Are small cap oilers 88 Energy Ltd, Highlands Natural Resources plc and Gulf Keystone Limited worth a punt?

Will 88 Energy Ltd (LON:88E), Highlands Natural Resources plc (LON:HNR) and Gulf Keystone Limited (LON:GKP) ever reach their potential?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Two standout performers this year have been 88 Energy (LSE: 88E) and Highlands Natural Resources (LSE: HNR), both of these businesses have seen over a 290% increase in share price since 1 January. On the other hand there have been some notable reversals such as Gulf Keystone Petroleum (LSE: GKP), it has seen its share price fall by a huge 67% this year. Today I’m looking at whether any of these companies are worth investing in. 

Alaskan explorer

88 Energy burst onto the scene when it completed a successful well on Alaska’s North Slope early this year. Icewine #1 was an unconventional well designed to test the HRZ shale layer, the well was a success and has helped the company de-risk the play across its acreage. Following the well the company went to equity markets and raised A$25m, this money is being used to shoot 750km of 2D seismic over its acreage and to design the next well on the block, Icewine #2. The company says the second well is “expected to include a horizontal section and a multi stage frac and, subject to permitting, is planned for spud in Q1 2017″. This second well will be key in proving up the commerciality of the discovery and will move the company one step closer to monetisation. 

US minnow

After a reverse takeover last year, Highlands Natural Resources shares were readmitted to trading on 2 February this year and haven’t looked back. The company owns 75% of DT Ultravert which is an exciting re-fracking system with huge industry potential. The company has impressively signed up industry heavyweight Schlumberger and Calfrac Well Services Corp as licensed partners of the system to help it test the technology. It has also been expanding its footprint in North Dakota, USA, and now owns close to 4,000 acres of oil exploration licenses in the area. Along with this, it owns a potential uranium play in Utah and expects to commission a competent persons report in the coming months. Obviously at this point, all of its projects are highly prospective and may not come to anything but investors are clearly backing the company to be a success. 

Game over?

Once a darling of the AIM market Gulf Keystone is now in dire straights. The Kurdistan-focused producer operates the giant Shaikan field but its balance sheet is providing investors with headaches. Recently the company struck a standstill agreement with bondholders to buy time but time is running out fast. Due to the overloaded balance sheet the company is meant to pay back a whopping $575m of bonds next year. This means it needs a huge refinancing package which is likely to wipe out existing equity holders completely. This would be a sad ending for what was one of the market’s favourite stocks. 

These three stocks are obviously very risky and every investor should tread with care. However, if any of these companies can deliver and maximise potential then we could see share prices rocket higher.  

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jack Dingwall has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Here’s the best-performing FTSE 100 stock of the last 10 years

Private equity firm 3i has outperformed the rest of the FTSE 100 over the last 10 years. And its big…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

Here’s why Warren Buffett is selling shares (and why I’m not)

Warren Buffett cited tax considerations as his reason for selling shares in Apple. But this isn’t something most UK investors…

Read more »

Investing Articles

What on earth is going on with the AstraZeneca share price?

The AstraZeneca share price has fallen 30% from its peak in August. Dr James Fox explains what’s going on with…

Read more »

Investing Articles

2 high-yield FTSE 100 shares I’d consider buying for passive income…and one I’d avoid

Some FTSE 100 stocks have eye-popping dividend yields. But will the passive income actually be dished out? Paul Summers takes…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

These 2 former stock market darlings are trying my patience! Time to sell?

Harvey Jones thought he was getting a bargain when he snapped up these too much-loved FTSE 100 dividend growth stocks.…

Read more »

Investing Articles

Here’s how I’d use £3,000 to target a second income that grows each year

Our writer explains the approach he'd take to trying to build a second income that gets bigger over time, by…

Read more »

Elevated view over city of London skyline
Investing Articles

Is it time to buy this incredible FTSE dividend share?

Christopher Ruane examines one FTSE 100 share with a phenomenal dividend history. Does a steep share price fall this year…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

This FTSE 100 share has just crashed another 20%. Its P/E is now just 9.9 so should I buy?

Harvey Jones was tempted to buy this FTSE 100 share after it crashed in October. Now it's crashed again, it…

Read more »