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Hurricane Energy saved by energy prices

The North Sea producer has lucked into an improved balance sheet thanks to the higher oil price, but still has hurdles ahead
Hurricane Energy saved by energy prices
  • Hurricane reports higher cash flow in first half, after board had tried to hand company to debtholders
  • Outlook positive but key infrastructure lease coming to an end in mid-2022 

It turns out that shareholders know what they’re talking about. Six months ago, Hurricane Energy’s (HUR) directors had effectively given up, and asked investors to back a plan to hand the vast majority of the company to creditors to avoid a potentially worse fate.

The vote failed, and a court backed the shareholders. There has been some further intrigue since then, featuring more court judgments and a disputed director, but macroeconomic events have overtaken the drama.

The higher oil and gas prices have sent Hurricane’s cash flow surging, and last month the company bought back a third of its outstanding bonds for $62m (£45m), saving $22m in future obligations to bondholders, it said. The board is now more confident the company will survive a “funding gap” when the rest of the payment on the bonds comes due next year. 

It’s not all rainbows, according to chief executive Antony Maris. “The challenge of funding investment in our assets remains,” he said. With oil at over $80 a barrel (bbl) and likely to stay at higher levels than last year into 2022, that problem may be solved as well. However, the company has to work out how to hang onto the Aoka Mizu floating production storage and offloading (FPSO) ship beyond June and the regulator wants more decommissioning liabilities, which seems justifiable given the company’s shakiness this year. 

Production in the first half was an average of 11,000 barrels of oil per day (bopd), down on the first half of last year, but the average barrel sold for twice as much as it did in 2020, at $62.20/bbl. Costs also climbed over a third, to $25/bbl, but the higher price more than covered this. 

Consensus forecasts compiled by FactSet see full-year free cash flow at $56m, compared with an outflow of $7.5m last year. 

Things are looking up for Hurricane, but if the board cannot invest in maintaining production or hand out a dividend there are better options in the sector. Sell. 

Last IC View: Sell, 1.2p, 11 Jun 2021

HURRICANE ENERGY (HUR)  
ORD PRICE:4.7pMARKET VALUE:£93m
TOUCH:4.55-4.7p12-MONTH HIGH:5.43pLOW: 0.59p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:5.6¢*NET DEBT:73%
Half-year to 30 JunTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
202081.8-258-15.5nil
202112542.82.15nil
% change+52---
Ex-div:-   
Payment:-   
£1=$1.37. *Includes intangible/exploration assets of $56.6m, or 2.8¢ a share