21 February 2022

This announcement contains inside information

88 Energy Limited

Acquisition of Texas Oil and Gas Production Assets

Highlights

·    Acquisition of a ~73% average net non-operated working interest in the leases and wells in established conventional onshore production assets within the Permian Basin of Texas, U.S.

·    Assets acquired provide immediate cash flow to 88 Energy.

·    Purchase price of US$9.7M comprised of US$7.2M cash and US$2.5M in 88 Energy shares.

·    Attractively low-cost entry of ~US$4.70 per BOE across net 2P reserves of 2.1 MMBOE.

·    Current average production of approx. 300 BOE per day gross (approx. 70% oil) across 32 wells; capital-efficient doubling of output targeted from seven planned work-overs.

·    The Seller, Lonestar I, LLC will retain a ~24% net working interest in the assets and will also remain Operator of the assets through an affiliate, with the remaining interests retained by existing Joint Venture partners.

Further to the announced recent signing of a non-binding Memorandum of Understanding (see 88E ASX/AIM releases dated 14 February 2022), 88 Energy Limited (ASX:88E, AIM:88E, OTC:EEENF) (88 Energy or the Company) is pleased to announce the execution of a binding Securities Purchase Agreement (SPA) for the acquisition of a circa 73% average net working interest in established conventional oil and gas production assets in the proven Permian Basin, onshore Texas, U.S..

The oil and gas production assets, collectively known as Project Longhorn, are located in the Permian Basin and contain independently certified net 2P reserves of 2.1 MMBOE.  The purchase price for the acquisition is US$9.7 million, comprising US$7.2 million cash and US$2.5 million in 88 Energy shares (approximately 98.1 million shares at an issue price of A$0.035 per share).

The acquisition delivers immediate cash flows, with current gross production from Project Longhorn of approximately 300 BOE per day (approximately 70% oil).  Near-term capital-efficient production upside exists from seven planned work-overs, which are scheduled to commence in March 2022.  These initiatives are targeted to approximately double current output rates by late 2022.

The acquisition represents 88 Energy's first move into producing oil and gas assets and is in line with the Company's strategy to build a successful exploration and production company.  This step has been undertaken in a measured fashion via the purchase of a non-operated working interest with a single basin focus.  Project Longhorn contains well understood geology with low technical risk and provides near-term upside via low-cost field development opportunities.

88 Energy's financial advisor was Miro Capital and its legal advisor was Freeman Mills PC.

88 Energy Managing Director and CEO, Ashley Gilbert, commented:

"While our core focus remains exploration of our world-class Alaskan North Slope acreage, the acquisition of Project Longhorn provides 88 Energy with immediate cash flow and direct exposure to any further strengthening in energy prices.   It also delivers optionality for incremental, low-capital, rapid payback reinvestment in the region."

Project Longhorn - conventional onshore oil and gas in Texas

The Project Longhorn assets are located in the in the attractive Permian Basin, with over approximately 1,300 net acres.  The assets consist of 9 leases with 32 producing wells and associated infrastructure.  Lonestar I, LLC will retain a ~24% net working interest in the assets, and through an affiliate will remain Operator, with the remaining working interests retained by existing Joint Venture partners.

Most of the existing production wells have been in operation for several years.  Production from Project Longhorn in FY2021 totalled approximately 110,000 BOE, which returned an estimated attributable net profit before tax for the project of US$1.6 million (unaudited).  Current average production is approximately 300 BOE per day (88 Energy's net working interest: ~220 BOE per day), of which approximately 70% is oil.

As part of the acquisition, 88 Energy has agreed to a low-cost work program for CY2022 that includes seven work-overs.  These initiatives are expected to approximately double current production rates by the end of CY2022.

The acquisition of a working interest in Project Longhorn provides 88 Energy with immediate cash flows, as well as further low-cost capital development upside providing appealing forecast economics:

·   Gross capital development activities costing: from US$0.7 million to US$1.4 million depending on the type of drilling or work-over performed.

·   Target development IRRs: 75% to 400% depending on the type of drilling or work-over performed.

·   Target capital expenditure payback: 7-18 months depending on the type of drilling and completion performed.

·   Target break-even oil price: US$21/bbl - US$28/bbl depending on the type of drilling or work-over performed.

Gross (100%) and Net Entitlement Reserves to 88 Energy (~73% average net working interest) have been independently assessed by Odin Reservoir Consultants Pty Ltd as at 31 December 2021 as follows:

Table 1: Project Longhorn Reserves (barrels of oil equivalent; millions)

Further Information related to these Reserves is provided in Appendix 1.

Reserves Cautionary Statement

Oil and gas reserves and resource estimates are expressions of judgment based on knowledge, experience and industry practice. Estimates that were valid when originally calculated may alter significantly when new information or techniques become available. Additionally, by their very nature, reserve and resource estimates are imprecise and depend to some extent on interpretations, which may prove to be inaccurate. As further information becomes available through additional drilling and analysis, the estimates are likely to change. This may result in alterations to development and production plans which may, in turn, adversely impact the Company's operations. Reserves estimates and estimates of future net revenues are, by nature, forward looking statements and subject to the same risks as other forward-looking statements.

Acquisition details

Further to the non-binding Memorandum of Understanding referred the ASX/AIM releases of 14 February 2022, the Company is pleased to announce that on 18 February 2022, 88 Energy, via its newly formed wholly owned subsidiary Longhorn Energy Investments LLC, entered into a binding SPA with Lonestar I, LLC (Lonestar), to acquire a 75% ownership interest in Bighorn Energy, LLC (Bighorn) the owner of the assets, as follows;

·   Acquisition of an initial 70% ownership interest in Bighorn and its wholly owned subsidiary which owns between 89.7% - 100% gross working interest of the leases and wells in the Project Longhorn assets;

·   At the same time, acquisition of a further 5% ownership interest in Bighorn resulting from the simultaneous execution by Bighorn of letter agreements with two parties;

·   Upon closing of the transactions, 88 Energy via its wholly owned subsidiary Longhorn Energy Investments LLC, will hold a 75% ownership interest in Bighorn (which results in an approximate 73% net working interest in the leases and wells);

·   Lonestar will have a 25% ownership interest in Bighorn (which results in an approximate 24% net working interest in the leases and wells).

Total consideration for the purchase is US$9.7 million, to be paid as US$7.2 million in cash from existing cash reserves and US$2.5 million in shares (at an issue price of A$0.035 per share, which is the same issue price as the recent 88 Energy equity raising announced on 14 February 2022).

88 Energy will issue a further US$1.6 million in shares (approximately 57.4 million shares at an issue price of A$0.039 per share, being the closing price of 88 Energy shares on ASX on 18 February 2022) to Lonestar for working capital contributions towards an approved CY2022 capital development program (Capital Development Shares).

The Capital Development Shares will be held in escrow and subject to certain restrictions.  These Capital Development Shares will only be released from escrow following approval by 88 Energy.  Lonestar has the option to dispose of Capital Development Shares, subject to certain restrictions under the escrow arrangement, with any proceeds to be held on trust for 88 Energy until the associated invoices are received and approved by 88 Energy for the capital development program.  A reconciliation and final payment of any outstanding invoices (in cash) is to occur following completion of the CY2022 capital development program.

A total of 155,480,417 new ordinary shares will be issued in respect of the acquisition and the capital development program to Lonestar.

The effective date of the acquisition is 1 January 2022.

Longhorn Energy Investments LLC also entered into a Memorandum of Understanding with Lonestar where both parties agreed to work jointly towards securing additional future acreage focusing on expanding and increasing oil and gas production.

Lonestar I, LLC is a privately held oil and gas production company located in Texas U.S., with significant experience in operating profitable oil and gas assets.  Lonestar I, LLC and its affiliates have built a team of experienced oil and gas professionals with broad technical and commercial skills that will continue to Operate the assets on behalf of the Joint Venture and together with 88 Energy will work to improve production and profitability of the assets and has the capacity to both financially and technically deliver on future development work programs.  88 Energy has completed customary due diligence on both the assets and Lonestar I, LLC.

A graphic of the Project Longhorn asset is viewable in the PDF version of this announcement available on the Company's website (www.88energy.com) along with a presentation titled Project Longhorn Acquisition.

Media and Investor Relations:

Appendix 1

Reserve Evaluation - Lonestar Acquisition

Highlights:

·    ODIN Reservoir Consultants (ODIN) has prepared the reserve estimates, a forecast prices and costs evaluation of the oil and gas properties of Lonestar I LLC Holdings. (Lonestar). The effective date of the reserve estimates and cash flow forecasts presented in this release is December 31, 2021.

·    The ODIN evaluation has been prepared for Lonestar in accordance with reserves definitions, standards and procedures contained the Society of Petroleum Engineers' Petroleum Resources Management System (SPE-PRMS) and reported in the most specific resource class in which the prospective resource can be classified under 2018 SPE-PRMS. The reserves presented in the ODIN report are based on forecast prices and costs. Economic Limit Tests (ELTs) used to estimate Reserves shown above were carried out assuming the "NYMEX Strip Pricing Scenario" valid for a 31st December 2021 effective date. ODIN used WTI crude price as the "marker price" for this evaluation. All oil prices used in the evaluation have been adjusted from the reference price for quality and transportation; gas prices have been adjusted for heating value.

·    The proved reserves (1P) net of royalties are 1.15 million bbl of oil and NGL's and 2.93 bcf of gas, or 1.64 million boe.

·    The proved plus probable reserves (2P) net of royalties are 1.44 million bbl of oil and NGL's and 3.64 bcf of gas, or 2.05 million boe.

·    The proved plus probable plus possible reserves (3P) net of royalties are 1.66 million bbl of oil and NGL's and 4.06 bcf of gas, or 2.33 million boe.

Background

88 Energy via its wholly owned subsidiary Longhorn Energy Investments LLC, will hold a 75% ownership interest in Bighorn (which results in an approximate 73% net working interest in the leases and wells) and Lonestar will have a 25% ownership interest in Bighorn (which results in an approximate 24% net working interest in the leases and wells).

Table 2: Developed Reserves

Table 3: Undeveloped Reserves

Table 4: Total Reserves

The subsequent sections detail the field and reserves/ resources information for compliance with ASX listing rules pertaining to the first announcement of material oil and gas projects.

Assumptions and Notes

a)    The reserves information in this document is effective as of 31 December 2021 (ASX Listing Rule (LR) 5.25.1).

b)    The reserves information in this document has been estimated and is classified in accordance with SPE‐PRMS (Society of Petroleum Engineers ‐ Petroleum Resources Management System) (ASX LR 5.25.2).

c)    The reserves information in this document is reported according to the Company's economic interest in each of the reserves net of royalties (ASX LR 5.25.5).

d)    The reserves information in this document has been estimated and prepared using the deterministic method (ASX LR 5.25.6).

e)    The reserves information in this document has been estimated using a 6:1 BOE conversion ratio for gas to oil; 6:1 conversion ratio is based on an energy equivalency conversion method and does not represent value equivalency (ASX LR 5.25.7).

f)     The reserves information in this document has been estimated on the basis that products are sold on the spot market with delivery at the sales point on the production facilities (ASX LR 5.26.5).

g)    The method of aggregation used in calculating estimated reserves was the arithmetic summation by category of reserves. As a result of the arithmetic aggregation of the field totals, the aggregate 1P may be a conservative estimate and the aggregate 3P may be an optimistic estimate due to the portfolio effects of arithmetic summation (ASX LR 5.26.7 & 5.26.8)

h)    Project Longhorn reserves are located in the Permian Basin, Texas, USA.

ASX LR 5.31 Reserves - Project Longhorn

Definitions

·    Reserves are those quantities of petroleum that are anticipated to be commercially recoverable by application of development projects to known accumulations from a given date forward under defined conditions. Reserves must further satisfy four criteria, based on the development project(s) applied: discovered, recoverable, commercial and remaining (as of the evaluation date).

·    1P is defined as proven reserves. 2P is defined as proven plus probable reserves. 3P is defined as proven plus probable plus possible reserves.

·    1P or Proven Reserves are those quantities of petroleum that, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be commercially recoverable from a given date forward from known reservoirs and under defined economic conditions, operating methods, and government regulations. This is typically considered to have more than a 90% likelihood of occurring.

·    Probable Reserves are those additional reserves that analysis of geoscience and engineering data indicates are less likely to be recovered than proved reserves but more certain to be recovered than possible reserves. This is typically considered to have approximately a 50% likelihood of occurring.

·    Possible Reserves are those additional reserves that are less certain to be recovered than probable reserves. It is unlikely that the actual remaining quantities recovered will exceed the sum of the estimated proved plus probable plus possible reserves. This is typically considered to have approximately a 10% likelihood of occurring.

·    Developed reserves are expected to be recoverable from existing wells and facilities. Undeveloped reserves will be recovered through future investments (e.g. through installation of compression, new wells into different but known reservoirs, or infill wells that will increase recovery). Total reserves are the sum of developed and undeveloped reserves at a given level of certainty.

·    Contingent Resources (2C) are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations by application of development projects, but which are not currently considered to be commercially recoverable owing to one or more contingencies.

·    Prospective Resources are those quantities of petroleum that are estimated, as of a given date, to be potentially recoverable from undiscovered accumulations.

Qualified petroleum reserves and resources evaluator statement

The petroleum reserves and resources information in this announcement are based on, and fairly represents, information and supporting documentation prepared by ODIN Reservoir Consultants Pty Ltd under the supervision of David Lim. David Lim holds a BSc. (Hons) and a M.Sc. (Petroleum Engineering), is a member of the Society of Petroleum Engineers (SPE) and has 30 years of international reservoir engineering experience in Europe, North and South America, North and West Africa, Middle East, Asia and Australasia. Mr Lim is an employee and director of ODIN Reservoir Consultants Pty Ltd and is not an employee of the Company. Mr Lim consented in writing to the inclusion of the petroleum reserves and resources information in this announcement in the form and context in which it appears.

Table 5: Working Interest

Table 6: NYMEX Strip oil price used for reserve analysis

Table 7: NYMEX Strip natural gas price used for reserve analysis

Table 8: NYMEX Strip natural gas liquids price used for reserve analysis