Oil price, Hurricane Energy – And finally…

WTI $60.20 -23c, Brent $66.52 -49c, Diff -$6.32 -26c, NG $2.42 -3c

Oil price

After the massive rises by crude oil on Wednesday which was primarily down to inventory stats, the API leading the way but the EIA franked them as being substantial, but also due to continued tension in the Middle East. Yesterday there was further trouble as Iranian Revolutionary Guards attempted to stop a BP tanker in the Straits of Hormuz, with its British naval escort and American planes above recording the situation nothing actually happened but at some stage it is inevitable that some trigger happy fighter is going to start something.

The Opec report actually pleased as well, by predicting non-Opec supply growth falling and a comment that global economies were stabilising their forecast for 2H demand is actually up a touch. So we should see further inventory falls this year but at the moment 2020 doesnt look that clever.

Hurricane Energy

Yesterday saw the Hurricane Capital Markets Day where CEO Dr Robert Trice and CFO Alistair Stobie updated the market on developments at Lancaster and the Warwick Deep well results. Whilst investors are aware that Hurricane themselves have said that 6-12 months of start-up phase work will need to be done and that production history needs to be established along with reservoir performance analysed the initial prognosis is of a ‘stunning performance’.

It appears that the wells are performing very well indeed, with individual well rates achieving production of over 16,500 bopd on natural flow. Previous to start up the company expected that esp’s would be required to achieve target well rates, the high natural flow has encouraged the company to start its production without the esp’s, just natural flow. The associated productivity index is deemed to be ‘world class’. The reservoir performance is said to be ‘better than expected’ and this leads to a modest increase in the production guidance range for 2020 to 17-20/- b/d with the wells able to make up for any downtime.

Water encountered was pretty much as expected by Hurricanes geological model and is interpreted as being perched/trapped water rather than being drawn up from the Oil/Water contact.  Water cut of around 8% is associated with the 7z well with no water produced in the 6 well giving a combined number of 4% against Hurricane’s predicted base case range of 5-10%. Additionally, the wells had no pressure barriers and strong interference between them which ticks another two boxes.

Encouraged by the EPS the company is already planning other appraisal wells for Lancaster in 2021, these could tie in to current infrastructure and thus increase EPS production.

Whilst the Warwick Deep well was a disappointment in terms of productivity, it did encounter oil and has provided important data which is still being analysed. A 712m horizontal section of fractured basement reservoir was drilled below local structural closure and a number of pre-drill expectations were met. The company are not too discouraged and further analysis is needed but this data will be key in the totality of the GWA 2019 and 2020 drilling programme.

The next GWA well, Lincoln Crestal spudded this morning and if it proves to be productive it will be tied back to the Aoka Mizu to add a net 4,250 b/d and 5-10 mmscf/day to Hurricane. The intention is to bring it onstream in Q4 2020 or Q1 2021.

Financially clearly a lot of numbers will start to improve not least the opex which we were guided would fall to around $20 pb from 2020 with an upside number of $15 with the addition of GWA hydrocarbons. With the first delivery of oil ‘in the bank’ and another imminent cash flow this year should be around $60m with guidance for next year of $200-240m.

So, the first few months of the Lancaster EPS can be considered a great success, but the company is quite rightly maintaining the 6-12-month trial period although early indications are extremely positive. Although the Warwick Deep well disappointed in terms of productivity, the company remains confident about the GWA. Accordingly, I think that the share price, which rallied sharply after the RNS is still considerably undervalued.

And finally…

This weekend is one of the most iconic for British sport, with golf, horse racing, lawn tennis, motor racing, netball and cricket of course.

Sunday sees the British Grand Prix at Silverstone where just for good measure the course has agreed a long term deal to keep the British GP at the iconic track. If it’s anything like Austria then game on…

Ahead of the Open Championship next week it is the Scottish Open at The Renaissance Club in East Lothian.

Liverpool hosts the Netball World Cup, an opportunity for another member of the Neville family to manage their country…

At Wimbledon there are three days of intense tennis, mens semis today and finals tomorrow and Sunday, Federer v Nadal this afternoon might be quite a tasty morsel.

At Newmarket a good card contains the Darley July Cup, an opportunity to remind myself why I didn’t back Advertise at Royal Ascot…

And of course it’s the Cricket World Cup Final at Lord’s (regrettably), who would have said that neither India or Australia would be involved after the Kiwis beat India and England saw off the Aussies yesterday.

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4 comments on “Oil price, Hurricane Energy – And finally…
  1. Angus says:

    Hi Malcy read earlier reports show well have a glut of oil next year, which one would suppose would suppress oil and gas stocks? A few will buck the trend of course, is HUR likely to be one of them. Please look into your crystal ball, mine’s bust!

    • Malcy says:

      Hi Angus
      Thanks for this, yes, most reporting agencies are predicting a tightening of supply and demand throughout this year which reverses next year for a number of reasons. Opec+ could easily take action again at the December meeting or might look again in March when the current agreement expires so that supply doesnt exceed demand, also depends on Global GDP which if that falls sharply so will oil demand.
      Of course a number will always buck the trend and I expect HUR to be one of them.
      Cheers
      Malcy

  2. Roger says:

    Malcy
    Cant work out why it is regrettable that CWC final is at Lords.
    Any thoughts on whether HUR is a take-over target and if so, when is it likely??
    No commitments you understand!!

    • Malcy says:

      Hi Roger
      Reason behind Lords is just that it has hardly ever any atmosphere, compared to say, Edgbaston or even Trent Bridge, Old Trafford or the Oval, or Headingly even. The fans are quiet and half asleep, even last night it only just got going at the end!
      As for Hurricane and being a takeover target, i think it genuinely is but no one happy to commit until after the 6-12 months of consistent flow from the Lancaster EPS. That’s why i thought the farm-out was so crucial, after all without that they dont drill anything on a huge acreage position for 2/3 years. This way, assuming the current well succeeds then they open up the GWA as they develop the GLA.
      Hope that helps.
      Kind regards
      Malcy

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