Shares in AIM-listed Hurricane Energy (LSE: HUR) rose sharply in early trading this morning following the publication of the highly anticipated Competent Person’s Report (CPR) for its Halifax, Lincoln and Warwick assets. Here’s what anyone remotely interested in this hugely exciting oil play needs to know.
Today’s report goes some way to underlining just how valuable Hurricane’s portfolio could potentially be to the big oilers (and what a great investment the company could become for holders of its stock).
According to report authors RPS Energy Consultants, the company’s Rona Ridge assets — excluding the Lancaster field — are now believed to contain 2.6bn barrels of oil equivalent, representing a massive 231% increase on the previous estimate.
At 1.235bn and 604m barrels of oil equivalent respectively, Halifax and Lincoln are both believed to have “similar reservoir properties” to the aforementioned Lancaster — the CPR on which was published earlier this year.
Elsewhere, the company’s undrilled Warwick prospect was estimated to have a resource of 935m barrels of black gold. What’s more, the chances of this being a successful discovery have been put at a really-rather-promising 77% given its proximity to Lincoln and Lancaster. While understandably choosing to conduct separate evaluations and wait until the latter had been drilled, RPS was also receptive to Godalming-based Hurricane’s belief that Lincoln and Warwick could actually be one giant accumulation.
Having detailed the main findings of the report, Hurricane stated that it was now “looking forward to de-risking the contingent resource further in the future” by completing additional technical work. Only once this is done can the true value of these assets be calculated.
In other news, resource estimates relating to the Whirlwind and Strathmore assets were reiterated. The latter is a sandstone reservoir and, as such, the only no-basement discovery in the portfolio. Hurricane also confirmed that it had decided to relinquish the licenses relating to its Typhoon and Tempest prospects.
Aside from the headline numbers, it used today as an opportunity to reassure those already invested that it was “committed to monetising” the assets in its portfolio via a farm-out deal and, eventually, “a sale to an industry partner, at the appropriate time.“
While remarking that potential counter-parties had “expressed a desire to transact” across Hurricane’s portfolio, the company believes that these partners will wait until results from the fully-funded Lancaster Early Production System (EPS) are available before proceeding. That’s not entirely unexpected, especially to CEO Robert Trice. In addition to supplying the £530m cap with a huge amount of cashflow, Hurricane’s highly-respected leader emphasised that success at Lancaster would “provide a read-across to the production potential” of all of the company’s basement assets.
Based on share price performance alone, it’s been a hugely frustrating last six months or so for holders of Hurricane. Nevertheless, following today’s excellent news, I’d be surprised if the company’s stock continued on its disappointing trajectory of the last half-year for much longer, even if a number of traders may be motivated to take profits following today’s stellar rise. With the company aiming for first production in early 2019, I think 2018 could be a very interesting year.
Back in September, I suggested it was time to get greedy with Hurricane Energy. Today’s news only cements my belief in the company.
If all goes according to plan, Hurricane has the potential to turn some of its early investors into millionaires. That's not to say, however, that investing in volatile oil stocks will suit everyone.
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Paul Summers owns shares in Hurricane Energy. 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.