- North Sea producer outlines plans costing over $100m to improve oil production
- Convertible bonds and other hurdles require support from multiple stakeholder
Hurricane Energy’s (HUR) fresh-set-of-eyes approach in recent months has come up with some difficult solutions to its production troubles. Shares in the North Sea oil company have traded at record lows this year, and fell 30 per cent back to 3p after the company told investors production on its sole working well will be limited to 12,000 barrels of oil per day (bopd), amid a costly plan to get output to a more cash-generative level.
Hurricane has designed a $60m (£44m) expansion programme for the Lancaster licence area requiring a new well, after going back to the drawing board over the summer. A $75m water injection option is also on the cards. This would “sweep oil towards the producing wells in the centre of the field” and increase recovery at the Lancaster asset, the group says.
But this is all reliant on raising more cash.
“While there can be no certainty as to the outcome of this engagement, we continue to believe there is significant value in Lancaster and our broader West of Shetland portfolio, and we remain focused on delivering that value for the benefit of our stakeholders,” said new Hurricane chief executive Antony Maris.
The possible $135m expansion cost is not the only financial hurdle. While the company had a cash balance of almost $90m at the end of November, it also has to convince holders of $211m-worth of convertible bonds (as of 30 June) not to dilute the rest of its shareholders. Hurricane's market capitalisation is currently £84m, so this would change the share structure significantly and see remaining equity investors lose out again.
At current prices, Hurricane say it is in positive cash generation territory, but this won't continue if work is not done to improve Lancaster. The company faces a hard road back to its former value. Sell at 3p.
Last IC View: Sell, 8p, 8 Jun 2020
