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.
The Lancaster EPS has continued to demonstrate high productivity, while Hurricane now expects vessel uptime of 90% before any shut-ins required for tie-ins or debottlenecking. Individual tests have confirmed a flow of 14,700bopd from the 205/21a-6 well with minimal water cut, and 9,400bopd 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 20,000bopd for now, which could be updated following completion of the individual flow tests in January 2020.
Hurricane was granted a five-year extension to its P1368 licence covering Lancaster and Lincoln, which resulted in changes to its 2020–21 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 reservoirs, while the Greater Warwick Area horizontal wells will no longer be drilled next year.
Changes to our valuation are driven by rolling forward our NAV and updating Lancaster EPS FY19 performance. We have also updated our short-term Brent price expectations, which are based on EIA forecasts. Our long-term (2022 onwards) Brent assumption remains at $70/bbl. Our risked valuation stands at 109.9p/share, or 35.2p/share excluding any value beyond Lancaster EPS.