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Today's Oil & Gas Snapshot: Hurricane Energy, Nighthawk

Published: 09:22 08 Jun 2016 BST

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Headlines
• In Brief:
 Hurricane Energy (LON:HUR – 18p) – Owners Come First
 Nighthawk (LON:HAWK – 0.92p) – Will it be a “Great Time” This Time?

In Brief
• Hurricane Energy (LON:HUR – 18p) – Owners Come First: Today's decision to drill the next appraisal will on a sole risk basis is a sensible step, and it provides the current owners with an opportunity to gain value that they might not have had, had the farm out gone ahead before the completion of the second well. While there is always a risk that it could go wrong, in a variety of ways as risk of “failure” is still high at the appraisal stage (~40%), the fact that the equity holders have provided the Company with the funds to undertake such a campaign means that it is a risk they believe is worth taking. If successful, the Company will have taken another step towards significantly derisking the project, taken it a step closer to development and, as a consequence, increased the overall value of the project and strengthened management’s hand when conducting negotiations , which in turn minimises dilution.
• Nighthawk (LON:HAWK – 0.92p) – Will it be a “Great Time” This Time?: Today's news provides some welcome relief to the Company in its pursuit of revenues, but we can't help but be confused about where the Company is now going, especially when contrast with the past statements and pronouncements of "behind pipe reserves." That the Company now has to seek funding for. $2.4mm programme is evidence of how far this company has fallen, especially when the programme that they announced was all about low risk development. Somebody somewhere has made a mistake of significant proportions, and the Company's owners are entitled to know why, clearly, a programme that was supposed to be effectively cash generative infill drilling and recompletions in previously untapped, but known, productive zones, has become a prod uction disaster. To our mind this management team have run out of excuses and either need to come clean with the owners, disclose what they've learned that they didn't obviously know before (and why), and how the Company will be traded out of the current situation. Either way, we see further dilution for the equity holders as inevitable. The Company states that “The Pilot comes at a great time with the Company in having the potential to increase its production and substantially increase its reserves without a significant expenditure of capital.” Given that we have been here before, how are we expected to believe the assessment this time round when the last time ended in disaster, and we still don’t know why. On that basis, it is hard to understand this being a great time for anything.

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