interesting article30 Jan 2020 09:32
Punters’ favourite Hurricane Energy is rallying on a nothingy sort of trading update. The fractured-basement pioneer reiterates guidance and gives some inconclusive data from ongoing well tests that might be ready by a capital markets day on March 25. Production last year of 3m barrels hits expectations, as does revenue of $170m, as does year-end $15m of cash.
The shares have been very weak, though, because punter stocks act as an echo chamber for delusions both fantastical and paranoid. In that context, nothing is enough. Here’s Morgan Stanley.
We note that there is nothing in the update that would remotely explain the ~35% drop in share price YTD and a ~10% fall yesterday. We highlight five key points:1) The company completed its eighth cargo lifting on 20 Jan and confirmed that its seventh cargo was lifted on 22 Dec. Given that the company was producing mostly from one well in Jan (inline with guidance), lifting a cargo in around one month is positive, in our view. 2) It reiterated that the individual well flow test on the 6 well will be completed by the end of the month and that both the 6 and 7Z wells will produce together from then on. No change in guidance here. 3) 2019 financials are a little better than guided. 2019 oil sales of 2.9 mn bbls, revenue of $170m and unrestricted cash of $157m are slightly better than previous guidance of 2.8 mn bbls, $165m and and $150m respectively. 4) There is no change to other key guidance/comments including (a) pursuing the option to drill an additional Lancaster production well, (b) changes to 2020 work programme and (c) pursuing the approval of the Lincoln Crestal tie-back. 5) The company expects to present meaningful conclusions of the EPS data with the Capital Markets Day on 25 March - again in line with the company's previous comments.
Want more on water cuts? Of course you do, here’s Stifel.
The headline water cut appears higher than 3Q at first glance - c.10% in 4Q - but this reflects a 25-day period in 4Q when the well that is producing water, 7Z, has been run on its own. If we assume similar periods of time during the quarter for each well run on its own, and then together, we think the water cut in the 7Z well has not changed from the 25-30% reported in the December operational update. ...
With the stock trading substantially below Core NAV, we do not believe this is priced in; meanwhile infill drilling should double output by 2022 and offers potential for >100% upside exclusively from brownfield projects entirely within the company’s control.
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