88 Energy Limited

88E Details
 
Update on Acquisition of XCD Energy: 88 Energy Limited (ASX: 88E) is primarily engaged in oil and gas exploration. In April 2020, the company had made an off-market takeover offer to acquire all fully paid ordinary shares and listed options in XCD Energy Limited (ASX: XCD), an oil exploration company with operations in the USA.

Offer Details:In a recent announcement to the exchange, the company declared the takeover offer free from all defeating conditions. 88 Energy now has an interest of 59.27% in XCD Energy’s shares and a 28.53% interest in its listed options. The company will be issuing the consideration promised to XCD Energy’s shareholders and option holders by 26^th June 2020. The company made its best offer of 2.4 new 88 Energy shares for every XCD Energy share held and 0.7 new 88 Energy shares for every XCD Energy listed option held. The company urged the shareholders who are yet to accept the offer to take advantage of the accelerated payment terms and has scheduled offer closing on 25^th June 2020. 

Advantages of the Merger:A combination of the two companies will create an Alaska focused oil exploration company with a diversified portfolio of three key project areas. The entity will have an enhanced operational capability with a board, management, and technical team having a track record of delivering on project objectives. The combined business will have increase scale, market presence, and funding capability.

Impact on Minority Shareholders: In the event of 88 Energy acquiring a relevant interest of 90% or more in XCD Energy, the company will compulsorily acquire any outstanding shares or listed options in the latter and the security holders which will be acquired compulsorily will not be able to benefit out of the accelerated payment terms. Moreover, the company also stated that in a scenario where it does not reach the compulsory acquisition threshold by the closing date of the Offer, it may have a reduced influence on the business. However, any decision for XCD Energy’s business may impact the security holders who rejected the offer. 88 Energy’s control over XCD Energy will also affect the liquidity of minority holders as it has directed to remove the latter from the exchange and will be a potential threat to selling their holdings at an attractive price.

Quarterly Results: During the quarter ended 31^st March 2020, the company notified that results from the Logging While Drilling (LWD) program were broadly consistent with those seen in Malguk-1, a nearby well. The company received approval for the Permit to Drill for the Charlie-1 exploration well. In January 2020, the company completed a capital raise of $5 million through the issue of 238 million ordinary shares at $0.021 per share. Exploration and evaluation expenditure for the quarter totalled $15.1 million, up from the previous quarter’s value of $4 million. At the end of the period, the company had cash reserves amounting to $28.1 million. Operating cash outflow for the period was reported at ~$1.2 million.


Operating Cash Flow (Source: Company Reports)
 
Stock Details: The stock of the company corrected by 16.67% and 68.75% in the last 1 month and 3 months, respectively. Currently, the stock is trading at its 52-week low price of $0.005. The proposed deal to acquire XCD Energy’s shares and listed options holds significant value for 88 Energy’s business. The merger, if executed, will provide a larger global footprint, improved credibility, increased scale, and enhanced operational capability. 88 Energy’s stock closed at $0.005 on 18^th June 2020.

 
88E Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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