Since our most recent note on Hurricane Energy, ‘Lancaster EPS on track and on budget’ activity has continued at pace for the company as it remains on track for first oil in H119. Last week the offshore installation phase of the Lancaster EPS commenced with the installation of the Enhanced Horizontal Xmas Trees on the two existing wells, 6 and 7z, completed by the Far Superior offshore construction vessel. In addition the Lancaster EPS buoy departed from Drydocks World in Dubai on the Jumbo Kinetic vessel and is scheduled to arrive in Lerwick in the Shetland Isles by the end of June, allowing installation of the turret mooring system for the Aoka Mizu FPSO to take place on schedule by the end of Q318. Meanwhile, we expect that re-entry and completion operations on the 6 and 7z wells will commence imminently, since the Paul B Loyd Jr rig is now on location. The activity will provide plenty of opportunities for those who like to track vessel movements.
Remaining summer 2018 weather critical items to look out for include FPSO sail away, arrival and hook up, and SURF installation. The sail away options will be via the Suez Canal or around South Africa. Routing via Suez is expected to lead to a four-week sail time, but would require the FPSO flare tip to be attached in a European yard due to route height restrictions. The South African alternative would require a longer journey time, but would limit the time required in a European yard where in both cases the bottom plate of the turret is to be removed. Both options are expected to result in a sail time to Rotterdam of around six weeks.
Installation of the mooring system and SURF (subsea umbilicals risers and flowlines) is expected to take place in the Q2-Q3 summer weather window. The FPSO remains on schedule to sail away by the end of Q3. A key test before FPSO sail away will be a sea trial to ensure marine worthiness.
In our current base case valuation, Edison continues to use capital (+10%) contingency together with a conservative view on production ramp up (50% uptime in H219 and 80% in 2020, rising to company guidance of 85% in 2021) compared to management. We will review these contingencies once Lancaster EPS commissioning is completed and we see greater certainty of production ramp up from the field. Our valuation stands at RENAV 78.4p/share based on an oil price assumption of $59/bbl in 2019, rising to $70/bbl long term from 2022. A long term oil price of $80/bbl would increase our RENAV to 91.2p.