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The 88 Energy share price isn’t the only way to play $80 oil

I3 Energy (LSE: I3E) is an oil explorer that might not have shown up on your radar yet. It only floated on AIM in July 2017, and nothing much happened for most of that year.

But with the price of a barrel of oil approaching $80, interest in the company’s North Sea Liberator field is intensifying, and the share price has soared in 2018. With 2017 results out Friday, the focus is on achieving first oil — and crucially, getting the funding for it.

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Upgraded resources

Resources at Liberator have been upgraded to 11.7 MMboe, and the company estimates a pre-tax net present value of its 2P reserves at $328m, so the attraction for institutional investors seems strong.

During the year, the company raised £4.2m via convertible loan notes to fund early stage design and engineering work. Now it has apparently received non-binding terms for a $25m credit facility from UK-based lenders, and financing agreements with other investors look to be moving ahead.

Chief executive Neill Carson said: “The strong technical underpinning of Liberator combined with the deliverability of the project has attracted investment from private and institutional investors, in addition to drawing meaningful interest from senior lenders and potential joint venture partners.

The company’s reported pre-tax loss of £2.9m was well ahead of 2016’s £404,000 loss, but at this stage that’s not really too meaningful — providing sufficient funding can be found to lead to first oil and then to profitability.

A couple of years ago I’d have said oil explorers like I3 Energy were to be firmly avoided, but improving sentiment driven by the appreciating oil price is making them look more attractive — though it’s still too risky for me.

Second wind

This time last year, 88 Energy (LSE: 88E) was riding high, but delays and disappointing updates at its Icewine #2 well spooked investors and the shares crashed. Yet since October 2017, we’ve been seeing a steady share price recovery, so it looks like the rising share price is having a beneficial effect here too.

Icewine #2 has been shut down for the Alaskan winter, but interest is picking up again after the company’s 29 May update told of good progress towards opening it up again.

Flow testing is scheduled to recommence on 11 June, and the retrieval of a wireline unit from the well has apparently confirmed that no debris has built up in the well during its closure. That’s good news, as is the result of pressure measurements. Pressure at the wellhead tested at just under 3,000 psi, with a pressure reading of 5,200 psi at 4,000 feet.

The new testing will employ nitrogen lifting, with the expectation that the removal of around 4,000 barrels of fluid will enable hydrocarbons to flow naturally.

With renewed hope and a rising oil price, would I buy?

Big risk

The problem is that investing in 88 Energy would be pretty much a 50/50 gamble for me. Should the renewed testing result in strong flow rates and good hydrocarbon recovery prospects, the share price could spike upwards — and we could be in for long-term profits.

But if flows prove disappointing, we could be looking at summer 2017 all over again and another share price collapse. And I don’t do coin-toss gambling, not where investment money is involved.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.