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AUCTUS PUBLICATIONS ________________________________________ Challenger Energy (CEG LN): Discontinuing coverage - We are discontinuing coverage on Challenger Energy Group. Longboat Energy (LBE LN)C; Target price of £1.50 per share: 3-5 well programme in 2023. Increased resources estimate at Kveikje – There were no surprises in the 1H22 financials. The gross contingent resources estimates at Kveikje have been increased from 28-48 mmboe to 35-60 mmboe (2C-3C) based on a new CPR following post well studies. A successful well test at Oswig would not only prove-up up to 93 mmboe of gross resources (~19 mmboe net to Longboat) but also derisk 80 mmboe gross prospective resources (16 mmboe net to Longboat) across the Oswig North, Mid and West prospects. The Oswig Mid prospect is directly adjacent to the Oswig discovery. During 2023, Longboat plans to drill 3-5 wells. This includes the high impact Velocette prospect for which a rig has been secured for 3Q23 drilling, appraisal wells at each of Oswig and Egyptian Vulture and potentially some exploration wells on new licences that the company could farm into. We have increased our target price from £1.40 per share to £1.50 per share as we incorporate the impact of the lower value of the £ versus the US$. See website for full report IN OTHER NEWS ________________________________________ AMERICAS Blue Star Helium (BNL AU): Helium contingent resources in the USA/High helium content at exploration well – The Voyager field is estimated to hold 0.64 bcf of helium. The Stage 1 helium processing facility is expected to be commissioned during 2H23. Analysis of gas obtained during drilling at the JXSN#4 exploration well shows a calculated air-free gas composition of 6.5% helium in the Lyons formation. Diversified Energy (DEC LN): Share buyback programme – Diversified is launching a share buyback programme for up to 10% of current shares outstanding. Echo Energy )ECHO LN): 1H22 results – 1H22 production in Argentina was ~1.4 mboe/d. The restructuring of the company’s EUR15 mm of debt principal is ongoing. i3 Energy (I3E LN): Production update in Canada – i3 recently reached a production rate of 22,000 boe/d including 69 mmcf/d of natural gas per day. The company remains on track to reach 24,000 boe/d by YE22. President Energy (PPC LN): 1H22 results – 1H22 production in Argentina was 1,969 boe/d. The recent fire in the Puesto Flores Facility in Rio Negro has disrupted production from the Puesto Flores oil field in August and September with full and normal production there expected in the first part of October. Prio: Not acquiring asset in Brazil – Media reports indicated that Prio has terminated negotiations with Petrobras with regards to the acquisition of the Albacora West oil field over disagreement on price. Trinity E&P (TRIN LN): Modifications of fiscal terms in Trinidad - The production threshold for small onshore oil producers to benefit from the SPT threshold price of US$75/bbl will be increased from 2,000 bbl/d to 4,000 bbl/d. New oil wells in shallow water marine areas will also benefit from lower SPT rates. The tax credit of 25% of qualifying capital expenditure against SPT has been increased to 30%. EUROPE Hurricane Energy (HUR LN): 1H22 results – 1H22 production in the UK was 9 mbbl/d. Net cash at the end of June was US$48.4 mm. IOG (IOG LN): Production update in the UK – September production was constrained at 21.8 mmcf/d (87% uptime) due to saline liquids production. This rate has increased to 32 mmcf/d. Reabold Resources (RBD LN): Acquisition in the UK - Reabold is to acquire Simwell for a total initial consideration, plus the repayment of all outstanding creditors/liabilities, of £1 mm. The initial consideration consists of £361,841 in Reabold shares at a price of 0.27 pence per share. The sum of £305,158 payable to creditors will be satisfied by the issue of 113,021,374 new shares. The balance of the acquisition price will be paid in cash. There is also a deferred consideration of £150,000 payable in shares to the seller on committing to drilling. Simwell has a 30% equity interest in licence P2332 (SNS). Simwell also holds 10% interests in licences P2329, P2427 and P2486 (SNS) following a farmout to Shell, which is now the operator with a 70% equity interest. Reabold held net cash of £3.6 mm at the end of June. Serica Energy (SQZ LN): 1H22 results – 1H22 production in the UK was 26.6 mboe/d. Serica held £482 mm in cash as at 23/09/2022. The FY22 production guidance has been narrowed to 26-28 mboe/d. An interim dividend of £0.08 per share has been declared. TotalEnergies (TTE FP): Strategy update – Total will allocate 35-40% of cash flow to shareholders with net investments increasing to US$14-18 bn per year over 2022-25. Investments in solar and wind will exceed US$4 bn in 2022 (US$3 bn in 2021) and a U$1 bn energy savings program will be deployed globally in 2023-24. The remaining two-thirds will be dedicated to growing in LNG and to developing low-cost, low-emission oil projects. Excluding Russia, liquid production is expected to grow by 1.5% per year from 2021 to 2027. The company will pay a EUR1 per share special dividend by YE22. Union Jack Oil (UJO LN)/Reabold Resources (RBD LN): Resources estimates in the UK – Kirkham Abbey has been estimated to hold 197.6 bcf. Contingent resources (best case) with 85.5% chance of success. FORMER SOVIET UNION Block Energy (BLOE LN): 1H22 results – 1H22 production in Georgia was 515 boe/d. Block held US$1.4 mm in cash at the end of June. Caspian Sunrise (CASP LN): 1H22 results and acquisition in Kazakhstan – 1H22 production in Kazakhstan was 2,288 bbl/d. Recent production levels are 2,264 bbl/d. The A8 deep well is not expected to produce at commercial quantities. The discount for oil emerging from Russian pipeline has recently widened from the US$30 – 35/bbl previously reported to nearer US$40/bbl. Caspian intends to acquire Block 8, a producing Contract Area located ~160 km from BNG, for a maximum consideration of US$60 mm, payable in cash from the future production from Block 8 at the rate of US$5/bbl of oil produced. The Block 8 Contract Area is owned by a member of the Oraziman family, which holds approximately 48.4% of the shares in Caspian Sunrise. Caspian will advance cash and equipment up to US$5 mm (@7% interest per year) to complete the existing work programme commitments. In recent years two deep wells have been drilled on Block 8 to depths of 4,203 meters and 3,449 maters respectively, from which oil has flowed at rates of up to 800 bbl/d. Caspian continues to expect to pay a first dividend during 2H22. The company held US$5 mm in cash at the end of June. Enwell Energy (ENW LN): 1H22 results – 1H22 production in Ukraine was 3,026 boe/d. The company held US$76.2 mm in cash as at 28/09. PetroNet Resources (PTR LN): 1H22 results – 1H22 gross production in Russia was 1,942 bbl/d. The company had US$0.33 mm in cash and US$5.3 mm in debt at the end of June. MIDDLE EAST AND NORTH AFRICA Capricorn Energy (CNE LN): Withdrawing from merger with Tullow. Merging with NewMed Energy – NewMed Energy (previously Delek) have announced a proposed combination. A cash special dividend of US$620 mm (=£1.72 per share) is proposed to be paid to existing Capricorn shareholders prior to completion. Capricorn will acquire all of the partnership interests in NewMed in consideration for the issue of new Capricorn shares to NewMed unitholders based on an exchange ratio of 2.337344 New Capricorn Shares for every NewMed participation unit. The expected total value of the transaction to existing Capricorn shareholders is therefore equivalent to £2.71 per Capricorn Share. The combined entity will hold 2P reserves + 2C resources of 11.8 tcf with net WI production of 690 mmcf/d in Egypt and Israel. United Oil & Gas (UOG LN): 1H22 results – 1H22 production in Egypt was 1,552 boe/d. United held US$4.7 mm in cash as at 23/09/2022. The FY22 production guidance is now 1,450-1,500 boe/d (1,500-1,650 boe/d previously). The Combination will result in Capricorn shareholders holding approximately 10.3%of the share capital of the Combined Group and NewMed unitholders. SUB-SAHARAN AFRICA Afentra (AET LN): 1H22 results – Afentra held US$23 mm in cash at the end of June. 1H22 net production at Block 3/05 in Angola was 4.7 mboe/d. San Leon Energy (SLE LN): 1H22 results – Oil delivered to the Bonny terminal from OML 18 in Nigeria during 1H22 averaged 1,130 bbl/d (down from 6,600 bbl/d in 1H21). Gas sales averaged 41.8 mmcf/d after 17% downtime. The company held US$0.3 mm in cash at the end of June. Savannah Energy (SAVE LN): 1H22 results – 1H22 gross production in Nigeria was 22.5 mboe/d. The acquisition of ExxonMobil and Petronas’s assets in Chad and Cameroon continues to be expected to complete by YE22. The FY22 guidance has been reiterated with US$85 mm capex. Adjusted net debt at the end of June was US$408 mm.
HUR CNE CNE I3E CZA CASP DEC IOG MEN SQZ TRIN RBD SAVE SLE ECHO BLOK CEG LBE PTR
Hurricane has made significant progress this year, becoming debt free with a growing cash position ($77m net free cash end August) that could be used to diversify the asset base. Production from Lancaster remains strong, but further drilling activity at the field remains uncertain given the lack of regulatory approvals around flaring levels. Financials H1/22 Results: Production averaged 9,000b/d, in-line with management expectations, generating $160m revenue (from three liftings); after $35/bbl opex this generated $110m of operating cash flow, with net cash at end June of $48m. The remaining $78.5m convertible bond was repaid in July with the company now debt free, with $77m net free cash as end August (c.$61m is held in restricted cash to fully fund decommissioning liabilities). Strong Operational Performance High Uptime: The Aoka Mizu FPSO continues to perform well with 98% uptime through H1/22. The annual planned maintenance shutdown was completed through September, with next lift in early October. Production is currently 8,700b/d (boosted by post maintenance flush production) and is expected to ease back to 8,300b/d with 48% water cut and continue in natural decline. Further Drilling Uncertain: Further drilling at the Lancaster field (specifically the P8 well) still requires regulator consents around gas flaring levels and at the moment a resolution has not been reached. In addition, the Halifax license has been relinquished given a low chance of progressing a development. Deal flow Time to Diversify: Given balance sheet strength the company continues to look at a range of deal opportunities, both at the asset and corporate level, to diversify the business. However, volatile commodity prices continues to present challenges.
Hurricane Energy Plc
The FY21 results highlight that Hurricane is moving into an increasingly stronger position with more options on how management take the business forward. The remaining $78.5m convertible bond should be repaid in July (at least $60m cash post repayment) with the focus moving to the next investment decision in order to diversity the one-well production base, either within the existing portfolio or new assets. Financials – Building Cash Position Through FY21 the company produced an average of 10,267b/d (92.3% uptime) driving $240m revenues ($67/bbl av sales price) with opex of $28/bbl and $136m FCF, ending the period with $52m net free cash after repaying $152m convertible bonds (at 86% average price). At end March 2022 the company held c.$106m free cash. Outlook – Producing ahead of guidance, for now The Lancaster field continues to produce at 9,150b/d at mid-April (average of 9,372b/d Q1/22) with FY22 guidance of 7.5-8.6kb/d. The FPSO charter was extended in March 2022 to cover the life of the field. The next cargo from the field is expected to be lifted in May (producing c.13mmbbls since production start-up in May 2019). The Lincoln commitment well could not be deferred with the decision made to surrender the Licence (alongside a $54m impairment) Reserves – c.65% 2P reserves replacement The update CPR indicates 2P reserves of 5.8mmbls at end 2021, down from 7.1mmbbls following 3.7mmbbls of production but the addition of 2.4mmbbls due to higher FPSO uptime and oil price assumptions. 2C Resources stand at 35.4mmbbls that depend on water injection/development drilling investment being made.
Market update - 16/02/2022
The Lancaster field continues to produce at the top end of guidance, although decline is expected; combined with strong oil prices (c.$84/bbl), the company has outlined a relatively upbeat outlook that in the CEO’s words ‘brought the possibility of bridging the funding gap for the repayment of the bonds within reach’. H1/21 Results Hurricane produced 11.1kb/d from the Lancaster field through H1/21 with $124m revenues (four liftings) with $24.8/bbl opex generating $76m operating cash flow, profit after tax of $43m (benefitting from not extending FPSO leasing) with net free cash of $132m at end-June 2021. Bond Deal As previously announced, the company repurchased c.34% of its $230m 7.5% convertible bonds at $62m, reducing the par value to $152m. The deal has saved c.$22m future obligations to bondholders. Production Outlook The production outlook remains at 8.5-10kb/d for the next six months (from 1 October) based on improved FPSO uptime and production from the P6 well. Production through September averaged 10.6kb/d with 33% water cut, with the Lancaster producing 10.5kb/d (35% water cut) at mid-October. The next cargo is expected to be lifted through late Q4/21. Non-Executive Director Appointment The company has appointed Philip Wolfe as Independent Non-Executive Director, he has extensive experience in finance and the energy industry and most recently was CFO of AIM-listed Phoenix Global Resources.
Edison Investment Research is terminating coverage on Hepion Pharmaceuticals (HEPA), Hurricane Energy (HUR), CASI Pharmaceuticals (CASI) and Monarch Mining Corporation (GBAR). Please note you should no longer rely on any previous research or estimates for this company. All forecasts should now be considered redundant.
Market update - 17/09/2021
Market update - 07/07/2021
Hurricane Energy Plc Petro Matad Limited
Market update - 16/6/2021
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Market update - 10/05/21
HUR MATD RBD UJO
Hurricane’s Q4’20 production averaged 12.7kbbl/d with a 25% water-cut. For the final 4 months of the year, production of 12.5kbbl/d was within the 12- 14kbbl/d guidance range. The current production of 12.1kbbl/d and water cut of ~25% remains steady. The water production level is well within the handling capacity of the FPSO but the well production rate has been choked back to manage the reservoir and avoid water coning issues. In 2021, we expect production of 11kbbl/d, a moderate decline, which may be partially offset by a Q4 bump from the 205/21a-7z well re-entry.
Hurricane released an operational and corporate update today. As expected, given the major reserves downgrade earlier this year, Hurricane has flagged the possibility of equity dilution or even the wipe out of equity value if no agreement on the funding of its development plans can be agreed with stakeholders. However, we continue to see considerable value remaining in the Lancaster asset if funding for further development of the field is forthcoming. Hurricane currently has US$87mm in available cash (versus a market capitalisation of US$114mm and outstanding convertible bonds of US$230mm) plus we estimate ~US$50mm in restricted cash. The company is also free cash flow positive at current oil prices and production levels. HUR remains very geared to oil prices: at current production rates of 12kbbl/d, we estimate US$40mm of incremental cash flow if oil prices move up $10/bbl (35% of the current market cap for just one year’s production). Also, if it can boost production by 5kbbl/d, over the course of a year based on a US$50/bbl realisation, this would add ~US$90mm of revenue with little incremental opex.
Hurricane Energy (HUR LN): Water cut at Lancaster increases to 26% | JKX Oil & Gas* (JKX LN): Production increases 4% qoq in the Ukraine | Mosman Oil & Gas* (MSMN LN): Falcon-1 drilling continues apace
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Hurricane released an operational update today. Lancaster produced at 14.6kbbl/d in H1'20 and up to the end of August at the same rate. Q3’20 production was 13.6kbbl/d at a 26% water cut, which was 5% lower q/q given the shut in of the 205/21a-7z well from early August, a controlled shutdown of the FPSO for repairs, scheduled annual FPSO maintenance in early September and a short shut in of the 205/21a-6 well for data gathering purposes towards the end of the period. The "7z well" has been shut in and is expected to remain shut in to manage the reservoir voidage and pressure decline. Most recently the water cut on the well was 55-60% before it was shut in.
Hurricane’s basement fields have been shown to be much more complex than previously envisaged and the Technical Review, published on 11 Sep, has led to a 57% reduction in Lancaster’s 2P initial recoverable reserves to 16mmbbl and an 88% cut in 2C resources to 58mmbbl. Similarly, in the GWA area, Lincoln’s 2C resources have been cut by 92% to 45mmbbl gross. The main reason for the cuts is a shallower oil water contact (OWC), which means that there is a smaller tank of oil, as well as causing water production from the Lancaster wells. It is also now believed that rather than all the production coming from the basement, there has been a significant contribution from sandstone reservoirs onlapping the basement.
Hurricane Energy (HUR LN): Interim results, significant downgrade at Lancaster | Pharos Energy (PHAR LN): Two-year extension granted at TGT field, Vietnam | Nostra Terra Oil and Gas (NTOG LN): Accretive acquisition confirmed, potentially more to come
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Hurricane’s technical committee has concluded that there is a reasonable probability that the oil water contact (OWC) in the Lancaster field is shallower than the range of OWCs estimated in the 2017 competent person’s report (CPR) by RPS Energy. As a result, the company believes there is a risk that the estimated reserves for the Lancaster early production system (EPS) and the contingent resources across the West of Shetland portfolio will be materially downgraded. Given the range of outcomes which could emerge from the technical review, and less than a month to the interim results on 11 September 2020, we believe suspending our valuation is a prudent move until there is further clarity on reserves, resources and remedial actions being considered to mitigate potential reserve downgrades.
Hurricane Energy (HUR LN): Material resource downgrade expected at Lancaster | Genel Energy (GENL LN): 1H20 results underline Genel’s financial flexibility
Hurricane Energy Plc Genel Energy PLC
Hurricane announced on 6 August the preliminary findings from its detailed technical review of the Lancaster field. The main conclusion is that there is a reasonable probability that the oil water contact in the Lancaster field is shallower than the range of oil water contacts envisaged from the last Competent Person’s Report. Consequently, the Company believes there is a risk of a material downgrade to estimated reserves attributable to the Lancaster Early Production System (37mmbbl initial 2P reserves), and that there will also be a material downgrade to estimated contingent resources across the West of Shetland portfolio. The technical review will be released at the latest by H1’20 results on 11th September.
Hurricane Energy (HUR LN): Welcome boost to production base | President Energy (PPC LN): President confirms oil exports
Hurricane Energy Plc Molecular Energies PLC
Hurricane announced a positive operational update on production from Lancaster and the successful commissioning of the electric submersible pumps (ESPs). Since the last update on 8 July, production has increased by 2kbbl/d to 17kbbl/d, with 12kbbl/d from 205/21a-6 (“6-well”) and 5kbbl/d from the 205/21a-7z (“7z-well”), which was previously shut-in. On the 6-well, the water cut increased marginally, from 11% to 12% and the well is back on natural flow rather than using the ESPs, at the same rate at which it was producing before the commissioning of the ESPs. The EPSs are being used on the 7z-well, with a water cut of 53% (46% in April), which has stabilised for now. Having the ESPs functioning allows Hurricane to produce from 7z, which would otherwise not have been possible. It will be important to see the water cut remaining stable to gain confidence in the longer-term production of the 7z-well.
Hurricane Energy (HUR LN): Water cut continues to increase at Lancaster | Nu-Oil and Gas (NUOG LN): NUOG in discussion with a further two RTO candidates
Hurricane Energy Plc Nu-Oil & Gas Plc
Today Hurricane announced an operational update on production from Lancaster. Since the last update a month ago, production has averaged 12kbbl/d from a single well, 205/21a-6 (“6-well”) with the water cut increasing insignificantly, from 8% to 11%. The 6-well had been producing on its own since 17th May 2020 at a steady rate of 10.3kbbl/d up until 5th June. We view this as relatively neutral as although it is positive to see a higher rate there is little new information. Overall production in Q2’20 averaged 14.3kbbl/d down 4% q/q. The water cut on average in Q2 was 21% up from 17% in Q1.
Hurricane has announced the resignation of Dr Robert Trice as CEO. Beverley Smith has been appointed as interim CEO and will oversee a thorough review of all available data, which will inform the future activity programme to increase production while maintaining capital discipline. Production from the Lancaster early production system (EPS) is relying on the deliverability of the 205/21a-6 well following Hurricane’s unexpected shut-in of 205/21a-7z in May 2020. Full-year guidance has been suspended, with the 205/21a-6 well presently producing at c 12,000bod. Production from 205/21a-6 will be increased over the coming weeks and months, although the optimal rate will be heavily dependent on the ongoing response of the reservoir. Our risked valuation has decreased to 37.1p/share from 70.4p/share (-47%) as we adjust our Lancaster EPS production profile and timing and capex allocation of future developments. Our core NAV now stands at 13.6p/share (-38%).
Founder and CEO Robert Trice has resigned following a prolonged period of operational disappointment. In our view, it also reflects the shift from explorer to cash constrained producer. A pragmatic skillset will be needed to navigate the company to a sustainable position ahead of refinancing the $230m convertible bond in 2022. Near term, the focus remains on improving production and preserving capital; we maintain our Buy rating and 12p/share price target. CEO resigns alongside further Board changes Since the start of 2020, two of three executive directors at Hurricane have resigned (COO remains). The CFO stepped down in February, with the CEO Robert Trice resigning today. It follows drilling disappointment in 2019 and increasing water cut at Lancaster leading to the suspension of production guidance in May. Beverley Smith (current non-executive director) has been appointed interim CEO, bringing extensive upstream/subsurface leadership experience following a 30-year career at BG Group. Richard Chaffe, is now confirmed as CFO (was acting CFO since February) and executive director. Dr Roy Kelly has been replaced by Dr Alan Parsley as the Kerogen appointee. The company intends to update the forward plan but, given financial constraints (c.$115m YE FY20E cash), we see limited alternative options until the extensive subsurface re-examination is completed (updated CPR Q1/21). As outlined in our recent initiation note, we expect near-term news flow to focus on increasing production from Lancaster-6 to a maximum sustainable rate (has produced up to 14,000b/d) and recompletion (or side track) of Lancaster-7z in 2021. Overall, we believe this gives the remaining team time to conclude the required technical work and for discussions with the OGA on the Lincoln FDA to conclude before crucial operational decisions/choices are made to deliver sustainable production from the Lancaster EPS. Operational Update Production from the Lancaster EPS has increased to 12,000b/d (from 10,300b/d in early June) with stable c.8% water cut, in-line with previous updates. There is the potential for further incremental increases depending on performance from the Lancaster-6 well.
Hurricane announced today that Robert Trice, CEO and founder will leave Hurricane by mutual consent. For now, Beverley Smith has been installed as interim CEO, through a transition period, with a permanent replacement to be chosen later. The other board changes are Richard Chaffe’s role as acting CFO being made permanent and Roy Kelly stepping down as a non-executive director to be replaced by Dr. Alan Parsley, as major shareholder Kerogen’s nominee. Hurricane also announced that it would be forming a Technical Committee to formalise management oversight, and plans to release an updated CPR no later than end Q1’20. Following Hurricane’s last operational update shares fell 45%; however, today’s update does not contain any incremental negative technical or operational information. Current production has actually increased to 12kbbl/d from 10.3kbbl/d at the last update.
Hurricane on Friday released an operational update on the Lancaster field. It has decided to shut in production from one of the two producers due to flow instability, given interference between the two wells. Production has fallen to 10.3kbbl/d, versus previous expectations of pre-downtime production from the two wells of 20kbbl/d. Hurricane has withdrawn its production guidance of 17kbbl/d for 2020, with year to date production having averaged 15.5kbbl/d. Hurricane shares fell ~45% on the news, which we see as an overreaction given that there is no reason to believe that this issue suggests any reservoir issues that will impact long term production. The interference between the wells is in fact an indicator of the prolific nature of the reservoir. We do not see this news as increasing the risk of water breakthrough from the aquifer. Therefore, we see this as a buying opportunity as Hurricane screens as cheap even on current production trading at an EV of US$23k per boe/d and $7/bbl of 2P reserves, with further optionality for its contingent resource, worth multiple times the current share price on a risked basis.
In April 2020, Hurricane Energy provided an update on Lancaster early production system (EPS) data gathered since first oil. The company announced that productivity from the two producing wells is over 10.0kbod per well. Aggregate water has been higher than initial expectations; however, this has been identified as being perched water and is expected to stabilise with time. Management expects that a longer period of data gathering will be required before the next stages of development. Given the need for additional data and the current commodity price environment, Hurricane is reviewing its capital allocation for 2020–21. Although the capital markets day did not confirm the next steps required to be able to confirm the upside case for the company's asset base, Hurricane’s balance sheet is strong and the EPS keeps on delivering. Our mid-case risked valuation has slightly decreased to 70.4p/share from 73.0p/share ( 4%) as we adjust our short-term oil price assumptions and our core NAV stands at 21.9p/share, a premium of 99% to the current share price.
Hurricane hosted a Capital Markets Day on Monday 27th April. It updated the market on the impact of COVID-19 and lower oil prices on the business, the data gathered to date from the Lancaster EPS, future plans for Lancaster, potential development tie-back scenarios for the Lincoln field and financial projections for 2020. Despite some challenges over the last few years, Hurricane has now sold 4.4mmbbl, after pioneering the UK’s first fractured basement development, which was executed on time and on budget, a rare occurrence in the UK, especially in the harsh environment West of Shetlands. It has significantly de-risked Lancaster, which is potentially a 500mmbbl oil field.
Huricane Energy (HUR LN): Watercut increases, production at Lancaster remains at 20,000bopd | JKX Oil & Gas* (JKX LN): 1Q20 operational update shows 11% yoy increase in production | Union Jack Oil* (UJO LN): Works continue at PEDL 183, in line with government regulations | Echo Energy (ECHO LN): Further cost cutting and focus on high margin gas | Regal Petroleum (RPT LN): Production up 5% yoy, operations continue unaffected | Columbus Energy Resources (CERP LN): Deeps cuts to G&A, Saffron testing results to be announced later this month
HUR JKX UJO ECHO ENW CERP
Hurricane provided an operational update on the Lancaster EPS (Early Production System). Q1’20 oil production was 14,900bbl/d, as early in the quarter individual flow tests were performed on the two producing wells. So far this year 4 cargos have been sold. In March, oil production was around 20kbbl/d with 12kbbl/d from the 205/21a-6 well and 8kbbl/d from the 205/21a-7Z well, before downtime. These production rates have been achieved without the use of electrical submersible pumps and with the wells choked back to less than 50%, confirming the exceptional productivity of these wells and the reservoir. Full year guidance of 18kbbl/d, implies ~19kbbl/d for the remainder of 2020, demonstrating the confidence that Hurricane has in the wells and suggests that 90% uptime is conservative.
Hurricane Energy recently reported its first year of production and revenues from the sale of oil produced from the Lancaster early production system (EPS). The company reported FY19 revenue of c $170m, in line with our previous estimates. In this note we update our valuation to reflect FY19 results and the current oil and gas industry macroeconomic situation. The coronavirus (COVID-19) and the Russia/Saudi Arabia price war have affected oil and gas global supply and demand and consequently oil prices. Our mid-case risked valuation has decreased to 73.0p/share from 109.9p/share (-34%) as we adjust our short- and long-term oil price assumptions and update our forecasts to reflect Lancaster's accelerated programme, and removal of the Great Warwick Area (GWA) tie-back.
Hurricane reported its FY'19 results today. Revenue of US$170mm was slightly ahead of guidance of US$165mm, with a realised oil price of $59.3/bbl. Opex for the year was $21.8/bbl, in line with expectations. 2019 production averaged 12.9kbbl/d, since commencing in May, with 7 cargos sold. Underlying profit before tax was US$30mm and cash flow from operations was US$112mm ($37.5/bbl). G&A was just US$0.4mm and even excluding a $3.2mm non-cash share-based payment credit, it was US$3.6mm or just over $1/bbl. Total capex for 2019 was US$53mm, relating to Lancaster development costs.
Hurricane Energy (HUR LN): GWA Joint Venture Agreements Update | Touchstone Exploration (TXP LN): 6% increase in 1P reserves | Echo Energy (ECHO LN): Production remains stable, £1m loan term extended
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Hurricane issued an operational update on Thursday stating it is no longer operationally feasible to tie-back the Lincoln Crestal well this year, due to a lack of regulator consent to delay the plugging and abandonment of the well, which is currently required to be carried out by 22nd June 2020. The partners are continuing to engage the OGA for an approval to extend the suspension consent, as they believe that this is a waste of invested capital and potential oil production. If this is not forthcoming the Lincoln Crestal well will be plugged and abandoned in March 2020, prior to the planned start of the Lincoln Commitment well at a gross cost of US$80mm ($40mm net to Hurricane). The commitment well will see standard testing to give valuable information to understand the fracture network. Hurricane is currently assessing the costs and split with Spirit for the idle rig time associated with the GWA area, the cost of releasing the service providers for the tie-in and the share of the costs for the tie-in from the Aoka Mizu to the WOSPS gas export line. The independent cost of the tie-in to WOSPS line and FPSO gas compression reactivation work is estimated at US$70mm gross and is currently planned to be completed by H2’21. Spirit continues to share Hurricane’s enthusiasm and belief in the GWA area – nothing in the technical data or its own sale process has caused it to step back. Hurricane did look at the scenario of walking away from the GWA area and not drilling the commitment well but it still sees significant value.
Hurricane Energy has announced an operational update with a programme focused on maximising the Aoka Mizu FPSO’s oil throughput capacity. In the Greater Warwick Area (GWA), partners concluded that it will not be possible to tie back the Lincoln Crestal Well to the FPSO in 2020. However, they are seeking regulatory consent to delay the abandonment of the Lincoln Crestal Well to obtain interference data during well testing in 2020 from one or more sub-vertical wells that are planned to be drilled and tested, to determine the maximum vertical extent of the Lincoln field. In the Greater Lancaster Area (GLA), an accelerated work programme is planned with an additional production well in 2020, in addition to drilling one or more sub-vertical wells in 2021 to determine the maximum extent of the Lancaster field. If successful, and subject to regulatory consents, the well would be tied back to the FPSO in 2021, with provisional first oil in Q122.
Hurricane issued an operational update today. Q4’19 production of 11.8kbbl/d was 7% above guidance on strong well productivity and facility uptime of >90%. Production was down 23% q/q as the Company was flowing each of the two production wells individually to gather valuable data to better understand the field and the optimal combined well flow rates. The water cut increased to 10.3% from 6.2% in Q3 due to the sole production of the “7Z-well” for 25 days. The “6-well” has been flowing individually at 12.5kbbl/d since 20th November and in the coming days both wells will be flowed together at 20kbbl/d. The Company is hopeful that the data acquired from the individual and upcoming combined flow tests will allow it to draw meaningful conclusions from the data, for a comprehensive picture of the Lancaster reservoir's performance and its potential, by the Capital Markets Day on 25th March.
In December 2019, Hurricane Energy provided a trading and operational update on its activities, announcing a strong ongoing performance of the Lancaster early production system (EPS), with well tests supporting guidance of 20,000bopd for FY20 (before operational downtime). Hurricane was also granted a five-year extension to its P1368 licence, covering Lancaster and Lincoln, which resulted in changes to its near-term 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 each reservoir. Hurricane estimated FY19 revenue of c $165m and year-end unrestricted cash of c $150m, relatively in line with our estimates for the year. Our risked valuation stands at 109.9p/share (from 102.8p/share) as we roll forward our NAV, adjust our short-term oil price assumptions and update forecasts to reflect Lancaster EPS performance and the 2020–21 work programme.
Hurricane's shares are currently trading at 28.6p/sh, back at the level they were at in early 2018 when there was still significant execution risk on Lancaster. Since then, the company has successfully brought Lancaster online, with better than expected flow rates, met production guidance for 2019 and will have generated US$165mm in revenue in 2019, to end the year with US$150mm in unrestricted cash, on our estimates. It also successfully drilled and flowed a potential producer well on Lincoln. At current guidance of 18kbbl/d from Lancaster in 2020, Hurricane should generate approximately $275mm in cash flow (at current US$65/bbl Brent) and $140mm in free cash flow, putting it on an FCF yield of 18% and an EV/EBITDA of <3.5x. The Lancaster EPS, assuming only 6 years’ production at 18kbbl/d is worth 33p/sh unrisked at $65/bbl and if it produces for 10 years is worth 47p/sh unrisked. There is 350% upside to our risked NAV of £1.35/sh and the shares are trading at >35% discount to core NAV.
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.
Hurricane Energy (HUR LN): Lancaster guided to produce 20,000bopd in 2020 | Valeura Energy (VLU LN): Encouraging test results at Devepinar-1
Hurricane Energy Plc Valeura Energy Inc.
The Warwick West exploration well successfully encountered light 43o API oil, which upon initial analysis seems similar to the oil found at Lincoln and Warwick Deep. The well flowed at a maximum stable rate of 1,300bbl/d, which is unlikely to be commercial; however, this flow rate was not enhanced by ESPs (pumps) and the well had not fully cleaned up, meaning this was not a clear-cut result. Also, there was just 0.5% water production, which is encouraging. The result also supports the model that the oil charge has come from the north west. Although the flow rate was disappointing relative to what has been seen at Lancaster, it was a more positive result than seen at Warwick Deep, which did not flow and contained more water.
This morning Hurricane Energy announced the flow test results from its Warwick West well, which is the third and last well from the 2019 drilling campaign in the Greater Warwick Area (GWA). The well confirmed the discovery of 43° API light oil and tested at a stable flow rate of 1,300bod on natural flow with less than 0.5% of water being produced. Hurricane and Spirit Energy are evaluating the results of the 2019 drilling campaign and further technical analysis will determine both the potential for GWA to be a single accumulation and its volumetrics. Our risked valuation of Hurricane stands at 102.8p/share, with GWA tieback valued at 3.5p/share and GWA full field development at 21.6p/share. Hurricane shares are trading at 37.5p after dropping c 20% this morning. This implies the market is not attributing any value to the GWA full field, even though an oil discovery was observed.
Hurricane Energy (HUR) – Warwick West spuds today | RockRose Energy (RRE) – Strong financial results, 60p interim dividend proposed | Serica Energy (SQZ): Half Year Report, material cash flows in 2020 | Aminex (AEX): Ruvuma Farm-Out Update and Acceleration of Drilling Operations
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This morning Hurricane Energy announced the flow test results from its Lincoln Crestal well, the second well of a three-well drilling campaign in the Greater Warwick Area (GWA). The well tested at a maximum stable flow rate of 9,800bopd using electrical submersible pumps (ESPs). The well flowed at an average rate of 4,682bopd under natural conditions and no formation water was produced. The well will now be suspended, with the intention that it will be used for production via tie-back to Lancaster’s Aoka Mizu FPSO in 2020, subject to further work, regulatory consent and final investment decision by the joint venture. Production from the tie-back would generate reservoir data to be used in planning future phases of development of GWA. The drilling rig will now move to the location for the third and last well of the 2019 drilling programme, Warwick West. Our latest risked valuation of Hurricane Energy stands at 102.8p/share, with GWA tie-back being valued at 3.5p/share and GWA FFD at 21.6p/share. Hurricane Energy is currently trading at 49.0p/share.
In June 2019, Hurricane Energy successfully delivered first oil from the Lancaster early production system (EPS) on time and on budget. Initial production performance has been ahead of management expectations providing support for increasing the EPS production plateau from a current base case of 17kbd to c 30kbd from Q420/Q121. Key to achieving this would be access to gas export, together with success at the ongoing Lincoln Crestal well, 205/26b-14, in the Greater Warwick Area (GWA). In this note, we update our short-term oil price deck (continuing to use last published EIA short-term forecasts) and adjust operational metrics to reflect the latest company guidance. In addition, we increase our risking of GWA to reflect the results of the Warwick Deep exploration well and remove the risked value we had included for Halifax. Overall, these leave our valuation broadly unchanged at 102.8p/share (+0.5%).
Hurricane Energy (HUR): Capital Markets Day
Hurricane Energy (HUR): Exploration Well Dry | Kosmos Energy (KOS): Exploration Success | San Leon Energy (SLE): Extension to Nigerian licence | Lekoil (LEK): MOU Signed for Otakikpo | Cluff | Natural Resources (CLNR): Dewar Feasibility Study | Mosman Oil & Gas* (MSMN): Sale of Strawn
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Hurricane Energy (HUR): Operational Update | Sound Energy (SOU): Placing & Update | Chariot Oil & Gas (CHAR): Feasibility Study | Reabold Resources (RBD): Operational Update
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Hurricane Energy (HUR): Operational Update | Baron Oil* (BOIL): UK Licence Awards | Reabold Resources (RBD): UK Licence Awards | Cabot Energy* (CAB): Funding Arrangement | Lansdowne Oil & Gas* (LOGP)/Providence Resources (PVR): Operational Update
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Techniplas –global producer and support services company providing highly engineered and technically complex components, making the supply chain to original equipment manufacturers more efficient. FYDec17 rev $515m. Loungers plc—the operator of 146 café/bar/restaurants across England and Wales under the Lounge and Cosy Club brands, announces its intention to seek admission on AIM, offer TBC, expected late April. SDX Energy plc—a North Africa focused oil and gas company, announces its intention to complete a Canadian plan of arrangement under section 192 of the Canada Business Corporations Act and will have shares de-listed from the TSX-V and admitted to trading on AIM. Expected 28 May 2019, anticipated market cap of £76m Renold plc—a leading international supplier of industrial chains and related power transmission products, announced that it will cancel the listing of the Company from the premium segment and apply for admission on AIM. Expected 06 June 2019.
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With the Aoka Mizu FPSO now on station and hooked up at the Lancaster field, early production system (EPS) first oil remains on track for the end of H119. Hurricane (HUR) is currently focusing on topside commissioning prior to start up, which will be followed by a ramp-up period to a targeted gross plateau rate of 20kbd. In addition to progressing Lancaster, the company has a full programme of activity in its neighbouring Greater Warwick Area (GWA), with a three-well E&A programme expected to kick off in Q219 at Warwick Deep. This accelerated GWA programme is being made possible by Hurricane’s 2018 farm-out to Spirit Energy. Our risked valuation stands at 102.3p/share (from 102.8p/share) as we remove Edison’s 5% capex cost contingency, roll forward NAV and adjust our short-term oil price assumptions (long-term Brent remains $70/bbl).
The Aoku Mizu FPSO is now on station and hooked up at Lancaster; we believe this keeps the EPS on schedule for first oil in H119. Hurricane will now focus on topside commissioning prior to start-up, which will be followed by a ramp-up period to a gross targeted plateau production rate of 20kbd (17kbod net of operating efficiency). In addition to progressing Lancaster, the company has a full programme of activity in its neighbouring Greater Warwick Area (GWA), with the three-well E&A programme in the GWA expected to kick off in early Q219 at Warwick Deep. Our risked valuation stands at 102.8p/share (see our last note).
Aker BP (AKERBP NO) (not covered): Discovery in Norway | Hurricane Energy (HUR LN) (not covered): Operational update, UK | Igas Energy (IGAS LN) (not covered): Trading update in the UK | New government bill in Italy against exploration | Rosneft: YE18 hydrocarbon reserves | Block Award in Abu Dhabi | Genel Energy (GENL LN); Speculative Buy, £3.00: Good well results at Taq Taq | Oryx Petroleum (OXC CN): Under Review; Corporate update | Savannah petroleum (SAVP LN) (not covered): Update on Seven Energy
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We launch coverage of UK AIM-listed E&P Hurricane Energy (HUR) with a total risked NAV of 132p/sh (41p/sh Core NAV; 464p/sh unrisked NAV). Thanks to several fractured basement oil discoveries (Lancaster, Lincoln, Halifax & Whirlwind) West of Shetlands, HUR sits on the largest discovered oil resource base amongst European E&Ps: 37mmboe of 2P reserves, or 62mmbbl based on the Lancaster early production system (EPS) lasting for 10 years & 2.3bn boe of net 2C resources. Whilst HUR has significantly de-risked the play both operationally and financially, the market still perceives fractured basement plays as risky. As such, the upcoming start-up of the Lancaster field EPS and growing industry activity in North Sea basement exploration near term will be key to further de-risk HUR’s volumes and make investors more comfortable with the play. Furthermore, we believe that a success case of the Lancaster EPS could make HUR an attractive consolidation candidate.
Hurricane Energy recently farmed out 50% of its Lincoln and Warwick licences covering the Greater Warwick Area (GWA) to Spirit Energy. This transaction is intended to accelerate the de-risking and monetisation of GWA, adding a new leg to the Hurricane business model running in parallel with the development of the Greater Lancaster Area (GLA). Under the terms of the farm-in, Hurricane will retain a 50% working interest in GWA licences in return for a net carry of $137.2m through a two-phase initial work programme and $150–250m contingent carry on net GWA full field development (FFD) expense. We update our valuation to reflect the terms of the Spirit Energy farm-in, driving our RENAV from 81.0p/share to 102.8p/share (+26.9%). We believe the transaction materially accelerates the de-risking of Hurricane’s Rona Ridge asset base, both in terms of GWA resource and the ability to focus Lancaster EPS cash flows on fast-track appraisal of the GLA resource base. Key valuation uncertainties include resource recovery from the GLA and GWA FFDs – we expect reserve and resource estimates to tighten on the back of further appraisal and EPS performance.
Spirit Energy has farmed-in to 50% of Hurricane’s Lincoln and Warwick licences covering the Greater Warwick Area (GWA). The farm-in is intended to accelerate the de-risking and monetisation of GWA, adding a new leg to the Hurricane business model that will run in parallel with the development of the Greater Lancaster Area (GLA). Under the transaction, Hurricane will retain a 50% working interest in GWA licences in return for a net carry of $137.2m through a two-phase initial work programme and $150–250m contingent carry on net GWA full field development (FFD) expense. Based on company-estimated GWA gross 2P reserves of 500mmbbls expected to be unlocked by the FFD, the combined carry value is $1.2/boe to $1.6/boe. The transaction structure differs materially from our assumed 60% working interest dilution through farm-out for Lincoln (250mmbbl development case) and a post-carry NPV/bbl of $5.0/boe ($2.5/boe risked) in our last published valuation of 81p/share. We expect to revise our risked Lincoln valuation ($241m) to reflect the details of the transaction, which include accelerated production via tie-back to Lancaster, not currently reflected in our valuation. We believe today’s deal materially accelerates the de-risking of Hurricane’s Rona Ridge asset base both in terms of GWA resource but also the ability to focus Lancaster EPS cash-flows on fast-track appraisal of the GLA resource base.
Ovoca Gold (to be renamed Ovoca Bio PLC) - RTO of IVIX, a Russian company developing a drug candidate for the treatment of female sexual dysfunctions. No monies to be raised, market cap of £8.5m, due 30 July Nucleus Financial—independent wrap platform provider . FYDec17 revs £40.36m and PBT of £5.1m. Offer TBA. Due late July. Kropz PLC-Intention to float by the emerging plant nutrient producer with an advanced stage phosphate mining project in South Africa and exploration assets in West Africa Immotion Group - aims to become the market leader in "out of home" Immersive Entertainment Experiences. Offer TBA. Due 12 July
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The development of Hurricane’s Lancaster early production system (EPS) remains on track for H119 first oil. We estimate a 1 January 2018 point-forward IRR of 63% for the EPS phase based on current commodity price forecasts. We use the EIA’s short-term oil forecast with Brent at $66/bbl for 2019 and long-term $70/bbl (from 2022). We believe the market is fully valuing a 10-year Lancaster EPS phase (34.7p/share net of debt), a project that has the potential to significantly de-risk our RENAV of 81.0p/share (increased from 78.4p/share). Our RENAV includes a risked value for Lancaster full field development and two mid-sized field developments (250mmbo) at Lincoln and Halifax.
Management’s concept selection and contracting strategy appears to deliver the desired result, with Hurricane reiterating that the Lancaster EPS remains on time and on budget and first-oil scheduled for H119. Market focus is likely to remain on installation items during the 2018 weather window and then to technical data established once production has stabilised. These data are likely to significantly increase our understanding of Greater Lancaster Area (GLA) resource recovery potential and value. Our last published valuation stands at RENAV 78.4p/share, including a Lancaster EPS-only valuation of 32.7p/share based on a long-term (2022) oil price assumption of $70/bbl Brent. We expect little change to our valuation, but will revise our financial forecasts shortly to reflect capex phasing and a change in reporting currency from £ to US$.
On 12 December 2017, we visited the Aoka Mizu FPSO at Drydocks World Dubai, and had the opportunity to meet a number of Hurricane Energy and Bluewater employees. We returned with greater confidence in Hurricane’s ability to mobilise the Aoka Mizu to location in Q218 and to deliver first oil in H119. While some risk remains relating to weather-critical items, we feel that the risk of schedule slippage is lower than we had previously assumed. We bring first oil forward by six months in our updated valuation; this is offset by a slightly more conservative view of production ramp-up and uptime assumption in the first six months of production.
Hurricane has published this week an updated competent person’s report (CPR) on its West of Shetland fields not previously included in the 2017 Lancaster CPR. The report by auditor RPS Energy covering the Halifax, Lincoln, Warwick, Whirlwind and Strathmore fields confirms over two billion barrels of oil equivalent contingent resources (Hurricane 100% interest) across these fields, with a further 935mmboe of unrisked prospective resources recognised for the (as yet undrilled) Warwick prospect.
Hurricane Energy (HUR LN) (not covered): CPR in the UK | Premier Oil (PMO LN); Speculative Buy, £1.00: Divestment of interest in pipeline | Genel Energy (GENL LN); HOLD, £1.90: Positive update at Peshkabir in Kurdistan | SDX Energy (SDX LN/CN)1: BUY, £0.60; Success at KSR-16 well in Morocco
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Investor focus is understandably on the execution of Hurricane’s Lancaster EPS development. First oil from Lancaster will complete the transition from explorer to producer and unlock a stream of cash flow that management can direct towards appraisal, full field development or shareholder returns. In this note, we look at progress made to date and the potential for farm-down of the Greater Lancaster Area (GLA) and Greater Warwick Area (GWA) to fund further appraisal ahead of full field development. Our updated RENAV stands at 79p/share, down from 103p/share, reflecting a recent reduction in our long-term (2022) oil price assumption from $80/bbl to $70/bbl.
President Energy* (PPC): Initiation of coverage: Argentina has the best stakes (CORP) | SCISYS* (SSY): ANNOVA’s success underpins a strong H1 (CORP) | Cambridge Cognition* (COG): Interims – looking behind the numbers (CORP) | Hurricane Energy (HUR): H1 2017 results (BUY) | Quixant* (QXT): Exceptional H1 performance with H2 caveat (CORP)
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The company has secured US$530m of new funding for the development of its Early Production System on the Lancaster field West of Shetland. The EPS is due onstream in 2019 and the company is working towards Final Investment Decision and submission of its Field Development Plan to OGA.
Hurricane has provisionally raised up to $535m through a $300m equity placing (plus $5m follow-on offer) and a concurrent $220m (with $10m over-allotment) convertible bond offer. Equity is being placed at a price of 32p/share while the convertible offers investors a 7.5% coupon and conversion price of 40p/share – a 25% premium. We had assumed EPS funding in our valuation with an approximate 60/40 equity/debt split (see our May Outlook note); confirmation of funding should provide increased confidence in Hurricane’s ability to keep to a H119 first oil target. The fall in Hurricane’s share price over the last two months has led to greater dilution than we had previously anticipated with Edison’s Lancaster NAV falling from 102p/share to 81p/share (c 21%) assuming convertible dilution.
Hurricane Energy’s 2016/17 drilling programme has significantly increased understanding of the Greater Lancaster Area (GLA) and Greater Warwick Area (GWA) hydrocarbon accumulations. Initial data analysis suggests that the GLA is one large accumulation including the Halifax and Lancaster basement oil discoveries contained between the Westray Fault Zone and Brynhild Fault Zone. RPS resource estimates for Lancaster alone range from 157-1,166mmbbls recoverable (P50 523mmbbls), making it a giant oil field and one of the largest discoveries on the UKCS over the last decade. Incorporating wider GLA and GWA resource is likely to take this figure to upwards of 1bnbbls, 100% owned by Hurricane. Management expects first oil from a Lancaster early production system (EPS) in 2019, with the company looking at equity and debt funding options. We assume a 60/40 equity to debt split in our latest Lancaster NAV of 102p/share, rising to 134p/share including risked Halifax/Lincoln upside.
Gemfields* (GEM): Q3 operating results (CORP) | Hurricane Energy (HUR): FY 2016 results and warrant issue (BUY)
Hurricane Energy Plc Gemfields Group Limited
Hurricane presented its results from its recently completed drilling programme West of Shetland. The data supports management's long-term view that its portfolio is indeed world-class and of strategic importance to the longevity of North Sea production.
Hurricane Energy (HUR): Capital markets day update (BUY) | 7digital* (7DIG): Acquisition, contract renewal and new customer win (CORP)
Hurricane Energy Plc 7Digital Group PLC
Hurricane Energy has completed drilling of the 205/26b-A well (Lincoln). Log data and gas chromatography indicates a significant hydrocarbon column of at least 660m TVD, comparable to that of Lancaster. Oil down to (ODT) was observed at c 2,300m TVDSS, 520m below structural closure and 168m below the ODT in the 1995 Arco 205/21-1 well. In our last published RENAV, we included 8p/share of risked value for Lincoln, assuming a commercial chance of success (CCOS) of 15%. De-risking Lincoln (to 60% CCOS) but leaving mid-case volume at 250mmbbl (Hurricane management expects upside to this given the deeper ODT), our Lincoln risked valuation rises to c 33p/share and group RENAV to 101p/share from 75p/share (+35%).
Akers Biosciences* (AKR): GPO evaluation for PIFA Heparin test (CORP) | Hurricane Energy (HUR): Lincoln well result (BUY) | Gemfields (GEM): Ruby auction results (BUY)
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In September 2016, the 205/21a-7 pilot well helped confirm a continuous oil column below Lancaster basement structural closure. Hurricane is looking to extend this play along the Rona Ridge through the exploration of analogues, Lincoln and Halifax. Management estimates combined gross unrisked prospective resource of over 500mmbbls, offering potential for a significant increase to the 300mmbls we currently assume for Lancaster. In our updated valuation, we incorporate the dilutive impact of Hurricane’s October 2016 fund-raise, offset by the inclusion of risked prospective value for Lincoln and Halifax. Our RENAV increases from 73p/share to 75p/share (+3%).
Hurricane Energy (HUR): Lincoln exploration well spud (BUY)
Hurricane has successfully raised £70m by issuing c.205.9m shares at a price of 34p. The company is also undertaking an open offer at the same price to raise a further £4.4m. The proceeds will be used to fund two exploration wells on Lincoln and Warwick as well as further development activity on the Lancaster field.
Hurricane has successfully completed the pilot well which has confirmed the presence of hydrocarbon column of at least 620m. The company is now working towards upgrading its resource model and CPR while drilling of the horizontal well is ongoing, with results expected in about two months.
SCISYS* (SSY): Strong H1 enjoys growth from all divisions (CORP) | eServGlobal* (ESG): Corridors of opportunity (CORP) | Hurricane Energy (HUR): 2016 interim results (BUY) | The Mission Marketing Group* (TMMG): Good interim results (CORP) | Cambridge Cognition* (COG): Interims show a company being noticed (CORP) | Synairgen* (SNG): Interims in line with expectations (CORP)
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Preliminary analysis of the Lancaster pilot well confirms a continuous oil column below the basement structural closure. An increase in mid-case estimates of Lancaster oil in place and a higher recovery factor, supported by aquifer drive, could potentially lead to a material increase in recoverable resource estimates. We expect third-party validation of resource upgrades on completion of the 2016 well programme. Ahead of validation, we have increased our estimated early production system (EPS) recoverable volumes to the company’s base-case 53mmbbls and assume full field development P50 recoverable volume of 300mmbo. As a result, our RENAV increases from 41p/share to 73p/share (+78%) based on Edison’s long-term Brent crude price of $70/bbl.
Hurricane is in the process of de-risking the Lancaster field West of Shetland. The field is one of the largest undeveloped fields in the UK North Sea and is of strategic importance for the region in terms of opening up a new area of production. Appraisal drilling is underway and we expect this activity to substantially de-risk the asset. We initiate coverage with a Buy recommendation and a 50p target price.
Hurricane Energy (HUR): Initiation of coverage – The winds of change (BUY) | Ithaca Energy (IAE): First-half results (BUY) | Europa Oil & Gas* (EOG): Shale Petroleum acquisition (CORP)
Hurricane Energy Plc Europa Oil & Gas (Holdings) plc
By the end of 2016, Hurricane should have far greater certainty on the size and potential value of its key asset, Lancaster. If post-drill resource estimates remain in line with the pre-drill forecast at P50 200mmbbls, Hurricane remains well placed to attract partner and debt funding assuming an Edison long-term 70$/bbl Brent oil price. A resource base that only justifies an early production system (EPS) development is still likely to be economically viable, but could prove harder to finance in the current market.
Hurricane’s 2016 well programme aims to firm up volumes in Lancaster’s mapped structural closure, oil that Hurricane plans to monetise through a two-well EPS development. More clarity on volumes will support concept definition and should provide the basis for further farm-out discussions, taking the Lancaster field through to EPS first oil in 2019. Hurricane’s £52m fund-raise, announced on 18 April, was carried out at a 46% premium to market and will provide capital for the Q316 Lancaster 7 Wells drilling programme consisting of a multi-objective vertical pilot well and horizontal production test. Our RENAV for Lancaster, including net cash and net of corporate overheads, stands at 34p/share, down from our last published 47p/share as a result of fund-raising equity dilution, a 10$/bbl reduction in our long-term oil price assumptions and higher risk assigned to full field development volumes outside mapped structural closure.
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