Arden Partners26 Nov 2019 11:27
Posted by Pro_S2009 on ADVFN,
Arden Partners comment on HUR
Initial Lancaster data looking good
Hurricane is a UK E&P company that has made a series of large
discoveries West of Shetland in fractured basement reservoir, which
contain gross 2C resources of over 2.5bn boe. Hurricane reached first
oil on an initial up to 62mmbbl 2P development of its Lancaster field
earlier this year, and drilling of the Warwick West well is ongoing.
The Lancaster development is using existing horizontal wells and a
leased FPSO, with plateau production of 17-20mbbl/d expected from
2020 post ongoing ramp up. Our numbers forecast that the project
should throw off around US$220m OCF per year @ US$60/bbl Brent –
important funding that Hurricane can re-deploy into subsequent
portfolio work programmes.
In addition to providing cash flow, the initial Lancaster development
should also provide important production data to help prove up the
producibility of the rest of Lancaster, and Hurricane's other discoveries.
These are all in fractured basement reservoir, and the limited number
of global analogues means that, in our view, production data is likely to
be required before Hurricane can go about fully monetising its
discoveries. Initial results here are good, with strong flow rates and
limited water cut.
Additionally, the company announced a farm out of 50% of its Lincoln
discovery and Warwick prospect to Spirit Energy in September 2018,
funding three 2019 appraisal/exploration wells, and part-funding
tieback of one to the Lancaster FPSO and additional development work.
This has augmented and accelerated the forward work programme.
Warwick Deep failed to flow commercial quantities of oil, but Lincoln
Crestal was a success and is planned to be tied back to Lancaster.
Warwick West is yet to report, with testing ongoing.
The size of the prize is large. Lancaster contains gross 523mmboe of
2P+2C, with Hurricane's other discoveries holding another 2.0bn boe of
2C, and a further potential 935mmboe in Warwick. Our valuation gets
to 139p risked, 456p unrisked, using US$65/bbl. This implies that the
shares are currently good value, and shows considerable upside if the
resources are proved up. We believe this value, plus ongoing news
around Lancaster production, the Warwick West result and Lincoln tie
back, makes the shares attractive overall.
Buy, 90p target.
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