Sign up UNITED KINGDOM
Proactive Investors - Run By Investors For Investors

Hurricane Energy gearing up for a potentially transformational year

Another chapter in what is fast becoming a very gripping tale begins next year and concludes in early 2019 with first oil
Hurricane Energy gearing up for a potentially transformational year
The mock-up shows how the Aoka Mizu will act as a temporary production facility once output begins on the Lancaster Field oin 2019

The notion that Hurricane Energy PLC’s (LON:HUR) success represents a ‘paradigm shift’ for the North Sea may be a little misdirected. Nonetheless, it is certainly fair to say the company is doing things its own way and it has been rewarded handsomely for doing so.

Hurricane is seemingly on the cusp of promotion from the junior market up to a premium listing (likely to be the main board of the London Stock Exchange) and in June the company landed a US$530mln funding deal.

Plainly, Hurricane is advancing very quickly.

Vast crude resources West of Shetland

First, it is probably right to clarify that Hurricane seemingly vast oil resources are not in fact locating in the North Sea - rather, they’re found in the West of Shetland region of the UK continental shelf.

It is a pedantic point, but, it speaks to significant subtext. The North Sea is seen by some as something of a dead horse whereas Hurricane is flogging an oil play that fresh and new.

In this regard Hurricane is a pioneer, not a game changer.

For the uninitiated, Hurricane is a pathfinder in so much as it has proved that a particular type of oil play (what’s known as a fractured basement play), which works in Asia and South America, is also viable offshore Scotland.

Whilst skirting around the more nuanced technical points, the takeaway for investors is quite simple – Hurricane geologist chief executive, Dr Robert Trice, long believed oil bearing basement plays were present and they could be exploited.

Exploration success and proof of concept

Backed by private equity investors (and more recently those in London’s AIM market) the company drilled a series of successful wells to deliver results that have answered some of the early scepticism.

There’re some 2.6bn barrels of crude resources in the company’s asset inventory thanks to a new assessment earlier this month, and the company is advancing a plan to start production from its most advanced project in around eighteen months from now.

This early production system (EPS) at the Lancaster oil field will be the major value catalyst for Hurricane, but it won’t be the only one.

On a path to early production

The EPS is due online in the first-half of 2019 with this start-up phase forecast to deliver up to 17,000 barrels of oil per day (bopd).

Recently analysts embarked on a site visit to Dubai where the Aoka Mizu floating production, storage and offloading (FPSO) vessel (which is contracted to the project) is dry-docked for upgrade works. It is expected to arrive onsite in September.

New assessment detailed huge upside for future

A new competent persons report, released December 11, assessed Hurricane’s assets except for its most advanced, the Lancaster field, and it confirmed what many in the market had hoped for - that Hurricane’s successful drill campaign unearthed an awful lot of oil.

New discoveries Halifax and Lincoln have been estimated to host 1.23bn and 604mln barrels of crude respectively, whereas the untested (but substantially de-risked) Warwick prospect is thought to contain a potential 935mln barrels.

Including Lancaster, which was in May was estimated to have 523mln barrels of recoverable resources, the new assessment sees the group’s total inventory rising 231% to 2.6bn barrels oil equivalent.

Broker sees very significant upside

In the wake of the resource report, Royal Bank of Canada upgraded its target price for Hurricane.

The broker’s new target of 70p suggests some 125% upside to Hurricane’s current price of around 31p.

“Although production history (through 2019) will be needed to full convince a farm-in partner, the stock remains one of the cheapest,” RBC analyst Nathan Piper said in a note.

Piper sees the shares going much higher, as the group’s assets continue to advance and de-risk.

“The company has passed every test so far, successfully determined how to drilling into basement, conducted successful short term production tests (over 15,000b/d) and crucially securing funding to progress development of Lancaster,” the analyst said in a note.

New chairman incoming, but who?

Following the departure of Dr Robert Arnott in November, the company is in the market for a new chairman.

It has hired executive search recruiter Spencer Stuart to find the company’s new chairman.

The UK offshore oil company said in a statement that once this person is in place it will look to appoint additional independent non-executive directors to the board in order to make it fully compliant with corporate governance guidelines.

Additionally, on the recommendation of the company’s Listing and Governance Committee, Hurricane has now brought in specialist shareholder engagement and corporate governance consultant, Boudicca Proxy, which will assist the evaluation and transition of the firm’s policies into line with ‘premium listed’ stock exchange companies.

Maturing and doing its own thing

There’s no question that Hurricane is doing things its own way.

A stock market promotion may be coming and it may be worth around £570mln, but it is still essentially junior company that (for the time being at least) is advancing a major multi-billion barrel oil project all by itself.

It stands apart from the rest of the exploration and production sector and with many share price catalysts in the pipeline Hurricane will continue to be through 2018 as it advances Lancaster towards start-up.

View full HUR profile View Profile

Hurricane Energy PLC Timeline

Related Articles

picture of gas flare
July 19 2017
A new gas generator also came on stream recently and has started to produce the first power from the project
onshore drilling operation
October 10 2017
The programme won't resume until April or May 2018.
oil and gas operations
October 30 2017
Chief executive Hugh Mackay highlighted the oiler sees " so much activity on so many fronts in the months ahead".

No investment advice

The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable or advisable for any specific person. You further understand that none of the information providers or their affiliates will advise you personally concerning the nature, potential, advisability, value or suitability of any particular security, portfolio of securities, transaction, investment strategy, or other matter.

You understand that the Site may contain opinions from time to time with regard to securities mentioned in other products, including company related products, and that those opinions may be different from those obtained by using another product related to the Company. You understand and agree that contributors may write about securities in which they or their firms have a position, and that they may trade such securities for their own account. In cases where the position is held at the time of publication and such position is known to the Company, appropriate disclosure is made. However, you understand and agree that at the time of any transaction that you make, one or more contributors may have a position in the securities written about. You understand that price and other data is supplied by sources believed to be reliable, that the calculations herein are made using such data, and that neither such data nor such calculations are guaranteed by these sources, the Company, the information providers or any other person or entity, and may not be complete or accurate.

From time to time, reference may be made in our marketing materials to prior articles and opinions we have published. These references may be selective, may reference only a portion of an article or recommendation, and are likely not to be current. As markets change continuously, previously published information and data may not be current and should not be relied upon.

© Proactive Investors 2018

Proactive Investor UK Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use