Frontera Resources Corp and 88 Energy Ltd could make you an ISA millionaire!

Harvey Jones — Fri, 30 Mar 2018 11:30:35 +0000

London-listed international oil and gas exploration and production company Frontera Resources (LSE: FRR) attracts high-risk investors like nectar attracts bees. The question is whether this means a honeypot, or a honey trap?

Black Sea, black gold

The £78m AIM-traded company could have a sweet future ahead of it – potentially. It is identifying opportunities in emerging markets in Eastern Europe around the Black Sea, primarily Georgia and Moldova. The group’s team of experienced oil professionals is keen to exploit its first-mover advantage in the region, but there are risks. It shares have fallen sharply after peaking at 0.88p in September, and trade at 0.48p today. So a halfpenny stock.

Recent exploration work has been positive, with Frontera reporting multiple oil and associated gas shows at the three-well drilling programme at its Taribani Complex of Block 12 in Georgia. However, the upbeat tone of these reports did little to stall the recent share price slide.

Wild Frontera

Frontera is not for the fainthearted. It will be a long time before it starts generating profits, and in the meantime will keep spending cash on drilling and other activities. Raising funds has not been a problem so far, with oil nudging $70 a barrel, and the group completing a successful fundraising of £4m in February, with both new and existing investors backing its operations.

If it strikes oil, a stock like this could make you big money. In the interim, hope, fear and rumour will plug the gap, as we saw last September, when the share price spiked to the bafflement of management. My Foolish colleague Alan Oscroft labelled it a well-funded oily with promising assets, but you need bags of courage and patience.

High Energy

As if that did not offer enough action, have you considered 88 Energy Ltd (LSE: 88E)? This £99m AIM-traded explorer operates the majority of the vast 475,000 acre Project Icewine, targeting oil on what it calls “the world class North Slope of Alaska”. Its small team of experts targets overlooked or emerging plays with the aim of capitalising prior to larger industry players moving in.

Investor excitement peaked last June, when the share price hit the heady height of 4.25p. Today it stands at 2p, largely due to delays in its Icewine project.

As Roland Head reported here, the Australia-based exploration firm recently raised $8.1m from option investors and started work on a new 3D seismic survey seeking out prospective drilling opportunities on the Western Margin of the North Slope of Alaska.

Big bet

Recent drilling reports have been fairly positive but my gosh, this kind of company is so risky. Management itself is on tenterhooks, waiting for the outcome of survey and drilling reports. Investors are one step removed from that, and any money you invest is at the whim of unguessable news flow.

If that doesn’t deter you, my advice is to spread your money across a basket of companies like these, in the hope that profits from one or two winners will outweigh the inevitable losses. These two stocks could help you build your tax-free ISA million, but do limit your exposure.

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Harvey Jones 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.

Will the Frontera Resources Corp share price ever make a successful comeback?

Rupert Hargreaves — Sun, 25 Mar 2018 08:00:36 +0000

The Frontera Resources (LSE: FRR) share price has been on a rollercoaster journey over the past five years. After peaking at 1.59p in September 2014, the stock had fallen to 0.7p by the end of the year, before rebounding to 1.18p, and then slowly sliding to a low of 0.08p in 2016. However, at the end of 2017, the shares surged to 0.68p, but they have traded down ever since.

What’s next?

After jumping about for five years, Frontera shareholders are undoubtedly wondering if the share price can return to its five-year high any time soon.

The answer to this question could rely on the success of the company’s current drilling programme in Georgia. The firm is in the middle of a three-well drilling campaign in the Taribani complex where it recently started drilling operations at the second, Dino-2 well after completing the T-45 well.

This first well produced some impressive results with the completion of open hole well logging which had deepened the well to 2,700m. Drilling revealed an extra pay zone that was not initially expected, as well as a higher oil/gas mix in general, so it looks as if the prospect will exceed initial expectations, although nothing can be said for certain. The firm still has to conduct further testing on the well to ascertain its real potential.

Money problems

The Frontera Resources share price might head higher on more good news from the wellhead, but the company has one overriding problem, it is short of cash.

So far in 2018 year, the firm has raised more than £4m by issuing new shares and further shares have been issued to meet its obligations under a convertible preference share deal with YA II PN, Ltd. As a result of these fundraisings, the number of Frontera shares in issue has jumped by 1.1bn or 7.5% since mid-December. For some comparison, at the end of the first half of 2014, the company had 2.6bn shares in issue.

Even though these cash calls have helped the company stay liquid and keep the lights on, they have transferred a lot of value away from existing shareholders, and it is going to be a lot harder for the stock to return to previous highs as a result (something my Foolish colleagues highlighted in 2015 and 2016). So, even if Frontera can generate extra profits from its Georgia wells, thanks to the dilution, these profits may not be enough to return the the share price to its five-year high.

The bottom line

Overall, even though Frontera might have some attractive assets in Georgia, the company’s lack of capital and requirement to continually issue shares to bolster the balance sheet concerns me.

At this point, we do not know if or when the business will become profitable and self-sufficient, or how many more shares the company will have to issue before profitability. With this being the case, I don’t believe that the Frontera Resources share price can make a successful comeback.

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