88E - What Just Happened?
We said it would be an ‘interesting ride’ for 88E two weeks ago - and it sure has been.
In the last few weeks 88 Energy (ASX:88E | LON: 88E | OTC: EEENF) ran up over 1,000% on speculation of a huge, gushing oil result...
88E shares rode a wave of speculation led by the USA chat rooms to almost 10c - a relatively lofty valuation of $1.2 Billion prior to any discovery.
Today the 88E share price has taken a healthy reality check (in other words it got smashed from its highs) on what was actually quite positive progress as far as oil exploration results go.
Most oil drilling events we have watched over the last 20 years have returned a big fat NOTHING, with the share price plunging well below where it was before drilling started...
88E seems to be settling around 2.5c - still over 300% above where it was pre drill commencement a few weeks ago.
While mass speculation can drive a share price up fast, unfortunately it also has the opposite effect on the way down... it overshoots in both directions.
Price fluctuations aside, all in all, this well delivered a decent result compared to the vast majority of other exploration results we have seen in our time.
So what does today’s news mean?
Last week’s initial interpretation of ‘logging while drilling’ data indicated that drilling hit several potential pay zones.
This included an entirely new prospective horizon that was not one of the pre drill targets.
The wireline logging that was being run over recent days was supposed to confirm conclusively one way or another whether mobile hydrocarbons were present.
‘Slugging of hydrocarbon and water’ occurred - which is often a precursor to hydrocarbon flow from a reservoir... that sounds very promising...
But then there was a power outage due to equipment failure.
Technical difficulties meant the hydrocarbons could not be properly sampled from the two most prospective zones. Unfortunately technical issues in oil and gas exploration can be quite common.
So while an oil ‘discovery’ has not yet been confirmed, more analysis of sidewall cores will be taking place. The company’s technical team will be analysing the data that has been taken from drilling, and will form a plan on what to do next.
It looks like there is oil down there, but it's still uncertain how much of it and how it flows.
What's next for the 88E share price?
We suspect the share price might settle and slowly creep up again as the visceral reaction of the last minute speculators washes through the Australian, UK and USA markets over the next 72 hours, the actual result is digested and the next steps are revealed by the company.
We hold a long term position in 88E and always stick to the same investment strategy when investing in any exploration stock which we share every time we write about them (see here).
The plan is to invest early (many months before the drilling), patiently hold and then take some profit in the lead up to the drilling results so we can be free carried into the actual results announcement.
Here is more detail on our general investment strategy for exploration stocks and the small cap market in general.
What’s next for 88E?
88E will continue to deliver news from this drilling event.
There will be a lot of lab analysis over the coming weeks which is going to help 88E understand what it hit in recent weeks and the company will start to reveal what the plan will be to figure out exactly what is down there....
We would expect some news on sidewall coring over the coming days. Perhaps we can get some early results there, before the cores go to the lab for further detailed analysis.
Petrophysical analysis will also take place over the coming weeks and months.
So whilst the last few weeks of price movements in 88E have been wild, with a heavy swing up and today a heavy swing down, the coming weeks should see the share price settle. We look forward to the rest of the lab analysis to come.