Edison Investment Research Limited
London, UK, 20 May 2020
Edison issues outlook on Hurricane Energy (HUR)
In April 2020, Hurricane Energy provided an update on Lancaster early production system (EPS) data gathered since first oil. The company announced that productivity from the two producing wells is over 10.0kbod per well. Aggregate water has been higher than initial expectations; however, this has been identified as being perched water and is expected to stabilise with time. Management expects that a longer period of data gathering will be required before the next stages of development. Given the need for additional data and the current commodity price environment, Hurricane is reviewing its capital allocation for 2020-21. Although the capital markets day did not confirm the next steps required to be able to confirm the upside case for the company's asset base, Hurricane's balance sheet is strong and the EPS keeps on delivering. Our mid-case risked valuation has slightly decreased to 70.4p/share from 73.0p/share ( 4%) as we adjust our short-term oil price assumptions and our core NAV stands at 21.9p/share, a premium of 99% to the current share price.
Our risked valuation stands at 70.4p/share, or 21.9p/share excluding any value beyond Lancaster EPS. We have updated our short-term Brent price expectations based on EIA forecasts, while our long-term (2022 onwards) Brent assumptions remain in line with our last note. Hurricane is currently trading at a 50% discount to our core NAV, which only takes Lancaster EPS into consideration and no upside.
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