88 Energy, 88E, Shares Up 5% On Merlin-2 Drilling – More To Come?

Trade 88 Energy Shares Your Capital Is At Risk
Tim Worstall
Updated: 17 Mar 2022

Key points:

88 Energy (LON: 88E) shares have reacted positively, rising by 5%, to the news that the Merlin-2 well is on track. The next substantial piece of information is likely to be the news of the outcome of the drilling, in perhaps two weeks. It’s possible that such news will be a substantial valuation point for 88 Energy shares.

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88 Energy is a volatile stock as we’ve seen. 88 Energy shares fell when it joined the OTC markets in the US for example. Not because there’s anything wrong with listing there, and the company didn;t issue new stock to dilute extant shareholders. It’s that the price movement – 40% up – took place in advance of the listing. A nice example of that old adage, buy the rumour, sell the fact.

88 Energy also fell on the announcement that the drilling permit – for this Merlin-2 – had been awarded. Another instance of that same adage perhaps.

Also Read: Five Best Green Energy Stocks 2022

We now though face one of the two major problems for any resource-based firm. The first one is whether the management are efficient at what they say they’re going to do. This can never be wholly proven as everyone can err at times. But 88 has been saying for months that it would be drilling Merlin-2 in early to mid-March. Here we are, mid-March, and they’ve cased and cemented the surface hole and are about to make the exploratory drilling. They’re doing what they said they would do when they said they were going to do it. This cannot be, as above, proof positive but it is a demonstration of competence.

The second problem for any resource explorer is in actually finding a resource that’s worth exploiting. Checking that God’s Engineer did in fact pur the mineral, or the oil, where we’re exploring for it. This is much of the work that a junior resource company actually does. Start with the idea that there’s something there and then continue on through varied levels of proof until it is clear that it is in fact there, in quantity, economic to extract. This is what the whole language of resources, inferred, indicated, reserves, proven and so on is all about. Those varied levels of proof that there’s an economic deposit to extract.

88 Energy is thus on hte cusp of one of those major validations, levels of proof. The exploratory well is to be drilled, everything is in place for it to be so. It’s to take, according to 88 Energy, two weeks to reach the target depth of 8,000 feet. At which point we’ll all have much more knowledge of what actually is there to exploit and the value of it.

That revelation of the resource is likely to move 88 Energy shares one way or the other. Which way is of course the trading decision.

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