Investing in oil and gas exploration can be risky, for sure. But that doesn’t mean it’s foolhardy, as some risks can be worth taking — as part of a diversified portfolio.
I think Hurricane Energy (LSE: HUR) could be one. The share price spiked due to early promise, but it’s fallen from a 68p peak to just 33p.
That’s often the case with exciting new exploration developments, and they almost always soar at first as investors pile onto the bandwagon, but later drift back slowly as the market awaits news of longer-term development.
There’s still plenty of risk with Hurricane, but what swings it for me is the size of its potential resources. A competent person’s report put the total value of 2P reserves and 2C contingent resources at 2.6bn barrels, across all of the company’s assets, including its Hurricane, Halifax, Lincoln and Warwick prospects.
Caution is needed, because much of that is contingent resources, which essentially means that the hydrocarbons are known to be there, but their commercial viability is not yet certain. And progress is still at an early stage yet, with the Early Production System at Lancaster “fully funded and on track for first oil in H1 2019.“
The way towards profit, the firm says, is by “a farm-out, and ultimately a sale to an industry partner, at the appropriate time.” So we’re really not going to have to wait for full production, just for enough progress to convince a bigger fish that there’s something worth snapping up here.
And if any reasonable portion of those 2.6bn barrels prove worthwhile, I reckon there will be.
Versarien is in a very different business, that of making a particular type of ‘nano’ graphene known as Nanene — it’s the latest wonder material that’s much stronger than steel, conducts electricity and heat, and can be made into flexible conductors.
The share price soared on the back of new agreements with as-yet-unnamed US partners, and since then the company has announced a letter of intent to build a graphene manufacturing centre in China. It’s non-binding at the moment, but the plan “envisages as a first stage the establishment of a 100,000 square foot manufacturing facility to produce and sell Versarien’s proprietary Nanene few layer graphene nano-platelets.“
There’s also talk of “the establishment of the first Chinese graphene industrial park, the ‘Jinan Graphene Valley’ including a graphene research institute with funding coming from the joint venture partners,” and that sounds like something pretty serious — it’s expected to cost around £55m.
The latest news is that Versarien’s chief executive, Neill Ricketts, has been appointed to the advisory board of the United States National Graphene Association.
I’m not usually a fan of ‘jam tomorrow’ companies that are still in their cash-burn phases. And the development of graphene into usable products has proved hard so far. But we really could be in the early stages of its successful commercialisation, and I think Versarien shares could be worth a modest long-term investment.
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Alan Oscroft 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.