88 Energy, Otto and Red Emperor farm into large Alaskan oil prospect

A trio of Australia-based oil and gas explorers led by 88 Energy (ASX: 88E) have inked a farm-in deal to acquire four leases covering a large oil prospect on Alaska’s North Slope.

The company, along with its consortium partners Otto Energy (ASX: OEL) and Red Emperor Resources (ASX: RMP), today announced the execution of formal definitive agreements to farm-in to acreage known as the Western Blocks, currently 89.2% owned by private company Great Bear Petroleum.

Under the deal, the consortium is required to drill a commitment well on the Western Blocks before 30 May 2019 in exchange for the majority of Great Bear’s working interest.

88 Energy will take over as operator and will earn an initial 36% working interest in the project.  Otto, which already holds a 10.8% interest in the acreage, will increase its holding to 22.5%, while Red Emperor will acquire a 31.5% stake.

Great Bear will retain a 10% working interest in the project and be free carried through the drilling, completion and production testing of the well, including all associated costs such as permitting, ice road access and test production disposition.

The consortium has already made a US$500,000 payment to Great Bear in consideration for the acquisition and will pay a further US$500,000 upon receipt of final drilling permits.

Consideration also includes a US$3 million performance bond to be paid to the State of Alaska before the end of this month. The bond is refundable if the well is drilled by its deadline.

In addition, the agreements provide an option for Great Bear to earn back a further 10% interest by paying its pro-rata share of all costs for the initial test well or (if exercised within six months of completing the well) by paying 200% of its share of well costs.

This back-in deal would increase Great Bear’s working interest to 20% and effectively reduce 88 Energy’s stake to 32%, Otto to 20% and Red Emperor to 28%.

Drilling plans

With an existing working interest in the project, Otto’s technical team had identified a large oil prospect in the Western Blocks, located in the successful Nanushuk play fairway.

3D seismic interpretation by 88 Energy has confirmed Otto’s original evaluation that the prospect holds a gross mean unrisked prospective oil resource of 400 million barrels with a 25-30% geological chance of success.

As the incoming operator, 88 Energy will manage the drilling of an initial well to test this prospect on behalf of the joint venture.

According to Red Emperor, drilling will need to be undertaken during the upcoming US winter months as the location is only accessible through an ice road. The company said the joint venture had met with Alaska’s Department of Natural Resources to advance the required approvals and permits.

88 Energy has already commenced a rig market survey and is identifying a suitable rig for the drilling operations. The well site has been selected and subject to approvals, drilling is anticipated to begin in the first quarter of 2019.

Red Emperor’s share price soared more than 60% higher to A$0.037 as its trading suspension was lifted following the news. By mid-afternoon trade, its stock was sitting at A$0.030.

Meanwhile, Otto shares were up 1.59% to A$0.064 while 88 Energy’s share price remained unchanged by mid-afternoon trade.