Crude prices recently hit $80 per barrel for the first time since 2014 and like other oil groups Hurricane Energy share price has risen in step.
Hurricane, though, is much more than just an oil price play and as the milestones towards its first production are ticked off, the shares look likely to go much higher.
A share price of 48p values Hurricane at around £955million but stockbroker Cantor recently slapped an 80p price target on the growth stock.
Cantor’s optimism stems from the fact that in about a year’s time the North sea explorer is scheduled to begin production from one comparatively small portion of the very large Lancaster oil project, located in the West of Shetland region of the UK Continental Shelf.
North sea explorer Hurricane is scheduled to begin production from his Lancaster project
That will be an impressive landmark for a company which arrived on the London market back in early 2014 as an appraisal and exploration company.
At that time, Hurricane had already discovered oil at Lancaster but had plans to drill again to prove its commercial merits.
Substantial success in a 2016 campaign not only confirmed Lancaster but also unearthed new discoveries in the nearby Halifax and Lincoln areas and de-risked the as yet untested Warwick prospect.
The campaign was a game changer for Hurricane.
Essentially, it put the company into the ‘multi-billion barrel’ club with estimates suggesting that altogether the portfolio’s main features may host a colossal 3.5billion barrels of crude resources.
As Lancaster’s size also grew (to 500million barrels) and against a backdrop of lower contractor costs in the wake of lower crude prices, the company made an opportunistic move.
A $520million private equity-backed funding almost a year ago gave Hurricane the wherewithal to take Lancaster forward without a partner.
Hurricane subsequently launched the ‘early production system’ development, which is due to achieve ‘first oil’ during the first half of 2019.
It will see Lancaster produce some 17,000 barrels of oil per day, perhaps more if the group can optimise processing operations.
That would make Hurricane among the more substantial producers, even though it will be only a fraction of what the field is capable of.
As well as valuable revenue and cashflow, the EPS will provide a material and longer-term validation of Hurricane’s oil assets and put the company in a much stronger position if it does eventually agree a partnership.
The EPS will only address a portion of the field, estimated to host 37million barrels of Lancaster’s total 500million barrel resource.
Plainly, if Hurricane is to unlock all the value it has unearthed in exploration, there’s a considerable amount of additional work to come over the longer term. Nonetheless, Cantor believes there is potential for substantial value to be added as Lancaster advances over the coming months.
The broker highlighted at least 60million barrels could be produced from the Lancaster EPS area over a 10-year period – although additional wells could lift daily volumes up towards the floating production vessel’s maximum capacity of 30,000 barrels per day.
Such a ramp up assumes a way around gas-flaring constraints and that 90million barrels will be found over the 10-year period.
On the up: Crude prices recently hit $80 per barrel for the first time since 2014
In addition, last year’s exploration successes at the Halifax and Lincoln fields are described as world class by the broker and at more than 1.8billion barrels of crude might put the company in the crosshairs for oil majors – especially as potential connections between the discoveries are examined further.
‘It is believed that the Lancaster and Halifax field are in communication, making this a giant accumulation – easily the biggest field yet to be developed on the UKCS, and easily the biggest discovery since 2000,’ Cantor said.
‘Hurricane’s asset base now equates for 13-25 per cent of the entire remaining recoverable resource on the UKCS.
‘Whilst further appraisal across the portfolio is required, the potential is staggering, and we believe that it will be of great interest to the majors as they seek to acquire new reserves.’
Even with the recent uptick, Hurricane’s rating is ‘far lower than any peers’ according to Cantor and the broker expects this discount to be unwound as project milestones are reached.
‘We believe that Hurricane offers the biggest and most exciting opportunity on the UKCS at the current time, and that the current price offers an exceptionally attractive entry point to investors.’
Hurricane, itself, meanwhile has confirmed the development programme is advancing and is on-track and that the newly-fabricated buoy for the early production system has now departed dry dock in Dubai and will arrive on site in June.
This is a critical element of how the floating system will be deployed at the Lancaster field and a key part of the construction phase.
‘All workstreams are proceeding well; we remain on budget and on schedule for first oil in the first half of 2019.’ said Dr Robert Trice, Hurricane’s chief executive.