TIDMHUR
RNS Number : 0931J
Hurricane Energy PLC
18 December 2020
18 December 2020
Hurricane Energy plc
("Hurricane" or the "Company")
Operational and Corporate Update
Hurricane Energy plc, the UK based oil and gas company, provides
an operational and corporate update.
Antony Maris, Chief Executive Officer of Hurricane,
commented:
"Options to enhance both Lancaster field performance and
recovery have progressed considerably in recent months, utilising
the revised geological model of the Lancaster field and a rebuilt
simulation model incorporating additional reservoir data gathered
since September 2020.
While several development options continue to be evaluated, a
side-track of the existing 205/21a-7z well to an up-dip oil
producer location could increase oil production from late 2021.
This could be followed by a water injection well in the northwest
of the Lancaster field, which, with related FPSO and subsea work,
could provide pressure support and sweep oil within the onlapping
sandstone reservoirs towards the producing wells from late
2022.
We will now commence a period of stakeholder engagement to seek
alignment on the merits of this further Lancaster activity and the
support and/or approvals which may be required to execute this
programme. While there can be no certainty as to the outcome of
this engagement, we continue to believe there is significant value
in Lancaster and our broader West of Shetland portfolio, and we
remain focused on delivering that value for the benefit of our
stakeholders."
Lancaster Production Update
Since the Company's last update on 8 October 2020, the Lancaster
field has continued to produce from the 205/21a-6 well alone,
except for a short period of testing the 205/21a-7z well to assist
in the refinement of the Lancaster reservoir simulation model.
The 205/21a-6 well is currently producing at c.12,300 bopd on
artificial lift with a c.23% water cut. In early November 2020, the
Company decided to limit production to approximately 12,000 bopd
for reservoir evaluation and management purposes and aims to
maintain production around this level in the near-term.
Since 1 September 2020, the Lancaster field has averaged 12,500
bopd and as a result, the Company expects production for the period
1 September 2020 to 31 December 2020 to be within the previously
announced 12,000 - 14,000 bopd guidance range.
The 17th and 18th cargoes of Lancaster crude were lifted in
mid-October and mid-November, respectively.
Future Lancaster Development Options
Since the 11 September 2020 technical update announcement, a
significant amount of work has been completed to further refine the
revised technical interpretation of the Lancaster reservoir systems
and formulate further development options for the field.
Underpinning these efforts are two main objectives: to deliver
production levels which ensure resilience in a volatile oil price
environment, as well as to achieve optimal further development of
the Lancaster field to maximise stakeholder value.
Building on the initial results of the technical review
announced in September 2020, a remapping exercise has been
completed to more accurately define the complex reservoir horizons
now recognised in Lancaster. The reservoir simulation model has
also been extensively rebuilt, utilising this remapping work,
recognising the contribution from sandstones onlapping fractured
basement, and using additional historical and regional data. This
simulation model has been used to assess various near-term
development options which are currently under technical and
commercial review.
While no firm decisions have been taken, the Company has
focussed on the location, operations planning and execution in 2021
of a new production well in the central "attic" high of the
Lancaster field, by re-entering and side-tracking the existing
205/21a-7z well. This could add meaningfully to the production
capacity from the existing 205/21a-6 well, accelerate production of
existing reserves, and, depending on oil price, materially improve
near-term cashflow generation. Development costs are currently
estimated at c.$60 million. Subject to a sanction decision early in
the first quarter of 2021 and securing a suitable rig and
equipment, first production from this well should be possible by
late 2021.
Implementing a water injection programme is important to provide
pressure support generally, but also to sweep oil towards the
producing wells in the centre of the field, which could materially
improve recovery from Lancaster. Preliminary evaluation has
identified that injection into the northwest of the field could
provide the greatest benefit. Ongoing assessment of this water
injection option is focussed on finalising the well location,
subsurface and FPSO modifications, operations planning and
execution in 2022. Costs are currently estimated at c.$75
million.
Hurricane recently appointed ERC Equipoise Limited as its
Independent Competent Person and reserves auditor. A Competent
Person's Report covering the Company's West of Shetland assets is
still on track for completion by the end of the first quarter in
2021, at which time updated estimates of Lancaster reserves and
resources will be available, together with updated resources
estimates for the Company's other assets.
Funding Requirements and Stakeholder Engagement
At 30 November 2020, the Company had net free cash(1) of $87
million.
The contemplated development activity is conditional on the
approval of Hurricane's board of directors, requisite regulatory
approvals and the availability and contracting of long lead items.
It is also subject to achieving stakeholder support to underpin
suitable funding arrangements.
At current production levels and oil prices, the Lancaster field
is generating positive cash flow. However, the reduced estimates of
Lancaster reserves announced in September 2020, combined with the
reduction in oil prices since the first quarter of 2020, have
negatively impacted the projected future cash generation potential
of the field.
Accordingly, the Company has appointed Evercore Partners
International LLP and Dentons UK and Middle East LLP as its
financial and legal advisors, respectively. Substantive discussions
with certain key stakeholders (including holders of the Company's
outstanding convertible bonds) and relevant third parties are
expected to commence shortly in regard to the funding of and/or
required support for the development options described above.
Other technical options which may be available to improve
production and recovery efficiency, as well as commercial options
to manage projected funding requirements, are being and will
continue to be considered. Reductions to the Company's cost base
are also being implemented.
It should be noted that there is a risk of dilution to existing
shareholders from a possible restructuring and/or partial
equitisation of the convertible bonds. Furthermore, if no agreement
can be reached with the Company's stakeholders on additional
investment, further development activity at Lancaster might not be
possible. In such a scenario, Lancaster could continue to produce
from existing wells before reaching the economic limit, the timing
of which would depend on oil prices, actual production levels
delivered and the level of cost savings achievable. The field may
then be decommissioned, with potentially limited or no value
returned to shareholders. Notwithstanding these risks, the Company
will endeavour to secure the best possible outcome for all
stakeholders.
(1) Unrestricted cash and cash equivalents, plus current
financial trade and other receivables, current oil price
derivatives, less current financial trade and other payables
-ends-
Contacts:
Hurricane Energy plc
Antony Maris, Chief Executive Officer +44 (0)1483 862
Philip Corbett, Head of Investor Relations 820
Stifel Nicolaus Europe Limited
Nominated Adviser & Corporate Broker
Callum Stewart / Ashton Clanfield +44 (0)20 7710 7600
Vigo Communications
Public Relations
Patrick d'Ancona / Ben Simons
hurricane@vigocomms.com +44 (0)20 7390 0230
About Hurricane
Hurricane was established to discover, appraise and develop
hydrocarbon resources associated with naturally fractured basement
reservoirs. The Company's acreage is concentrated on the Rona
Ridge, in the West of Shetland region of the UK Continental
Shelf.
The Lancaster field (100% owned by Hurricane) is the UK's first
producing basement field. Hurricane is pursuing a phased
development of Lancaster, starting with an Early Production System
consisting of two wells tied-back to the Aoka Mizu FPSO.
Hydrocarbons were introduced to the FPSO system on 11 May 2019 and
the first oil milestone was achieved on 4 June 2019.
In September 2018, Spirit Energy farmed-in to 50% of the Lincoln
and Warwick assets, committing to a phased work programme targeting
sanction of an initial stage of full field development.
Visit Hurricane's website at www.hurricaneenergy.com
Glossary
bopd Barrels of oil per day
FPSO Floating production storage and offloading
vessel
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END
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