Hurricane Energy oil strike surprise

Hurricane Energy lived up to its name Friday. We hear from chief executive and founder Dr Robert Trice that an oil strike at the Lancaster field West of Shetland may be far larger than expected. It's why the shares are easily the day's best performer, up 45% to a two-year high.

Testing and logging of the 205/21a-7 pilot well has now been completed, and third-party analysis reveals a "very significant" hydrocarbon column of "at least" 620 metres extending well below structural closure - 1,380 metres true vertical depth (sub-sea). That confirms Hurricane's reservoir model for Lancaster. Likelihood is that it extends to at least 1,620 metres.

Drill stem testing of the basement reservoir yielded a maximum, natural flow rate of 6,600 barrels of oil per day (bopd) and a maximum flow rate of 11,000 bopd "of good quality 38 API oil with no formation water produced".

"Our initial assessment of the well results, which are subject to refinement of the provisional data, suggest that the Lancaster field is likely to be significantly greater than the 200mm bbls 2C case [best estimate scenario of contingent resources]," said Dr Trice.

"The combination of high flow rates, an extensive oil column and underlying aquifer materially de-risks Hurricane's plans for a future Lancaster field development and further underlines the potential of the fractured basement West of Shetland."

We'll hear more on 22 September when Hurricane publishes half-year results.

There'll be plenty if smiling faces today, and not just among Hurricane's retail investors. Oil analyst and Interactive Investor regular Malcolm Graham-Wood predicted in July that "these are indeed exciting times for Hurricane" as the explorer began drilling 205/21a-7.

Today, he writes:

What does this mean for the Lancaster resource range? Well the numbers immediately move up from the 200 million-barrel mark shown at the capital markets day which was then a 50% chance and is now more like a 90% chance and with such a discovery one should make the range at least 350 million barrels and more likely 500m a realistic target if not significantly more. This confirms the discovery to be one of the largest in recent UKCS history.

The high case EPS number indicates that should all these numbers be vindicated then this truly is a "UK game-changing field development" and this will truly be only the first stage in such a development.

With a probable farm-out on better terms and not forgetting other portfolio prospects such as Lincoln, Warwick and Whirlwind to assess, I consider the 50% rise in the stock this morning to be just the start for Hurricane, as if anyone ever doubted it.

And just three weeks ago, Dougie Youngson at broker finnCap began coverage with a 'buy' rating and 50p price target. That was with the share price at 24p.

"The field is one of the largest undeveloped fields in the UK North Sea and is of strategic importance for the region in terms of opening up a new area of production," he said. "Appraisal drilling is underway and we expect this activity to substantially de-risk the asset."

And how times have changed. In February, you could have snapped up Hurricane shares for less than 9p each. Since then there's been a succession of positive newsflow, including a significant £52 million placing in April at 15p, a significant chunk of which was taken up by private equity fund Kerogen Capital. Warrants were also issued to Crystal Amber at 20p.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.