The Hurricane Energy (LSE: HUR) share price plunged again this morning, after the company reported the resignation of founder and CEO Dr Robert Trice.
Dr Trice has been the driving figure behind the group’s mission to explore and commercialise so-called fractured basement reservoirs in the North Sea.
Until May, early production results from the Lancaster oil field appeared to justify his confidence. But last month, the company admitted it hadn’t been able to hit its production target of 20,000 barrels of oil per day (bopd).
Hurricane’s share price has now fallen by more than 70% this year, leaving it lagging behind UK producers such as Serica Energy, Premier Oil and Enquest.
Today, I want to take a fresh look at this business. Are Hurricane shares now too cheap to ignore?
Where did it all go wrong?
In testing during April and May, Hurricane had hoped to ramp up combined production from the two Lancaster wells to 20,000 bopd. These efforts failed.
On 22 May, Hurricane said it had decided to shut down one well due to interference between the two wells. Lancaster production was stuck at about 10,300 bopd.
Dr Trice said that each well performed well individually, but “the degree of interference encountered is unexpected.” Although they’re close to each other, the two Lancaster wells were expected to access different areas of the reservoir. But these results suggest to me that, in simple terms, both wells may be accessing the same oil.
If I’m right, this would be an embarrassing failure for Hurricane — and a possible trigger for Dr Trice’s resignation today.
What’s next for Hurricane?
Dr Trice’s resignation suggests to me that the board has lost confidence in his strategy and projections. He will be replaced by interim CEO Beverley Smith, who has 30 years’ experience in production geology and field development, mostly with BG Group.
The firm’s largest investor, Kerogen Capital, has also replaced its nominated director with a technical specialist. Dr Alan Parsley is a geologist with over 50 years’ experience, mostly in senior exploration and production roles at Royal Dutch Shell.
The board has also established a new technical committee to oversee “critical technical matters and Reserves and Resources disclosures.”
Taken together, these changes suggest to me the board is taking a fresh, critical look at Hurricane’s assets. The firm has promised to provide updated reserve and resource estimates by the end of March 2021.
Hurricane share price: buy or sell?
Despite Hurricane’s problems, the firm is currently producing (and selling) around 12,000 bopd of oil from Lancaster. There could be some value here. But I do have some serious concerns.
Today’s update mentions “the need to strengthen the group’s balance sheet” and to increase production. This suggests to me that cash flow from current production is not enough make the business self-sustaining. This could be bad news for shareholders. In my experience, rescue fundraisings normally dilute investors who don’t take part.
I’m also worried that Hurricane’s resource estimates may be downgraded. Lancaster may not contain as much oil as we thought.
Personally, I wouldn’t wait around to find out. In my view, Hurricane shares are now highly speculative and very risky. I think there are better buys elsewhere in the oil sector.