Is it safe to buy Baron Oil shares amid the sell-off?

Baron Oil (LON: BOIL) share price has moved sideways in the past few weeks even as energy prices have rebounded. The stock was trading at 0.142p, where it has been in the past few weeks. This price is about 60% below the highest level in 2022 and about 120% above this month’s low. 

Baron Oil share issue

Baron Oil is a tiny oil and gas exploration company that has assets in Southeast Asia and the UK. As such, the company does not have any revenue for now since it is in the exploration stage of its development. The firm will likely sell its projects once its exploration stage ends.

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The most recent interim results published in June showed that the company lost £419k, higher than the previous year’s loss of £117k. This loss was partially offset by a one-off non-cash gain on the disposal of an associated undertaking. 

Its administration expenses jumped to £497k while exploration and evaluation costs rose to £120k. The company has over £2.365 million in cash reserves. This increase was helped by a round of fundraising that brought in £1.5 million. 

Baron Oil is in a cash-burning stage of its business where it is spending money and bringing in nothing. As such, it is a highly dilutive firm. The company raised more money by issuing new 18.9 billion shares. These funds will be used to fund its exploration projects in East Timor and the UK.

Baron Oil is a highly risky company to invest in because of its substantial losses and the fact that it will continue to dilute shareholders in the coming years. Further, there are signs that the post-Covid boom in oil and gas prices is about to end. Therefore, it is relatively risky to invest in such a penny stock. 

Baron Oil share price forecast

The 4H chart shows that the Baron Oil stock price has been in a consolidation phase in the past few days. It has managed to move slightly below the 25-day and 50-day moving averages. Similarly, the Relative Strength Index (RSI) has tilted below the neutral point of 50. 

It has also formed a descending channel shown in green. Therefore, I suspect that the shares will likely continue falling as sellers target the next key support level at $0.1165. A move above the resistance point at $0.1600 will invalidate the bearish view.