88 Energy’s Alaskan oil mission goes on despite losing the Father of Fracking

88 Energy ASX 88E Icewine Project oil gas Paul Basinski
88 Energy's Icewine Project in Alaska.

One of the most audacious and courageous oil development projects in modern history, currently being progressed by 88 Energy (ASX: 88E) continues to move forwards despite suffering a body blow this week.

The mastermind (Paul Basinski) behind 88E’s Icewine Project, that aims to prove up around 3.6 billion barrels of oil in Alaska, and colloquially nicknamed as ‘The Father of Fracking’, suffered unforeseen complications during a heart transplant operation and died as a result of the procedure.

The news has rocked the North American oil industry and left many friends and colleagues distressed by the sudden loss, including 88 Energy boss Dave Wall.

The “instrumental” Mr Basinski was top-notch geologist whose previous work helped to discover the Eagle Ford basin in Texas, currently one of the largest producing basins anywhere in the world producing 1 million barrels per day and netting its original vendor, Conoco, billions in annual revenues.

As founder and CEO of oil development company Burgundy Xploration, Mr Basinski was adamant that the next major basin to rival the Eagle Ford could be found on Alaska’s North Slope, hence the focus on Project Icewine with 88E.

The project secured rights to 700,000 acres inside the Arctic Circle and work has been ongoing for the past 6 years to bring yet another mammoth oil resource to the surface.

The latest news from 88E’s Alaskan adventure

The remainder of 2018 promises to be pivotal for the 88E, with near-term activity related to the Icewine#2 flow test expected prior to mid-year, results from two 3D seismic acquisitions and one or more farm-out transactions targeted for the latter part of 2018.

From its conventional interests, the Icewine 3D seismic survey, approximately 450 square kilometres in area and covering several large leads identified on 2D seismic, was completed on the 28th March – on schedule and within budget.

88E also reports that it can conduct “fast-tracked processing” following the latest round of infield quality control that has ensured “clean data” and overseen by head office.

Processing of shipments of data from the initial areas of the acquisition has commenced and early products, namely post-stack migration, will be available in June 2018, according to 88E.

Later this year, 88E says it will be “able to conduct confirmatory mapping of the stratigraphic/structural elements of the leads already identified in the conventional prospectivity portfolio” to be quickly followed up with “velocity analysis and regularization”.

According to 88E, its conventional interests are in line to be “farmed out” to additional joint-venture partners later this year, ahead of drilling operations next year.

88E says it remains confident of achieving a successful outcome to the farm-out process prior to year-end, given it’s two recently drilled and operated wells, being within budget and on schedule, and also “large discoveries in nearby acreage to the north”.

Yukon Gold

88E has awarded a seismic contract to SAExploration to acquire around 96 square kilometres of 3D seismic data, predominantly over its Yukon Gold leases in eastern Alaska.

88E said that the seismic data will “allow for assessment of the volumetric potential of the discovery as well as to identify any additional prospectivity over the broader lease position.”

Acquisition commenced on the 24th March and was completed on the 1st April with 88E confirming that final processed products are anticipated in Q4 2018.

Testing the Alaskan Icewine Project

Given the multifaceted nature of its Alaskan operations, 88E said that planning is being finalised for the re-opening of the Icewine#2 well, which remains on schedule for April/May 2018, adding that the exact timing is dependent on warmer temperature, with further details to be “provided in the coming weeks”.

“The 88E team have been extremely busy on multiple fronts over the last few months, with refinancing of debt, exercise of options, expanding our lease position, planning for, and acquisition of, two 3D seismic surveys and, of course, the re-opening of the Icewine#2 well,” said Dave Wall, Managing Director of 88E Energy.

“The strong support for the recent option exercise has meant we have been able to accelerate assessment of the Yukon Gold leases, with the costs of the planned 3D acquisition being less than half of the monies receipted from the option exercise process,” Mr Wall added.

An Alaskan future

If Icewine #2 proves successful and 88E confirms what Mr Basinski was sure of, its success could help revive Alaska’s flagging oil fortunes, thereby kickstarting a sagging oil industry that’s plunged the state’s economy to its lowest funding level for decades.

The reason for the sombre mood in Alaska is due to other states in the US being extremely productive at a lower cost. Alaska wants to revive its oil industry and fill its coffers back to levels when oil prices were in the $100 per barrel range.

The dwindling volume of crude produced in the state has coincided with a dramatic fall in oil prices since 2014 and stunting Alaska’s once-booming economy.

When oil approached  $100 per barrel in 2014, Alaska reeled in US$5.7 billion per year in hydrocarbon royalties and ensuring a bumper state budget.

In fiscal 2017, the take is estimated to be US$1.6 billion, a 72% decline from the heady highs merely 4 years ago.

With oil prices struggling to breach $60 per barrel, the only way to achieve its ambitions is to reduce the cost of oil production which is a major challenge considering the severely harsh climate and remote location of Icewine.

Shipping the required tools and equipment needed to complete the project is proving to be a major logistical nightmare for all Alaskan oilers, although 88E has a plan up its sleeve — a plan masterminded by the late Mr Basinski and potentially taken over the finish line by 88E’s crew.

What is fracking?

In hydraulic fracturing or fracking, water, sand and chemicals are injected at high pressure into shale rock to release the oil and natural gas trapped inside.

Drillers create cracks within shale and tap them with horizontal wells that can run for thousands of metres underground.

In Alaska, the practice has been slow to take off due to the higher costs of working in the Arctic, where drilling can cost three times as much as in other US states.

Another so-called “Fracking King”

Another company walking in the footsteps laid by an ingenious fracking merchant is Empire Energy (ASX: EEG).

Empire’s story is linked to one of America’s most prolific fracking experts who developed several oil fields across the US Midwest and was looking to repeat the feat in Australia’s McArthur Basin in the Northern Territories.

Mr McClendon’s ideas pushed shale drilling into the limelight and helped to kick-off the US ‘shale gale’ that’s seen the US recover its domestic oil production by several multiples over the past decade.

His company Chesapeake Energy became the 2nd largest gas producer and 7th largest oil producer in the US despite only being founded in 1989 by Mr McClendon.

George is an award-winning market analyst who has authored articles and editorial opinion pieces for multiple publications around the world. He has written about a wide variety of topics including financial markets, stocks, trading, politics and economics.