Hurricane Energy PLC

AIM-listed Hurricane Energy PLC (LON: HUR) is a United Kingdom-based oil production and exploration company, which mainly focused on naturally fractured basement reservoirs. It was founded in 2005. The company operate a portfolio of contiguous offshore licences on the United Kingdom Continental Shelf, West of Shetland.

Trading and Operational Update (as on 29^th January 2020)
The company provides its first quarterly production update, and an operational and trading update ahead of its results for the financial year 2019. The result will be released on 19^th March 2020. The company continued robust production performance from the Lancaster EPS (Early Production System), driven by the well productivity above pre-startup anticipations and Facility availability above 90 per cent. In the third quarter of 2019, the Lancaster EPS production of oil was 15,400 barrels per day. This was significantly above from the guidance of 9,000 barrels of oil per day. In Q4 FY19, the Lancaster EPS production of oil stood at 11,800 barrels per day. This was an increase from the updated guidance of oil of 11,000 barrels per day. In the financial year 2019, the production was 3 million barrels of oil and oil sales stood at 2.9 million barrels of oil across seven cargoes. The company’s revenue for the year ended 31^st December 2019 was $170 million. The unrestricted cash stood at $157 million at the year-end, $25 million of which is anticipated to be utilized in relation to the group’s net payables position, after deducting amounts due from the group’s joint venture partner.

Share Price Performance

Daily Chart as at January-29-20, before the market closed (Source: Thomson Reuters)

Hurricane Energy PLC shares were trading at GBX 23.229 at the time of writing before the market close (at 11:27 AM GMT) on 29th January 2020 and were up by 7.54% versus the previous day closing price. Stock 52 weeks High and Low are GBX 64.70/GBX 21.60. The group’s stock is reflecting the higher volatility as against the benchmark index based on the company’s beta of 1.29.

Conclusion
On 13th December 2019, the company announced that Hurricane's 2020 work programme has been amended with the P1368 licence extension, which will include the terms of the 205/26b-14 (Lincoln Crestal) well suspension approval and the drilling of one or more appraisal wells on Lincoln.The company is also exploring numerous options to drill an extra Lancaster production well in the year 2020 to allow for the full utilisation of the Aoka Mizu FPSO's (Floating production storage and offloading vessel’s) throughput capacity and to deliver dynamic data from another part of the Lancaster reservoir.

In the Lancaster EPS, the company’s start-up has gone very well, with the production of 2019 surpassing the guidance.The company has also had a robust head start to the year 2020, with the six Well test ongoing on Lancaster, providing steady production. The two-well production return is imminent. For the Lancaster EPS wells, the company’s production performance is above the base case anticipations, and it stays on target to deliver an update at the Capital Markets Day in March 2020. Hurricane remains focussed on providing returns to shareholders. The company is looking attractive and is in the growth phase and provide opportunities for long term investment.

Based on the above rationale, we have given a "HOLD" recommendation at the closing price of GBX 21.60 (as on 28th January 2020).

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