Hurricane Energy (LSE: HUR) will have had investors’ hearts beating wildly in recent months.
Sitting on what it calls “the largest undeveloped discovery on the UK Continental Shelf,” the North Sea exploration company saw its shares soar as high as 67p back in May. But when it revealed it was going to need a further $520m to develop the field, its Greater Lancaster Area project, shareholders gulped hard and many of them fled — and the shares crashed back to 27p earlier in September.
But in the past few weeks, we’ve seen a recovery to today’s 32.5p price, so are we in bargain territory? The equity and bond-based fundraising has caused some dilution, but I see two big positives.
Firstly, there should be enough cash now to see Greater Lancaster through to production — with a bit of luck, the scares will be over.
A lot of oil
Then there’s the size of the find. There are 523m barrels of combined 2P Reserves and 2C Resources — with a best case estimate of 2,326m stock tank barrels.
There’s also 205m barrels at the Whirlwind licence, with new discoveries at Halifax and Lincoln, which suggest there could be some very large accumulations down there.
On fundamentals there’s little to go on, with further losses pencilled in for the next two years at least. That usually doesn’t worry investors in oil explorers too much, but it does highlight the risk for the inexperienced — a good number of such companies have gone bust over the years.
But of the ‘oil tomorrow’ explorers out there, I see Hurricane as one of the most promising.
Profits soon
Balancing a risk like Hurricane with another oily that actually has profits on the near horizon can be a way to reduce the risk, and I’m looking at Eland Oil & Gas (LSE: ELA) as a candidate.
It released first-half figures on Tuesday, with chief executive George Maxwell calling the period “very positive for Eland with the restart of production resulting in increased cashflows to further grow the business.”
The Nigeria-based producer is ramping up its production again, with its OML 40 project having restarted in January — and having contributed a total gross production of 954,728 barrels of crude oil (429,627 barrels net). The company’s previously shut-in Forcados terminal has resumed operations too, allowing exports via pipeline to resume and take over from a provisional shipping-only route.
Eland managed an average daily production during the half of 5,275 barrels gross, but the re-opening of Forcados helped that ramp up to 11,571 barrels per day in June.
Financials
Financially, a £15.2m ($19.5m) equity placing helped get the June cash balance up to $22.4m, and that’s since grow to $27.3m.
Although pre-tax losses widened for the first half, with pumping now well underway, forecasts for a return to profit this year are looking more realistic. And if further predictions for 2018 come off, we could see a near-trebling of earnings per share to bring the P/E down to under two.
Now, Eland is very small with a market cap of just £123m, and with oil prices remaining relatively low (and still at risk of renewed falls), an investment right now would bring its own big risks.
But if you’re the kind of upbeat investor who’s happy taking on that that risk, I rate the prospects as bright.
