Hannam & Partners updated note8 Jun 2020 21:44
Hurricane Energy
Changing of the Guard
CEO and other board members changing; technical review being undertaken
Hurricane announced today that Robert Trice, CEO and founder will leave Hurricane by mutual consent. For now, Beverley Smith has been installed as interim CEO, through a transition period, with a permanent replacement to be chosen later. The other board changes are Richard Chaffe’s role as acting CFO being made permanent and Roy Kelly stepping down as a non-executive director to be replaced by Dr. Alan Parsley, as major shareholder Kerogen’s nominee. Hurricane also announced that it would be forming a Technical Committee to formalise management oversight, and plans to release an updated CPR no later than end Q1’20. Following Hurricane’s last operational update shares fell 45%; however, today’s update does not contain any incremental negative technical or operational information. Current production has actually increased to 12kbbl/d from 10.3kbbl/d at the last update.
Management changes to suit the company’s current situation
The exit of CEO Robert Trice follows a somewhat disappointing recent operational performance, but this came after successfully executing a pioneering development over a period of weak oil prices in a harsh environment, achieving first production on time and on budget. Given some of the unexpected issues since then, and the shift of the company towards development and production optimisation, we believe a refreshed management team makes sense. Bringing in executives such as Beverley Smith with vast production development leadership experience, as well as a new non-executive with 50 years of industry experience, will allow some of the issues to be examined under a new lens, in our view.
New Technical Committee: taking a prudent approach
The role of the Committee is to consider, and where appropriate peer-review, the critical technical judgements being made by management in formulating business and operational plans for the Company; and to provide oversight on reporting of Critical Technical Assessments, Reserves and Resources and Technical Function Organisation and Skills. The Committee will review all the information available and open its mind up to a full range of geological and reservoir models. The company will take a more prudent approach, including the possibility of a shallower oil water contact, even though this is seen as low probability. A shallower oil water contact could mean lower reserves and a higher chance of water break through from the aquifer. It is positive that production has ramped up slightly from the last update and the water cut has remained low and stable at 8%. Depending on the initial evaluation of data, it is still possible that an intervention on the 7Z well is carried out this year.
Large amount of upside based on the Lancaster EPS alone
We had already cut our risked NAV to 45p/sh (US$35/bbl Brent in 2020 and US$60/bbl long term; 10% discount rate) to factor in the lower product
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