Hurricane Energy counts down to first oil from Lancaster

Start-up at the Lancaster EPS and a fresh exploration drill campaign will be key focal points over the coming months

In Thursday’s financial results statement (28^th March) Hurricane Energy Plc chief executive Dr Robert Trice highlighted that the offshore oil field developer is set for an “exciting period”.

The AIM-quoted firm is now counting down to the first production from the Lancaster field’s ‘early production system’ which will yield some 17,000 barrel of oil per day, and, perhaps more importantly, de-risk a much larger field development.

A longer term, multi-billion project remains upside the long term, nevertheless, there is a high level of interest in the EPS start-up and the very material revenue generation that will follow.

Later this year will also bring the start of a new exploration programme, paid for by farm-in partner Spirit Energy (which dealt in the Greater Warwick Area, separate from Lancaster).

“The Spirit farm-in has significantly accelerated activity on the GWA, providing up to US$387million for a phased work programme,” Dr Trice said, in a statement.

“This includes the drilling of three wells in 2019 with a minimal net cost to Hurricane, targeting first oil from a tie-back to the Aoka Mizu in 2020.”

Spirit paying for exploration drilling leaves Hurricane able to afford development and appraisal activities at Lancaster.

Whilst exploration and appraisal upside will be on the agenda as 2019 progresses, the focus for Hurricane and its investors is now on the delivery of the Lancaster EPS.

As such, encouragement will likely have come earlier this month when Hurricane confirmed it had successfully hooked up its floating production vessel to the Lancaster infrastructure – after previous failed attempts.

Significant cash flow on the horizon

“We will soon be generating the long-term production data that will enable the company to plan for full field development of the Greater Lancaster Area (GLA).

“Initial production is planned to be 17,000 barrels of oil per day, net of anticipated downtime. At this rate, we expect to generate significant cash flow – over US$200 million in operating cash flow on a full year run-rate basis at a US$60/bbl Brent oil price.”

In terms of the 2018 financial results, the pre-revenue company reported a US$60.9 million loss after tax – with some US$42.4 million coming from a non-cash fair value loss for a derivative instrument attached to previously issued convertible bonds.

Hurricane spent some US$205.3 million of development cash on the Lancaster EPS project while other operating expenses were reported at US$12.7 million.

It ended the year with US$83 million of ‘useable funds’ – including cash, equivalents and liquid investments, but excluding restricted cash.

The company has some US$230 million of convertible bonds in issue – US$34.5 million was previously put in escrow to cover the coupon for the first two years, and thus far US$21.6 million has been paid out.

They mature in July 2022, if they’re not converted into equity. The initial conversion price was set at 52 American cents per share, which represented a 25% premium at the time. A financial derivative is in place, connected to the equity conversion option.

Hurricane noted in its results that one of its ‘tier one’ contractors has agreed to defer up to US$18 million of invoices until September 2019, accruing interest at an annualised rate of 7%, and, that provides the company with additional working capital in the meantime.

For context, Hurricane had US$21.3 million worth of total trade creditors at the end of December (including the deferred US$18 million).

In a note to clients, analysts at Peel Hunt said; “With no production/revenue to date, net income was in line at -US$61m (consensus -US$62m), and with a year-end cash position of $83 million (excluding restricted cash).”

In late afternoon trading, shares in Hurricane Energy were 1.2% lower at 46.36p.

Source: Proactive Investors