Shares in88 Energy (LSE: 88E) are surging this morning and at the time of writing are up more than 110% after the company announced that the majority of its acreage in Alaskalies in a thermal maturitysweetspot.
The company said its pre-drill predictions concerning the Icewine-1 well in Alaska have been confirmed to be correct by the evaluation of the HRZ shale core. The porosity of the core had been confirmed to be at the upper end of the companys expectations while the permeability of the core exceeded expectations. In other words, to quote 88 Energys management,the rock mechanics and fraccability of the rock are both encouraging.
Whats more, todays press release from 88 Energy announces thatthe majority of its 272,000 acres that have been mapped lie in a thermal maturity sweetspot, which contains, low viscosity vapour phase hydrocarbons modelled to flow at a material rate based on the porosity and permeability results.Simply put, this means that 88 Energys Alaskan project has some very attractive well economics. Moreover, due to the estimated size of the sweetspot, 88 Energy has tremendous scope to develop its shale play.
Whats next?
Todays announcement from 88 Energy may have sent the companys shares surging by more than 100% in early trade, but the company still has plenty of work to do before it can call itself a self-sustaining, independentexploration and production company. Indeed, 88 Energy isnt generating any sales as yet and since the end of November last year, the company has raisedA$7.4m from shareholdersto keep the lights on.
However, with the new results from its Alaskan play, 88 Energy should be in a better position to negotiate a joint venture or farm-outdealwith a larger peer. Such a deal should give the company more flexibility and much-needed funding to develop the prospect. Commenting on todays press release, Managing Director Dave Wall said:
The HRZ is a new resource play and will not to be without its own unique peculiarities; however, given the size of the potential prize, we are confident that substantial interest will be garnered to support the next phase of the project, which will include the drilling of a horizontal well with a multi-stage fracture stimulation.
88 Energys next steps will be to work towards an independent resource report while working on the rock mechanics around the Alaskan prospect. The company will also put together a report characterising the resource prize potential. But this process will take time and recent placings have made it clear that time is something 88 Energy is running out of as the company struggles to raise the cash needed to fund operations.
With this being the case, its clear that 88 Energy is only suitable for the most risk-tolerant investors. On one hand, the companys shares could surge as it develops its oil acreage with a larger peer. Buton the other hand, 88 Energy may run out of cash before it has time to realise its full potential.
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Rupert Hargreaves 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.