Are small cap oilers 88 Energy Ltd, Highlands Natural Resources plc and Gulf Keystone Limited worth a punt?

Two standout performers this year have been 88 Energy(LSE: 88E) and Highlands Natural Resources(LSE: HNR), both of these businesses have seen over a 290% increase in share price since 1 January. On the other hand there have been some notable reversals such as Gulf Keystone Petroleum(LSE: GKP), it has seen its share price fall by a huge 67% this year. Today I'm looking at whether any of these companies are worth investing in.

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Alaskan explorer

88 Energy burst onto the scene when it completed a successful well on Alaska's North Slope early this year. Icewine #1 was an unconventional well designed to test the HRZ shale layer, the well was a success and has helped the company de-risk the play across its acreage. Following the well the company went to equity markets and raised A$25m, this money is being used to shoot 750km of 2D seismic over its acreage and to design the next well on the block, Icewine #2. The company says the second well is "expected to include a horizontal section and a multi stage frac and, subject to permitting, is planned for spud in Q1 2017´´. This second well will be key in proving up the commerciality of the discovery and will move the company one step closer to monetisation.

US minnow

After a reverse takeover last year, Highlands Natural Resources shares were readmitted to trading on 2 February this year and haven't looked back. The company owns 75% of DT Ultravert which is an exciting re-fracking system with huge industry potential. The company has impressively signed up industry heavyweight Schlumberger and Calfrac Well Services Corp as licensed partners of the system to help it test the technology. It has also been expanding its footprint in North Dakota, USA, and now owns close to 4,000 acres of oil exploration licenses in the area. Along with this, it owns a potential uranium play in Utah and expects to commission a competent persons report in the coming months. Obviously at this point, all of its projects are highly prospective and may not come to anything but investors are clearly backing the company to be a success.

Game over?

Once a darling of the AIM market Gulf Keystone is now in dire straights. The Kurdistan-focused producer operates the giant Shaikan field but its balance sheet is providing investors with headaches. Recently the company struck a standstill agreement with bondholders to buy time but time is running out fast. Due to the overloaded balance sheet the company is meant to pay back a whopping $575m of bonds next year. This means it needs a huge refinancing package which is likely to wipe out existing equity holders completely. This would be a sad ending for what was one of the market's favourite stocks.

These three stocks are obviously very risky and every investor should tread with care. However, if any of these companies can deliver and maximise potential then we could see share prices rocket higher.

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Jack Dingwall 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.