Tender offer for Hurricane’s U.S.$230,000,000 7.50 per cent. Convertible Bonds due 2022 and further operational and financial update
Hurricane Energy plc and Hurricane GLA Limited (the Offeror) announce today the Offeror’s invitation to holders of Hurricane’s U.S.$230,000,000 7.50 per cent. Convertible Bonds due 2022 bearing ISIN: XS1641462277 (the Bonds) (of which U.S.$230,000,000 in aggregate principal amount are outstanding), to tender their Bonds for purchase by the Offeror for cash (the Offer).
The Offer is being made on the terms and subject to the conditions set out in the tender offer memorandum dated 31 August 2021 (the Tender Offer Memorandum) prepared by the Offeror and is subject to the offer restrictions set out below and as more fully described in the Tender Offer Memorandum.
The purpose for the Offer is to utilise a portion of the Group’s available cash balances to purchase Bonds prior to their maturity as part of a proactive liability management exercise on the Group’s outstanding debt. The Offer will also provide liquidity and certainty of outcome to those holders whose Bonds are accepted in the Offer, given the range of future dynamic factors and uncertainties which are outside the Company’s control.
Copies of the Tender Offer Memorandum are (subject to the distribution restrictions) available from Lucid Issuer Services Limited (the Tender Agent) as set out below. Capitalised terms used in this announcement but not defined have the meanings given to them in the Tender Offer Memorandum.
Operational and Financial Update
Further to the announcement on 16 August 2021, the Company provides an update on the previously disclosed operational and financial projections.
Lancaster Production Update
As of 29 August 2021, Lancaster was producing 11,100 bopd from the P6 well alone with an associated water cut of 31%.
The 24th cargo of Lancaster oil, totalling approximately 505 Mbbls, was lifted in late-August 2021.
In preparing its 2021 interim financial statements the Company does not anticipate any further impairment to the tangible assets relating to the Lancaster field. However, at current oil prices and forecast production levels, if it is not possible to continue producing from the Aoka Mizu FPSO until at least mid-2023 it may be necessary to incur an impairment charge in relation to these assets. In addition, if, in the view of the Company’s auditors, an alternative outcome is considered more appropriate then an impairment may also arise. The sensitivity of the 2020 impairment charge to changes in oil price assumptions, production rates, and the impact of using alternative investment scenarios (including if no further activity was undertaken and production ceased in June 2022) was disclosed in note 2.4.1 to the Group’s 2020 Annual Report and Group Financial Statements.
As a result of the Company resolving not to exercise its option to extend the charter of the Aoka Mizu FPSO in its current form beyond June 2022, the Company expects to recognise a non-cash accounting gain of approximately U.S.$48 million, due to writing-back the portion of the balance sheet lease liability relating to the three-year option period expiring in June 2025.
These would be accounting charges only and would not impact cash.
The Company currently holds approximately U.S.$40 million classified as restricted cash with the Law Debenture Trust to cover the estimated decommissioning costs of the Lancaster field. The Company regularly reviews and updates these estimates to align with current market conditions, equipment and service provider rates and regulatory requirements. As part of its most recent review the decommissioning costs are estimated to have risen by approximately U.S.$10 million, assuming the decommissioning activity is undertaken following a controlled and planned cessation of production. This updated estimate will be reflected in the decommissioning provision within the Company’s 2021 interim financial statements.
Bluewater Negotiation Update
The Company has been engaging in positive negotiations with Bluewater regarding an extension to the charter of the Aoka Mizu FPSO beyond the current termination date of 4 June 2022. These discussions are ongoing, and the Company will update the market in due course.
As previously announced, Hurricane and its joint venture partner, Spirit Energy, has a regulatory obligation to commence drilling of a commitment well on the Lincoln field by 30 June 2022. In the event that the commitment well is not commenced on time the joint venture will automatically relinquish the Lincoln sub-area. This would result in a write-off of previously capitalised Exploration and Evaluation expenditure of approximately U.S.$54 million. This would be an accounting charge only and would not impact cash.
Illustrative Outcome Statement
As part of the previously announced proposed financial restructuring plan, which is no longer proceeding, the Company provided details of the potential outcome and recoveries to the Company’s creditors and stakeholders should the Lancaster field not continue beyond the current agreed charter period of the Aoka Mizu FPSO, being 4 June 2022, assuming the then prevailing performance and price information. In this scenario decommissioning of the Lancaster field would occur later in 2022 with the Company being wound up in April 2023. This scenario has been updated based on the latest available information and, whilst the Company does not consider this to be the most likely outcome, it does provide a comparable benchmark for the Company’s current estimates of potential recovery achievable by creditors.
1 Defined as unrestricted cash and cash equivalents, plus current financial trade and other receivables, current oil price derivatives, less current financial trade and other payables. The Company believes that net free cash provides a useful measure of liquidity after settling all its immediate creditors and accruals and recovering amounts due and accrued from joint operation activities, outstanding amounts from crude oil sales and after settling any other financial trade payables or receivables.
Key assumptions: estimated cash balances reflect: Current Bluewater FPSO terms, balance of 2021 average production of 9,300 bopd, 2022 (until charter expiry) average production of 9,000 bopd, balance of 2021 Brent oil price average of U.S.$71/bbl, 2022 (until charter expiry) Brent oil price average of U.S.$69/bbl.
Net Free cash defined as current unrestricted cash (i.e. excluding escrowed amounts relating to decommissioning), plus current trade and other receivables, current oil price derivatives, less current financial trade and other payables.
The Company is presently unable to identify the most likely outcome, as the range of potential scenario-based outcomes are dependent on multiple and dynamic factors and uncertainties outside of the Company’s control making it difficult to provide reliable forecasts and predictions. The key factors include (but are not limited to): a significant change in forecast oil prices; a significant change in the forecast level of production; outcome of negotiations with Bluewater regarding extending the charter beyond June 2022; Bondholders not enforcing the payment of the bond at maturity; the outcome of the tender offer for the Bonds; and other activities undertaken by the Company that may impact the level of available cash.
The illustrative outcome statement above contains estimated projections, based on the Company’s current estimates of factors including future production, oil prices, operating costs, financing costs and capital expenditure costs, at a point in time. Whilst the Company has taken reasonable care to ensure insofar as is possible that the projections are reasonable, the assumptions, and thus the projected outcomes, are expected to change in the future. These projections do not constitute a profit forecast and have not been reported on by a reporting accountant. Unlike a forecast, where the Company would be required by the AIM Rules for Companies to report on a continuous basis, the Company will not be reporting performance to the above cases and it expressly cautions against the information above being used for any forward-looking purpose after this date.
2021 Interim Financial Statements
As previously announced, at the Company’s most recent Annual General Meeting, held on 30 June 2021, the Resolution to re-appoint Deloitte LLP as the Company’s auditors was not passed. The Company is in the process of appointing a new external auditor who, following appointment, will commence their review of the Company’s interim financial statements for the six months ended 30 June 2021. As such, the Company currently anticipates its interim financial statements will be ready for release in October 2021 and as such will be taking advantage of the one month extension allowable by AIM to release its interim financial statements within four months of the interim balance sheet date rather than three months. The exact date of release will be confirmed in due course.
Summary of the Offer
A summary of certain of the terms of the Offer appears below:
Hurricane Energy plc
Antony Maris, Chief Executive Officer
+44 (0)1483 862 820
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