Hurricane Energy (HUR)

Carcosa
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Joined: November 4th, 2016, 10:53 am

Hurricane Energy (HUR)

Postby Carcosa » November 21st, 2016, 4:32 am

I thought it wise to start a new Topic/Thread for Hurricane Energy as it is likely to be an active discussion for investors and discussion may otherwise clog up the more general Stocks I Like in O&G..

Hurricane Energy plc (“Hurricane”)

UK exploration has concentrated on sandstone reservoirs where oil is held within porous rock. In fractured basins, oil occurs in cracks between layers of hard rock such as granite. It should be emphasised that this is not a fracking operation but drilling into existing naturally formed fractured basement rock where oil occurs in cracks between layers of hard rock such as granite. Thus, the company is the first North Sea explorer to drill and find oil in this neglected type of oil reservoir, formed 2bn years ago.

The techniques being used have been successfully used in a few other parts of the world, such ats Yemen and Vietnam but Hurricane are the only such explorer in the North Sea. It is a specialised operation. Hurricane’s strategic niche is to look for the right geological conditions in proven petroleum basins for basement reservoirs to work, particularly in areas where previous drilling results have indicated the presence of hydrocarbons in the basement but the operator, at that time, did not progress the concept further as they weres more concerned with recovering oil from the sandstone reservoirs.

Hurricane is targeting naturally fractured basement rock reservoirs in the West of Shetlands area. Hurricane has made two basement reservoir discoveries, Lancaster and Whirlwind, each estimated to contain approximately 200 million barrels of oil. The company also has approximately 440 million barrels of oil equivalent (“BOE”) of prospective resources in its portfolio of exploration opportunities. In 2014, it successfully drilled and de-risked the Lancaster well and later in the year initiated a farm-out process, seeking partners to fund the development of the asset.

Hurricane was co-founded in 2005 by Dr Robert Trice, its current CEO. It has acquired licences, in which it maintains a 100 per cent working interest. According to GeoScience, a research services firm, basement reservoirs could hold as much as 20 per cent of the world’s remaining oil and gas resources. Naturally fractured rock with high permeability allows the oil to rise and collect under a thick layer of shale rock and clay. Oil from this unconventional source has been successfully extracted in locations such as Vietnam and Yemen, but not yet in the UK. The fractures provide storage capacity and fluid pathways. Hurricane chose to concentrate on proven systems where previous operators had not progressed the discoveries, due to the view (at the time) that these were not commercial.

Hurricane listed in February 2014, placing 41.9 million shares at 43p, valuing the equity at £272 million. Oil prices, however, have fallen from US$109 at the time of IPO to $49 at the end of June 2016. This has hit the value of all oil and gas stocks, with the AIM sector index falling by 43 per cent over the year. The oil price fall resulted in a dearth of capital for new projects, and delays in farm-out discussions. Hurricane’s assets stand out due to the size of the resources. In comparison to Hurricane’s resource size, the average North Sea exploration target in 2014 was just over 30 million BOE, according to UK Oil and Gas.

The Lancaster field was first drilled by Shell in 1974. It was drilled again by Hurricane in 2009 and 2010, establishing that the reservoir contained light oil in a permeable reservoir. In 2014, the company drilled a one-kilometre horizontal appraisal well in the discovery, with results exceeding
best expectations and addressing identified risks. The key challenge overcome by Hurricane has been to map accurately the fractures to target the wells correctly and access production. The well has achieved a sustainable natural flow rate of 5,300 Stock Tank Barrels (“STB”) per day and a
flow rate using artificial lift of 9,800 STB per day, well over the 4,000 target. The flow rates achieved were constrained by the surface equipment.

In April 2016, Hurricane announced a £52 million fundraising to drill two wells in the Lancaster field over the summer of 2016. Crystal Amber Fund participated in the placing, which attracted a new cornerstone investor, Kerogen Capital, an oil specialist.

In June 2016, Hurricane announced the suspension of its farm-out discussions as it executes the drilling campaign and analyses the results. This is expected to refine the resource range estimate, which at the time was 62 to 456 million barrels of oil. The campaign will also provide a second future
production well. In July Hurricane announced the spudding of its new exploration well in the Lancaster field

In September/October 2016, Hurricane announced positive drilling results from its Lancaster well indicating contingent resources significantly higher than previous estimates of 200 million barrels, high flow rates (recorded a sustainable stable flow rate under natural conditions of 6,520 stock tank barrels of oil per day and a sustainable flow rate using an Electrical Submersible Pump (ESP) of at least 14,500 STB/d. The testing resulted in a productivity index (PI) of 147 STB/d per pound per square inch (psi). Both the flow rate using an ESP, and the natural flow rate were constrained by the test equipment and no formation water was produced during the testing operations.

A further round of funding was initiated in October 2016 that raised £70 million and up to £4.4 million Open Offer and again, Kerogen Investor and Crystal Amber subscribed for £31.63 million of the shares. Demand for the shares was very strong. A number of new institutional shareholders were added to the share register.

The funding is being used to advance the development of the Greater Lancaster Area fields.

In November 2016 the Lincoln Well was spudded and is targeting a basement prospect geologically similar to the nearby (approximately 9km) Lancaster structure. At time of writing, results are awaited.

Also in November 2016 Hurricane was awarded the P2308 licence ("Halifax"). Hurricane are hoping this area (some 30km from Lancaster) is analogous to Lancaster. If successful, this would establish the true extent of the Greater Lancaster Area and would lead to being a world-class asset of national importance to the UK.

Carcosa

HURfan
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Re: Hurricane Energy (HUR)

Postby HURfan » November 21st, 2016, 8:02 pm

Carcosa,

Many thanks for a magnificent summary. I can only add that Dr Trice is an upstanding trusted citizen and a leading geologist in his field.

Carcosa
Posts: 49
Joined: November 4th, 2016, 10:53 am

Re: Hurricane Energy (HUR)

Postby Carcosa » November 22nd, 2016, 6:40 am

Thanks HURfan. Most of what I wrote I cobbled together from online sources, speaking of which:

Malcy's Blog recently wrote:

Hurricane Energy- Top bombers…
Hurricane announced on Friday that it had been awarded, in an out of round application, the P2308 licence which is contiguous to and extends north east from, their existing Lancaster licence. To say that this is a stroke of genius is like saying that the Mona Lisa is a nice picture, at a stroke HUR may have picked up a possible 250m barrels next door to the Lancaster discovery from which it probably extends. The clever bit is whilst checking the previous well drilled on the Halifax structure, HUR analysed the basement cuttings which indicated the presence of oil, ‘thus mitigating the oil charge risk to Halifax’. A quick trip down the the OGA and Bob’s really is your uncle, Halifax is all yours.

With the current well drilling on Lincoln, all being well the next well will be on Halifax and the necessary option paperwork with Transocean has been completed, obviously HUR has already acquired the site survey over the prospective well location. Should these two wells succeed, and demonstrate in the case of Halifax, that a ‘significant hydrocarbon closure’ is present outside of structural closure, the Greater Lancaster Area will indeed be transformational. As Dr Trice suggests, tremendous news for the company and the UK’s oil and gas industry.

Hurricane is now in an extraordinarily strong position, it is well funded and at present has been able to resist farming-out the prospects, the boot is now on the other foot, those discussions may be for another day. The Lancaster EPS is moving ahead and initial contracts have been awarded, the CPR, due next spring may be an interesting read, by then much more may have changed. The word transformational is overused but not here, we have a new major UKCS player with a potential world class discovery on its hands and the share price hardly changes, the words gift horse and mouth come to mind. My target price has just gone into three figures, this cluster may hold a billion barrels make no mistake so at first workings it must be 100p +. Lancaster, Lincoln and Halifax, top bombers….


As is usual with this sort of hyperbole, it all sounds good until it doesn't...

Carcosa

Carcosa
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Re: Hurricane Energy (HUR)

Postby Carcosa » November 23rd, 2016, 3:28 pm

Edison have issued a note today, increasing their Risked Exploration Net Asset Value to 75p

Carcosa

Carcosa
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Re: Hurricane Energy (HUR)

Postby Carcosa » November 24th, 2016, 8:23 am

A detailed discussion paper by Robert Trice (CEO) first published in February 2014 regarding basement plays with specific discussion regarding Lancaster Field discovery. Much too technical for me but it does illustrate very well that there are high risks regarding the mechanics of actually drilling basement plays which, as investors, would likely hit the share price very hard if such problems were to be repeated.

Note that it is also available in PDF form

Carcosa

JonnyT
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Re: Hurricane Energy (HUR)

Postby JonnyT » November 28th, 2016, 4:57 pm

I'm surprised I am first to post this, but there has been two material RNS's today:
1) Halifax will be drilled straight after the completion of the Lincoln well. They seem to be absolutely itching to get to Halifax, I wonder why?
2) They have signed an 'Heads of Agreement' for an FSPO for the early production system from Lancaster, targeting first oil Q1 2019

PeterGray
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Joined: November 4th, 2016, 11:18 am

Re: Hurricane Energy (HUR)

Postby PeterGray » November 28th, 2016, 5:06 pm

I agree, JT. Both very material - though perhaps not entirely unexpected.

I don't think momentum has really built up for the O&G board here on TLF - hopefully it may do in time. Thanks for posting.

Peter

Rhomboid1
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Re: Hurricane Energy (HUR)

Postby Rhomboid1 » November 28th, 2016, 5:40 pm

The thing that impresses about Hurricane is the speed of execution , today's FPSO RNS is a great step forward and I'm slightly mystified that the shares have not reflected the progress being made. It also makes life easier having a 100% of licences, no awkward partner negotiations to worry about..

Carcosa
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Re: Hurricane Energy (HUR)

Postby Carcosa » November 29th, 2016, 1:09 pm

On the Vox Markets podcast today: Alistair Stobie, CFO of Hurricane Energy provides a very upbeat 10 minute discussion regarding expected news flow in the near term, the importance of early production (for the share price) and the interest that the major oil companies are starting to show.

Carcosa

PeterGray
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Re: Hurricane Energy (HUR)

Postby PeterGray » November 29th, 2016, 2:29 pm

Thanks for the link, Carcosa, but I'm afraid I had to turn it off - I couldn't listen to the interviewer for more than a few seconds!

Carcosa
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Re: Hurricane Energy (HUR)

Postby Carcosa » November 29th, 2016, 2:39 pm

PeterGray wrote:Thanks for the link, Carcosa, but I'm afraid I had to turn it off - I couldn't listen to the interviewer for more than a few seconds!


I know exactly what you mean!! Had I not known beforehand it was the CFO then I would have done the same. Have to assume the Vox target market is below the age of 18 (years or months, I will let you decide!)

Carcosa

GeoChem
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Re: Hurricane Energy (HUR)

Postby GeoChem » November 29th, 2016, 4:08 pm

I should declare as a long time holder and fan. Interesting that,

http://www.bbc.co.uk/news/uk-scotland-s ... s-38131801

I get various updates in by email, this farm in with Nexen looks interesting. The block is 205/15 which puts it mid point between Whirlwind and Clair. Are BP getting the message?

Cheers all - GeoChem.

Carcosa
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Joined: November 4th, 2016, 10:53 am

Re: Hurricane Energy (HUR)

Postby Carcosa » December 5th, 2016, 9:38 am

Thanks to GarryMegson on ADVFN for the link

An 'exclusive' article discussing the history of Hurricane (with great thanks to a taxi driver). Nothing particularly new but interesting non-the-less.

One interesting comment though:
"Nominally a 60-day well, rumours were circulating as Energy went to press that an early result from Lincoln was on the cards, though we understand drilling was still ongoing."

Carcosa

HaiderAli
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Re: Hurricane Energy (HUR)

Postby HaiderAli » December 5th, 2016, 2:29 pm


Carcosa
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Joined: November 4th, 2016, 10:53 am

Re: Hurricane Energy (HUR)

Postby Carcosa » December 19th, 2016, 7:45 am

Hurricane announce completion of Lincoln Well Operations.

A very significant hydrocarbon column of at least 660 metres True Vertical Depth, comparable to that found at Lancaster (marginally greater than Lancaster).

I think most observers would consider Initial indications to be right at the very top end of expectations.

Rig to be moved to Halifax well, weather permitting.

Most probably, IMO, another round of financing may occur early Q1/17

I would suggest that if anyone wants to get 'in the action' with Hurricane and feel they may have missed the boat ( ;) ) then an investment in Crystal Amber Fund, which is likely to lag in terms of share price, is the way to go.

Carcosa

nigelpm
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Re: Hurricane Energy (HUR)

Postby nigelpm » December 19th, 2016, 8:16 am

Topped up - amazing news this morning and an odd share price reaction.

dspp
2 Lemon pips
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Re: Hurricane Energy (HUR)

Postby dspp » December 19th, 2016, 10:56 am

A very interesting sequence of news over the last month. For the first time in a very long time I have put some money into small oil, with HUR.
regards, dspp

JonnyT
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Re: Hurricane Energy (HUR)

Postby JonnyT » December 19th, 2016, 11:09 am

It looks to me that Lincoln is larger than Lancaster at present. I personally think this could be 500m barrels given the reservoir profile.

I also happen to think that Halifax is ALL BUT a shoe in IMHO, which means HUR could be sitting on something like 2 Billion barrels, 100% owned. Surely after Halifax the end game will happen and a major will snap this up?

Carcosa
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Joined: November 4th, 2016, 10:53 am

Re: Hurricane Energy (HUR)

Postby Carcosa » December 21st, 2016, 6:58 am

A particularly interesting podcast with Alistair Stobie, Chief Financial Officer (Interview starts at 1 minutes 46 seconds) covering their recent news but also outlining their short to medium term views.

Carcosa

dspp
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Re: Hurricane Energy (HUR)

Postby dspp » December 23rd, 2016, 4:21 pm

COMMENT
Up until the recent results of the Lincoln well I did not invest in HUR. At that point my view changed, partly because I had made enough out of RDSB rises to have some discretionary money, and partly because the Lincoln result made the reserves story much more significant, and the general UK basement play. These are my notes to myself about where HUR is now as a baseline for the future – feel free to correct anything I have wrong. Looking backwards most of the issues are technical, looking forwards the emphasis will shift progressively towards development economics. The Halifax well is the most important newsflow over the next three months. EDP finance terms/structure will affect shareholder value. As yet no 1P reserves, only 2P contingent resources and 2P prospective resources.

FINANCIAL / ECONOMIC / SHAREHOLDER
Minimum spend £400m to get EDP to production. Over $60/bbl no upside as costs increase with revenue. Proprietary volumetrics correlate well with CPR but may complicate farmin discussions: an issue will be to give sufficient data to inform farminees without giving away proprietary info for other exploration programmes.
Mkt cap £457m @ 38p/share; £568m @ 48p/share; 1,202m shares issued
Mid 2016 cash of £57m will be depleting at about £20m/well even if overheads tight.
100 per cent owned assets. Capital injection for EDP and FFD can be full range of options inc vendor lease; structured; raise; farmin. But however you cut it £400m is a lot of cash to raise when only £50m in bank and depleting.
Long lead EPS items progressively committed. Very sensible and methodical approach throughout. EPS sized to 62m bbls with life-of-field costs $26/bbl. FID proposed H1 2017. Still $25/bbl profit on x% * (250+333) = an upside worth paying attention to.
50.4% owned by four funds/PE esp Kerogen & Crystal Amber
Gas export / import WOSPS (BP) or Rosebank (Chevron). 155m depth.

NEXT NEWS
Early Jan 2017 = spud Halifax;
Late Feb / early March 2017 = test Halifax

RESERVES / RESOURCES – Mmboe, oil only


LANCASTER discovery
Main target for initial exploration to prove valid basement play and company concept, first HUR well 2009 targetting top of Rona Ridge. Naturally fractured basement charged from adjacent Kimmeridge sources. Well connected fracture network (poroperm) within field. Seismic fault/fracture mapping correlates well with logs. Light oil with fairly low GOR approx. 405 scf/bbl. Water drive unsure – positive is possibility of reduce water breakthrough along fractures, negative is uknown onset of water breakthrough and pressure support. Using ESPs to increase drawdown will tend to mop up unexportable gas and reduce flaring. If gas import available can do gas lift, may require sour gas handling for late field life import though; alternative is jet pump with light oil (e.g. Whirlwind). Mud system solved and drillable to yield 20,000 bbl/d (14.5 demonstrated) from 2000m horizontal section simple completion slotted liner therefore little isolation possible if/when breakthrough occurs so late life gross liquids handling an issue, i.e. don’t pull too hard. PI = 147 b/dpsi. Likely primary source from NW (Foula sub basin of Faroe-Shetland) not East Solan. Little biodegradation, i.e. light oil 38 API no H2S or CO2. EDP producers in place.

HALIFAX prospect
Next up for drilling to explore northerly extension of system. Possibility that Lancaster extends 20-30nm northwards into Halifax at ODT of 1620 tvdss in Lancaster. Unlikely to be one mega field but concept is that no reason migration could not have taken place to charge Halifax. No sealing faults located as yet to have prevented this. Top basement maps indicate it may be slightly higher (? Biodegradation if filled?). Similar possible areal extent. Unitisation may be an issue if too great an extent.

LINCOLN discovery
About 10nm South of Lancaster. Proved up in recent late 2016 well. Fractured basement per Lancaster but 500m deeper. Gas chromatography and LWD indicates a very significant hydrocarbon column of at least 660 metres TVD, comparable to that found at Lancaster; and the oil down to ("ODT") was observed at approximately 520 metres TVD below structural closure which is 168 metres TVD below the ODT in the Arco 205/21-1 well, which was drilled on Lincoln's flank in 1995.

WHIRLWIND discovery
12km north of Lancaster [edit: but west of the Rona Ridge structure]. Fractured basement per Lancaster but 2000m deeper. Volatile light oil or gas condensate from different charge, 45 API or more. Very close to bubblepoint so production could cause near well bore gas blockage. Not a short term priority. Reserves/resources calcs generally done on oil case. Penetrated Sep 2010. Re entered & tested Oct 2011. Realistically only produceable as a tieback into Lancaster FFD.

STRATHMORE discovery
In East Solan basin, adjacent to Solan discovery and 10nm South of Lancaster Two wells into Strathmore in 1991 / 1995 neither by Hurricane. Triassics sands. Asphaltene tar mats identified. Iffy permeability data. 23 API. Likely H2S.

TEMPEST discovery / TYPHOON prospect
About 20nm West of Lancaster/Lincoln. Tempest = overlying Jurassic sands; Typhoon = fractured basement. Heavier oils found by BP in Tempest sands in 1981 variously 10, 13, 24 API. Conventional basement with unconventional flank. Likely lighter oil deeper on flank protected from biodegradation by temperature. Undrilled by Hurricane to date. GPos = 10%.

WARWICK prospect
A basement prospect maybe 5nm further SW along the Rona ridge to Lancaster/Lincoln. Undrilled. May be too low to be charged.

OTHER
An interesting question is where else on the UKCS to take this knowledge base. Must make for interesting management of disclosure in farmin discussions. If indeed this is a strategically relevant exlploration play how best to capture value for HUR shareholders. Especially as existing infrastructure likely to be key complementary asset in North Sea areas and owned by others.

REFERENCES
Basement exploration, West of Shetlands: progress in opening a new play on the UKCS; ROBERT TRICE: Feb 2014; http://sp.lyellcollection.org/content/e ... 28/SP397.3
Competent Persons Report, Nov 2013 https://www.hurricaneenergy.com/assets/ ... 1389717424
Hurricane's Corporate Presentation - 4Q 2016: https://www.hurricaneenergy.com/assets/ ... 1480945683
Hurrican Infrastructure Teaser - Sep 2015 :https://www.hurricaneenergy.com/assets/Documents/PGC30Sep15PDFnospeakernotes.pdf?1445335372
Hurricane Development Planning - May 2015: https://www.hurricaneenergy.com/assets/ ... 1445336331


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