Hurricane Energy announces positive well analysis data

Hurricane Energy the AIM listed oil and gas company focused on naturally fractured basement reservoirs in the area to the West of the Shetlands issued some good news for shareholders today. The shares rose as much as 15% in early trading and now sit 7% higher at 44.5p. Without all the uncertainty regarding the Scottish referendum the rise might well have been much higher.

At the end of June 2014 Hurricane announced a positive result from its Lancaster horizontal appraisal well 205/21a-6. The result meant the shares zoomed up from 28p to well over 50p during the day of the RNS as excitement mounted after the potential new source of oil resources in the North Sea. Since then the inevitable profit taking kicked in and the shares have been trading in the 39p-45p range.

Today the results from third party analysis mean it seems the well can deliver single well rates of 20,000 STB/d of 38 degrees API oil, significantly ahead of initial expectations of well productivity with no evidence of barriers within the fractured basement reservoir in the duration of this test.

Additional upside was encountered from an interval of previously un drilled Jurassic-Cretaceous sandstone. The sandstone is oil bearing, and has an average porosity of 16%; however further subsurface work is required to quantify the materiality of this reservoir sandstone.

Although Hurricane own 100% of their acreage they lack the finance to develop the Lancaster field themselves and require a farm in partner to fund further appraisals and then development. This latest RNS gives the company some good firepower to convince other oil companies with deeper pockets to invest in the fractured basement reservoir fields which appear to have excellent potential to produce large amounts of oil. However this farm in process will take time, especially as many of the larger companies seem to be cautious and conservative right now. It may be some time before the company is able to announce a positive outcome and therefore new drilling on the fields is unlikely to occur until mid-2015 given the lack of  current resources for further drilling . Therefore, there is plenty for Hurricane to achieve before first oil particularly as this is a non-conventional field. So a good bit of progress today but shareholders will need to take a long term view on this one for the really big pay day. It will take a farm in to be announced before this heads north of 50p. Investors in Xcite Energy will know how frustrating a potential farm in can be (even with 257 mm barrels 2P reserves) with the oil majors and how long it can take!

Contrarian Investor UK

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