Overview
Hurricane Energy Plc (HUR) is an oil and gas exploration and development company that discovers and develops oil from fractured basement reservoirs. The company provides exploration properties such as Lancaster basement prospect, whirlwind basement discovery, lincoln basement prospect, and others. It offers exploration services such as typhoon basement prospect, Halifax basement prospect, Warwick basement prospect.

Financial Highlights (FY2018, US$’000)

(Source: Annual Report, Company Website)

The other operating expenses declined from $14.6 million in FY17 to $12.7 million in FY18, driven by the lower level of corporate activity in the financial year 2018 as compared to the previous year. The company’s reported operating loss decreased from $25 million in FY17 to $12.7 million in FY18. The Group’s loss after tax for the year 2018 stood at $60.9 million and increased significantly against the loss of $7.0 million reported in 2017, due to an increase in non-cash fair value loss on derivative financial instruments of $42.4 million associated with Hurricane’s convertible bonds. The total comprehensive loss for the year surged from $7 million in 2017 to loss of $59.1 million in 2018. The basic and diluted loss per share rose from 0.46 cents in the financial year 2017 to 3.11 cents in FY2018. The net cash position stood at $123.2 million at the end of FY2018.

Share Price Performance

Daily Chart as at May-20-19, after the market closed (Source: Thomson Reuters)

On 20^th May 2019, HUR shares closed at GBX 56.80, up by 1.519% against its previous day closing price. Stock's 52 weeks High and Low is GBX 60.75/GBX 38. At the time of writing, the share was trading 6.50 per cent lower than the 52w High and 49.47 per cent higher than the 52w low. The company’s stock beta was 1.41, reflecting higher volatility as compared to the benchmark index.

Stock's average traded volume for 5 days was 22,684,877.20; 30 days – 9,942,480.43 and 90 days – 8,601,666.46. The average traded volume for 5 days was up by 128.16 per cent as compared to 30 days average traded volume.

Key Risks
Rising operational cost pressure may impact longer-term profitability along with generic company risks including project delays and the unexpected departure of key management and senior personnel. Operational risks lie in reservoir uncertainty and the potential impact on future production and for new development success. Risks also include volatility in commodity prices, and a stronger US Dollar relative to GBP Sterling. Some more risks are: Negative results from the Lancaster EPS, Operational issues with the Aoka Mizu FPSO and leading to a fall in the processing capacity of the FPSO, a fall in oil prices and a less favourable M&A environment.

Conclusion
Hurricane has made a series of large discoveries in West of Shetland in fractured basement reservoir. The company is currently implementing the Lancaster EPS development, which is to produce at 17,000 bopd for up to 10 years (Hurricane 100%). This will provide significant cash flow (probably over a 6-12 month period), and important production data to demonstrate the commerciality of the 2.6 billion boe of resources, the company has discovered. Post a farm out to Spirit Energy in 2018, Hurricane is also gearing up for appraisal drilling on Lincoln and Warwick in 2019, with plans for potential subsequent tieback development there too. However, the Hurricane's technical work has demonstrated that most of the risks have been mitigated. On the basis of above headwinds, we recommend investors to keep a cautious “Watch” on the stock at the closing price of GBX 56.80 (as on 20^th May 2019), given the trading levels and other challenges at hand.

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