Shares in Hurricane Energy (LON:HUR) surged by 50% as it successfully tested a horizontal appraisal well on the Lancaster discovery west of the Shetland Islands.
Broker Cenkos Securities said it was “very positive news” for the field and significantly de-risks the basement play across the company’s acreage and “marks a significant step forward towards commercial development.”
The flow rate was a far better than expected 9,800 barrels of 38 degree API crude a day with the flow rate constrained by the capacity of the surface test equipment.
The group used an electrical submersible pump to achieve the production figure.
Without it the maximum sustainable flow rate was a highly respectable 5,300 barrels.
The 1km horizontal well was designed to confirm that significant quantities of oil are to be found and crucially can be recovered from faulted and fractured basement rock.
These are distinct from the traditional North Sea discoveries although not uncommon elsewhere around the world.
The success of Hurricane, which had previously successfully drilled Lancaster, opens up a whole new oil play that could significantly extend the life of the oil industry in British waters.
Chief executive Robert Trice, who is aboard the Sedco 712 drilling rig, said: “This successful outcome reinforces the potential importance of basement resources as a strategic resource for the UK."
The 100%-owned Lancaster field boasts estimated contingent resources of 207mln barrels of oil equivalent.
Trice believes the latest result represents an important step towards de-risking the group’s wider oil resource base.
The result also provides the breakthrough required to attract investment and farm-in partners.
It shows a sceptical oil establishment that the fractured basement theory works just as well in the waters around Britain as does Vietnam of Libya.
These fractured structures occur when volcanic activity or some other tectonic force pushes the basement rock (often granite) through into the higher lying hydrocarbon bearing layer, forcing the basement up by as much as 1.5 kilometres.
This then results in the oil-bearing layer being lower than the basement high produced.
The granite is hard but the faults and millions of fractures created in the rock then become host to significant oil accumulations, sealed in by layers of muds and shales.
Cenkos added that the well significantly exceeded the 4,000bopd (barrels of oil per day) rate necessary to demonstrate commercial flow rates.
The broker added that Hurricane trading at a price of US$0.69 per barrel, compared to UK peers such as Faroe (US$5.45) and Cairn (US$5.89).
“This also fails to reflect the scale of Hurricane’s resource base, which is materially larger than any other independent E&P companies in the UK.”
Cenkos has raised its target price to 103p, from 81p, with a ‘buy’ recommendation.
Shares surged 52% to 45.05p.