Whether or not the HRZ shale can flow at sufficiently high rates is the important question for investors, says analyst Simon Andrew, who highlights the issue will be the focus as the next well is drilled in early 2017.
In a note he says flow rates of at least 2,500 to 3,000 barrels of oil per day would be needed to justify the additional investment costs of operating in Alaska.
He also notes, however, that analysis of the first Icewine well to date would suggest the HRZ shale has the potential to be as prolific a producer as some of America’s major unconventional plays such as the Eagle Ford - he highlights that at their March 2015 peak some Eagle Ford wells flowed as much as 14,000 barrels per day.
“Laboratory testing and data analysis of the Icewine-#1 well is now largely complete,” Andrew said.
“Key unconventional success parameters have all come in either in line or, in some cases, significantly exceeding other major unconventional play types in North America.
“Especially important was confirmation that the northern part of Project Icewine sits in the volatile oil window. Other important factors such as matrix permeability and porosity exceeded known levels in plays such as the Eagle Ford.”
The analyst added: “Flow simulation is likely to show that a theoretical horizontal well in the HRZ will flow at high rates given the positive viscosity, pressure and permeability analysis of Icewine-1.”
With a degree of caution, however, Andrew also noted that it could take multiple wells to optimise the frack and completion design, although he says the vast number of wells drilled in the Eagle Ford may help shrink the learning curve up in Alaska.
Andrew says recently raised capital will help fund seismic costs, acreage acquisition and preparations for Icewine 2, but for the longer he reckons a funding partner will be needed.
“88 Energy’s high working interest in the Icewine Project means they can negotiate from a position of strength,” he added.
Hartley’s has a ‘speculative buy’ recommendation for 88 Energy.