- 88 Energy has inked a deal concerning the sale of its Alaskan Oil and Gas Tax Credits for US$18.7 million.
- 88E to utilise the majority of the receipts from the sale to completely repay its outstanding debt of US$16.1 million.
- The Company will be become debt-free with an increase in its cash holdings by US$2.6 million.
88 Energy Limited (ASX:88E) has been aggressively advancing on various fronts, including exploration, acquisition, leadership team appointments etc. Over the recent period, the Company has been seeking to enhance its positioning as an oil and gas explorer with highly prospective project areas.
88E is now looking towards the full repayment of the debt, which shall enhance its financial position and strengthen the balance sheet.
Deal for the sale of Alaskan Oil and Gas Tax Credits
In the latest development, 88E has inked a deal to sell all of the Alaskan Oil and Gas Tax Credits that are presently held by a fully owned subsidiary of 88E, Accumulate Energy Alaska, Inc.
These Tax Credits amount to a sale price of US$18.7 million in cash and shall be paid once the sale and transfer of the outstanding tax certificates are finalised.
The process for transferring the certificates and payment of the proceeds is expected to take place within the coming weeks, subject to approvals and processes of the Alaskan Department of Revenue.
The party acquiring the tax credits from 88E is a large oil and gas company in the US. The Company owns numerous exploration and production assets and has the scope to finance transactions of this kind.
Source: 88E Announcement 21/06/2021
Rationale behind the transaction
This transaction accelerates 88E’s time line for realising value from the Tax Credits, which the State of Alaska was less likely to pay in full until 2026 under present projections.
A bigger part of the funds from the sale shall be utilized for completely repaying 88E’s present outstanding debt of US$16.1 million. This outstanding debt concerns FCS Advisors, LLC and the repayment was due to mature on 30 December 2022, and FCS has waived early repayment penalties.
Source: © Icefields | Megapixl.com
Further, 88E shall receive the remaining sale consideration of US$2.6 million, and the same shall be applied to meet the working capital needs of the Company.
Another advantage for the early repayment of debt for 88E is that it shall help the Company to save on upcoming cash payments that would have been made towards interest on unpaid debt, estimated to be at least US$1 Million per year.
MARCH QUARTER UPDATE: 88 Energy (ASX:88E) registers all-round progress across portfolio in March quarter
Overall, 88E believes that given the considerably small difference between the Tax Credits applied for converting into cash and approval by the Government of Alaska (totalling US$19.1million) and the receipts from the sale of tax credits (worth US$18.7 million), inking the sale of the credits at a small discount made sense as retiring outstanding debt was the main benefit of the sale which frees up cash for future exploration given the savings associated with early debt payout.
The 88E stock was noted at AU$0.020, up by 2.500% on 21 June 2021.