The Motley Fool

Why Shares In OILEX LTD. (UK) Slid Today

oilAlthough we don’t believe in timing the market or panicking over every stock fluctuation, understanding how a business is performing, competing and changing is vital to sensible investment.

What: Shares in Oilex (LSE: OEX) dropped by almost 10% in early trade this morning, following an update on the oil & gas exploration/production company’s Cambay-77H well in the Indian state of Gujarat.

So what: Despite the shares spiking throughout the second half of July, including a massive 40% leap off the back of controlled flow-back of frac fluids at Cambay-77H, investor sentiment pared back a bit today. Management revealed the news that there was no evidence of formation water at surface during the flow-back and “this is interpreted to support Oilex’s hypothesis that formation water production is not occurring”.

While investors have heard that flow-back operations begun strongly and continue at a steady pace, Oilex managing director Ron Miller stated that the shut-in periods for changing the frac tree and checking the well bore have extended the duration”, leading to some shareholders getting impatient, exacerbated by two more activities that have limited flow: two runs to the toe of the well with the coiled tubing unit, and preliminary build up surveys of wellhead pressure. Mr Miller commented further: “As this is the first multi-stage fracture stimulated well to flow-back in the Cambay Basin, there is no benchmark for comparison.”

Now what: Light crude oil continues to be recovered and most has been transported to a nearby refinery for sale. Trading at around 10p today, it’s easy to see how far the shares have come in the last few weeks especially in comparison to its price of 4p as recent as the beginning of May this year.

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Sam Robson has no position in any shares mentioned. The Motley Fool has no position in any of the shares mentioned.