Investor focus is understandably on the execution of Hurricane Energy plc (LON:HUR)'s Lancaster EPS development. First oil from Lancaster will complete the transition from explorer to producer and unlock a stream of cash flow that management can direct towards appraisal, full field development or shareholder returns. In this note, we look at progress made to date and the potential for farm-down of the Greater Lancaster Area (GLA) and Greater Warwick Area (GWA) to fund further appraisal ahead of full field development. Our updated RENAV stands at 79p/share, down from 103p/share, reflecting a recent reduction in our long-term (2022) oil price assumption from $80/bbl to $70/bbl.
Lancaster EPS progressing to schedule
To date, Lancaster EPS contract award and development progress remains in line with management expectations. We flag that the 2018 summer weather window will remain critical in order to ensure Hurricane can meet a mid-2019 first oil. Edison continues to use capital (+10%) and schedule (+6-9 months) contingencies over and above management guidance to reflect this uncertainty. Releasing this contingency would drive our core Lancaster valuation up from 64p/share to 69p/share.
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