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The Hurricane Energy share price crashes 23% on awful Lancaster data

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It’s been a bad day for the Hurricane Energy (LSE: HUR) share price. The UK oil share slumped to 10-week lows of 2.52p per share at one point on Wednesday. That was after it released fresh news on its North Sea operations.

Hurricane Energy’s share price is off those lows but, at 2.8p, it remains 23% lower on the day. Today the business released a competent person’s report (CPR) by ERC Equipoise on its West Shetland assets. Unfortunately it made for grim reading. The consultancy released chilly reserve estimates at the flagship Lancaster field.

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Predicted reserves take a hit

The report detailed gross proved, probable and possible reserves (or 3P) reserves at Hurricane Energy’s Lancaster field of just 10.8m stock barrels. It’s not the first time the UK share has worried investors over reserves of late. Back in November the share price plummeted as it took the hatchet to reserve and resource estimates.

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ERC Equipoise’s new estimate assumes production will only come from the 205/21a-6 (or P6) well. It also reflects the natural decline at the well, the CPR said. The report suggests Lancaster’s 3P reserves have a net present value of £126.2m. This assumes a 10% discount rate at the effective date of 31 December 2020.

An uncertain outlook at Lancaster

Additionally, ERC Equipoise projected contingent resources of 11.8m barrels at Lancaster as its most likely scenario (1C). This presumes a proposed side-track of the existing 205/21a-7z well will be drilled as planned in 2022. Contingent resources under the least likely scenario (3C) sit at 87.1m barrels. And the midway estimate (2C) sits at some 34.7m barrels.

Hurricane Energy said that these contingent resources are dependent on various factors. If the P8 well is drilled, these include the business sealing a commercially-viable further development plan. Added to that, it must be able to fund and execute the development plan during the lifetime of the Lancaster field. And the firm needs to get the necessary regulatory consents.

But Hurricane said that “there can be no certainty of any further activity in relation to the Lancaster field.”

Hurricane Energy warns of “no value” to shareholders

The company will now talk with convertible noteholders on its forward work programme, strategy, financing and balance sheet capitalisation. And it warned of “a risk of significant dilution to existing shareholders from a possible restructuring and/or partial equitisation of the convertible bonds.”

It added that there’s a possibility of “potentially limited or no value” being returned to its shareholders too.

In other news the business said ERC Equipoise didn’t identify any contingent resources at the Halifax well that was drilled in 2017. As a consequence Hurricane Energy said that it expects “Halifax’s carrying value will be fully written off” in the company’s 2020 results. Ouch!

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Royston Wild 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.