These high-risk shares plunged today, but some analysts think the fall is an opportunity.
Hurricane Energy (LSE:HUR) continues to frustrate its army of AIM followers after the latest operational update from the North Sea triggered another big sell-off for shares today.
The oil and gas firm, which has been a popular speculative play for small cap investors since listing on the junior market in 2014, has now fallen 60% in just over two months. This morning's slide of as much as 23% to below 16.3p - a near four-year low - reflects a potential setback for one of its two exploration project areas on the UK continental shelf, west of Shetland.
Hurricane and its joint venture partner in the Greater Warwick Area - Centrica (LSE:CNA)-backed Spirit Energy - now say they won't be able to tie-in the Lincoln Crestal Well for production. They face the prospect of having to plug and abandon the well within weeks unless an extension can be secured from regulators.
Source: TradingView Past performance is not a guide to future performance
There was better news, however, from its wholly-owned Greater Lancaster Area, which is now likely to see the drilling of a third producing well later this year, with the first oil in early 2022.
Founder and chief executive Dr Robert Trice said the move was significant as it would allow the company to evaluate the productivity of another part of the Lancaster reservoir. This field, which was previously drilled in 1974 and later abandoned, was first targeted by Hurricane in 2009 in a bid to develop resources from naturally fractured basement reservoirs.
The company is pioneering the use of this technology on the UK continental shelf, having seen similar reservoirs deliver prolific results elsewhere in the world. It claims to have more discovered undeveloped UK oil resources than any other company.
While Hurricane has now completed two full quarters of production from the Lancaster field, its recent share price performance reflects continued uncertainty over the scale of the company's potential.
- Commodities outlook: Gold, copper, central banks and the virus
- Why Royal Dutch Shell shares just dived to a three-year low
- Like AIM and small-company shares? Check out ii’s Super 60 recommended funds
More clarity may emerge when Hurricane publishes additional data at its capital markets day on 25 March, which analysts at Arden Partners think could be significant for visibility.
They said: “The market appears to have sold off in the run up to this, as well as in response to the end of the 2019 drilling programme.
“Our view remains that while there is a binary risk from the Lancaster conclusions, the upside potential due to the size of the field remains significant, all the more so at current share price levels.”
While acknowledging the risk, the team at Arden think there's potential for shares to reach 90p. They made no change to their forecasts today, adding that it would be a positive for Hurricane if got permission for Lincoln Crestal to remain suspended for use at a later date.
Analysts at Stifel have a target price of 100p, adding that additional Lancaster production drilling represented the “highest and best use of capital”.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.