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Will the 88E share price beat Hurricane Energy in 2019? That’s a tough call

Oil explorers — love ’em or hate ’em, you can’t ignore ’em. At least I can’t. Even though I focus almost entirely on high-yield dividend shares these days, I’m still tempted by the occasional growth punt with a small amount of money from time to time.

Back in January, I wasn’t impressed by the 2019 prospects for 88 Energy (LSE: 88E), with the shares in a slump. The company’s exploratory Icewine #2 well in Alaska hadn’t produced the goods, and a dip in the oil price was putting pressure on the shares.

Since then, the 88 Energy share price has fallen by 30%, and there has to be a price at which it’s worth buying in, doesn’t there? Are we there now?

Oil price

One thing in 88E’s favour is that the oil price has been climbing again, and currently stands above $70 per barrel. That should revalue the company’s reserves upwards and add attraction to the current farm-out campaign for its Icewine project.

On that front, the firm extended its bid deadline to the end of January “due to demand from multiple parties,” and April’s quarterly update told us a preferred bidder had been chosen at the end of March. There’s no guarantee the two parties will reach an agreement, but the firm is targeting a deal in the second quarter of the year, leading to an appraisal well in 2020.

Exploration plans for other Alaskan interests are progressing too, though none is near production yet. But it really does seem to be the Icewine farm-out that should drive the share price in 2019. As far as that goes, I see no way to quantify the likely effect on the 88 Energy’s valuation until it happens and we see the shape of it.

Shares up

After a depressing end to 2018 saw Hurricane Energy (LSE: HUR) shares lose a quarter of their value from their peak at the beginning of October, investors have turned a little more bullish on the stock in 2019. But only a little, as we’re looking at a 5% price rise so far this year compared to 11% for the FTSE All Share index.

A modest spike in anticipation of full-year results at the end of March didn’t last long, and the share price has been pretty much flat since the figures were released.

It seems investors are remaining on the fence as we get ever closer to Hurricane’s hoped-for first oil from its Lancaster project, anticipated in the first half of the current year.

Spud

In addition, the latest news is of the spudding of the firm’s Warwick Deep well on 16 April, being the first in a three-well programme targeting the Greater Warwick Area. There should be no funding impact, as last year’s farm-out deal with Spirit Energy (a subsidiary of Centrica) is providing plenty of cash.

Hurricane’s financial position looks reasonable secure at the moment, and I think that’ll lend a bit of support to the share price over the next couple of months. Lancaster’s first oil should add a healthy cash flow stream to Hurricane’s operations too, but the burning questions are when it will happen and what the actual volumes will look like?

If it comes in according to plan, I think we could see an uprating of the share price.

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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.