The Hurricane Energy (LSE: HUR) share price has been through some extreme ups and downs, but over five years it’s still well ahead of the the FTSE 100 with a gain of 70% (compared to the index’s meagre 8%).
The company released 2018 results on Thursday and for me, the financial aspects are all about cash.
Hurricane burned through $205m in cash in developing its Lancaster field during the year, and with operating expenses of $12.7m, 2018 saw its cash position dwindle from $326.6m to just $83m. Investors really need to see some actual oil production soon.
High hopes
On that score, Hurricane says Lancaster is on budget and on schedule for first oil in the first half of 2019, with chief executive Dr Robert Trice saying that “initial production is planned to be 17,000 barrels of oil per day,” generating “over $200 million in operating cash flow on a full-year run-rate basis at a $60/bbl Brent oil price.”
It seems things are going to go down to the wire, and judging by the essentially flat share price of the past few months, I think investors want to see the colour of the oil. Or rather, they want to see evidence of actual flow rates and support for the half a billion barrels of gross reserves that the company thinks are down there.
If the oil does flow at the rates, and in the timescale, expected, I can see the Hurricane Energy share price taking off.
But many oil explorers before it have had their hopes stymied at the last moment as reality hasn’t lived up to expectations, and I think Hurricane could still go either way.
Disappointment
We had first-half results from Pantheon Resources (LSE: PANR) the same day, and again we’re looking at an oil explorer in the cash-burn stage and which has yet to show any profit.
A little over a year ago, I suggested that Pantheon’s shares could be set to soar based on hopes of a breakthrough to profit in the year to June 2018.
To put it mildly, they didn’t. In fact, the share price fell off a cliff in April after fracking tests at its VOBM wells in East Texas failed to produce the expected oil. That, once again, highlights the risks still faced even in the lead-up to expected commercial production.
First profit for Pantheon is now not expected before 2020, and even then it’s forecast to be modest with earnings per share of just 0.08p on the cards.
Interim
Results just in for the six months to 31 December 2018 show some actual revenues, thought they amount to a modest $356,598. The firm lost $1.27m in the period, with cash and equivalents at the end of the period standing at $4m.
Since then, the acquisition of Great Bear Petroleum in January 2019, funded by a placing in December 2018, has somewhat stolen the limelight. But I can’t help feeling a little nervous over chief executive Jay Cheatham’s report that “it’s been an incredible period for Pantheon,” and his claim that “the Great Bear merger … has been a huge success.”
I generally prefer a little less exuberance from loss-making oil explorers. Would I buy? No, it’s still way too risky for me.
