Downgrade news could make company takeover target

Hurricane Energy is “arguably” now a takeover target after the downgrades, an analyst said.

Ashley Kelty, oil and gas analyst at investment bank Panmure Gordon, added it was difficult to see how Hurricane could move forward in a meaningful way on its own, given it has to repay or refinance a £180 million convertible bond in 2022.

Mr Kelty described the firm’s update as “horrible” and “awful”, saying the market had “reacted appropriately” as Hurricane’s shares sank.

He said the firm seemed to have “torn up all its previous work and started again”. Total reserves no longer look “compelling” and will be difficult to increase without new appraisal and development wells, Mr Kelty said, adding: “The balance sheet is stretched now and the convertible bond needs to be refinanced. In the short term that will hold back spending.

“Until the balance sheet is sorted I can’t see how Hurricane can move forward in a meaningful way. It is arguably now a takeover target for anyone who wants to have a punt on basement plays.”

Nathan Piper, head of oil and gas research at Investec, said Hurricane had become a “completely different investment case”, having gone from “hundreds of millions of barrels to tens of millions” on the Lancaster and Lincoln fields. He also said Hurricane had effectively thrown in the “kitchen sink” in an effort to reset expectations, which had been “very high” previously.

But it gives the firm’s new boss, Antony Maris, an opportunity to “improve upon a low base”, he added.

Hurricane was given financial breathing space in May when the Oil and Gas Authority (OGA) extended a deadline for plugging and abandoning a well the company drilled on the Lincoln field, with Spirit Energy, to June 30 2021.

When they made the Lincoln Crestal discovery last year, Hurricane and Spirit aimed to tie it back to Lancaster’s floating production storage and offloading unit – the Aoka Mizu – during 2020, but failed to get consent.

The OGA also gave Hurricane and Spirit until June 30 2022 to start drilling a commitment well on Lincoln.

Ashley Kelty