Pumping higher Without doubt, page-2

Pumping higher

Without doubt oil explorer 88 Energy (LSE: 88E) was the stand-out stock last month, its share price surging by almost 600% in February.
Market appetite ignited following positive drilling data at the firm’s Icewine #1 asset in Alaska. 88 Energy advised in an update that results “continue to deliver at or above pre-drill expectations,” the business describing the project as containing “world class resource prize potential.“
88 Energy has now launched its ‘Project Icewine Seismic’ survey programme. A contractor has been selected and the business is in the process of securing final funding.
It's shares are up 740% year-to-date, after the company announced successful drilling results from its Icewine exploration well in Alaska. It expects a majority of its acreage there to be located in a thermal maturity sweet spot, which means shale formations in the area are favourable for hydraulic fracturing (fracking).
It's too early to say whether production could become economically viable, with further appraisals needed to confirm its commercialisation prospects. Nevertheless, the results are encouraging and further positive news flow could see the shares re-rated upwards.
Alaska has some hard decisions to make. Amid the plunge in global oil prices of more than 60% since mid-July 2014 and with oil production in the state already dropping due to maturing fields and with production losses not being replaced, state coffers have been hit hard. The revenue losses have created a political fire-storm between Gov. Bill Walker and legislators over hard budget cut choices since nearly 90% of the state’s revenue is usually derived from oil activities. Adding to the fray was Shell’s announcement late last year that it was abandoning its Alaska Arctic oil exploration and production ambitions.
A $600 million hole has appeared in state revenue as a result of falling oil prices, while the $3 billion-plus deficit Alaska will face in the next cycle continues to grow.As the state grapples with these problems, doubts over the $45-$65 billion Alaska LNG project have also surfaced.
Great Bear Petroleum is conducting a further large 3-D seismic survey in its acreage south of Prudhoe Bay.

the untapped potential of Alaska’s North Slope, famed for the giant Prudhoe Bay discovery, lies with an unconventional play called the HZM, located around 11,000 feet below the surface.

However, there is a double whammy here as Tangiers’ neighbour, Great Bear, is also chasing a higher-lying, potentially prolific conventional ‘turbiditic’ play.

Only with the advent of advanced 3D technology have explorers been able to discern potential game-changing conventional targets below the perma-frost.

With a 60 per cent chance of success, hopes are high that Great Bear can hit a home run with one of its three wells scheduled between January and May.

Depending on the success of Great Bear, it may or may not shoot 3D seismic to identify conventional targets before drilling a well that will test the conventional and unconventional plays.

Combined, the seismic and initial well cost will be $40million. But given that Alaska runs a system of providing cash rebates on 85 per cent of anything invested on exploration, the net outlay probably comes out at closer to $12million, once you factor in the cost of finance, step in Prospex Oil and Gas a London listed aim minnow who can provide the answer with a £2.5 million cash injection for a 20% stake if local sources are correct.

The success of Great Bear could be transformational for Prospex Oil and Gas (PXOG) – and this for just minimal investment. For a conventional discovery on the door-step is likely to revalue significantly its land package. It is paying an all-in $40 an acre, while deals in the immediate area point to property rising in value to $1,000-2,000 an acre if oil is found nearby.

And Accumulate Energy, having drilled its Icewine no 1 well, at Franklin Bluffs on the Dalton Highway, is now preparing to start a seismic survey in its leases.

It might not be a great time to be an oil company, but independents across Alaska are saying “the show must go on” through their exploration and development work this winter.
The massive project, slated to produce 20 million tons per annum (mtpa) of LNG, will be fed from North Slope gas fields (Prudhoe Bay), where most of the state’s oil production occurs, and transported 800-miles by pipeline to a liquefaction plant at Nikiski, on the Cook Inlet, about 60 air miles southwest of Anchorage.
Cargoes will be earmarked for LNG markets in the Asia-Pacific region, which currently makes up around two-thirds of global LNG demand. Project partners include BP, ConocoPhillips, ExxonMobil, and the state of Alaska.
Until the recent plunge in global energy prices, many in the state hoped that the massive project would make up for the state’s declining oil production. However, in February project partners said that the pace of the project would decelerate until there was more clarity on oil market conditions, adding they would spend a month exploring different options to see if a lower cost option might be developed if it appears that lower energy price conditions persist. They gave no details about how they could lower the project’s massive price tag.
Even if the project comes to fruition, projected to ship first gas by 2021, it will still face stiff competition from LNG projects in the Lower 48. First, much of the 800-miles of pipeline needed to ship gas to Nikiski will have to be constructed in permafrost which will need extensive gravel bedding, a huge expense. However, LNG projects, particularly those near the Gulf Coast, will be able to access an already developed natural gas pipeline network, thereby greatly reducing individual projects’ CAPEX.
Second, Alaska LNG project partners will have to spend billions of dollars for development of Point Thomson (on the North Slope) as a gas field. However, since the project will have its own fields for feed-stock this could serve as a security of supply advantage over Lower 48 projects that will mostly procure feed-stock from the market.
Third, Alaska has very difficult permitting, including federal permits, and also needs an environmental impact statement, which will draw more attention from environmental groups than projects in the Lower 48. Additionally, Union workers from the Lower 48 will have to get Union work agreements to work on the project. These hurdles will add both time and costs to the Alaska project.
However, the Alaska LNG project also has some advantages over its Lower 48 counterparts. The gas stream coming out of the North Slope will be richer (higher Btu value) than U.S. utility-grade gas out of the Gulf Coast and also higher than coal-seam gas out of Australia, another competitor. This makes Alaska’s gas more attractive to Asian buyers.
Alaska is also closer to Asian markets than U.S. Gulf Coast projects are. A Nikiski-to-Tokyo LNG voyage is about one-third the time than sailing from the Gulf.
However, all of this may be a moot point since LNG markets are awash in supply and will be until the end of the decade and likely the first part of the next decade. Yet, hope for both for the Alaska project as well as any other greenfield LNG project proposals will in fact be the over-supply situation.
As the supply glut and severely repressed prices continue to plague the market, new project proposals will never get off the ground, and in time demand will finally catch up with supply, likely after 2020, returning market equilibrium. Some analysts see this occurring a little earlier. Sanford C. Bernstein analyst Neil Beveridge said last week that “ultimately we’ll set ourselves up for a shortage at the other end, and there will be another scramble some time toward the end of this decade for LNG. Gas is structurally going to be in demand long term.”
These are all factors that Alaska must weigh carefully as it reformulates its hydrocarbon future.