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3 Reasons to add Hurricane Energy #HUR to your Watchlist

The content of this blog (or content associated with it) is not intended as investment advice. The author holds an interest in the company mentioned. Please do your own research.

Hurricane Energy #HUR
Share Price: 27.5p
Market Capitalisation: £539m

What Do They Do?

Hurricane was established to discover, appraise and develop hydrocarbon resources associated with naturally fractured basement reservoirs. Through this strategy, the Company has made 4 discoveries in the UK Continental Shelf, offshore West of Shetland.

Hurricane has control of 728 million barrels of 2P Reserves and 2C Contingent Resources, all located in licences 100% owned, in the UK Continental Shelf, West of Shetland.

They are targeting first oil in H1 2019.

3 Reasons to add Hurricane Energy #HUR to your Watchlist

 

1. CASH

On the 30th June, Hurricane Energy raised $300 million through the Placing at 32p.

In addition, they successfully placed US$220 million through the Convertible Bond Offering, with a further US$10 million over-allotment option.

The proceeds will be used to fund capital expenditure in relation to the early production system (EPS) development at the Hurricane’s Lancaster field, West of Shetland.

The EPS is expected to produce 17,000 barrels of oil per day and provide data required to plan a full field development of Lancaster. The Project is currently scheduled to achieve first oil in H1 2019.

This funding means Hurricane Energy are fully funded to take them through to oil production in H1 of 2019.

 

2. ASSETS

Hurricane has control of 728 million barrels of 2P Reserves and 2C Contingent Resources, all located in licences 100% owned, in the UK Continental Shelf, West of Shetland. These resources have been independently certified by RPS Energy.

In March, Hurricane Energy hit newspaper headlines, when they confirmed that initial data analysis indicated, “Halifax is linked to the Lancaster (oil) field forming a single large hydrocarbon accumulation”.

The Times Reported:

“Hurricane Energy has made another oil discovery near the Shetland Islands, bolstering hopes that it may have the biggest find in British waters this century.

The Surrey-based oil company is expected to announce today that surveys of its Halifax well in an area off the west of the Shetland Islands have identified a, “kilometre-deep oil column”, linked to its existing Lancaster find.”

The company is now progressing the Lancaster Field towards the first stage in a phased development which is targeting first oil in H1 2019.

A competent persons report in May 2017 attributes 37 million barrels of 2P reserves to the Lancaster field, based on a 6-year EPS, which would increase to 62 million barrels if the EPS was extended to 10 years.

An NPV of $525 million is attributed to the 2P reserves for a six-year EPS at a 10% discount rate.

At $40 oil, Lancaster will be making net profit of $100m per annum. At $50 oil this goes up to $150m. This will bring cash to the company but also help de-risk their other assets, Lincoln and Halifax.

Currently, Hurricane’s market cap is £540m and yet they raised $520m (£390m) recently at 32p. So excluding cash, their assets, which include Britain’s largest undeveloped oil fields are valued at just £150m. This is not far off the profit they will earn, in just one year, from their Lancaster field.

3. SHARE PRICE


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On a technical level, there isn’t a lot of positives, momentum seems flat however at 27.5p Hurricance’s current share price is at a 12 month low and has recently been oversold, on a daily level, twice. This is partly due to lack of news, of late but also maybe down to stale bulls. The substantial fundraise was conducted at 32p, 16% higher than the current share price, which looks to be bottoming out. So this looks a good level, in my mind, to start scaling in.

There may be some volatility ahead but considering the fundamental value and lack of volatility of late, I wouldn’t be surprised to see this move to the upside on the next positive news release from the company.

The 200 day moving average is at 29.55p and should the share price get above this level then I can’t see a lot of resistance until 42p, 52% higher than the current share price.

Hurricane Energy are fully funded to take them through to their early production system on the Lancaster field in early 2019. This will see them producing 17,000 barrels of oil a day, generating between $100m – $150m net profit per year. They have discovered, what’s been described as, “biggest find in British waters this century, thought to contain more than one billion barrels of oil”.

The net present value of Lancaster’s 2P reserves, for a six-year EPS, is $525 million and yet Hurricane’s current market cap is just £539m. The have cash of approximately £390m, which means at the current share price, excluding cash, all of the company’s assets are valued at just £150m or nearly one years profit from the Lancaster Oil Field. There’s no question Hurricane Energy is undervalued, the question is, for how long will this opportunity remain?

 

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The content of this blog (or content associated with it) is not intended as investment advice. The author holds an interest in the company mentioned. Please do your own research.

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