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Research: Energy & Resources
Hurricane has announced an update on the strong ongoing performance of the Lancaster early production system (EPS), with recent individual well tests supporting guidance of 20,000bod for FY20 (before operational downtime). It has also been granted a five-year extension to its P1368 licence, covering Lancaster and Lincoln, resulting in changes to its 2020 work programme. One or more sub-vertical wells will be drilled on both Lincoln (in 2020) and Lancaster (in 2021) to determine the maximum vertical extent of the reservoir, while the Greater Warwick Area horizontal wells will no longer be drilled next year. Hurricane estimates FY19 oil production of 3.1mmbbl, representing an average of 13,300bod, generating revenue of c $165m and year-end unrestricted cash of c $150m. We plan to update our numbers shortly to reflect FY19/20 guidance.
Written by
Hurricane Energy |
Strong Lancaster EPS performance |
Operational update |
Oil & gas |
16 December 2019 |
Share price performance
Business description
Analysts
Hurricane Energy is a research client of Edison Investment Research Limited |
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Hurricane has announced an update on the strong ongoing performance of the Lancaster early production system (EPS), with recent individual well tests supporting guidance of 20,000bod for FY20 (before operational downtime). It has also been granted a five-year extension to its P1368 licence, covering Lancaster and Lincoln, resulting in changes to its 2020 work programme. One or more sub-vertical wells will be drilled on both Lincoln (in 2020) and Lancaster (in 2021) to determine the maximum vertical extent of the reservoir, while the Greater Warwick Area horizontal wells will no longer be drilled next year. Hurricane estimates FY19 oil production of 3.1mmbbl, representing an average of 13,300bod, generating revenue of c $165m and year-end unrestricted cash of c $150m. We plan to update our numbers shortly to reflect FY19/20 guidance.
Year-end |
Revenue |
EBITDA |
Operating |
Capex* |
Net debt/ |
12/17 |
0.0 |
(14.6) |
(8.1) |
(265.7) |
(133.5) |
12/18 |
0.0 |
(12.6) |
(4.4) |
(209.9) |
103.4 |
12/19e |
113.2 |
68.1 |
23.4 |
(35.6) |
115.6 |
12/20e |
365.0 |
256.8 |
235.6 |
(59.5) |
(60.6) |
Note: *Capex is net of carried investment by Spirit Energy.
The Lancaster EPS has continued to demonstrate high productivity, while vessel uptime is 90% vs previous guidance of 85%. Individual flow tests have confirmed a flow of 14,700bod from the 205/21a-6 well with minimal water cut, and 9,400bod from 205/21a-7Z with a water cut of 25–30%, both under natural flow. On this basis, the company has maintained its FY20 guidance of 20,000bod for now, which could be updated following the completion of the individual flow tests in January 2020. Water production is in line with the company’s modelled expectations for perched water and is not believed to be from aquifer water breakthrough. Tie-back of a Lincoln well could be delayed into 2021 pending OGA regulatory approval.
The extension of the P1368 licence has resulted in commitment wells in Lancaster and Lincoln. To minimise rig downtime, the drilling of a third horizontal producing well is being considered in Lancaster in 2020. First oil from this well, if drilled, would be expected in late 2021. The company also announced the relinquishment of Whirlwind and Strathmore. Hurricane plans to hold a capital markets day on 25 March where key detailed data from Lancaster EPS will provided.
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Research: Industrials
John Laing Group (JLG) believes it remains on track to meet its targets for investment commitments and realisations for 2019–21, despite the run rate being below the level required to achieve this in 2019 to date. However, the adverse impact from exchange rates and reduced power price forecasts has led us to reduce our FY19e NAV per share from 353p to 343p. JLG’s share price now stands at c 9% premium to its last disclosed NAV per share, broadly in line with its peers. A continuation of the rapid growth achieved in recent years should help underpin further share price appreciation.