From the record peaks of 66.2p per share punched in early May, Guernsey-based driller Hurricane Energy (LSE: HUR) has endured a crushing retracement, its shares more than halving in value to current troughs around 30p.
Hurricane clattered lower in late June after announcing plans to raise $520m to develop its Lancaster project in the North Sea. The sum comprises $300m in equity, with new shares priced at 32p per share, as well as $220m worth of convertible bonds.
The fossil fuel firm advised that the funds will “primarily be used by the company to fund capital expenditure in relation to the EPS development at the company’s Lancaster field.” The EPS (or early production system) is expected to produce 17,000 barrels of oil per day, it said, while it will also provide the necessary data to plan a full field development of Lancaster.
The project remains on course to produce maiden oil in the first half of 2019, Hurricane noted, adding that “completing the fundraising at this time will enable the company to maintain this target.”
Shaking lower
Of course huge share price volatility is to be expected with early-stage oil explorers.
Regardless of the size of the potential payloads — and Hurricane is certainly sitting on a doozy, the firm previously proclaiming the Greater Lancaster Area to be “the largest undeveloped discovery on the UK Continental Shelf” — calls for extra cash and news of any operational setbacks can prove catastrophic for operators.
This is bad news at the best of times. But Hurricane is also being battered by fresh declines in the oil price, Brent moving back towards the $45 per barrel milestone in recent sessions.
Any more significant weakness would see black gold values hit levels not seen since last November. And this would appear a matter of time as US shale producers continue to rush back to work, the latest Baker Hughes report showing the rig count moving higher again following a small downtick the week before. Some 763 units are now in operation, the biggest number for more than two years.
Meanwhile, doubts are also intensifying over the impact of OPEC’s supply cuts following Reuters data which showed June’s exports hit 25.92m barrels per day, up 450,000 barrels from May.
In this climate I believe those investing in Hurricane may be playing with fire.
From Russia with love
By comparison, Russian gold producer Polymetal International (LSE: POLY) stands on much safer ground, in my opinion.
Both oil and gold prices have been trekking lower in recent sessions, the precious metal marching back towards the $1,210 per ounce marker as investors have moved back into riskier assets. Having said that, I reckon the outlook for gold prices remains much sunnier due to the range of political and economic headaches that could sweep the store-of-value metal higher once again.
While Hurricane looks set to remain lossmaking for some time yet, the City expects Polymetal to record sustained earnings growth, starting with a 19% advance in 2017 and thanks also to the mining giant’s bright production forecasts.
I reckon a forward P/E ratio of 10.4 times is a bargain given Polymetal’s solid profits picture.