After nearly two years of decline, the Hurricane Energy (LSE:HUR) share price is finally climbing. Shares of the oil exploration business jumped by double-digits on Friday following an update on operations. It seems the company is finally getting back on track after its share price decline started in 2019. But what exactly happened? And can the stock return to its former glory? Let’s take a look.
The collapse of the HUR share price
A few years ago, the share price stood as high as 64p. Today it’s trading at 3.4p. What happened? A lot of investor anticipation and hype had built up over the years surrounding its Warwick Deep well. This offshore site located in the North Sea was estimated to contain up to 935 million barrels and would transition the business from an explorer into a producer.
Needless to say, the project was a complete failure. After 2,000 metres of drilling, the company discovered the well was economically not viable due to poor ground structure conditions. This shifted all investor hopes to its Lincoln Crestal well. However, this site, which was estimated to contain 604 million barrels, suffered a similar fate.
There’s limited information as to what exactly happened at Lincoln Crestal. But for some reason, the company was unable to connect its floating production storage and offloading (FPSO) vessel to the well. And a few months later, it was sealed and abandoned.
Combining this series of unfortunate events with the collapse of oil prices in early 2020, meant that seeing the HUR share price plummet was hardly surprising.
Time for a comeback?
As frustrating as the failure of the two wells is, it seems Hurricane Energy has finally managed to start delivering. According to last week’s operational update, the company is now actively producing an average of 11,467 barrels per day from its P6 well. This enabled it to deliver its 24th shipment, consisting of 505,000 barrels, in late August from its Lancaster oil fields. And the next shipment is due to be delivered in October. This brings the total number of barrels produced to around 10 million.
The proceeds have been used to strengthen the company’s balance sheet. Net free cash now stands at $144m versus $122m in July. Meanwhile, management has decided to repurchase 34% of its outstanding convertible bonds. In other words, debt levels have been significantly brought down.
With revenue finally flowing and the financials improving, the rising HUR share price makes perfect sense to me. But it will take a lot more to get it back to pre-crash levels, I feel.
The bottom line
It seems the worst is finally over for this business. And with oil prices already exceeding pre-pandemic levels, I wouldn’t be surprised to see the financial performance of Hurricane Energy continue to improve throughout the remainder of 2021 and beyond.
The company still has numerous hurdles to overcome. And it remains exposed to the risks associated with fluctuating oil prices. But overall, the HUR share price does look like it’s primed to make a comeback, in my opinion. For now though, I’m keeping the stock on my watchlist until the full-year results are released.
Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.