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Hurricane Energy shares down 16% as uncertainty swirls around P6 well


Hurricane Energy (LSE:HUR) giveth, and Hurricane Energy taketh away. So it must seem to investors in the oil company, which today announced that it was looking at the upper end of production forecasts, but at the same time told investors they could expect further disruption next year.

The oil firm told investors it was expecting to see production in the area of 8.500 and 10,500 barrels per day. Higher oil prices, floating production storage, and offloading are all feeding into what is looking like an increasingly positive story.

The company is being bullish about achievable production targets from its offshore Lancaster oil field, which is located west of Shetland. Guidance is, however, slightly lower than the average for the full year because Hurricane says it is expecting a gradual production decline from this reservoir over time.

Hurricane Energy’s sole remaining P6 well produced an average of 11,467 barrels of oil each day in the month of August. A further 10,800 barrels were registered by 15 September.

Based on the current trends, Hurricane reckons the well head flowing pressure at the Lancaster reservoir will reach the bubble point by the end of Q1 next year. Bubble point pressure is the point at which a bubble of gas is first liberated from an oil reservoir.

Hurricane management is uncertain at this stage as to what the impact of the bubble point will be on the well. It does not know how much gas will be forthcoming. It has said there is a possibility the well will cease production altogether.

Hurricane has been quite honest in many ways about the prospects for Lancaster. The well was developed using an early producing system to allow observation of production performance and the potential of the fractured basement reservoir. It has admitted that “performance from Lancaster has been challenging” and it has conducted an extensive technical review this year.

It’s all about the P6 well

The company is heavily reliant on production prospects from the P6 well and in April noted that it was uncertain as to whether it would be able to pay off its 2022 convertible bond.

Hurricane Energy shares were up nearly 23% over the last five trading days, but they dropped quickly on the news. Investors had obviously been expecting something better. Shares were down over 16% at time of writing.

The stock is up over 54% on a YTD basis, however. The decline in the stock price today is pronounced and comparable to the decline investors saw back in late April.

Hurricane Energy’s oil producing assets are focused on the Rona Ridge, which is located in the West Shetland region of the UK continental shelf.

Hurricane Energy financial update

Hurricane Energy put out a financial update earlier this month. It reported net free cash of $144m, up from $122m at the end of July. On 15 September the company said it had completed the repurchase of approximately 34% of its outstanding $230m in 7.5% converible bonds, due in July 2022.

In its prospective restructuring plan, which Hurricane Energy aired in April, the company said it was working with PwC on a number of immediate wind down and liquidation scenarios.

The 2021 interim report and half year results are expected out on 14 October, taking advantage of the one month extension permitted by AIM,

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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