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The Hurricane Energy (LON:HUR) share price drops on production guidance

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The Hurricane Energy (LSE:HUR) share price has tumbled 20% since an update on the production outlook for its Lancaster field was issued last week. Despite what the stock’s movement suggests, the oil exploration company didn’t cut the previous guidance of 8,500-10,000 barrels. So, what happened?

Rising uncertainty around the share price

The firm has completed a further analysis of its Lancaster reservoir. And has predicted that wellhead flowing pressure will reach bubble point by the first quarter of 2021. Bubbling is caused by a release of highly flammable gas (mainly consisting of methane). If it escapes the reservoir, it could pose a significant safety risk. And as a consequence, production may be required to slow down or even stop.

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The issued guidance has taken this risk into consideration. But it was made under the assumption that full-year production uptime comes in at 90%. In the scenario that gas escapes and drilling operations need to slow down or completely cease, it’s unlikely the firm will hit the production target.

This has created an increased level of uncertainty for investors, triggering the drop in the Hurricane Energy share price.

The Hurricane Energy share price has its risks

Now what?

Despite this potential setback, production volumes at its Lancaster reservoir have reached an average of 11,467 barrels, according to the latest operational update. Given that this is currently higher than the issued full-year guidance, it’s possible that targets will still be met, providing that these production levels continue to remain elevated.

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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.

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