The Hurricane Energy (LSE: HUR) share price has been on a tear this year, rising from just under 4p per share in January to nearly 7p today. But if we zoom out, that still leaves the stock down 77% over the last five years.
Is this the best small explorer around today or is there a better buy for my portfolio?
Solid results
Hurricane Energy’s assets are focused in the West of Shetland region of the UK. The first oil flowed from its flagship Lancaster field in June 2019.
In its 2022 half-year results, the company announced $159.5m in revenue compared to $124.5m in the same period last year. This generated $110.1m of operating cash flow, rising from $75.9m in H1 2021. Profit after tax was $67m.
Earlier this year, Hurricane repaid its outstanding $78.5m convertible bonds, plus interest. This left the company debt-free, and management is certainly bullish on the future: “With our strong balance sheet, no debt, and our decommissioning liabilities being fully funded… Hurricane, with our committed and capable team, is well placed to be able to create additional value for our shareholders.”
Risks
The main risk I see with Hurricane is the same that all smaller oil companies face, which is a sudden and/or sustained slump in the price of oil. Or even a crash.
For example, the pandemic and nationwide lockdowns caused a sharp decline in demand for oil and pushed refineries into production cuts. The price of oil collapsed, and at one point in 2020, a record 160 million barrels of excess oil were sitting in tankers around the world.
But oil demand rebounded strongly and Hurricane emerged in a relatively strong financial position. The problem is that nobody can predict what’s going to cause the next oil price crash and how long it will take to recover.
Safer options
Personally, I’d prefer one of the big players that has large cash reserves and can survive prolonged slumps in oil prices. Both BP and Shell, for example, look better options to me, with bucket loads of cash and assets.
These companies haven’t survived decades of tricky geopolitical situations and oil crises without being resilient. But needless to say, investing in such oil giants isn’t going to double my money overnight, like investing in Hurricane Energy could (in theory).
I’m looking elsewhere
However, beyond the safer oil giants, I do believe a better option for me could lie elsewhere. Jadestone Energy (LSE: JSE) is another small oil and gas producer, although focused on the Asia Pacific region. It has assets in Australia, Indonesia, Malaysia and Vietnam, but has been hit by operational problems in recent months. This has left the shares down 23% since January. But these issues should be transitory.
Jadestone Energy’s market cap is only £309m, just over double that of Hurricane’s. Its cash balance remains healthy and the company is also debt-free.
The risk with Jadestone is that operational problems may persist, eating away at its free cash flow at a time when oil prices are high. Still, I like Jadestone’s diversification of assets and the region it operates in, so I’m considering investing in the company over Hurricane Energy.
