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The renewables industry may be salivating at US President Biden’s proposed $2trn green energy package but some oil companies have their own reasons to be optimistic this year.

88 Energy (ASX:88E / LON:88E) is currently focused on two oil drilling programmes, Project Peregrine and Project Icewine, on the world class North Slope of Alaska. On Monday 15 March, the company’s shares shot up 160% to 1.5p over three days, after gaining some 78% over the previous six months. 88 Energy issued a note stating it was unaware of any reason for the spike. As a possible explanation, we could turn to the company’s previous announcement, on Thursday March 11, which announced they had commenced drilling on the Merlin-1 exploration well of Project Peregrine.

Dave Wall, managing director of 88 Energy, said: “This is an exciting and pivotal time for the company and our shareholders.” Results are expected in the next four weeks, though interim logging results may provide positive news flow. Wall made the announcement just as the Crude Oil WTI Index touched a high of $67.98 per barrel last week, a level last seen in 2018.

Independent resources report for 88 Energy

An independent resources report assessed the prospective resources of Project Peregrine to be an overall 1.6 billion barrels. The project comprises three wells: Merlin-1 (645 million barrels), Harrier-1 (417 million barrels) and Harrier Deep (574 million barrels), though these estimates are subject to the usual ongoing risk of discovery and development, requiring further exploration, appraisal and evaluation.

The wells’ location near existing discoveries is significant. The Merlin-1 well is south of the large Willow oil field, which has reserves of 750 million barrels of oil reserves. ConocoPhillips is also planning to be drilling oil nearby in 2024-25. Merlin-1 is therefore described as having “a relatively high geological chance of success”.

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Cash position covers drilling costs but Harrier-1 well delayed

Drilling costs at Merlin-1 are expected to rise from $1.4m to around $4m, though these are more than covered by its current cash position of about $13m. In February, 88 Energy raised £6.7m in a share placing to support its ongoing operations. The increased costs are due to delays caused by adverse weather and by a temporary suspension of drilling permits by order of President Biden. The suspension means that drilling for the next well, Harrier-1, will most likely be pushed back to next season.

Promising news has also come from the recent drilling of the Talitha-A well, located next to 88 Energy’s Project Icewine, by another oil company, Pantheon Resources (LON:PANR). Jay Cheatham, Pantheon’s chief executive, said that “any one of the four zones at Talitha could be company makers,” with three of them showing “great promise”.

It is also worth noting that in February Wall resigned his position as managing director, and will leave the company in May. He will continue in his role and oversee the upcoming drilling and testing programme at Project Peregrine, until he hands over to Ashley Gilbert, the current CFO and company secretary. It is also proposed that Gilbert be appointed to the board as an executive director.

88 Energy shares are currently down a third from their peak on Monday, trading at 1.07p (17 March).

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

James Norris

James Norris

James is a highly experienced writer and editor, gained from more than 20 years in the financial services industry, in particular wealth management and asset management.

He initially worked as a financial journalist for a number of leading media brands, including the FT Group, Financial News, Euromoney and Incisive Media, covering most aspects of the asset management industry. More recently, James switched to work as an in-house content specialist for fund management and wealth management groups, including JP Morgan Asset Management, Quilter Cheviot Investment Management, AXA Investment Managers and Invesco Perpetual.

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A date for your diary

On the 21st of October, Stuart Fieldhouse will be joining Sarah Lowther and Mark Watson-Mitchell to discuss which small cap investments they like the look of and, perhaps, which ones they do not. It promises to be a lively and insightful discussion. If you are interested in investing in small cap stocks then this could be a profitable use of your time. We hope you can make it! Sign up now

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