In September, oil and gas explorer Hurricane Energy (LSE:HUR) announced its first revenue after recording an operating profit of $1.2m in its half-year results ended June 30. This was the result of producing first oil on schedule and on budget, which I think is an impressive feat for any oil company.
Operationally, Hurricane is exploring its Rona Ridge assets, west of Shetland. It’s split into the Greater Lancaster Area (GLA) and Greater Warwick area (GWA). GLA produced an average of 14,100 barrels of oil (bbl) per day between June and September and Hurricane has sold over 1.6m bbl to date. The group confirmed it will take at least six months of steady-state production before it can accurately evaluate the validity of its reservoir model.
It’s drilling three wells at GWA in partnership with Spirit Energy and confirmed the presence of light oil, but its ‘Warwick Deep’ well, was abandoned as it did not flow at commercial rates, producing a mixture of drilling brine, water, oil and gas.
As it’s still early days, the usual benchmarks such as price-to-earnings ratio, earnings per share and dividend yield are non-existent, but the Hurricane Energy share price is around 44p and the market cap is £875m. Brokers have put a target share price of 95p on it, for its undeveloped resource potential. It’s reassuring that this first phase has gone well and is exceeding expectations.
Bargain or gamble?
AIM-quoted oil and gas exploration company Pantheon Resources (LSE:PANR) operates in the US and onshore North Slope of Alaska. It has a market cap of £87.5m, as it’s still in the non-cash-generating phase, it doesn’t offer a dividend, earnings per share are negative and investment in the Pantheon Resources share price is very much speculative.
This type of investment brings share price volatility at any hint of news. Recent announcements include the appointment of Jeremy Brest as non-executive director of Pantheon, an ex derivatives trader from Goldman Sachs.
A second announcement declared Pantheon increased its ownership in its Alaska project from 75% to 100%, buying the additional 25% from Halliburton. Pantheon will be responsible for all future lease obligations.
I’m not sure this is really a great announcement and am sceptical as to why Halliburton was happy to relinquish the rights if it’s really such a great asset to own. Halliburton is not doing so well itself, so some shareholders wonder if it’s selling non-core activities to focus on its main business.
The Alaska project contains about 900m bbl of oil along with additional oil from adjacent acreage. Once this deal goes through, Pantheon intends to farm out its Alaska assets to another company to drill and I think that whether the share price heads north or south really depends on which company comes on board.
Oil drilling in Alaska is controversial, particularly with climate change on everyone’s minds. This far-flung location may not be financially viable, it could decimate natural habitats and contamination is always a risk.
Hurricane Energy’s share price is more than double Pantheon Resources price of 17p. Hurricane is the slightly more established company, but oil and gas is a volatile and expensive business, so investing at an early stage will always carry risk. Personally, I’m avoiding such speculative investments.
Kirsteen 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.