Shares in Hurricane Energy (LSE: HUR) rose strongly this morning, after the firm announced that test results suggested oil production from its Lancaster field could be “significantly ahead of initial expectations”, with production of up to 20,000 barrels of oil per day (bopd) from a single well.
What’s special about Hurricane?
Hurricane only floated on the AIM market earlier this year, but has been in business since 2005 when it was founded by current chief executive Dr Robert Trice.
The firm operates in the highly prospective West of Shetland area, but is targeting a special type of discovery, known as fractured basement reservoirs. These are essentially areas of rock below the seabed that have naturally fractured and where oil has accumulated in the resulting cracks and crevasses.
Hurricane’s plan is to exploit these oil reserves by drilling horizontal wells through areas of naturally fractured rock where oil is trapped — known as basement reservoirs.
The numbers
So far, things are going well. Hurricane’s first well after its IPO was drilled in the Lancaster oil discovery. This appraisal well tested at flow rates of up to 9,800 bopd, and the firm said in today’s announcement that it believes sustainable production rates of 20,000 bopd may be possible.
This latest well is Hurricane’s second potential production well on Lancaster and this morning chief executive Dr Trice said “only one more horizontal well” would be required for the firm to move to early stage production — opening the door to significant revenue streams.
According to Hurricane’s latest Competent Persons Report, the firm has 2C contingent (discovered) assets of 470m barrels of oil, across its Lancaster and Whirlwind oil discoveries. If Hurricane is able to move Lancaster to production and convert some of those barrels into reserves, then the firm’s valuation could be re-rated sharply higher.
Buy Hurricane?
Hurricane shares have not yet attracted widespread interest from the market, and despite today’s news — and the firm’s 470m barrels of contingent resources — Hurricane’s market capitalisation is just £275m, in line with its original flotation price of 43p per share.
However, I believe Hurricane’s share price could easily double from today’s price: the company owns 100% of all of its assets, and while Dr Trice says he is open to farm-in deals, he is keen to emphasise that Hurricane may not need to bring in partners if it can bring Lancaster into production early and generate cash to fund future wells.
