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.
The Lancaster EPS remains on track for first oil in H119. Subsea umbilicals, risers and flowlines (SURF) installation scope has been completed and next steps involve completion of FPSO sea trials, vessel movement to location, hook-up and commissioning. We continue to assume first oil towards the end of H119, which could prove to be conservative based on current progress.
Hurricane has an active 2019 well programme, with three E&A wells planned for the GWA. The first well is likely to be drilled at Lincoln, which would provide a potential tie-back for the Aoka Mizu FPSO, taking gross oil production to 30kbod. Two further wells target Warwick, testing basement reservoir connectivity across large-scale faults and deep oil productivity closer to mapped oil water contact.
Our valuation increases to 102.8p/share after incorporating the Spirit Energy farmin, driven by accelerated cash flow from the GWA tie-back to the Lancaster EPS and 500mmboe GWA FFD. We had previously only assumed farm-out of a 250mmboe development for Lincoln. We also increase our short-term oil price assumptions for 2018 and 2019 based on the latest EIA projections.