88 Energy : Half Yearly Report and Accounts

88 ENERGY LIMITED

ABN 80 072 964 179

HALF-YEAR FINANCIAL REPORT 30 JUNE 2019

CONTENTS

	Page
CORPORATE INFORMATION	1
DIRECTORS' REPORT	2
AUDITOR'S INDEPENDENCE DECLARATION	6
CONSOLIDATED STATEMENT OF PROFIT OR LOSS & OTHER COMPREHENSIVE INCOME	7
CONSOLIDATED STATEMENT OF FINANCIAL POSITION	8
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY	9
CONSOLIDATED STATEMENT OF CASH FLOWS	10
NOTES TO THE HALF-YEAR FINANCIAL STATEMENTS	11
DIRECTORS' DECLARATION	18
INDEPENDENT AUDITOR'S REVIEW REPORT	19

CORPORATE INFORMATION

DIRECTORS

Mr Michael Evans

Mr David Wall

Dr Stephen Staley

JOINT COMPANY SECRETARIES

Ms Sarah Smith

Mr Ashley Gilbert

REGISTERED OFFICE AND PRINCIPAL PLACE OF BUSINESS

Level 2, 5 Ord Street

West Perth WA 6005

Telephone: [phone]

Facsimile: [phone]

POSTAL ADDRESS

PO Box 1674

West Perth WA 6872

AUDITORS

BDO Audit (WA) Pty Ltd

38 Station St

Subiaco WA 6008

SHARE REGISTRIES

Computershare

Level 11, 172 St Georges Terrace

Perth WA 6000

Telephone: [phone]

Facsimile: [phone]

Computershare Investor Services PLC

The Pavilions

Bridgwater Road

Bristol BS99 6ZZ

United Kingdom

INTERNET ADDRESS

www.88energy.com

ASX CODES

Shares 88E

LONDON STOCK EXCHANGE - AIM

Shares 88E

COUNTRY OF INCORPORATION AND DOMICILE

Australia

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DIRECTORS' REPORT

Your Directors present their report together with the interim financial report of 88 Energy Limited (the Company or 88 Energy) for the six months ended 30 June 2019 and the independent auditor's review report thereon.

DIRECTORS

The names of the Company's Directors in office during the half-year and until the date of this report are as below. Directors were in office for this entire period unless otherwise stated.

Mr Michael Evans (Non-executive Chairman, appointed 9 April 2014)

Mr David Wall (Managing Director, appointed 15 April 2014)

Dr Stephen Staley (Non-executive Director, appointed 9 April 2014)

OPERATING AND FINANCIAL REVIEW

During the period, the Group has continued its principal activities in Alaska. A summary of significant activities is below:

Highlights for the first half of 2019:

Project Icewine

• Project Icewine Conventional;

1. The Conventional farm-out campaign continued in the half-year, with the deadline for bids extended to end January 2019 due to demand from multiple parties;

1. After consideration, a preferred bidder was selected by the Company in March 2019 with the third-party due diligence process and negotiation of terms and conditions completed in Q2 2019;

1. Farminee internal approvals were complete prior to the end of June 2019 for the proposed conventional portfolio

farm-out deal; and

• 1. Subsequent to period end an Exclusivity Agreement was executed with the preferred bidder to facilitate near term operational activity whilst final terms were agreed on the proposed farmout agreement, with execution of the Farm- out completed and announced on 23 August 2019.
• Project Icewine Unconventional;
• 1. Advanced FIB-SEM and HAWK analysis was undertaken in the half-year which significantly advanced the

understanding of the HRZ shale play, with the following noted;

1. The majority of acreage remains within revised prospectivity fairway;

1. Additional application of FIB-SEM underway to validate fairway revision; and

1. Franklin Bluffs (Icewine#2 location) considered to be marginally outside revised fairway.

Yukon Acreage

• Processing of the Yukon 3D interpretation and resource evaluation on the inversion product was completed in the half- year; and
• Discussions were underway with nearby resource owners to optimise monetisation strategy to the acreage.

Western Blocks

• Winx-1Exploration well;

1. The Permit to Drill for the Winx-1 exploration well was approved by the Alaska Oil and Gas Conservation

Commission (AOGCC) in January, with the Winx-1 exploration well spudded on schedule on 15th February;

1. Total Depth of 6,800' was reached on the 3rd March 2019, having intersected all targets, including the primary Nanushuk Formation Topset objective;

1. Petrophysical analysis of the wireline logging program indicated low oil saturations in both the primary Nanushuk Topset objectives and the Torok objective, with testing and fluid sampling indicating that reservoir quality and fluid mobility at this location are considered insufficient to warrant production testing; and

1. The Winx-1 well was successfully plugged and abandoned on the 18th March, 2019, with the Nordic#3 rig and associated services were fully demobilised prior to the end of Q1 2019. Drilling operations were completed on time and without incident, and under budget.

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DIRECTORS' REPORT

PROJECT ICEWINE

Project Icewine Conventional

A fast track farm-out campaign commenced in August 2018, whilst processing of newly acquired 3D seismic (March 2018) was still underway. Processing was finalised in October 2018, including inversion, marking the first time that potential farminees could comprehensively assess the mapped conventional resource potential on the Western Play Fairway at Project Icewine. Consequently, requests were made by potential farminees for more time to evaluate the opportunity, which the Company granted.

The farm-out process progressed to the next stage at the end of Q1 2019 with a preferred bidder selected and negotiations and indicative terms agreed and due diligence completed in Q2 2019. The Company was advised by the preferred bidder in June 2019 that Board approval and other required internal approvals had been secured. The Company advised at half-year that the parties will quickly move to agree to document and finalise terms and close the transaction in July 2019. Subsequent to half-year 2019, the Company advised that it had executed an Exclusivity Agreement executed with the preferred bidder to facilitate near term operational activity whilst final terms are agreed on the proposed farmout agreement, with the Company announcing execution of the Farm-out Agreement with Premier Oil Plc of the United Kingdom on 22 August 2019, with the farm-in to occur over multiple stages beginning with Premier acquiring a 60% interest in return for the drilling of 1 exploration well in Area A of Project Icewine in the first quarter of 2020.

Project Icewine Unconventional

Baker Hughes and the United States Geological Society (USGS) continue to apply advanced evaluation techniques to the HRZ shale play, including additional tests on both core and cuttings obtained from the drilling of the Icewine-1 and Icewine- 2 wells.

Finalisation of advanced analysis using state-of-the-art technology has significantly advanced the Joint Venture understanding of the nature of the HRZ play. This analysis has confirmed that the HRZ is an excellent source rock with good potential as an economic shale play.

The nature of the dominant kerogen in the HRZ has been demonstrated to be prone to more rapid transformation into hydrocarbons than other shales initially used for comparison. This means that the thermal maturity window for volatile oil in the HRZ is at lower temperature than that typically seen in other plays. As a result, the Franklin Bluffs location (where both Icewine wells were drilled) is considered to be just outside the fairway. The kerogen in the HRZ at Franklin Bluffs has been converted largely to solid bitumen, with sub optimal intraparticle porosity and connectivity. The total porosity of the formation remains excellent - the effective kerogen porosity (pathways between the particles that contain the hydrocarbon); however, is lower than ideal. At slightly lower thermal maturity, it is prognosed that porosity/connectivity will be significantly improved.

The expansive leasing strategy employed by the Joint Venture means that the majority of the revised fairway for the play remains captured within the Project Icewine leasehold, with greater than 50% of the acres under lease considered prospective.

The forward program consists of accessing material from regional wells in order to conduct additional FIB-SEM analysis to confirm improved effective porosity and connectivity. Consequently, the formal farm-out process will be deferred until 2H 2019 to allow for this work to be completed. The Joint Venture continues to field unsolicited third party interest in the HRZ shale play and an informal farm-out process is underway.

The Company continues to receive third party interest in the HRZ shale project and anticipates being able to integrate the data from the current evaluation into a dataroom by mid-2019 in order to commence a formal farm-out process.

Purchase of Outstanding Tax Credits and an Additional Tax Credit Certificate Granted

On the 9th of January 2019 the Alaskan Department of Revenue ("DoR") informed the Company of the purchase of US$1.57m (A$2.2m) in tax credits, with the funds received directly applied against the Brevet debt facility. Debt outstanding at half-year ended 30 June 2019 totalled US$15.5 m (A$22.3m). Further, on the 26 March 2019, the Company was informed by the Alaska DoR that it had issued a Credit Certificate to Accumulate Energy Alaska Inc., (100% owned subsidiary of 88 Energy Ltd), for US$2.35m (A$3.4m) related to CY2016 2D seismic expenditure. The total expected cashable credits owed by the State to 88E at quarter end was US$19.1 m (A$27.3m), which is far in excess of debt outstanding of US$15.5m (A$22.3m).

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