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Hurricane Energy shuts down well, suspends production guidance

By Michele Maatouk

Date: Friday 22 May 2020

(Sharecast News) - Shares of Hurricane Energy tumbled on Friday after the oil and gas company said it had shut one of its two production wells at the Lancaster Early Production System (Lancaster EPS) and suspended its production guidance.
Hurricane had been carrying out ongoing testing of the two Lancaster EPS wells to determine the sustainability of combined production rates up to gross 20,000 barrels of oil per day. The company said achieving this target rate at a sustainable level had not been possible as the impact of increasing production rates resulted in instability in the flow regime on the 205/21a-7Z well due to interference between the wells.

As a result, it decided to shut-in the 205/21a-7Z well for now and return to a period of testing maximum sustainable rates from just the 205/21a-6 well.

The Lancaster EPS is currently producing from the 205/21a-6 well at a rate of about 10,300 bopd and Hurricane plans to increase this incrementally to determine its maximum sustainable level.

This process will result in a period of production substantially below forward guidance of net 18,000 bopd, Hurricane said, adding that it was suspending previous full-year guidance of net 17,000 bopd. Production has averaged 15,500 bopd in the year to date.

Chief executive Robert Trice said: "The results of the recent testing of the Lancaster EPS wells at elevated combined production rates are disappointing and the degree of interference encountered is unexpected.

"Whilst the wells show high productivity individually, their proximity and associated interference behaviour requires further data acquisition before the company can be confident about optimum long-term well rates. This latest development reinforces that. This data acquisition process continues, and further updates will be provided once we have determined our target plateau production rate with the existing well configuration."

At 0830 BST, the shares were down 41% at 7.22p.

RBC Capital Markets said the update has negative implications for the market's 2020 revenue and cash flow forecasts.

"In our opinion, liquidity does not appear to be an immediate risk; however, the company's convertible loan notes, which mature in July 2022 are likely to come under pressure.

"We expect today's news to increase pressure on management to tie-in an additional production well, so that cash flows can be sustained, while the geological upside is determined with further appraisal drilling and ongoing testing."

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