viewHurricane Energy PLC

Hurricane Energy's move into production caps impressive story


  • Hurricane Energy is pioneering the development of fractured basement reservoirs in the UK Continental Shelf
  • Licences are centred around Rona Ridge on the Atlantic margin, west of Shetland
  • First production from the Lancaster early production system (EPS) in June
  • Lancaster’s early production expected to be around 20,000 barrels of oil per day in 2020
  • Tests are underway in the third and last well at the Greater Warwick Area

Quick facts: Hurricane Energy PLC

Price: 2.78 GBX

Market: LSE
Market Cap: £55.37 m


What it owns


Extended production will allow Hurricane to gain a better understanding of the reservoir for all of its licences.

Spirit is also the partner on the Greater Warwick portion of Hurricane’s West of Shetland portfolio.

Together, the Greater Lancaster (GLA) and Greater Warwick (GWA) areas span a large geologic feature known as the Rona Ridge.

The deal with Spirit Energy sees Hurricane trading away 50% of the Greater Warwick Area in return for up to US$387mln for well-drilling and development programme that aims to deliver first production by 2020.

Cashflows from the Lancaster EPS can now be reinvested back in the larger Lancaster field development (rather than fund exploration and appraisal activity), said Hurricane (LON:HUR).

Greater Warwick Area

Spirit’s Phase 1 programme saw three wells drilled in 2019.

It aims to accelerate the appraisal of Lincoln and confirm the Warwick discovery.

Hurricane is ‘carried’ in the US$180.6mln initial drilling programme.

Lincoln Crestal well, 100km off the west coast of the Shetland Islands was spudded in July and flowed at rates of up to 9,800 barrels of oil per day in testing.

That peak rate was achieved with the use of electrical submersible pumps while under natural conditions the well flowed an average of 4,682 bopd.

Lincoln Crestal is the second of three wells being drilled in the Greater Warwick Area, which neighbours the now producing Lancaster field.

In Phase 2, assuming prior wells are successful, Spirit will lead field development work aimed at connecting the GWA fields to infrastructure due to be in place at the Lancaster field which, at that point, would be online.

Spirit and Hurricane are expected to spend some US$187mln on this phase of work, which will include upgrades to the Aoka Mizu floating production, storage and offloading (FPSO) vessel, pipelines, and other engineering.

Presently, the initial GWA development is suggested as a single well tie-back to Lancaster’s Aoka Mizu for some 10,000 barrels of oil per day.

Also, Spirit will be expected to contribute some US$150-250mln to cover Hurricane’s share of additional, contingent costs of a larger field development at the GWA.

Drill stem testing on the third well, spudded in September, began in November.


How it is doing

In the six months to 30 June, Hurricane generated some US$22.5mln from its first crude oil lifting (the only one in the first half) and it also banked a US$6.2mln tax refund, related to R&D tax credits.

The company reported a US$1.2mln operating profit, reversing a US$4.7mln loss in the comparative period in 2018.

It made a US$21.2mln net loss after tax in the first half, narrowed from US$75.1mln in 2018, with the figure included a US$23.5mln non-cash fair value loss related to a derivative element within its convertible bonds.

The period ended with some US$81.4mln of cash.


What the boss says: Robert Trice, chief executive

"Since first oil, Hurricane has sold over 1.6 million barrels of oil across four cargoes and Lancaster has been producing at an average of 14,100 barrels of oil per day. The operating cash flow that the EPS is delivering provides Hurricane with greater control of our future as we seek to deliver growth in reserves and production across all of our Rona Ridge assets."

"Following the successful Lincoln Crestal well, we look forward to continuing with our Greater Warwick Area work programme with our partners Spirit Energy. This programme is designed to enable us to obtain the necessary reservoir data from across the GWA in order to allow the partnership to work towards an initial phase of full field development on the Greater Warwick Area."


Inflexion points

  • Result from Lincoln Crestal and third well in GWA

  • Production ramps up to 20,000bpd

  • Hurricane wants a year's worth of production data to be able to assess fully the reservoir


Broker's comment

Barclays upgraded Hurricane to 'overweight' in October, despite a challenging outlook in the European exploration and production energy sector.

The broker expects the shares to do well as the AIM-listed oiler does not rely on a rising commodity price to support investment plans or bolster its share price valuation.


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