Is the 88 Energy share price or this explorer the best way to play $80 oil?
These are exciting times to invest in oil explorers, with Brent crude touching $80 a barrel amid growing talk that it could hit $100. This has revived interest in the risky oil exploration sector, where a lot of investors have lost a lot of money, but now have an opportunity on their hands.
Nostrum Oil & Gas(LSE: NOG), an independent oil and gas company engaging in the pre-Caspian Basin, is down 2.11% after announcing its first quarter results, which disappointed on several counts. Q1 revenues fell just over 15% to $94.8m, while net operating cash flows were down almost 18% to $56m. EBITDA also fell 17% to $57.2m, with margins slipping slightly to 60.3%.
CEO Kai-Uwe Kessel put a brave face on matters, noting that its EBITDA margin was wider than in Q4 2017, due to the recent oil price recovery and a reduction in costs. However, he was also forced to admit that "Q1 2018 was disappointing operationally as we encountered water in the first production well of the year near the flanks of the Biski North East reservoir."
This was forecast to produce 3,000 barrels of oil equivalent per day, forcing the group to revise down 2018 guidance to 34,000 boepd. Kessel said the group was working on potential solutions to bring the well into production, and was looking forward to bringing additional production online, with sales volumes recovering in 2018. The group's cash position improved slightly to $132.2m, while net debt crept up to $971.9m.
Nostrum's share price is 40% lower than a year ago, and today's report will do nothing to reverse that. The one bright spot is that City analysts are forecasting 81% earnings per share growth next year, suggesting there could be an opportunity here, although predicting future revenues is a risky business in this sector. My Foolish colleague Peter Stephens reckons that it has an appealing risk/reward ratio.
If you are still tempted by oil prospects, you might want to explore the outlook for 88 Energy(LSE: 88E), whose share price has been steadily recovering following a recent sell-off, doubling to more than 2.25p against less than a penny at the end of September.
The Alaska-focused shale explorer initially warmed investors' hearts with positive statements about its Icewine 1 drilling operation, which turned it into a 12-bagger at one point, only to chill them again after announcing the shutdown of its Icewine 2 site for the Alaskan winter, as freezing conditions hit flow rates.
Interest is now recovering as the £129m AIM-quoted stock prepares to recommence testing on 11 June to determine if any reservoir degradation could be observed, which would require "remedial action" and dampen investor spirits. 88 Energy's recent sharp share price slump is tempting many, but it looks highly risky to these eyes.
Effectively, you are taking a gamble, since even 88 Energy has no idea what the tests will show at this point. Good news from Alaska could have the stock gushing, bad news could lead to a whiteout. However, some investors remain loyal, with a recent placing to raise A$17m oversubscribed. It looks like a do or die stock to me, whatever the oil price. Are you ready to gamble?
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harveyj has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.