Two thousand and fourteen wasn’t the best year for Hurricane Energy to drill its breakthrough well in the West of Shetlands. The company, which made its debut on AIM in February 2014 to add another £17 million to its balance sheet, delighted its new shareholders when its Q2 horizontal appraisal well on its Lancaster oilfield showed the fractured basement reservoir could deliver 20,000 bpd under production conditions.
Not only did the success of the well open a significant new play across the UKCS but it also proved the AIM newcomer could deliver operationally: the well was executed on time and £5 million under budget.
Unfortunately, the slump in the oil price over the latter half of last year meant investors ran shy of oil stocks, particularly those exposed to high cost environments like the North Sea and West of Shetlands.
However, Dr Robert Trice, chief executive of Hurricane and an expert on fractured basement reservoirs, believes Lancaster, with its large contingent resource (over 200 million boe) and highly productive reservoir, is commercially viable in a lower oil price environment, particularly as industry costs continue to fall.
“The drilling and testing of the Lancaster appraisal well – a key milestone in demonstrating the commercial viability of the oil discovery – was a great success,” said Dr Trice earlier this month. “This was a major step forward in further de-risking Hurricane’s substantial oil resources.”
The AIM-quoted company has already undertaken extensive work with Costain to crunch through different development concepts, and initially favoured a two-phase FPSO-based development. The sustained slump in the oil price forced a rethink.
The company has devised an alternative and more modest early production system solution, which would minimise capex, accelerate the time to first oil while also derisking the full field development.
It is also looking at creating a West of Shetland hub that pulls together Lancaster and its nearby Lincoln filed as well as bringing in other operators with stranded resources in the area.
Taking Lancaster to the next step, however, will require deeper pockets than the £107 million market cap Hurricane. A farm-out is underway – and this could well include the company’s other discoveries and leads in the area, where there’s another 200 million boe of 2C resources and over 400 million boe of P50 prospective resources.
Trice has reported “considerable industry interest in both the Lancaster field and other assets”. He said commercial discussions with a number of potential partners are ongoing. Investors will be keen for an update on these talks.