Hurricane Energy plc, the UK based oil and gas company, provides an operational and corporate update.
Lancaster EPS Production Update
Oil production in the third quarter of 2020 was at an average rate of 13,600 bopd, which was lower than the 14,300 bopd average rate in the second quarter. This was as a result of the shut in of the 205/21a-7z well from early August, a controlled shutdown of the FPSO for repairs in August 2020, scheduled annual FPSO maintenance in early September 2020 and a short shut in of the 205/21a-6 well for data gathering purposes towards the end of the period.
Since the Company’s interim results announcement on 11 September 2020, the Lancaster field has been producing from the 205/21a-6 well alone. Current production is c.14,500 bopd on natural flow with a water cut of c.19%. In line with the Company’s expectations, the 205/21a-6 well is exhibiting a limited decline in oil production rate accompanied by a limited increase in water cut.
Average production guidance of 12,000 – 14,000 bopd for the period 1 September 2020 to 31 December 2020 remains unchanged.
The 17th cargo of Lancaster oil is scheduled for lifting in mid-October 2020.
Decommissioning Financing Update
As part of the original Lancaster Field Development Plan approval, Hurricane was required to provide security for its decommissioning liability on the Lancaster field on a post-tax basis. As previously disclosed, this has been satisfied by way of a decommissioning bond since February 2019.
In accordance with the terms of the decommissioning bond agreement, and given the fall in oil prices earlier in 2020 and the recent downward revision to the Lancaster field’s reserves, the bond provider has requested that the Company provide cash collateral for 100% of the bond’s value, as a result of which the Company would derive no benefit from the bond while still paying fees to the bond provider. The decommissioning bond has therefore been terminated by mutual agreement.
Consequently, the Company has reverted to the arrangement in place prior to the decommissioning bond, whereby £16.8 million ($21.7 million) of cash security will be held in trust in order to continue meeting the obligation to provide post-tax security for the estimated cost of decommissioning the production wells, subsea infrastructure and related FPSO costs for the Lancaster Early Production System. Accordingly, $21.7 million of the Company’s unrestricted cash has now been reclassified as restricted cash.
As disclosed in the interim results announcement, the Company intends to engage with all key stakeholders regarding its forward work programme, capital allocation and financing arrangements in light of the revised reserves estimates for the Lancaster field and challenging macroeconomic backdrop. The Company is making good progress on a proposed work programme and will provide further updates when appropriate.
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