88 Energy to cash out tax credits; sale made to large US company

Steve Sutherlin

Petroleum News

88 Energy Ltd has entered into an agreement to sell outstanding Alaska oil and gas production tax credit certificates with a face value of $19.1 million, for $18.7 million, the company said in a June 21 release.

The proceeds of the sale will be applied toward full repayment of the company’s outstanding debt of $16.1 million, and the residual $2.6 million will be added to its cash holdings and applied towards its working capital requirements, the company said, adding that following the closing of the transaction, 88 Energy will be debt free.

“The purchaser is a large oil and gas company in the United States with multiple exploration and production assets and has capacity to fund transactions of this nature,” the company said.

The tax credit certificates are held by Accumulate Energy Alaska Inc., a 100% owned subsidiary of 88 Energy, the company said. Post-transfer, Accumulate will have no outstanding Alaska tax credit certificates.

“Transfer of the certificates and payment of the proceeds is anticipated to occur within the next few weeks, subject to Alaskan Department of Revenue approvals and processes” the company said. The proceeds will be payable upon completion of the sale and transfer of the outstanding tax certificates.

The debt of $16.1 million, which 88 Energy plans to retire, is held by FCS Advisors, LLC d/b/a Brevet Capital Advisors, 88 Energy said. The debt was due to mature on Dec. 30, 2022. Early repayment penalties have been waived by FCS.

88 Energy said that under its current estimates, the tax credits - had they not been sold - would not have been fully paid out by the state until 2026.

The early repayment of debt will eliminate future cash payments that would have been made towards interest.

“This is a transaction which accelerates the realization of value of the Alaskan Oil and Gas Tax Credits and the early repayment of outstanding debt due to be repaid by the end of 2022,” said Ashley Gilbert, 88 Energy managing director. “As a result of the transaction, the company is now set to be debt free with reduced annual overheads of over US$1 million in associated finance costs.”

The overall impact of this transaction is not considered material to 88 Energy, the company said.

88 Energy trades on ASX as 88E, on AIM as 88E and on OTC as EEENF.

Over the winter of 2020j-21, 88 Energy drilled the Merlin 1 exploration well in its Peregrine project in the National Petroleum Reserve-Alaska, targeting the prolific Nanushuk reservoir.

88 Energy Ltd. spent $11.8 million on exploration and evaluation in Alaska during the first quarter 2021 - ending March 31 - primarily associated with expenditure on the Merlin 1 well, the company said in its quarterly report issued April 20. It spent $ 1.5 million on the project in the previous quarter.

- STEVE SUTHERLIN