The Motley Fool

Why Shares In OILEX LTD. (UK) Spiked Today

Although 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) saw another +10% rise in early trade this morning, after issuing a positive update on its Cambay-77H well in the Indian state of Gujarat.

oil rigSo what: While business as normal was reported in recovering light oil and frac fluids, preliminary analysis of the water encountered during the flow-back operations showing that it is consistent with frac water and not formation water was received warmly by the company and investors alike, as it’s a strong sign that the well will be a strong performer. 

Furthermore, the oil that has been recovered has the appearance of other high-quality Cambay crude oils, and is being transported to a nearby refinery for sale, where it attracts a price similar to ‘Bonny Light’ crude oil. Oilex managing director Ron Miller commented: “It is a nice sweetener to continue production of crude oil which sells for an attractive price during flow-back and clean-up as some North American wells only flow water during early clean-up. “

Now what: Trading at just shy of 10p this morning, it’s easy to see how far the shares have come in the last month or two, especially in comparison to its price of 4p as recent as the beginning of May this year. However, the price has been volatile recently, with peaks and troughs alike resulting from news coming from this one well alone, and Ron Miller did cite some caution in the update, stating: “As the first well of this type in the Cambay Basin to “flow-back and clean-up”, it is not unexpected for some remedial work as part of those operations.” My advice is for investors to be cautious at this stage, too.

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Sam Robson has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.