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Is the Hurricane Energy share price a good buy?

UK oil exploration company Hurricane Energy (LSE:HUR) is facing turbulent times. A mounting number of challenges has reduced investor confidence and the Hurricane Energy share price is suffering.

Oil wars and woes

The oil industry has always been mired in controversy and conflict, but now the stakes are especially high and factors stacked against it are mounting. From a decrease in demand to geopolitical tensions, job losses, production cuts, climate change regulations and the coronavirus crisis. There is much to be wary of when investing in oil stocks.

Storage and decreased demand will continue to be a problem for the foreseeable future, so the likelihood of price swings will continue. Rystad Energy forecasts total oil demand in Europe to decline by 12.4% for 2020. The North Sea sector has already down-manned from 11,500 to 7,000 personnel to reduce the chances of spreading Covid-19, while maintaining production.

Liquidity and licences

AIM-listed Hurricane has a £220m market cap, it offers no dividend and has a price-to-earnings ratio of just 4. It has access to a cash balance of $152m and a debt ratio of 35%. This puts it in a better liquidity position than many other independent oil companies.

Hurricane is up against many challenges, not least of which is the cheap price of oil. With a higher oil price, the potential for Hurricane to grow and make significant gains is promising, but this potential is speculative.

It currently has a break-even point of around $17 a barrel. This is better than many of its competitors, but is a cost that could easily increase if the oil price stays low and operating costs increase. Managing its carbon footprint has to remain a top priority for the firm. As does maintaining its licences, to ensure it can continue to operate. 

Further exploration at its Lincoln Crestal well off the west of Shetland was looking hopeful. The plan was to tie back the Lincoln Crestal to the Aoka Mizu FPSO on its Lancaster field later this year. As they did not receive the permit required, it looks like the well will have to be plugged and abandoned. They need the go-ahead from the Oil and Gas Authority by the end of September. But in the current climate, this may not be forthcoming.

Hurricane Energy share price turbulence

The Hurricane share price has fallen 75% in the past year, leaving private investors and long-term holders feeling let down. Cancellation of the Lincoln Crestal project added a further blow as it reduces the likelihood of growth in the near term.

I think the oil price will recover and stabilise, but it could take some time. I will keep this share on my watch list, but I do not think it is a good buy for today, especially for beginners to stock market investing.

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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.