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Vol. 26, No.24 Week of June 13, 2021
Providing coverage of Alaska and northern Canada's oil and gas industry

88 Energy buys out partner APDC, now has 100% of Project Peregrine

Kay Cashman

Petroleum News

In exchange for US$14 million in shares, a 1.5% overriding royalty interest on production and other future considerations, 88 Energy has acquired its partner’s 50% working interest in Project Peregrine in the northeastern part of the National Petroleum Reserve-Alaska. The 195,000-acre package includes the recently drilled exploration well in the Merlin prospect, as well as the Harrier prospect.

The buyout of Alaska Peregrine Development Co. LLC’s interest gives 88 Energy a 100% working interest in Project Peregrine and removes any financial or technical barriers that existed under the split ownership structure, according to 88 Energy’s June 7 ASX announcement. Instead of pausing work while results from the Merlin 1 well are evaluated, it frees the company to move forward next winter with Harrier 1 and a possible re-entry or sidetrack at Merlin 1. APDC “had indicated that it was contemplating a pause in activity to further understand the results from Merlin 1.” (On April 6, 88 Energy announced: “It is now too late in the season to initiate flow testing operations and the forward program. ... The well may be re-entered in the future … in order to drill a sidetrack and conduct a flow test.”)

The June 7 ASX release also said that while APDC was encouraged by the initial results from Merlin 1, “it is unlikely to be able to satisfy anticipated funding requirements for operations in future seasons” and APDC does not want to hold 88 Energy back from future development of the acreage.

88 Energy also said that APDC’s owners do not have the “technical acumen nor operational expertise to add value in a remote Alaskan context.”

APDC, a Delaware limited liability corporation formed late last year for investment in Project Peregrine, has not yet posted the names of its members. It did issue the following statement regarding the sale to 88 Energy, which was included in the June 7 ASX release: “We are very proud of the important role that we played in the drilling of Merlin 1 and the initial exploration program at Project Peregrine. However, we also recognize that we are unlikely to be able to satisfy anticipated funding requirements for operations in future seasons. Because we do not want to hold 88 Energy back from future development of the acreage, we felt that it was prudent to enable 88 Energy to consolidate its interest in Project Peregrine to allow the project to move forward. APDC has maintained exposure to vast potential upside associated with Project Peregrine through a royalty interest and other value triggers.”

88 Energy is targeting more than 1 billion barrels of oil at Peregrine, in gross mean prospective resources that include the oil-rich Nanushuk formation. With Merlin 1, the company was looking at proving up a gross mean prospective resource of 645 million barrels of oil with the Nanushuk reservoir as the main target.

88 Energy is looking at an additional 417 million barrels of oil in gross mean prospective resources with its drilling of next winter’s Harrier 1 exploration well.

As reserves proved up

As part of its APDC acquisition, 88 Energy also has to pay APDC a US$10 million cash payment if gross 2P (proven and probable) reserves of 100 million barrels are defined within 36 months; plus cash payments of US$2.5 million per 50 million barrels of gross 2P reserves added above that within 36 months (capped at five additional cash payments).

“Excluding a bona fide farm-out,” 88 Energy also must pay APDC 10% of the gross sale proceeds if it assigns more than 49% of Project Peregrine to a new partner within 24 months.

APDC remains liable for all outstanding Merlin 1 cash calls and will have contributed US$20 million toward the project at completion of the agreement, 88 Energy said.

Full control

“This is an excellent outcome for our shareholders as we now have full control of the project, including the possibility of further farm-out to a new partner with greater technical and operational capability, ahead of future planned drilling and exploration activity,” 88 Energy’s Managing Director Ashley Gilbert said.

“With the additional data we now have in hand, the potential for improved transaction metrics has increased. We also remain optimistic about the future results from the ongoing laboratory tests related to the Merlin 1 well,” he said, adding that having 100% working interest in Project Peregrine as well as its 100% interest in the neighboring Umiat field, “opens up significant potential” for 88 Energy to “realize value in the region.”

Good results to date

Merlin 1 was spud March 10, 2021. It was drilled by one of 88 Energy’s four Alaska operating subsidiaries, Emerald House - all the subsidiaries are run by long-time Alaska geologist and innovator Erik Opstad.

Opstad used All-American Rig 111, a lightweight, inexpensive portable rig that did not require an ice road.

The shallower Nanushuk wells do not need a heavier rotary rig, which would require an ice road transport it.

Rig 111 was moved in pieces during the off-road winter season by tundra-safe track vehicles on snow trails.

Although the use of snow roads and lightweight, portable rigs has been studied and considered by XCD, Armstrong and Oil Search, 88 Energy was the first to conduct such a program on the North Slope.

Downhole results appear to speak well for ongoing exploration in the Merlin and nearby Harrier prospect.

A summary of encouraging results in the June 7 announcement read as follows:

* Moderate to excellent reservoir quality in multiple sand packages.

* Good free fluid observed on NMR.

* Thicker Nanushuk formation and more prograding/aggrading sequences than seen farther north.

* Additional targets identified.

* Extensive shows throughout the well.

* RDT hydrocarbon evidence when pressure reduced.

The Harrier and Merlin prospects lie between the Umiat oil field to the south and Willow, Harpoon and Pikka to the north.

Merlin is considered a direct analogy to ConocoPhillips’ Willow oil discovery, while ConocoPhillips’ Harpoon prospect “is interpreted to lie on the same sequence boundaries as the Harrier prospect,” 88 Energy has said.

Plans to drill a Harrier 1 well during the 2021 winter season were dropped because of delays caused by a Biden Executive Order.

A deeper Torok objective in the Harrier prospect lies at about 10,000 feet. 88 Energy has announced no plans to drill it.

- KAY CASHMAN



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