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Hurricane Energy moves tangibly closer to first production, but speculators will be counting down to new drilling

The Lancaster EPS is due to bring online 17,000 bopd of production in the first half of next year, at which point new exploration and appraisal programmes will also be underway.
oil and gas operations
The EPS development remains on track

Hurricane Energy Plc (LON:HUR) confirmed on Thursday that it had moved tangibly closer to first production, yet the share price barely moved.

It is sometimes the frustration with explorers when the make the transition to field development.

Stock market punters love the thrill of drilling for and making discoveries, but, can lack appetite for the more gradual value accretion that comes with bigger budget engineering projects.

Hurricane’s latest update confirmed the completion of all offshore installation works planned for the 2018 schedule.

READ: Hurricane Energy looks forward to Lancaster field start-up

The UK offshore oil field developer, in a statement, said that the installation of the subsea umbilical, risers and flowlines (or ‘SURF’) infrastructure had been successfully completed.

Now, the final activity in the current programme will involve protective rock dumping, expected to take place in October.

It leaves the Lancaster early production system (EPS) - which will yield some 17,000 bopd - on track for start-up in the first half of next year.

For Hurricane, it will be an important breakthrough. Not only will it provide some cash flow, it will also provide production data that should, in theory, de-risk a larger Lancaster field development and unlock what may ultimately be a multi-billion barrel operation.

These are key points that have been repeated often. They are undoubtedly important value drivers, but, even when the project is delivered it may not be the sort of catalyst that will rocket the share price overnight.

Spirit deal brings new exploration and appraisal

All the more reason for speculative investors to be pleased with last week’s deal between Hurricane and Spirit Energy, a company majority owned by Centrica.

The deal with Spirit Energy sees Hurricane trading away 50% of the Greater Warwick Area in return for a US$387mln promise of funding for a well drilling programme, and, an initial field development programme that aims to deliver production by 2020.

Put simply, it means new high impact drilling opportunities.

Hurricane highlighted that the deal unlocks the GWA programme and significantly means that cashflows from the Lancaster EPS can be reinvested back in the larger Lancaster field development (rather than fund exploration and appraisal activity).

Spirit’s Phase 1 programme will see three new wells drilled. It aims to accelerate the appraisal of Lincoln and confirm the Warwick discovery. Hurricane will be ‘carried’ in the US$180.6mln initial drilling programme.

A rig contract has already been signed, with Transocean, for drilling to start next year.

Thanks to the Spirit deal and the ongoing progress towards the EPS start-up, it promises to be a busy period for Hurricane as share price catalysts from both projects dovetail through 2019.

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