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Hurricane Energy: Proactive's comprehensive guide ahead of the AGM

It is fitting then (and probably no coincidence) the venue for the Hurricane AGM was once a forum for Michael Faraday and the other founding fathers of science. For the company has been something of a trail-blazer in North Sea oil exploration
Hurricane Energy: Proactive's comprehensive guide ahead of the AGM
Boss Robert Trice will be swapping overalls for his best City suit next week

Members of the Royal Society of Chemistry in need of quiet contemplation might be well advised to stay away from its London home on Wednesday.

For the Science Suite of this imposing Georgian building in Piccadilly is to play host to the annual meeting of Hurricane Energy, the oil exploration group which has enjoyed huge success in the waters off the Shetland Islands.

Okay, Hurricane’s investors are unlikely to be a rowdy bunch, but they are an ardent and growing group of supporters who will have plenty of questions for chief executive Robert Trice.

So what’s all the fuss about?

Hurricane was the first to test CEO Trice’s thesis that the waters around the UK could be host to a completely new oil play called hosted in fractured reservoirs.

Simply put, the play is centred on large geological features that are usually found at great depths, much deeper than typical oil reservoirs.

In specific locations around the world these features have been forced upwards as a result of violent tectonic forces – leaving them within reach of oil drillers such as Hurricane.

Basement oil accumulations are quite different from ‘normal’ oil reservoirs where oil is contained with formations of host rocks.

Instead the oil has been trapped in the fractures in and around the hard igneous basement rocks.

It is estimated that some 20% of the world’s remaining oil and gas resources are contained within fracture basement accumulations.

The exploration and production play is proven in various locations around the world, notably in Asia, though Hurricane is the first to advance basement projects in the waters around the UK.

Its flagship asset is the Lancaster Field, around 100 miles north of the Shetland mainland.

Headed for production

The discovery is due to be brought into production in less than two years and as such it seen as the impetus of what may potentially turn out to be multibillion barrel oil project.

Found in 155-metres of water in Licence P1368 Central, Lancaster has flowed commercially viable oil from a number of wells.

After unearthing an oil column in excess of 600-metres within the basement, in last year’s drill programme, the company is now advancing to a final investment decision (due by the middle of the year) which will set the project on course for first production in the first half of 2019.

Hurricane envisages production in the order of 17,000 barrels of oil per day through this early production system (EPS), which will use the existing wells drilled to date on the discovery.

The company estimates the capital cost of the project at US$467mln, including the costs it has already incurred, and it is now actively progressing talks to secure financing for this initial phase of the development.

Lancaster’s EPS was estimated, in a CPR released on May 8, to host some 37.3mln barrels, valued by consultant RPS at US$525mln (net value).

As a whole Lancaster – at least the part seen in Licence P1368 Central (more about that shortly) – is estimated to contain some 2.1bn barrels of in-place oil and, according to consultant RPS Energy, around 523mln barrels of that is recoverable.

Recent well results and Hurricane’s exploration concept, however, suggests that Lancaster is just one end of a much larger oil accumulation. Future appraisal and exploration programme are envisaged to prove that.

Lancaster is expected to be the start of a multi-phase development, over a much longer term development than the EPS.

Halifax: Is it Lancaster’s big bookend?

Hurricane secured its rights to Halifax, located in Licence P2308, just last year and it is a potentially very significant piece of the jigsaw.

Its importance is underlined by the fact that, at the time of the award, it was immediately supplanted into what was an active and ongoing drill schedule – bumping the Warwick prospect into a future campaign.

Hurricane was richly rewarded for the bold move, as the subsequent exploration confirmed Halifax as a new discovery.

Significantly, the Halifax well is located some 30-kilometres from Lancaster and it is believed to be at the other bookend of what is seen as a large single oil accumulation which spans a feature referred to as the Rona Ridge.

Future drilling campaigns will, however, be needed to confirm the connection between the two discoveries – and a test of Halifax’s commercial potential would also be needed.

A separate, and upcoming, competent persons report will provide investors with further insights to Halifax’s resource potential – and it will be a hotly anticipated potential catalyst for the AIM quoted share.

Lincoln: A confirmed ‘significant’ discovery set apart by fault

While Lancaster and Halifax are believed to be connected (or indeed the part of the ‘same’ thing), Hurricane knows that Lincoln (its third confirmed oil discovery) is distinctly separate.

The Lincoln exploration well, drilled in late 2016, unearthed what Hurricane described as a “a significant fractured basement discovery”.

A very large, 660-metre oil column was measured making Lincoln comparable with Lancaster.

Well data confirmed that Lincoln is a separate accumulation, understood to be separated by a fault zone. That being said, the company believes that it is also one part of a larger find (see Warwick below).

Like at Halifax, future appraisal work will be required at Lincoln.

And, also like Halifax, an independent assessment Lincoln will be included in the forthcoming new CPR.

Warwick: High confidence but as-yet-untested

Located to the west of Lincoln, the as-yet-untested Warwick prospect is hosted in Hurricane’s P2294 licence.

Warwick’s spot in the 2016 drill campaign was taken by Halifax, so its oil resources remain ‘undiscovered’.

Nonetheless, well data gathered at Lincoln suggests that Warwick and Lincoln may be part of the same large accumulation – just as Lancaster and Halifax are believed to be.

Hurricane intends to drill a well on Warwick in the future, though as with its plans for Halifax and Lincoln the plans are subject to the company securing additional funding, regulatory consents and permitting.

Ultimately, Hurricane anticipates that Lincoln and Warwick – collectively referred to by the company as the Greater Warwick Area (GWA) – could be included in the wider full-field development of the Rona Ridge or Greater Lancaster Area project.

Whirlwind: Somewhat different, bolt-on potential

Located to the north of Lancaster, about 10 kilometres away, Whirlwind was drilled back in 2010 and tested in 2011. It was confirmed as a hydrocarbon discovery and is deemed to be separate to the GLA.

Hurricane described the 2011 findings as ‘ambiguous’ as it is not clear whether the hydrocarbons are volatile oil or gas condensate.

The idea then is that the asset will be appraised and developed either on a standalone basis, or further down the line as a potential bolt-on to the GLA.

In the meantime, the Whirlwind discovery well remains suspended for future operations. A new programme could see the well re-entered with a test on a deviated side-track – again this drilling would be subject to funding and regulatory sign-off.

Typhoon and Tempest: Exploration potential with plenty of upside

These assets are located in Licences P1485 and P1835, though the acreage was trimmed by Hurricane in spring 2016 to reduce costs.

In the summer of 2011 the exploration prospects were surveyed and a subsequent 2013 CPR assigned potential resources of 149mln barrels oil equivalent to Typhoon.

An ‘upside’ – or P10 Prospective Resource – estimate was set at some 1.2bn barrels, so plainly there could be very material potential.

Hurricane last year extended the deadline for the licence drilling commitments, and if the company wishes to keep the asset it would need to drill in 2018 (or get a further extension).

Strathmore: The ‘odd’ neighbour

This one is something of an odd-one-out in the Hurricane portfolio as it is not a fractured basement asset. Nonetheless, Strathmore (a traditional sandstone reservoir) is located in close proximity to Lancaster.

Strathmore is estimated to have some 32mln barrels of contingent resources and its production could potentially be fed into the future GLA infrastructure.

And back to the AGM

As demonstrated above, there will be plenty for investors and management to get their teeth into on June 7.

WATCH: Malcolm Graham-Wood on what to look out for in the AGM

Of course the most important questions are likely to be around issues that Trice and the team don’t have answers; namely the point at which an oil major shows its hand; or how best to commercial the assets.

CEO Trice was by his own admission seen as a bit of a maverick in chasing these basement structures.

The oil establishment, if there is such a thing, thought him a little mad.

However he has taken a real hands-on approach to proving the geology behind his theory sound.  

It is fitting then (and probably no coincidence) the venue for the Hurricane AGM was once a forum for Michael Faraday and the other founding fathers of science – Victorian oddballs who were once seen as dotty dream-chasers, but transformed the world in which we live.



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