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88 Energy releases more Merlin 1 well data; ELKO gets more shares
Kay Cashman Petroleum News
In a May 25 operations update, 88 Energy Ltd. said costs associated with this past winter’s Merlin 1 North Slope exploration well “have now been largely finalized,” with the company’s share of the costs estimated to be US$9 million, “inclusive of wireline costs and additional costs associated with operational issues during the wireline program.”
Along with a partial cash payment, the lead contractor on Merlin 1, ELKO International LLC, is being issued 345 million new ordinary 88E shares at a value of 25 cents each. This is on top of the 360 million shares ELKO was issued in late March at 18 cents per share.
ELKO, an Anchorage-based limited liability corporation, is owned by long-time Alaska geologist Erik Opstad.
The deal, 88E said, “will ensure the Company is left in a strong financial position ahead of next winter’s exploration program.”
Two other highlights of the operations update, which was signed by 88E’s new Managing Director Ashley Gilbert, included:
* Encouraging evidence of oil in down hole samples being investigated in laboratory.
* Additional fluorescence recorded at previously unidentified depths.
Before getting into the latest well information released by the company, 88E also said that none of the information they have or are “aware of” materially affects the company’s previous market announcements of prospective resources or reserves in the Merlin and Harrier Nanushuk prospects that are part of 88E subsidiary Emerald House’s Peregrine project on 195,000 acres of leased land in the eastern National Petroleum Reserve-Alaska (see chart in the pdf and print versions of this story). So, the Merlin prospect’s mean unrisked prospective oil resource remains at 645 million barrels.
The information gleaned from tests to date simply helps confirm the presence of a significant oil discovery.
RDT review in 88E said that it recently received and finalized its review of the report related to the downhole sampling program undertaken during the logging of Merlin 1 using Halliburton’s Reservoir Description Tool, or RDT. As previously reported by 88E, observations from an optical fluid analysis sensor had indicated the likely presence of oil in the formation fluid across several of the depths that were sampled.
As part of standard procedure, the pressure in the sample chambers was decreased to see changes to the quantum and composition of the fluids at closer to normal surface conditions (known as a “flash test”). Observations from a more accurate optical sensor were then made - this data was in raw format and only verbal comments had been received by 88E - which indicated an increased fraction of resins and asphaltenes, something that can only be associated with the presence of oil, 88E reported.
The raw data has since been processed and presented in a final report from the RDT logging run. These results are shown below (see fluid composition flash tests graphs in the pdf and print versions of this story) for two of the samples where the pressure was taken to below 100 psi (atmospheric pressure is ~15 psi).
It is important to note, 88E said, that while the percentages of hydrocarbon in the two graphs reach up to ~70% of the sample, which would be indicative of a discovery, the results are deemed qualitative, and the margin of error is uncertain. This means “further investigation is required to validate the actual percentage of hydrocarbon in the samples,” the company said.
The ratios of hydrocarbon indicate that the liquid present is highly “likely to be oil rather than condensate, which also bodes well from a thermal maturity perspective regionally,” 88E said.
These horizons had previously been “deemed to contain mostly water and this remains a possibility.”
Regardless of the final percentages of hydrocarbon vs water in these samples, which will be known in coming weeks, 88E said, the presence of oil is highly encouraging particularly given that the two most prospective horizons were not able to be sampled due to operational issues.
On April 6, 88E said it was too late in the season to initiate flow testing operations, but Merlin 1 “may be re-entered in the future … in order to drill a sidetrack and conduct a flow test.”
The company also said that next winter it might go back to Peregrine to drill the Harrier 1 exploration well.
In 88E’s first quarter report released on April 20, the company said the Nanushuk formation, which contained the primary targets for the Merlin 1 well, was encountered ~600’ low to prognosis and was interpreted to be ~500’ thicker than that encountered in the wells drilled in ConocoPhillips’ Willow oil field to the north of the Peregrine project.
More on fluorescence In its May 25 operations update 88E said that while preparing the Merlin 1 sidewall cores for further testing, white and UV light photography was used because if oil is present, then fluorescence will be evident under the UV light. Multiple horizons were identified as having oil present during drilling via observation of fluorescence under UV light and using solvent (or cut) to determine whether oil would leach out from the samples.
Subsequently, observations in the lab of the sidewall cores indicated they “are largely confirmatory” of the previous analyses, “however, several horizons have shown evidence of oil, which were not previously identified. These horizons, in addition to those already known to contain oil, will be the focus of further work.”
Some of this work includes nuclear magnetic resonance imagery to determine the ratios of free oil and water present as well as porosity; and Dean Stark, which extracts the oil and water from the sample to determine saturations.
88E said the results from these analyses will be known within the next few weeks.
Notably 18 of the most prospective samples were not included in those sent for lab analyses; rather, the company said they “have been set aside for special analysis related to any oil extracted.”
Supervised by Staley In compliance with the requirements of the ASX Listing Rules Chapter 5 and the AIM Rules for Companies, the technical information and resource reporting contained in 88E’s May 25 operations update was prepared by, or under the supervision of, Dr. Stephen Staley, who is a non-executive director of 88E.
Staley has more than 35 years of experience in the petroleum industry, is a Fellow of the Geological Society of London, and a geologist/geophysicist who has experience that is relevant to the style and nature of the oil prospects under consideration and to the activities described in the operations update, 88E said.
Staley has reviewed the information and supporting documentation referred to in the update and considers the resource and reserve estimates to be “fairly represented and consents to its release in the form and context in which it appears.”
88E said his academic qualifications and industry memberships comply with the criteria for “competence” under clause 3.1 of the Valmin Code 2015.”
Staley’s years of management and technical experience were in the European, African and Asian oil, gas and power sectors, including with Conoco and BP.
More recently he was founding managing director of upstream startups Fastnet Oil & Gas plc and Independent Resources plc. He was also non-executive director of Cove Energy plc.
Staley holds a BSc (Hons.) in geophysics from Edinburgh University, a PhD in petroleum geology from Sheffield University and an MBA from Warwick University.
- KAY CASHMAN
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