After a difficult few years for Hurricane Energy, the company is starting to make some very positive advancements. One development that is boosting investor sentiment in the stock is the group’s repayment of all its outstanding bonds, leaving it debt-free. News of the company’s balance book has helped the Hurricane Energy share price soar 110.18% year-to-date as of 4 August. However, a number of issues remain.
The Hurricane Energy [HUR.L] share price has faced a turbulent few years, declining over 70% over the past five years to 8p on 4 August. The stock even reached lows of under 1p in May 2021 after suffering multiple production failures.
At the time, the company had been recovering from the downgrading of reserves at its flagship Lancaster offshore field, off the coast of the Shetland Islands. It had put forward a financial restructuring plan to help repay bond debts of $230m by their due date in July 2022. However, the plan was met with resistance from shareholders and as a result did not go ahead.
However, the rising price of oil has led to better results for the company in 2022, allowing it to repay its debt. The news has sent the Hurricane Energy share price soaring. However, as of its 4 August closing price, the stock is still down 31.2% from its 52-week high of 11.7p that it set at 25 March’s close.
Debt repayment lifts Hurricane shares
For months, management has been signalling its intention to pay off its debt and, on 25 July, the company announced it was debt-free. This helped to significantly boost the Hurricane Energy share price, which ended the day 16.6% higher than the previous close.
The debt payment at the end of July totalled $78.5m, with a further $1.5m of accrued interest. As these bonds were yielding 7.5%, this will save the company a lot of money from interest payments. It also leaves the group free of debts, highlighting its strong financial position.
As CEO Antony Maris stated: “The repayment of the convertible bonds is an important and key milestone for Hurricane as we move into a new phase for the company, focusing on building a long-term future for the business and creating additional value for our shareholders”.
In the latest financial update, the company also expected that it would have net free cash of $75m. If oil prices for July are above $110 per barrel, the group expects net free cash to total above $85m. This may lead to a significant number of “investment opportunities ahead”.
Widening losses contribute to rising headwinds
In the past, the company’s Lancaster field has faced a significant amount of production issues. For example, last year, the well had to be shut on precautionary grounds, due to an electric pump tripping. Further, due to scheduled maintenance this year the company expects that production for the current year will total between 7,500 and 8,600 barrels of oil per day, down from 10,267 barrels of oil per day during 2021.
During the coronavirus pandemic, the group also realised that the potential of the Lancaster field was much smaller than originally thought, leading to impairment charges totalling $567.1m. This meant that the total loss after tax in 2020 for the group was $625.3m.
The company remain optimistic despite these headwinds, however. Indeed, due to the high price of oil, the Lancaster field is still expected to be highly cash generative. This was demonstrated in the 2021 full-year results, when profit after tax totalled $18.2m.
With the cash that remains post-debt repayment, Hurricane Energy is also planning “to build further value for shareholders, whether through further investment in our existing portfolio, new opportunities in the UK oil and gas sector, or both”. This would hopefully lead to additional production capabilities for the long-term future of the company.
Hurricane Energy’s board changes
Since the turbulence of the past few years, the management of Hurricane Energy has been transformed. For example, chairman Steven McTiernan, alongside several non-executive directors, resigned their positions during 2021. As management had previously been accused of “failing to protect shareholders’ interests”, this was considered as necessary for the future of the company, and its share price recovered slightly as a result.
Albeit in limited supply, analysts are also moderately confident about the prospects for the Hurricane Energy share price. According to MarketBeat, the group has two ‘buy’ ratings, with no ‘hold’ or ‘sell’ ratings. With an average price target of 9p, this implies an upside of 11.8% on its closing price on 4 August.
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