This year has been remarkable for both Hurricane Energy (LSE: HUR) and Sound Energy (LSE: SOU). Positive well results and strong buying of stock have sent the shares up 250% and 445% respectively since January.
Huge North Sea prize
Hurricane Energy has had a very successful couple of years and this year is no different. In April the company received a £52m investment from Kerogen Capital, Crystal Amber and Marlborough Nominees. This was a great seal of approval on the Lancaster asset and it was the beginning of a fantastic rise for the shares.
Some of the proceeds from this investment were used on the Lancaster pilot well, which reached target depth last week. The well found a “very significant hydrocarbon column of at least 620m” and importantly the well test data indicated that there are no pressure barriers in the reservoir. The well peaked at a natural flow rate of 6,600 bopd and at a maximum flow rate of 11,000 bopd.
The next stage is to sidetrack the well and drill a horizontal well into the Lancaster reservoir to gather further production and reservoir data. The CEO of Hurricane Dr Robert Trice said that he’s “delighted that the Pilot Well has confirmed a significant oil column deeper than the 2C Case set out in the company’s CPR.” He then added that the “Lancaster field is likely to be significantly greater than the 200mm bbls 2C case.” The first stage of the well couldn’t have been better for the company and all eyes are on operations to see if the horizontal well yields similar results.
Moroccan gas discovery
Sound Energy has also had an incredible year, which is reflected in the flying share price. Just today the shares topped 100p which is amazing considering the shares were trading at 12.75p in December 2015.
This increase in the share price is due mainly to the gas discovery at Tendrara onshore in Morocco. The TE-6 well intercepted 28m of net gas pay in the TAGI reservoir and the well flowed at 17 mmscf/day which is much higher than the commercial threshold for the field. I think the best news to come from the well was that the pressures correlated with all previous wells on the license. This would suggest that there may be an extended structure with a significant gas column. The TE-7 and TE-8 wells will provide more data on the reservoir as well as the size of the structure. This great result from Morocco has led management to believe that the Tendrara field has multiple TCF potential. Sound has multiple price catalysts on the way not just on Tendrara but further Moroccan well tests and exploration well in Italy.
Personally I believe that Hurricane offers the best risk-to-reward profile and seems relatively undervalued compared to Sound. Sound now has a market cap of over £500m, which I think is too much for a company with early stage assets. Momentum is a powerful factor in the markets but it has taken Sound shares too high.
Jack Dingwall has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.