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The Hurricane Energy share price is rising. Is it time to buy?

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Oil pipes in an oil field
Image source: Getty Images.

The Hurricane Energy (LSE: HUR) share price has woken up this year. After going nowhere in 2017, the stock has jumped 57% year-to-date. And I believe this is only the start of what could be a long run higher for its shares as the oil company continues to progress towards first production. 

Project start-up

Hurricane’s management has to be commended for what the company has accomplished over the past year. Ever since 2014, when the price of oil began to crash, it has been difficult, if not impossible, for many small oil companies to function. Even the world’s largest oil companies have had to put projects on ice, cut capital spending and scale back exploration plans to cope with the declining prices. 

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However, against this backdrop, Hurricane was able to convince investors to stump up $520m to develop its flagship Lancaster field, which has combined 2P Reserves and 2C Contingent Resources of 523m barrels of oil. 

Even though it hasn’t been easy, by starting the development of Lancaster at the bottom of the oil cycle, I believe Hurricane has put down strong foundations for future growth. 

As activity in the oil services sector has slumped over the past three years, service providers have slashed costs to try and attract custom. As a result, oil producers have been able to cut hundreds of millions of dollars off the cost of developing projects, helping to improve the overall long-term returns from these developments.

Hurricane is likely to have benefitted from this. The company might have had to ask investors for significantly more funding if management had commissioned the project at the top of the oil price cycle.

Rising oil prices 

Not only has the company been able to benefit from low service costs, but now the price of oil is also moving in its favour. 

At the time of writing, the Brent crude benchmark is trading at just under $80 a barrel, its highest level since the end of 2014. Hurricane is planning to have the early production system in place and producing oil from Lancaster during the first half of 2019.

Over the next few months, we should have further updates on how the development and installation of this system is going. So far, the company is on track to install the system during the third quarter of the year. And if the price of oil continues on its current trajectory, then Hurricane is set to begin production from Lancaster at one of the most favourable times in the past four years. 

Time to buy? 

Considering all of the above, even after recent gains, I believe that it’s time to buy the Hurricane share price. 

Even though the company has not started production yet, it’s well on the way to first oil and rising oil prices should prove to be a strong tailwind when production finally begins. There’s still plenty of work for the firm to do over the next six to 12 months, but its outlook has dramatically improved in 2018.

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Rupert Hargreaves owns no share 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.

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