Is American Shale Oil About To Make 88 Energy Ltd Investors Oil Barons?

Why even the hardiest of wildcatters may want to avoid 88 Energy Limited (LON: 88E).

| 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.

The fracking boom in America may be occurring across an ocean, but its still possible for investors in Birmingham or Yorkshire to take advantage of the shale oil revolution. 88 Energy (LSE: 88E) and Pantheon Resources (LSE: PANR) are two London-listed companies dreaming of becoming the next Marathon or Anadarko.

AIM-listed 88 Energy has dominated the headlines since January as shares exploded in value over 450% after the company’s first exploratory drills struck black gold. 88 may have begun life as an Australian oil driller, but after failing in the Outback it has shifted focus towards slightly colder Alaska.

While the company’s cold-sensitive workers may not have preferred this move, it has paid off for shareholders so far. Over the past years management has gone out on a limb and purchased roughly 200k acres of Alaskan tundra in the hope that the hydrocarbons underneath would be commercially exploitable. It was never in doubt that Alaska was oil rich, as oil majors have been snooping around the state for years, but only recently has 88 Energy sunk successful test wells in mainland Alaska.

However, while major oil reserves undoubtedly lie under 88 Energy’s acreage, the company is years away from being able to exploit these resources. The company has years of work ahead of it before its current exploratory wells produce significant quantities of crude. Furthermore, with limited cash on hand it will be forced to tap shareholders for further equity or turn to the debt markets to begin production.

And, even if production does begin, management is aiming for breakeven prices of $55/bbl for shale oil and $35/bbl for conventional oil, neither of which are particularly cheap for small producers. Due to its low capital reserves, uncertain prospects and years of work ahead of it, I would avoid shares of 88 Energy for the time being.

 

Shale oil wells also deplete quicker than conventional ones, requiring new wells to be built frequently. They also remain controversial with local landowners and are the frequent targets of populist politicians’ threats. With all these issues confronting them, I wouldn’t advise buying shares of 88 Energy any time soon for risk-averse investors.

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.

Ian Pierce 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.

CORRECTION: The initial version of this article stated that Pantheon Resources was also a shale player, whereas a fundamental tenet of the company's investment thesis is that it is precisely not involved in this field; rather, it is focused on the Eagle Ford conventional sandstone play, not shale. We apologise for any confusion this may have caused.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »