What’s happened in the world of 88 Energy (LSE: 88E) since I last examined the company in October? Several things of significance, as it happens.
A big one was the raising of an additional £5.56m (before expenses) through a new share placing with “domestic and international institutional and sophisticated investors” (I love the “sophisticated”, whatever that’s supposed to mean).
The new cash is needed, among other things, to keep the company’s drilling and testing programme going at its Icewine project in Alaska, where 88E could be sitting on very significant hydrocarbon deposits. Current targets will continue to be probed, while the company will also try to “identify and exploit new opportunities on the North Slope of Alaska.”
Progress
Financial pressure has been eased by the raising of this new cash, but the last couple of operations updates have really only been about progress with infrastructure and engineering. That’s all good and seems to be going according to plan. But what investors are really waiting for is progress on the commercial viability of its Alsakan prospects which, so far, don’t appear to be easy to get at.
The other big development is the new fall in oil prices. While it had already slipped a bit, the price of a barrel was still above $75 back in late October, but it’s now dropped below $60 — currently a few cents below $58, as I write.
That’s got to hurt “oil tomorrow” prospectors like 88 Energy. I’d expect it to impact on the likelihood and possible terms of the farm-out deal the firm is working on — and there’s not long to go to the targeted end-of-2018 now.
Profitable
Recent news from Gulf Keystone Petroleum (LSE: GKP) has been more welcome, though dull (which, in the world of oil investing, can be very good). It’s essentially been a steady stream of “Shaikan Payment Update” notifications telling us of the millions the Kurdistan Regional Government has been paying the company for its oil.
The payment for September shipments came to $27.1m (with $21.2m net to the company), and that’s pretty much representative of its regular monthly receipts.
The other big positive about Gulf Keystone, as evidenced by interim results, is that it’s nicely profitable. The six months to 30 June brought in a record post-tax profit of $26.7m, and the company recorded a cash balance of $219m (which had risen to $240m by 7 September) set against $100m in debt. That debt was refinanced in July, and looks solid for the next five years.
Volatile
The Gulf Keystone share price is, again, very much dependent on the oil price, and we’ve seen another big fall as the price per barrel dips further. But the shares are still up more than 55% so far in 2018, and are up 90% over the past 12 months.
The success of Gulf Keystone is something that 88 Energy investors will hope to emulate. But it’s important to remember that Gulf’s survival and success came at a big cost to early investors — those who owned shares back when the payments crisis was in full swing were effectively wiped out.
Even with cheaper oil, Gulf looks relatively safe to me and a decent investment. But I see 88 Energy as still a pure gamble.
