Investor expectations are high regarding progress from oil explorer 88 Energy (LSE: 88E) and today, the company boosted sentiment with a positive news release.
The update concerns the Umiat oil field located onshore on the North Slope of Alaska. In what must be music to most shareholders’ ears, the company said it has identified “additional upside”. The assessment arose because of further studies in conjunction with post-drill testing and analysis at the Merlin-1 well.
The explosive 88 Energy share price
Recent operational progress has driven the share price a long way. The stock is showing a rise of around 15% today. But it’s up by as much as 40% since mid-July. And over the past year, it’s risen by more than 900%.
However, at times over the last four years, it’s been even higher than today’s level. And such volatility tends to go hand in hand with explorers like this. As such, I think 88 Energy remains a speculative proposition for investors.
The company also announced today approval to defer its Umiat Year 2 unit well commitment by 24 months to 31 August 2023. The United States’ Bureau of Land Management (BLM) granted the extension and corresponding extensions for obligations in years three, four and five.
88 Energy wants to use the extra time to analyse “extensive” historical data. The company acquired the Umiat oil field in January. But the field was discovered in the 1940s. And by 1953, some 11 appraisal wells had been drilled, “several of which were tested.” And some produced oil.
On top of that, historically, a company called Linc Energy carried out “substantial” engineering and environmental work towards potential future development. And one of the routes for access to infrastructure runs through 88 Energy’s Project Icewine leasehold where there are also “significant independently estimated resources of oil and gas.” So the prospects for commercialisation look promising. And I think that’s another driver of the 88 Energy share price.
Looking ahead to field development
Looking ahead, over the second half of 2021, the company plans to study the historical development plans for Umiat. It will also consider alternative development options that may include development in conjunction with the nearby Project Peregrine.
Meanwhile, with the share price near 2.81p, the market capitalisation is near £287m. However, 88 Energy has yet to deliver positive cash flow or profits. Of course, all the discovery and development work adds to the known resources in the ground. And theoretically, they add to the value of the business.
But getting oil out of the ground, developing infrastructure and shifting the stuff to market takes time and money. Often, in the development phase, smaller companies such as 88 Energy end up partnering with firms that have larger financial resources. Or they come back to the stock market or lenders for extra funds.
So, despite the recent strength of the share price, I reckon shareholders will likely see further volatility ahead. And the success of any long-term investment in the stock remains far from certain. I’m not in a hurry to buy the stock and will watch with interest from the sidelines for the time being.
