Hurricane Energy is an E&P focused on fractured basement exploration and development in the West of Shetland region. The company’s 100%-owned Lancaster oil discovery achieved first oil on target in H119.
Investment summary
HUR cut its Lancaster and Lincoln fields reserves and resources estimates in September 2020 after confirming significantly shallower oil water contacts than previously estimated and a more complex Lancaster reservoir system. Lancaster EPS 2P reserves were reduced from 37.3mmbbls to 16mmbbls with remaining reserves of 9.4mmbbls at 1 September 2020. 2C resources were also reduced to 58mmbbls from 486mmbbls. HUR is working with its stakeholders to assess the merits of side-tracking the existing Lancaster 205/21a-7z well. The company is considering drilling the sidetrack in 2022, and a water injection well in 2022 or 2023. Production of 12,100bopd (at mid January) is expected to decline slowly without further activity. Higher oil prices increased net free cash at end 2020 by $19m (vs end November) to $106m. We will review our suspended valuation once HUR publishes its updated Competent Person’s Report, due to be completed by the end of Q121. Our core NAV is likely to be significantly reduced from our previous estimate of 13.6p/share.
HUR’s ability to mitigate declines at Lancaster will depend on the outcome of its ongoing engagement with stakeholders regarding the nature and timing of future investment in the field.
