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The 88 Energy share price collapses again! Should I buy this UK share today?

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A string of operations updates across its Alaskan operations has caused the 88 Energy (LSE: 88E) share price to shake wildly in recent weeks.

Exciting acquisition news, combined with positive testing at its Merlin-1 well, helped lift the share price to multi-year highs in late March. But the UK oil share collapsed shortly after because of testing difficulties at its much-hyped assets. Indeed, the company has slumped again in value on Tuesday following the release of its quarterly update.

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At 1.18p the 88 Energy share price is now 8% lower on the day and trading at two-week lows.

Merlin re-entry 

That said, there isn’t anything obviously chilling in 88 Energy’s latest statement. In fact the UK share confirmed in today’s update that “the [Merlin-1] well may be re-entered in the future, if warranted, in order to drill a side track and conduct a flow test”.

Drilling results at Merlin-1 in March were described by 88 Energy chief executive Dave Wall as “encouraging”. The company said that “the gamma log indicates the presence of more sand packages than those in the Analogue Wells,” and that the sand packages in Merlin-1 “are generally cleaner in nature” too.

Work also revealed that “oil shows were recorded over multiple intervals in the Nanushuk while drilling Merlin-1,” 88 Energy said last month. News that “one of the prospective horizons in Merlin-1 did have substantially elevated total gas” amplified investor buzz.

A subsequent wireline logging programme in early April failed to give market makers the news they wanted, however. Work confirmed “multiple prospective zones” in line with previous studies and “good mobility” across these zones. However, a power outage later in the programme forced testers to down tools. A return to the zone was deemed too high risk at the time. And so 88 Energy announced plans to plug the well, claiming then that “it is now too late in the season to initiate flow testing operations”.

The 88 Energy share price falls again!

So there was no news on Merlin-1 to cause the 88 Energy share price to sink again today, then. There were no further details on testing at its Project Icewine asset in Alaska, either. Nor was there news on permitting and planning at its Yukon leases or its acquisition of the Umiat oil field.

88 Energy’s latest share price fall illustrate one of the perils of buying penny stocks. UK shares that cost less than £1 can be prone to sudden and extreme volatility. Investors can build a big block of shares at little cost when shopping for penny stocks. So when they sell it can have significant ramifications for the share price. It therefore doesn’t take a nugget of bad news to send a share plummeting, as 88 Energy’s performance today shows.

This — allied with the high-risk nature of oil exploration — means that 88 Energy isn’t a UK share I’ll buy.

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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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