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%).
The two producing Lancaster wells, 205/21a-6 and 205/21a-7Z, have benefited from longer clean-up periods and are producing at higher rates than seen during drill stem testing (DST), with improved reservoir characteristics. This performance uplift has resulted in Hurricane increasing its target production guidance envelope to an upper target of 20kbd from 2020, with the base case remaining at 17kbd (net of operational downtime). A minimum period of production of six to 12 months is now required to prove long-term production performance.
Drilling is underway at the Lincoln Crestal well, 205/26b-14, and is expected to be tied back to the Aoka Mizu in 2020 with first oil in Q420/Q121 for long-term production in the event of success. Meanwhile, work is progressing on a gas export solution, which would allow the realisation of the full potential of debottlenecked capacity and allow gross, post-uptime targeted production of c 34kbd.
Key changes include updated EPS operational cost assumptions, a higher Lancaster crude discount, and an increase in our risking assumption for GWA to reflect the non-commercial flow seen at Warwick Deep. We also removed our risked value for a standalone Halifax development. Our short-term Brent forecasts are re-based to the EIA’s latest published forecasts (Brent moves from $62.8/bbl to $66.5/bbl in FY19, and from $62.0/bbl to $67.0/bbl in FY20). Our long-term (2022 onwards) Brent assumption remains $70/bbl. The share count also has been updated. Our risked valuation stands at 102.8p/share, or 38.5p/share excluding any value beyond Lancaster EPS.