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Hurricane Energy

Fabrication on track; commissioning now in focus

Update | Oil & Gas | 19 Dec 2017

On 12 December 2017, we visited the Aoka Mizu FPSO at Drydocks World Dubai, and had the opportunity to meet a number of Hurricane Energy and Bluewater employees. We returned with greater confidence in Hurricane’s ability to mobilise the Aoka Mizu to location in Q218 and to deliver first oil in H119. While some risk remains relating to weather-critical items, we feel that the risk of schedule slippage is lower than we had previously assumed. We bring first oil forward by six months in our updated valuation; this is offset by a slightly more conservative view of production ramp-up and uptime assumption in the first six months of production.

MedicX Fund

Strong investment pipeline to continue progress

Outlook | Property | 19 Dec 2017

FY17 saw steady underlying growth in the investment portfolio and recurring earnings. Overall returns were further enhanced by positive revaluation movements reflecting continued tightening in market yields. Investment in development schemes had a limited impact on earnings in FY17 but completions and continuing acquisitions from a strong pipeline offer good growth prospects. The dividend has been increased and MedicX Fund (MXF) expects to pay 6.04p in respect of FY18, a yield of 7.1%, supported by growing highly secure, long-term income derived mainly from government sources.

Hurricane Energy

First thoughts: Spirit Energy farm-in

Flash note | Oil & Gas | 03 Sep 2018

Spirit Energy has farmed-in to 50% of Hurricane’s Lincoln and Warwick licences covering the Greater Warwick Area (GWA). The farm-in is intended to accelerate the de-risking and monetisation of GWA, adding a new leg to the Hurricane business model that will run in parallel with the development of the Greater Lancaster Area (GLA). Under the transaction, Hurricane will retain a 50% working interest in GWA licences in return for a net carry of $137.2m through a two-phase initial work programme and $150–250m contingent carry on net GWA full field development (FFD) expense. Based on company-estimated GWA gross 2P reserves of 500mmbbls expected to be unlocked by the FFD, the combined carry value is $1.2/boe to $1.6/boe. The transaction structure differs materially from our assumed 60% working interest dilution through farm-out for Lincoln (250mmbbl development case) and a post-carry NPV/bbl of $5.0/boe ($2.5/boe risked) in our last published valuation of 81p/share. We expect to revise our risked Lincoln valuation ($241m) to reflect the details of the transaction, which include accelerated production via tie-back to Lancaster, not currently reflected in our valuation. We believe today’s deal materially accelerates the de-risking of Hurricane’s Rona Ridge asset base both in terms of GWA resource but also the ability to focus Lancaster EPS cash-flows on fast-track appraisal of the GLA resource base.

Hurricane Energy

Enhanced EPS returns at current strip

Outlook | Oil & Gas | 11 Jun 2018

The development of Hurricane’s Lancaster early production system (EPS) remains on track for H119 first oil. We estimate a 1 January 2018 point-forward IRR of 63% for the EPS phase based on current commodity price forecasts. We use the EIA’s short-term oil forecast with Brent at $66/bbl for 2019 and long-term $70/bbl (from 2022). We believe the market is fully valuing a 10-year Lancaster EPS phase (34.7p/share net of debt), a project that has the potential to significantly de-risk our RENAV of 81.0p/share (increased from 78.4p/share). Our RENAV includes a risked value for Lancaster full field development and two mid-sized field developments (250mmbo) at Lincoln and Halifax.

Hurricane Energy

Lancaster EPS on track and on budget

Flash note | Oil & Gas | 10 Apr 2018

Management’s concept selection and contracting strategy appears to deliver the desired result, with Hurricane reiterating that the Lancaster EPS remains on time and on budget and first-oil scheduled for H119. Market focus is likely to remain on installation items during the 2018 weather window and then to technical data established once production has stabilised. These data are likely to significantly increase our understanding of Greater Lancaster Area (GLA) resource recovery potential and value. Our last published valuation stands at RENAV 78.4p/share, including a Lancaster EPS-only valuation of 32.7p/share based on a long-term (2022) oil price assumption of $70/bbl Brent. We expect little change to our valuation, but will revise our financial forecasts shortly to reflect capex phasing and a change in reporting currency from GBP to US$.

Hurricane Energy

West of Shetland resource update

Flash note | Oil & Gas | 12 Dec 2017

Hurricane has published this week an updated competent person’s report (CPR) on its West of Shetland fields not previously included in the 2017 Lancaster CPR. The report by auditor RPS Energy covering the Halifax, Lincoln, Warwick, Whirlwind and Strathmore fields confirms over two billion barrels of oil equivalent contingent resources (Hurricane 100% interest) across these fields, with a further 935mmboe of unrisked prospective resources recognised for the (as yet undrilled) Warwick prospect.

Hurricane Energy

Hurricane hoping for a storm-less 2018

Update | Oil & Gas | 02 Nov 2017

Investor focus is understandably on the execution of Hurricane’s Lancaster EPS development. First oil from Lancaster will complete the transition from explorer to producer and unlock a stream of cash flow that management can direct towards appraisal, full field development or shareholder returns. In this note, we look at progress made to date and the potential for farm-down of the Greater Lancaster Area (GLA) and Greater Warwick Area (GWA) to fund further appraisal ahead of full field development. Our updated RENAV stands at 79p/share, down from 103p/share, reflecting a recent reduction in our long-term (2022) oil price assumption from $80/bbl to $70/bbl.

Hurricane Energy

Lancaster EPS funding in place

Update | Oil & Gas | 04 Jul 2017

Hurricane has provisionally raised up to $535m through a $300m equity placing (plus $5m follow-on offer) and a concurrent $220m (with $10m over-allotment) convertible bond offer. Equity is being placed at a price of 32p/share while the convertible offers investors a 7.5% coupon and conversion price of 40p/share o a 25% premium. We had assumed EPS funding in our valuation with an approximate 60/40 equity/debt split (see our May Outlook note); confirmation of funding should provide increased confidence in Hurricane's ability to keep to a H119 first oil target. The fall in Hurricane's share price over the last two months has led to greater dilution than we had previously anticipated with Edison's Lancaster NAV falling from 102p/share to 81p/share (c 21%) assuming convertible dilution.

Hurricane Energy

Big fields get bigger - 523mmbbls and counting

Outlook | Oil & Gas | 16 May 2017

Hurricane Energy's 2016/17 drilling programme has significantly increased understanding of the Greater Lancaster Area (GLA) and Greater Warwick Area (GWA) hydrocarbon accumulations. Initial data analysis suggests that the GLA is one large accumulation including the Halifax and Lancaster basement oil discoveries contained between the Westray Fault Zone and Brynhild Fault Zone. RPS resource estimates for Lancaster alone range from 157-1,166mmbbls recoverable (P50 523mmbbls), making it a giant oil field and one of the largest discoveries on the UKCS over the last decade. Incorporating wider GLA and GWA resource is likely to take this figure to upwards of 1bnbbls, 100% owned by Hurricane. Management expects first oil from a Lancaster early production system (EPS) in 2019, with the company looking at equity and debt funding options. We assume a 60/40 equity to debt split in our latest Lancaster NAV of 102p/share, rising to 134p/share including risked Halifax/Lincoln upside.

Hurricane Energy

Lincoln adds to GLA resource

Flash note | Oil & Gas | 20 Dec 2016

Hurricane Energy has completed drilling of the 205/26b-A well (Lincoln). Log data and gas chromatography indicates a significant hydrocarbon column of at least 660m TVD, comparable to that of Lancaster. Oil down to (ODT) was observed at c 2,300m TVDSS, 520m below structural closure and 168m below the ODT in the 1995 Arco 205/21-1 well. In our last published RENAV, we included 8p/share of risked value for Lincoln, assuming a commercial chance of success (CCOS) of 15%. De-risking Lincoln (to 60% CCOS) but leaving mid-case volume at 250mmbbl (Hurricane management expects upside to this given the deeper ODT), our Lincoln risked valuation rises to c 33p/share and group RENAV to 101p/share from 75p/share (+35%).

Hurricane Energy

Extending Lancaster along the Rona Ridge

Update | Oil & Gas | 23 Nov 2016

In September 2016, the 205/21a-7 pilot well helped confirm a continuous oil column below Lancaster basement structural closure. Hurricane is looking to extend this play along the Rona Ridge through the exploration of analogues, Lincoln and Halifax. Management estimates combined gross unrisked prospective resource of over 500mmbbls, offering potential for a significant increase to the 300mmbls we currently assume for Lancaster. In our updated valuation, we incorporate the dilutive impact of Hurricane’s October 2016 fund-raise, offset by the inclusion of risked prospective value for Lincoln and Halifax. Our RENAV increases from 73p/share to 75p/share (+3%).

Hurricane Energy

Confirming oil below structural closure

Update | Oil & Gas | 19 Sep 2016

Preliminary analysis of the Lancaster pilot well confirms a continuous oil column below the basement structural closure. An increase in mid-case estimates of Lancaster oil in place and a higher recovery factor, supported by aquifer drive, could potentially lead to a material increase in recoverable resource estimates. We expect third-party validation of resource upgrades on completion of the 2016 well programme. Ahead of validation, we have increased our estimated early production system (EPS) recoverable volumes to the company's base-case 53mmbbls and assume full field development P50 recoverable volume of 300mmbo. As a result, our RENAV increases from 41p/share to 73p/share (+78%) based on Edison's long-term Brent crude price of $70/bbl.