Hurricane Energy is defying accepted North Sea logic & other small cap highlights

The success of an AIM-quoted company in the waters to the west of the Shetland Islands could transform the domestic oil industry.

offshore oil operation
Well success has driven Hurricane up some 170% in the year to date

The North Sea is in terminal decline, yes? That, at least, is the accepted logic.

Well, the success of an AIM-quoted company in the waters to the west of the Shetland Islands could transform the domestic oil industry.

Earlier this week Hurricane Energy Plc (LON:HUR) provided a glimpse into the potential of its Lancaster Field as it said the initial well there flowed at a rate of 14,500 barrels a day.

That suggests the company's initial two-well production phase can hit its 17,000 barrel per day target with some ease, analysts said.

It is not unheard of for a North Sea well to flow at those rates. The interesting thing about this discovery is just where the oil is coming from.

It emanates from new, untapped pools of oil called fractured basement reservoirs.

These oil plays are found in Vietnam and Libya, but are totally new to waters around the British Isles.

In fact, the establishment considered veteran Robert Trice frankly a little nuts chasing this oily El Dorado.

Yet what he has uncovered is huge – by North Sea standards at least. Lancaster has tapped into an estimated 300-500mln barrels of crude.

To put that into context, the average UK discovery these days is around 20mln barrels.

What came after the production update was interesting. Within two days Hurricane had provisionally raised £70mln that will allow it to keep Transocean's Spitsbergen rig to drill two follow-up wells nearby.

Success could take Hurricane through the 1bn barrel mark.

Remember, these fractured basement reservoirs aren’t restricted to the licences bagged by the explorer.

Investors who backed Hurricane have been rewarded for their faith with the stock up 170% in the last year.

ASOS beat expectations but is it too expensive?

AIM’s biggest company, the online fashion retailer ASOS Plc (LON:ASC), had a bit of an up and down week – yet finished flat.

The chatter in the wake of its prelims on Tuesday ignored the fact ASOS actually beat market expectations.

No, it was concerned with whether the shares are just too expensive.

It’s a debate that had raged on the investing bulletin boards for years now, with little real consensus.

The same applies to the City. The stock trades on 70-times next year’s normalised earnings – which is an eye-wateringly expensive valuation.

However, as Freddie George, Cantor Fitzgerald’s retail analysts, points out: “The earnings multiple is largely irrelevant as the company is being valued part on takeover hopes and part on the very long term prospects to the brand.”

George rates the shares a ‘buy’ and his view on ASOS’s potential as an investment is indicative of City opinion.

Of the 19 analysts polled by the Broker Forecasts site, 11 have ‘buy’ recommendations on the stock; there is only one ‘seller’, while seven think it is fully valued.

The week’s biggest faller was Empyrean Energy (down over 80%), though you might say it was for the right reason.

The price fell after the oiler returned £17.5mln following the sale of its share of the Sugarloaf Project in Texas.

Possibly sniffing the prospect of a beefy cash return, punters piled into the software firm Vislink Plc (LON:VLK) - up 88%.

This was after it announced plans to sell its wireless business for £13mln. The company’s value before the putative deal was announced was £9.5mln.

Investors in the conglomerate Cambria Africa plc (LON:CMB) were in the money after the company published an encouraging trading update and said it had negotiated a new loan facility.

The shares advanced 88%, though Cambria is still only valued at a micro £2.5mln.

Finally, it was a better week for DiamondCorp Plc (LON:DCP), whose shares advanced 43% after it secured financing package for its South Africa mine.

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