The 88 Energy (LSE: 88E) share price has plunged in early deals this morning. At the time of writing, shares in the oil and gas explorer are down 61% on the day. However, even after this performance, the stock is still up more than 300% over the past six months, and by 31% over the past 12 months.
The big question is, should I take advantage of today’s decline to snap up some shares in 88 Energy?
Before deciding if I’ll buy the stock, I need to understand why the 88 Energy share price has slumped so much in today’s trading session.
It seems as if the company’s latest operational update is behind the decline. The update relates to the organisation’s operations in the NPR-A region of the North Slope of Alaska.
The report reveals 88 Energy’s exploration activities in the region have stalled. Operational issues prevented the firm from taking hydrocarbon samples from the two most prospective zones. The long and short of it is that the company’s efforts to determine the viability of its best prospects have produced almost no hard evidence.
That being said, the company has achieved some samples from the Merlin-1 prospect, which it intends to test further. These may yet yield results, although nothing is guaranteed.
So, what’s next for the company and the 88 Energy share price? It’s very difficult to tell at this stage.
Today’s results show how difficult it is for companies to successfully find and develop oil and gas resources. All indications have, until now, pointed to the conclusion that 88 Energy was drilling in the right place.
Unfortunately, turning indications and research into cold, hard cash and hydrocarbons has been significantly harder than expected.
The company has drilled five wells in Alaska over the past six years. According to management, the latest drilling efforts at the Merlin-1 have delivered by far the best outcome. However, the business still seems to be a long way away from actually producing oil and gas.
88 Energy share price risks
The last time I covered 88 Energy, I noted that the firm’s future was dependent on the results from its testing and exploration activities. Specifically, I wrote that “the share price could keep climbing if the business unveils further upbeat drill and test results in the next few weeks.“
But I also warned its prospects could change overnight if the drilling programme didn’t live up to expectations. That’s just what’s happened. Investors were expecting a lot from the firm’s drilling programme and that programme hasn’t lived up to expectations. It seems as if many investors aren’t hanging around to see what happens next.
As such, I hold the same view of the 88 Energy share price as I did when I last cover the company at the end of March. I think the risks far outweigh the possibility for reward and, therefore, I wouldn’t buy the stock after today’s decline.
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Rupert Hargreaves 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.