Shares in Solo Oil (LSE: SOLO) climbed when markets opened this morning, after the small-cap oil and gas explorer published the latest drilling report from its hotly awaited Horse Hill-1 well in the UK Weald Basin, close to Gatwick Airport.
The firm which is chaired by serial AIM entrepreneur David Lenigas says that the Horse Hill-1 well has now intersected the Portland Sandstone and encountered oil shows from 2,100 feet to 2,140 feet.
However, Neil Ritson, Solos executive director, cautioned that until electric logs measurements from electronic sensors lowered into the well are run when the well reaches the third casing point at 5,900 feet, further information would be limited.
Solo Oils share price has risen by more than 300% since the start of 2014, and investors face a difficult choice: should you hold on for further gains, or lock in big profits now?
Solos 6.5% interest in the Horse Hill prospect means that its share of the targeted mean prospective resources is 5.7m barrels of oil and 10.7 billion cubic feet of gas.
Although these are meaningful resources for a small company, substantial extra investment would be required to bring these resources into production, if the wells are successful.
What about Africa?
In addition to its 6.5% interest in the Horse Hill prospect, Solo also has a 25% share in the Ruvuma gas and condensate project, in onshore Tanzania.
Two discoveries Ntorya and Likonde have been made so far, and the operator of this project, Aminex, recently announced that the mean gas in place resource estimate for Ruvuma had been increased to 2.3 trillion cubic feet.
This area is already connected to the Tanzanian capital, Dar es Salaam, by pipeline, so Aminex and Solo believe that Ruvuma could become a major gas development project over the next years.
Dont get diluted
My calculations suggest that Solo Oil probably has less than 5m in available cash. The firms African partner, Aminex, doesnt have significant cash reserves, either.
This means that any development of the Ruvuma gas discoveries or of any commercial finds at Horse Hill would be likely to dilute existing shareholders.
Is Solo still a buy?
In my view, anything less than a spectacular success at Horse Hill will see Solos share price fall sharply, in a classic case of buy the rumour, sell the news.
If I were a Solo investor, Id sell today.
After all, the secret to making big profits from high-risk resource stocks is knowing when to buy — and when to sell. The biggest gains are frequently seen ahead of exploration results, not afterwards.
Timing the market is one of the topics covered in the Motley Fool’s exclusive wealth report, “Ten Steps To Make A Million In The Markets“.
If you’d like more tips that could help your portfolio thrash the wider market, then I’d recommend downloading this report today.
To receive your FREE, no-obligation copy of the Fool’s Millionaire Report, just click here now.
Roland Head 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.