of the project area. This work indicated that the same shelf margins and geology extended from Willow south into 88E’s acreage and analogous seismic signatures were evident at the discovered field and 88E’s prospects. This was the basis for the mapping of the prospects and the independent resource estimate released in January 2020 and updated May 2020.

Subsequent to the reprocessing, amplitude vs offset studies (AVO) were also conducted and 88E has finalised its review of these products in the quarter, with very encouraging results. The studies were calibrated to the existing Willow oil field to determine if similar attributes (in addition to those observed on the reprocessed seismic) could also be observed at the Project Peregrine prospects, Merlin and Harrier. The signatures observed, in particular for Fluid Factor, are very similar between the Willow oil field and the Merlin and Harrier prospects

The dataroom for the Project Peregrine farm-out has now been open for several weeks multiple parties progressed through technical due diligence and several initial non-binding offers have been received subsequent to quarter end. Whilst encouraging for the scheduled close of a deal prior to year-end, there can be no guarantee that a deal will be completed within this timeframe. Permitting, planning and contracting works associated with the drilling of the Merlin and Harrier prospects at Project Peregrine remain on schedule for spud of the first well in 1Q 2021.

Yukon Leases
Discussions continued during the quarter with nearby lease owners to optimise the monetisation strategy for existing discovered resources located in the vicinity of the Yukon Leases. The Yukon Leases contain the 86 million barrel Cascade Prospect * which was intersected peripherally by Yukon Gold-1, drilled in 1994, and classified as an historic oil discovery. 88 Energy recently acquired 3D seismic (2018) over Cascade and, on final processing and interpretation, high-graded it from a lead to a drillable prospect. The Yukon Leases are located adjacent to ANWR and in close proximity to recently commissioned infrastructure.Permitting to continue ahead of a future possible drilling campaign – subject to farm-out.
* Refer announcement 7 November 2018
Cautionary Statement: The estimated quantities of petroleum that may be potentially recovered by the application of a future development project relate to undiscovered accumulations. These estimates have both an associated risk of discovery and a risk of development. Further exploration, appraisal and evaluation are required to determine the existence of a significant quantity of potentially movable hydrocarbons.

Corporate
The ASX Appendix 5B attached to this report contains the Company’s cash flow statement for the quarter. The significant cash flows for the period were:
• Exploration and evaluation expenditure totalled A$1.2m gross (Jun’20 Quarter A$20.1m), primarily associated with expenditure on the Charlie-1 post well testing as well as Project Peregrine well planning and permitting;
• Lease rental payments totalled $0.398m in the quarter;
• Cash call proceeds received from Joint Venture partners in the quarter totalled A$0.9m (Jun’20 Quarter A$1.7m);
• Payments in relation to the debt facility interest totalled A$0.48m (US$0.3m);
• Payments in relation to the XCD takeover totalled $0.7m in the quarter. In addition, 88 Energy made redundancy payments associated with the XCD Energy take-over of $0.177m;
• XCD Energy opening cash balances received as a result of the take-over, that the now form part of 88 Energy cash balances, totalled $0.435m; and
• Administration and other operating costs, net of government payments, totalled A$0.480m (Mar’20 Quarter A$0.581m).

At the end of the quarter, the Company had cash reserves of A$4.681m, including cash balances held in Joint Venture bank accounts relating to Joint Venture Partner contributions totalling A$0.272m.

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