88 Energy Ltd (OTCMTKS:EEENF) Buy, Sell or Hold?

88 Energy Ltd. (OTCMKTS:EEENF) is on the minds of many traders and investors alike.  Starting in mid-March on the stock price rose over 400% from just below 2 cents to above 8 until Tuesday when the stock gave up all of its gains.   After the initial selloff, the stock has maintained its support level around 2 cents.  After such a volatile journey investors want to know, will this stock be able to bounce back to its highs, or is it destined to sink lower into the abyss?

The catalyst for the price decline was the company’s announcement of an equipment failure that led to a power outage and disrupted its operations in two of its highest prospect zones. 

The reason this news caused such a drastic price drop is the company still needs to drill those zones further in order to confirm any kind of discovery.  If they can’t figure that out then they are, to make a tool joke, screwed.

But, you know the drill, in the market sometimes there is an overreaction to big news which creates buying opportunities.  

Despite the setback, there is a lot to like about this company. 88 Energy is a small Australian explorer driving two of the largest Alaskan North Slope prospects in decades.

88 Energy Ltd. released several reports on early test results from the remote Merlin-1 exploration well drilled in March that EEENF contacted three zones of shallow Nanushuk sands roughly 40 miles south of ConocoPhillips’ Willow prospect.

Drilled off of “sparse 2D seismic,” according to 88 managing director David Wall, the $12.6 million Merlin well reached a total depth of 5,267 feet and hit potential pay zones between approximately 3,400 feet and 5,100 feet. It is part of the company’s Project Peregrine in the southern portion of the NPR-A adjacent to the legacy Umiat prospect, which 88 Energy also recently acquired.

The Nanushuk formation sands encountered by 88 Energy are approximately 500 feet thicker than those hit by ConocoPhillips’ Willow wells, according to the company, and other potential oil and gas-bearing zones were hit as well.

Wall said in an April 5 statement that operational challenges prevented the company from collecting hydrocarbon samples in the two most promising Nanushuk zones but the early results already confirm that the Merlin well “has delivered by far the best outcome of any of the five wells drilled by 88 Energy in Alaska over the last six years.”

“Particularly encouraging is the apparent presence of oil in a zone that has not previously been targeted in the NPR-A,” Wall said further. “Whilst the potential volumetric size of this zone is not yet known, the formation could be extended based on initial interpretation.”

Other down-hole characteristics show the most prospective sand zones are similar to those found just to the north at the company’s Harrier prospect and will likely be the target for drilling next winter, according to Wall.

ConocoPhillips initially announced its Nanushuk-based Willow discovery in the northeastern NPR-A in January 2017 based on two wells drilled the previous winter. Italian major Repsol and Denver-based Armstrong Energy partnered to make the initial large Nanushuk find on the North Slope at what is now the Pikka project being advanced by Oil Search Alaska in the years leading up to the Willow discovery.

Both Willow and Pikka are multibillion-dollar projects each with the ability to produce more than 100,000 barrels of oil per day, according to the operators, and they have led to other smaller Nanushuk-sourced prospects nearby.

Geologist and wildcatter Bill Armstrong has repeatedly said to the Journal that he believes the shallow and long-overlooked Nanushuk plays are prolific across much of the western North Slope, a prediction that appears to be bearing out.

88 Energy holds more approximately 210,000 acres on the North Slope mostly around the edges of other industry activity. The company’s Icewine project is located south of Prudhoe Bay near the Dalton Highway in an area being worked by several other small explorers.

Company leaders said in a March 30 statement that 88 Energy has plugged and abandoned two of the legacy Umiat wells for roughly $1 million, thus satisfying the conditions of the purchase made in early January from Malamute Energy Inc. and Renaissance Umiat LLC.

The Umiat prospect was first drilled in the mid-1940s and holds a proven and probable resource estimated at roughly 124 million barrels of oil largely in the Nanushuk sandstones, according to 88 Energy. Umiat has never been developed despite being known for many decades because of its remote location and relatively small size compared to most other North Slope oil developments.

88 Energy is undertaking a full field review to determine what market conditions are needed to finally develop the Umiat prospect, according to a company statement.

Be sure to keep EEENF on your watchlist to see where this goes.

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