With a market cap of over £1 billion, Hurricane Energy (HUR), is one of the most valuable oil companies listed on AIM, but is it worth it? The company has just updated the market with details of the Lancaster Early Production System production rates and details - and this is a stock Gary Newman has liked since its early days on AIM, and I have been in and out over the last 4 years also. I have seen Hurricane as a very interesting investment case, that holds clear potential to offer real long term value, but I do get the impression it creates polarised views in the oil and gas investment community...
The latest is that production from Lancaster is meeting and exceeding guidance provided to date. With a £1 billion market cap and a convertible bond of $230 million, that c.£1.2 billion enterprise value looks high to some given the level of free cash flow projected. I have long viewed the Hurricane investment case as a tale of two halves – its value as an oil producer with booked 2P reserves and cash flow plus the opportunity value of the massive 2C resources and 2U prospective resources. It appears to me this early experience at Lancaster is very positive to underpin that oil producer element of the valuation. Initial production from Lancaster is running ahead of expectations, with stabilised flow rates of 20,000bopd being achieved without use of the electric submersible pumps, which is good news given the failure rates sometimes seen on other fields. Water cut of approximately 8% is in line with the CPR range of 5% to 10% and the company saying this is perched (trapped) water not early breakthrough of aquifer water. This is good news and puts the worst case downside views to bed. The original projection was for 17,000 bopd having allowed for downtime for pigging runs to clear wax build-up and the limitation of the consents to flare surplus gas. Minimal build-up of wax is reported which is very positive and Gas Oil Ratio at the lower end of the expected range. That’s good news – gas flaring limits was always a key constraint. The net result is an increase on forward guidance for next year’s production from 17,000 to 20,000 bopd.
It is the potential of those 2C and 2U resources that really excites many investors. There is no two ways about it, CPR confirmed 2C resources of over 2.1 billion barrels is massive. Hurricane advises that BP (BP.) and Royal Dutch Shell (RDSB) have combined reserves and resources in the UK at not much more! Of course both these majors have much of their resources on the books as producing reserves, but it does illustrate the potential size of Hurricane assets. In my view it is the opportunity value of these resources that is to be properly reflected into the Hurricane enterprise value. The share price took a beating at the start of this month when the Warwick Deep well did not perform as expected and the share price fell c.20%. This looked over done to me at the time, but it’s the first set-back Hurricane have reported for a long time. Of course the costs of the well were covered by the farmout carry to Spirit Energy on this asset, and in the success case would have added to resources.
We are not really told much more now on why this well encountered a poorly connected fracture network. If there was one thing that has always impressed me about Hurricane it is the apparent ability to model and then prove with the drill bit a fundamental understanding of fractured basements. I guess it’s like all modelling – it is not the same as reality and all models need calibration with real data. The well was not a duster, so we will see what happens in the fullness of time. There remain risks in my view on the medium term production from Lancaster, but the company has always been upfront on needing 6 to 12 months of production data to properly de-risk this asset. Assuming production continues successfully and further increases achieved from the planned debottlenecking of the FPSO; gas export to eliminate the flaring constraint and extension of the FPSO contract from 6 years to 10 years I can see the current enterprise value being covered. That would leave the opportunity value of some 2 billion barrels of 2C resource. If it all goes well, further asset monetisation will occur in my view – it would become a matter of when not if. The share price has reacted positively, as I think it should, but I can see scope for it to move up further. Buy.
Filed under: Hurricane Energy, Anglo African, Woodford Income Focus, Lookers, M&S, reader poll
RISK WARNING & DISCLAIMER - FiveFreeShareTips.com tips are provided by independent authors via a common carrier platform and do not represent the opinions of FiveFreeShareTips.com. FiveFreeShareTips.com does not accept responsibility for or make any warranties in connection with or recommend that you or any third party rely on such information. The information available at FiveFreeShareTips.com and via emails you receive from [email protected] are for your general information and use and are not intended to address your particular requirements. In particular, the information does not constitute any form of advice or recommendation by the tipsters or FiveFreeShareTips.com and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Trading shares involves the risk of loss. The tipsters and FiveFreeShareTips.com shall not be liable for any losses or other damages incurred. The value of investments can go up or down and the past is not necessarily a guide of future performance.
Well actually it will be six. One every week day and one on Sunday, each landing with you at 11 AM sharp.
Unlike other services (which may always have a vested interest) we pride ourselves on our impartiality and cover all small caps including AIM. the Standard List, The Wider Main Market and NEX.
We cover small caps, penny shares, FTSE 350 stocks and blue chips. We look for red hot penny shares, Warren Buffett style value investments with yield and growth stocks. There is no technical analysis in our work just solid fundamental analysis from a team of experts with decades of stockmarket experience.
You will not agree with all we publish but if you are interested in small caps you cannot afford to ignore it either. Yo'll never be charged for the free share tips from Five Free Share Tips and given the star writers involved you know that they will move share prices.
There's no telephone number or postal address required and there is no charge, ever, for your Five Free Share Tips membership. Just free shares tips every day apart from Saturday And each day's share tip will not just be a few thoughts cobbled together but will be detailed analysis from experts.
Our experts do not just earn their living from writing. All own shares. If they own shares in a stock they cover they will declare it and will not sell until after advising a sell to our readers. And why not our tips are so good that why shouldn't our readers put their money where their mouth is?
Don't just take our word for it! Judge us on the calibre of our free share tips and join today to start receiving them from September 1 2017. If you don't like what you get delivered to your inbox unsubscribe and you will never hear from us again. So why not give it a go? Sign Up Now
We've put together a panel of top tipsters, including:
Tom Winnifrith, in his 27th year writing about shares, noted fraudbuster & dubbed "The maverick Tipster"
Chris Bailey, City whizz kid turned financial guru, rated as one of the top 50 commentators on shares on twitter, founder of Financial Orbit
Steve Moore, has worked with Tom Winnifrith for all bar 3 weeks of his working life - a noted commentator on value stocks
Malcolm Stacey, The Grandfather of Share Blogging, the founder of ShareCrazy & a best selling autthor of stockmarket books
Lucian Miers, the Bard of the Boleyn, one of the UK's best known short sellers
Gary Newman, writes about value investing on AIM, speciality is in share tips on oil and mining companies
Nigel Somerville, The Deputy Sheriff of AIM, an expert in forensic analysis a skill used to bust frauds but also to tip true value investments
The team from HotStockRockets, specialising in AIM and small cap shares which will fly on a three month view
Remember to book your place at the UK Investor Show 2018. The UK’s top investment show taking place on Saturday 21 April 2018 at the Queen Elizabeth II Conference Centre in Westminster, London. The show will feature a unique line-up of top speakers including Nigel Wray, tech queen Vin Murria, Dave Lenigas, Mark Slater, Tom Winnifrith, Adam Reynolds, Ed, Croft, Nick Leslau Luke Johnson and Dr Johnny Hon as well as 135 exhibiting small cap companies.
The hot share tips given here are of necessity, general. They cannot relate to the individual circumstances of investors. Anyone considering following the share tips contained here should seek independent advice from a Financial Conduct Authority authorised Stockbroker or Financial Adviser. We cannot be held liable if individuals suffer losses through following share tips contained on this site or emailed out as free share tips. The value of investments can go down as well as up. The past is not necessarily a guide to future performance. Investing in shares can lose you part or all of your capital although the potential returns are theoretically unlimited. The difference between the buy share price and the sell share price for smaller company shares (penny shares) can be significant. Profits from dealing in shares may be liable to tax - the level of tax and bases of relief from tax are subject to change. Changes in the rates of exchange may have an adverse effect on the value or price of an investment in sterling terms if it is denominated in a foreign currency. Some of the shares recommended on this site will be smaller company shares. By their nature such investments can be relatively illiquid and thus hard to trade. And that makes such investments more of a high risk than larger company shares (or 'small caps'/'penny shares'). FiveFreeShareTips.com & its sister site ShareProphets.com defines a smaller company share as any stock traded on AIM or NEX or which has a market capitalisation of less than £300 million.