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The 88 Energy share price crashes 66%! This is what I’d do now

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Alaskan oil driller 88 Energy’s (LSE: 88E) share price has been on the proverbial roller-coaster ride in recent weeks.

A series of promising drilling updates at its Project Peregrine project eventually lifted the UK oil share to multi-year highs at the end of March. A disappointing operational update on Tuesday, however, has seen the 88 Energy share price lose almost all of these recent gains. At 1.3p per share it’s actually down 66% from its pre-Easter close.

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88 Energy’s share price slumps

88 Energy recently advised that fresh drilling data at its Merlin-1 well in Alaska would be prepared over the weekend. Unfortunately equipment failures during the process meant that investors didn’t get the news that they wanted.

The first run of its wireline programme identified “multiple prospective zones” that were consistent with the shows and logs revealed during prior drilling. The work revealed “good mobility across most of these zones” too.

The second wireline programme stage — which was designed to take samples across these zones — wasn’t quite as successful, however. It said that initial observations indicated the presence of an oil signature in the fluid. However, a power outage caused by equipment failure put a halt to proceedings before a sample could be taken. Poor hole condition after repairs were carried out then meant that a cleanout run was needed at the site. But communication problems following re-entry with the sampling tool at the lowest zone scuppered any further work.

Silhouette of an oil rig

88 Energy said that it also encountered extra obstacles when it moved to the next shallowest prospective zone. Wellbore issues meant that the tool became stuck and testing could therefore could not be conducted. While the tool was freed, the company said that returning to the zone was deemed too high a risk.

And it added that “it is now too late in the season to initiate flow testing operations and the forward program will consist of plugging the well.” But it said Merlin-1 might be re-entered later down the line “in order to drill a side track and conduct a flow test.

In cheerier news…

Drilling work wasn’t a complete washout though. 88 Energy said that one of the zones identified during the wireline programme “is considered to be a new prospective horizon within the Nanushuk Formation” that might also wholly be inside Project Peregrine. This zone was not one of the pre-drill targets.

On top of this, the company noted that “not being able to sample these two most prospective zones does not preclude a discovery.” But it added that an analysis of sidewall cores and possibly even additional drilling may be required for confirmation.

That said, 88 Energy’s share price crash is perhaps no surprise. Even a slight operational setback can hammer investor attitude towards a particular oil explorer. And in this case, the huge share price gains of March have exacerbated today’s drop. The high chance of such volatility in the future means that I won’t be buying 88 Energy for my shares portfolio.

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Royston Wild 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.

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