Hurricane Energy PLC's (LON:HUR) share value decline on Wednesday underplayed a really vital milestone for the group because it delivered ‘first oil’ from the early manufacturing system (EPS) on the Lancaster area within the West of Shetland area within the North Sea.
The hotly anticipated achievement comes on schedule, bringing imminent income and money flows. Trading at 58.95p, Hurricane shares have been subdued, nonetheless.
Starting the EPS at Lancaster marks a vital de-risking step in direction of unlocking Rona Ridge, a attainable multi-billion barrel improvement mission sooner or later.
The EPS addresses solely a small fraction of Lancaster’s total found useful resource. It is hoped that long term manufacturing knowledge will yield vital validation and confidence forward of far more substantial funding choices.
Exploration is at all times a key driver
Part of the explanation for the muted response within the inventory alternate is that this explicit achievement was properly communicated, properly understood by the market and got here in just about on schedule (as soon as a couple of minor teething points have been resolved).
It is value noting that the EPS start-up has lengthy been priced into the Hurricane share value, which presently values the group at round £1.25bn in London.
The start-up delivers on guarantees made by Hurricane following the corporate’s final profitable section of drilling.
New drilling is, in the meantime, underway proper now. And, as is typical with most progress shares, the extra speculative phase of traders and merchants are extra keenly within the exploration operation than the much less binary however important enterprise of engineering and mission supply.
It is, at current, extra possible that Hurricane’s share value might be moved by the result of recent wells not the tangible steps which have introduced it to the cusp of revenue-generating manufacturing.
Production ramp up at Lancaster
Hurricane on Wednesday revealed that the EPS opening began with a 72-hour check wherein two wells flowed at a mixed manufacturing charge of 20,000 barrels of oil per day (bopd).
In the preliminary section of the EPS, the corporate intends to step by step ramp up services over a six month interval.
Hurricane anticipates that it’s going to run at round 45% capability within the first three months earlier than rising to 65%. The manufacturing charge is anticipated to common between 9,000 to 13,000 bopd throughout this era.
By the top of the six month interval, Hurricane expects the EPS to be working at 85% of capability.
Hurricane has persistently guided that the EPS would produce at a charge of 17,000 bopd, although it might be notable that the height charge within the pre-production check measured 20,000 bopd.
Chief govt Dr Robert Trice stated, in an announcement: “I’m delighted to announce that first oil has been achieved and that the Lancaster area is now on manufacturing, starting the phased improvement of Hurricane's appreciable assets on the Rona Ridge.”
City impressed with the anticipated success
Russ Mould, funding director at AJ Bell, described it as a “huge breakthrough” for Hurricane and the UK oil and gasoline sector generally.
“The firm has achieved first oil from its Lancaster area and that is additionally the primary time crude has been produced from so-called fractured basement reservoirs within the UK,” Mould stated in a notice.
He added: “The Lancaster area was found way back to 2014 so it has taken a while to succeed in this level, testomony to the challenges in producing oil from such a distant location to the west of the Shetland Islands. The firm has employed a floating manufacturing vessel to get the job performed.
“Hurricane deserves credit score for doing so on time and on funds and the market might be keen to listen to extra about its future plans at a capital markets day in July.”
Elsewhere, oil corporations skilled Malcolm Graham Wood stated the day “some individuals thought would possibly by no means occur has arrived”.
He expanded: “Whilst that is clearly a pink letter day for Hurricane, it’s entire workforce led by Dr Trice deserve reward for delivering the primary section on time and inside funds…