An initial comment I will make on the general market acceptance of 88 Energy/Bex is that we do have many of what I will call kindly call, uneducated speculative interest. These are the traders and short term holders that predominantly have little understanding of what's going on at Icewine bar the fact that the annmnts are very positive and the trading technicals continue to support their interest/involvement.
The other type of market acceptance comes from a somewhat more important group of investors that actually take in the information from the annmnts and research, and understand what these annmnts are stating, and their consequent potential.
The overall market acceptance has been changing of late from the first group to the second and this is clear to see from the current trading patterns. There has been clear accumulation taking place, altho somewhat volatile at times. But imo this is directly related to the number of shares on issue and the fact that many holders from the early 1c placements are either reducing risk exposure or taking profits and moving on. Nothing wrong with this as its how the market works.
The rise of 88E/Bex has been meteoric to say the least and IS DIRECTLY RELATED TO THEIR ICEWINE ACREAGE ASSETS. There are those that purport this not to be the case and that all this is hype and conjecture. Well, I'm sorry but this group of people are blatantly wrong when referencing 88E/Bex annmnts.
The FACT that this company is now market capitalized at over $200M says volumes for the confidence the market has in this company, and until such times as the market cap drops back to $100M or less, imo the market is still reflecting its confidence in this JV.
Even tho I am well off the beaten track re flow rate potential atm this market appreciation which is reflected in the value it has put on this company, is important in SUPPORTING ALL THE COMPANY HAS ACHIEVED TO DATE and this support imo RELATES DIRECTLY TO WHAT IM ABOUT TO DISCUSS.
FLOW RATESand why I think the company has got it right with the potential at Icewine.
First a caveat. And that is that much of what we see at Ice 1 needs to be confirmed at Ice 2H and with the 2D seismic.
BUT if the results at Ice 1 are anything to go by then this play WILL BLOW ANY OTHER UNCONVENTIONAL PLAY OUT OF THE WATER.
EXCEPTIONAL FLOW RATES
I'll start with what we seem to be constantly referring to, as much as the analysis of Ice 1 in the annmnts, and that's the comments from the CEO Dave Wall, in reference to the last annmnt on Permeability Super Highways or PSH's.
Just as a quick aside, its clear from Daves comments he has an excellent understanding of what's going on here, which makes his job much easier as he can integrate his understanding of the Ice 1 results as well as what might be going on across the acreage, into how He, the 88E board and Paul approach the forward planning of this play.
Managing Director of 88 Energy Limited, Dave Wall commented:
“As expected, the permeability results from the ‘super highways’ are excellent and provide further support for a resource play that could yield production rates more akin to those normally experienced in conventional wells. An increasing BODY OF EVIDENCE from Icewine#1 supports a case for POTENTIALLY EXCEPTIONAL FLOW RATES from the HRZ. The next step is to test this theory via the drilling of Icewine#2H, which will be a horizontal well with a multi-stage fracture stimulation.
But WHY is this PSH character important to the potential for exceptional flow rates ?
Well the obvious answer to that is that the very high permeability allows the hydrocarbons to flow easily, and yes that is the primary factor in achieving high flow rates.
BUT, and this imo is where the market is showing its doubt with Icewine, there is always a lowest common denominator, or a lowest limiting factor with any such unconventional plays and with potential flow rates this is related to the PORE THROATS which connect with the permeability channels with the pores.
It is obvious that over the millennia the hydrocarbons have migrated up dip to the north/north western conventional reservoirs, as per the Basin Petroleum System Model (BPSM) of the NSA, so the potential for these hydrocarbons to flow is definitely present via the NATURAL PRESSURE GRADIENTS being created by a combination of changing temperature/pressures with depth.
These changes reduce the gas portion of the hydrocarbons as they move up-dip due to the gaseous phase condensing giving less O/pressure above the down-dip hydrocarbons and therefore literally giving the hydrocarbons above a push up-dip.
This will also be assisted by the relative lightness of the high API hydrocarbons gas condensate and their want to move towards a more stable state, that being the liquid condensate phase, as all physical systems do. They tend towards the more chaotic or relaxed low energy state which is the liquid phase, AS THEY LOOSE THE HIGHER ENERGY PRESENT from the conditions deeper in the strata at the sweetspot as they move up towards the reservoirs.
Now the fact that these hydrocarbons can indeed EASILY MIGRATE heavily implies that the pore throats allow relatively easy movement into the permeability channels.
I say this ( the high API comment) confidently because the company has already stated they have located the sweetspot at Icewine as indicated by the correct thermal maturity which can only be present if the correct hydrocarbons are present.
They have also stated the hydrocarbons at Ice 1 are representative of a TIER ONE unconventional play which by definition, in a sweetspot that has the overlapping gas condensate and volatile liquids phase, contains high API hydrocarbons and usually gas condensates.
These company comments also directly support this assertion:
o Volatile oil VAPOUR PHASE with higher liquids content than forecast.
The word VAPOUR is the clincher. It is basically stating that they have a gas condensate present.
The API rating of the hydrocarbons is yet to be confirmed but my guess is that this is directly related to the commerciality of the play and will more than likely be kept mum about until such a time that they must annc such details to market. The TIER ONE comment in combination with thermal maturity should be enough for the market atm and again it appears with the market cap being retained, it is doing so.
" ...light oil and condensate was observed leaching from core material, confirming the presence of liquid hydrocarbons at the Icewine#1 location (see graphic below). This further supports the core and geochemical analysis that the thermal maturity window at Icewine#1 is consistent with pre-drill modelling. Final thermal maturity data is expected within 7 days."
Indicates Icewine#1 in Crossover Between Volatile Oil and Condensate Window – Pre Drill Predictions Proven to be Accurate
The above is my justification on why we should be confident that 88E/Bex have derisked substantially any doubt over the forecast hydrocarbons being present.
THIS is important for the Exceptional Flow Hypothesis as the exceptional flow relies heavily upon not only those PSH characteristics but also the LOW VISCOSITY of these vapour phase hydrocarbons that should be present.
Viscosity is a quality of thickness and the thinner one gets in terms of viscosity, the easier any gas or liquid moves.
Again the company states (or it appears dramatically UNDERSTATES given the last PSH annmnt):
o Resultant Low Viscosity Vapour Phase Hydrocarbons Modelled to Flow at Material Rate Given Porosity and Permeability Results
I just love that word "MATERIAL" !!!
I'm thinking it's used in its ADJECTIVE guise here.
Adjective: significant; important
I'm thinking Dave hadn't had his his latte when composing this statement. Bit too laid back for my money
Now its all well and good stating the HRZ has the high POTENTIAL to flow well due to the above but what about mitigating factors.
I mentioned "pore throats" earlier as a potential limiting factor.
The main issue one can get with these pore throats is that when the rocks are fracked there can be a subsequent pressure drop and the Vapour phase hydrocarbons can move into the liquid phase. This can result in pore throat blockage.
"The production of condensate reservoirs can be complicated because of the pressure sensitivity of some condensates: During production, there is a risk of the condensate changing from gas to liquid if the reservoir pressure drops below the dew point during production."
These larger groups of liquid phase molecules (and therefore higher viscosity) can subsequently reduce or block the pores having the consequences of lower flow rates.
But should this be a problem at Icewine ?
Well for one, the very high porosity/permeabilities imply the pore throats should be substantial. But this isn't always so.
One can have high porosity but low permeability which results in a strata that requires HEAVY STIMULATION due to the need to RELEASE the hydrocrabons from the pores, which are restricted by the low permeability.
BUT at Icewine we have both high porosity AND high permeability.
Unless there has been cementitious deposits/formation between the pores and the permeability channels then as stated, the FLOW CAPACITY should be SUBSTANTIAL as its akin to having a grouping of large particles pushed together which leave large spaces between them as well as large interconnecting channels.
Imo this was clearly evidenced by the VISUAL SEEPAGE of the hydrocarbons from the core sample.
Hydrocarbons would not readily seep from a rock sample if they were restricted by cementing deposits in the pore spaces. NEITHER WOULD THEY MIGRATE from these sweetspot source rocks if also the case.
In any case most problems in this regard can in fact be worked by the extremely flexible frack technology and techniques utilized to day as well as those being currently developed. The fracking pressure used can be regulated so that the reservoir pressure drop is minimized and does not realise the formation of pore blocking vapour phase condensation.
However what I believe we have at Icewine with this new HRZ play with all the above factors taken into account, is a strata that looks like it will potentially utilize MINIMAL fracking efforts and therefore costs.
Another risk factor was the potential clastic (flexible/swelling) nature of the HRZ which has now proven to be incorrect. The clastic clays or the smectites, have been shown to be of low % relative to the overall mineralized makeup of the HRZ strata.
SO THIS HAS ALSO BEEN HUGELY DE-RISKED, if not totally.
BUT what if the rock type varies over the acreage and the potential flow rate is not maximised, which it may well certainly do given the variation in permeability/porosity and rock mechanics in many unconventional wells in the lower 48.
This is where MICRO-SEISMIC feed back during the frack operation comes in as a valuable tool. It allows the data logger to advise or adjust the frack parameters to alter the nature of the fracks as well as the orientation of the fracks AS THE WELL DRIVES ITS HORIZONTAL BORE.
As some have commented, all these de-risk factors being present across the acreage are reliant primarily on further explorational drilling to prove up continuity across the acreage and also the 2D seismic, the seismic being the first step in the proving up of continuity.
BUT Ice 2H will bring a huge DE-RISK REALITY factor to the immediate play acreage IF the annmnts havnt done so already.
As we have commented a few times of late Paul Basinski has hit all targets with his model to date and has indeed seen some of his model forecast parameters exceeded.
Now Ive always found that nothing is proven until all observations and analysis support the hypothesis to theory and this should be the case here as well particularly across the acreage given its a new type of play. The old phrase "one well does not a play make" is certainly the case here. However the Ice 1 analysis and data just about totally de-risk this local part of the acreage.
Because of these HRZ proven characteristics I am of the belief that we are almost certainly assured of high to very high flow rates rates at Icewine 2H as long as the 2D seismics confirm similar sub strata conditions.
I am becoming more and more confident day by day that at the very least, Icewine acreage will flow exceptionally well due to the above reasoning.
(20min delay)