WH Ireland comments17 Apr 2019 13:03
Hurricane Energy announced that the Warwick Deep 205/26b-C well has commenced drilling, which is the first of three planned wells on the Lincoln/Warwick asset.
The Warwick structure has not been penetrated by a well although the adjacent Lincoln structure was drilled and discovered to be oil bearing in 2017.
The Warwick structure has a gross best estimate recoverable resource estimate of 924 million barrels of oil and Hurricane has a 50% interest in the resource post farm-out to Spirit Energy. Hurricane is carried on the well pursuant to its farmout agreement.
Net to Hurricane, we value a success case at Warwick to amount to $3.8 billion (115.6 p/sh). This valuation is indicative of the scale of the potential prize and does not reflect commercial, funding or geological risk. We assume a $70/b Brent oil price in our valuation estimate (inflated at 1%).
We have included 10% of the full success-case value of Warwick in our target price of 119p.
The outlook for Hurricane is excellent in terms of catalysts over the course of 2019. We note that crude oil prices are strengthening and that with operational success over 2019 funding risk should be alleviated by asset de-risking. BUY.