Re: Hurricane Energy (HUR)
Posted: October 16th, 2019, 7:05 am
Crystal Amber's latest missive on Hurricane:
Since achieving first oil on 4 June 2019, the company has been producing from its two Lancaster wells. The reservoir has performed at the higher end of expectations. Initiatives are under way to increase production over the next two years. For example, the reactivation of the gas compression system will enable gas export and increase the production vessel's throughput.
Over the period, Hurricane drilled and tested two new wells at its Great Warwick Area, funded by Spirit Energy as part of their farm out deal. The
Warwick Deep found hydrocarbons in the target fractured rock, but oil did not flow at commercial rates. The Lincoln Crestal produced oil at commercial rates and will be tied back in 2021 to the Lancaster Early Production System (EPS). This will allow production appraisal and generate additional cash flows at little additional capital expenditure. One final exploration well is currently underway.
The excellent results from the EPS have materially de-risked the company. Whilst the Fund is disappointed that Hurricane's shares fell by 18.9% over the
period, we are encouraged by management's focus on growing cash flows. The operational initiatives in progress and the addition of the Lincoln Crestal
well to the EPS could see production grow from 2020's guidance of 17k barrels of oil per day to 30k in 2021. Assuming an oil price of US$60 per barrel, the base case guidance for operating cash flow could grow from $200m in 2020 to $300m in 2021. In our view, those cash flows will underpin the optionality that Hurricane will have to plan its future development.
Since achieving first oil on 4 June 2019, the company has been producing from its two Lancaster wells. The reservoir has performed at the higher end of expectations. Initiatives are under way to increase production over the next two years. For example, the reactivation of the gas compression system will enable gas export and increase the production vessel's throughput.
Over the period, Hurricane drilled and tested two new wells at its Great Warwick Area, funded by Spirit Energy as part of their farm out deal. The
Warwick Deep found hydrocarbons in the target fractured rock, but oil did not flow at commercial rates. The Lincoln Crestal produced oil at commercial rates and will be tied back in 2021 to the Lancaster Early Production System (EPS). This will allow production appraisal and generate additional cash flows at little additional capital expenditure. One final exploration well is currently underway.
The excellent results from the EPS have materially de-risked the company. Whilst the Fund is disappointed that Hurricane's shares fell by 18.9% over the
period, we are encouraged by management's focus on growing cash flows. The operational initiatives in progress and the addition of the Lincoln Crestal
well to the EPS could see production grow from 2020's guidance of 17k barrels of oil per day to 30k in 2021. Assuming an oil price of US$60 per barrel, the base case guidance for operating cash flow could grow from $200m in 2020 to $300m in 2021. In our view, those cash flows will underpin the optionality that Hurricane will have to plan its future development.