If there’s one thing you can’t blame 88 Energy (ASX:88E, 88E.L) for, it’s publishing exploration updates on a regular basis. The company realises every single investors is looking forward to see the flow rates, and it usually is a good thing to keep every stakeholder up to date on what’s happening on the ground.
Unfortunately the last two updates have created quite a bit of confusion amongst the investor base, as it has been difficult to interpret whether or not an update was positive, neutral or negative. First of all, the fact the upper and lower zones are connected to each other should not have any impact on the concept at all.
Secondly, in its June 26th update, 88 Energy also hinted at the potential use of artificial lift, nitrogen or swap cups as well as a potential shut-in of the well. We think this really rattled the market and whilst we appreciate 88 Energy’s honesty and transparency, we would like to make two remarks here. First of all, a shut-in isn’t really extraordinary. At Haynesville, soaking a well hasn’t had any impact on the eventual flow rates of the oil and just resulted in a lower water ‘production’ rate in the initial phase of the well.
Secondly, all of the aforementioned options are indeed just that. Options. Only 15% of the total stimulation fluid has been recovered to date, and in the original exploration plans, 88 Energy was only expecting to see hydrocarbons to flow after approximately 30% of the stimulation fluid would have been recovered. We’re now halfway, and according to 88E, the stimulation fluid continues to flow back naturally and whilst 88 Energy repeated the possibility of a shut-in and/or an artificial lift, for now it still is just a ‘waiting game’ to see what the ‘natural’ procedure will deliver.
As we wrote in our initial report, 88 Energy is a ‘go big or go home’ play, and the nervosity we currently see on the markets is pretty typical for a high risk/high reward investment thesis.