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Shares of Hurricane Energy PLC (LON: HUR) fell 26% after downgrading the resource estimates on its West of Shetland assets. The Halifax resource was once estimated to have 1.2 billion barrels of oil but was written off in today’s resource estimates.
The oil and gas company released a summary of a Competent Person's Report (“CPR”) indicating that its Halifax resource had no contingent resources, which was a significant disappointment.
Hurricane’s CEO, Anthony Marris, supported the report’s findings saying that they were broadly consistent with a sharp drop in reserves and resources at its Lancaster and Lincoln assets.
From a technical perspective, the oil company’s shares have formed a descending triangle pattern over the past few months, as highlighted in the chart below. I anticipate a break below the short-term resistance level given the company's negative fundamentals compounded by today's negative announcement.
The company might struggle to raise additional funds due to the Halifax write-off, which does not inspire confidence in its future.
Hurricane Energy’s shares do not look promising, as the company has said that it would decommission its Lancaster oil field if it cannot reach a deal to finance further operations at the field.
The company also noted that existing shareholders could be significantly diluted as it works to raise more capital to fund its operations soon. The firm has to repay or refinance a £180m convertible bond in 2022, which could wipe out current shareholders.
Hurricane Energy could extend the operations at its Lancaster oil field by drilling the side well that was postponed earlier this year to access up to 87.1 million barrel of oil in the best-case scenario, with the most likely scenario yielding 11.8 million barrels.
However, the company has to raise the necessary funds to finance the drilling, which currently appears like an impossible task given today’s announcement and its difficult financial position.
Hurricane Energy share price.
Hurricane Energy shares plunged 26% to trade at 2.56p after dropping from Tuesday’s closing price of 3.46p.
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