TIDMHUR
RNS Number : 2685B
Hurricane Energy PLC
30 September 2022
30 September 2022
Hurricane Energy plc
("Hurricane", the "Company", or the "Group")
Half-year Results 2022
Hurricane Energy plc, the UK based oil and gas company, provides
its 2022 interim report and unaudited half-year results for the
six-month period ended 30 June 2022.
Highlights
Financial results
-- Revenues of $159.5 million from three liftings of Lancaster
crude (H1 2021: $124.5 million from four liftings)
-- Cash production costs of $35.4/bbl (H1 2021: $24.8/bbl) in line with expectations
-- Generated $110.1 million of operating cash flow (H1 2021:
$75.9 million), equivalent to $67.5/bbl (H1 2021: $37.9/bbl)
-- Profit after tax for the period of $67.0 million (H1 2021: $42.8 million)
-- Net cash at 30 June 2022 of $ 48.4 million ( 31 December 2021
net debt : $27 million ) - repaid $78.5 million Convertible Bonds
plus $1.5 million of accrued interest after the period end to
become debt free
-- Net free cash of $126.9 million at 30 June 2022 (31 December
2021: $51.5 million) ( $76.6 million as at 31 August 2022 following
repayment of the Convertible Bonds and the July lifting)
-- Restricted cash of $60.8 million at 30 June 2022 relating to
decommissioning obligations and FPSO charter (31 December 2021:
$45.7 million) - Restricted cash is in addition to Net free
cash
Non-IFRS measures. See Appendix for definition and
reconciliation to nearest equivalent statutory IFRS measures
Operations
-- Excellent operational performance at the Aoka Mizu FPSO with
an average Lancaster field production uptime of 98% in H1 2022 (H1
2021: 96%)
-- Lancaster EPS production averaged 9,000 bopd for H1 2022 (H1
2021: 11,100 bopd) in line with expectations
-- Annual planned maintenance shutdown successfully carried out
in September, with next lifting scheduled for early October
2022
Corporate
-- Philip Wolfe appointed Chair in March 2022, replacing John
Wright who remains as a Non-Executive Director
-- Juan Morera appointed to the Board as a Non-Executive
Director in March 2022, representing Crystal Amber, Hurricane's
largest shareholder
-- Linda Beal appointed to the Board as an Independent
Non-Executive Director in May 2022, taking on the role of Audit and
Risk Committee Chair
-- Robin Allan appointed to the Board as an Independent
Non-Executive Director in July 2022, taking on the role of ESG
Committee Chair
Outlook
-- Hurricane passed a key milestone with its repayment of the
outstanding Convertible Bonds post-period end in July 2022, and is
focused on building a positive long-term future for the benefit of
all stakeholders
-- Management will identify and pursue opportunities for the
most effective capital allocation of its funds
Antony Maris, Chief Executive Officer of Hurricane,
commented:
"Repaying our Convertible Bonds and becoming debt-free has
enabled us to consider multiple trajectories for Hurricane's
future. At the same time as ensuring continuing production from
Lancaster, we have been working diligently on many workstreams, all
with the aim of creating additional value for our shareholders.
In terms of Lancaster, continuing our close collaboration with
our FPSO operator, we have been able to deliver superb uptime
performance, leading to the production of more oil in the period.
Our team can be justifiably proud of the fact that we bettered our
targets set for the shutdown and unplanned downtime without at any
time compromising the safety of our operations.
Looking to Lancaster's future, we have expended considerable
effort and some funds into maintaining the ability to deliver a new
well in the Lancaster Field, termed P8, in order to meet our
"maximum economic recovery" obligations to the UK Government. Given
our emissions challenges, we have worked closely with the UK's
offshore regulator, the North Sea Transition Authority ("NSTA"), to
plot a way forward for Lancaster. It is disappointing that despite
the enormous efforts of our team, and extensive interactions over
many months, the NSTA is unable to provide comfort to the Company
with regard to the likelihood of it being granted the necessary
consents related to flaring for Hurricane to make further
commitments to investment in Lancaster.
In parallel, however, we have been pursuing alternative capital
allocation opportunities outside of our existing asset base - a
task which is challenging owing to the current market volatility -
and one that we can now focus on completely.
With our strong balance sheet, no debt, and our decommissioning
liabilities being fully funded, I believe Hurricane, with our
committed and capable team, is well placed to be able to create
additional value for our shareholders."
Contacts:
Hurricane Energy plc
Antony Maris, Chief Executive Officer +44 (0)1483 862
communications@hurricaneenergy.com 820
Stifel Nicolaus Europe Limited
Nominated Adviser & Joint Corporate Broker
Callum Stewart / Simon Mensley / Ashton Clanfield +44 (0)20 7710 7600
Investec Bank plc
Joint Corporate Broker
Chris Sim / Charles Craven / Jarrett Silver +44 (0)20 7597 5970
Vigo Consulting
Public Relations
Patrick d'Ancona / Ben Simons
hurricane@vigoconsulting.com +44 (0)20 7390 0230
About Hurricane
Visit Hurricane's website at www.hurricaneenergy.com
Inside Information
This announcement is released by Hurricane Energy plc and
contains inside information under Regulation (EU) 596/2014 on
market abuse, as it forms part of domestic law by virtue of the
European Union (Withdrawal) Act 2018 (the UK MAR). For the purpose
of the UK MAR, this announcement is made by Antony Maris, Chief
Executive Officer at Hurricane Energy plc.
Competent Person
The technical information in this release has been reviewed by
Antony Maris, Chief Executive Officer, who is a qualified person
for the purposes of the AIM Guidance Note for Mining, Oil and Gas
Companies. Mr Maris is a petroleum engineer with 35 years'
experience in the oil and gas industry. He has a B.Sc. (Eng.)
Petroleum Engineering (Hons) from the Imperial College of Science
and Technology (University of London) Royal School of Mines
A.R.S.M. and an MBA from Kingston Business School.
Standard
Reserves and resource estimates for the Lancaster field
contained in this announcement have been prepared in accordance
with the Petroleum Resource Management System guidelines endorsed
by the Society of Petroleum Engineers, World Petroleum Congress,
American Association of Petroleum Geologists and Society of
Petroleum Evaluation Engineers.
Chief Executive Officer's Review
Introduction
The first half of 2022 has been an extraordinarily volatile
period for our sector due to surging commodity prices, exacerbated
by the terrible events in Ukraine. The resulting high oil price,
combined with outstanding operational performance at the Company's
Lancaster field, has significantly strengthened Hurricane's
finances, and led post-period end to the full repayment in July
2022 of the outstanding Convertible Bonds. This represented a major
milestone for our Company.
During the year, the importance of domestic energy security has
been highlighted by Russia's invasion of Ukraine and by the
subsequent concerns over energy supplies across Europe. Companies
such as Hurricane have an important continuing contribution to make
to meeting the UK's domestic energy requirements.
Hurricane is now a company underpinned by firm financial
foundations, without debt and with significant cash in hand; as
such, the Board is now able to devote more time to addressing the
future of Hurricane, prioritising the best investment opportunities
that could add significant value for shareholders.
Operational Review
Greater Lancaster Area (GLA)
The period saw a very strong operational performance by the Aoka
Mizu FPSO at the Company's Lancaster field.
The field has performed well and within guidance, delivering
9,000 barrels of oil per day in the first half of 2022. The
anticipated natural decline coupled with increased water cut,
offset by high uptime, informed production levels, and these
factors are expected to play their part in field performance during
the second half of 2022 and beyond. Based on current forecasts we
expect production for 2022 to be towards the upper end of our
guidance range.
During the period there were three cargo liftings totalling 1.6
million barrels and delivering revenues of $159.5 million.
Over a two-day period in May the Company conducted several flow
performance tests on the P7Z well that involved temporarily
reducing the flow rate from the P6 well. The data obtained will be
useful in refining production forecasts for P6.
In September the planned annual maintenance shutdown was carried
out on the Aoka Mizu with production being successfully restarted
ahead of the planned timeframe. As at 28 September 2022, production
was c. 8,700 bopd with a water cut of 46%. The current production
rate and water cut are impacted from the post shutdown flush
production. We expect that production will settle at its
pre-shutdown level of c. 8,300 bopd (and c. 48% water cut) and then
continue its natural decline.
Alongside ongoing production operations, the Company has been
progressing the possibility of drilling an additional production
well, the P8 well. Although first discussed with the Regulators in
2021, in early 2022 when the Company recognised that not only would
it clear its debt but also have sufficient funds to both fully
cover the cost of a new well in Lancaster and also its other
operational requirements, we engaged with the Regulators concerning
the unique challenges Hurricane faces.
The originally approved development plan included flaring as the
approved gas disposal mechanism and, under the NSTA approval of the
amendment to this plan, allowed for production below the bubble
point. Hurricane is subject to rolling and declining three-monthly
production, flare and vent consents under this amendment.
The Company has worked hard to reduce its emissions and, as
reported at the 2021 Full Year Results, had significant success in
achieving reductions through the combined hard work and efforts of
our team and Bluewater. Hurricane is fully cognisant of the
increased scrutiny and oversight in this area and is continuing to
look at ways of further reducing our overall environmental
footprint in 2022 and beyond, where it is economically and
commercially viable to do so. However, being fully aware of the
challenge concerning flare volumes and the impact that any
additional production would have, the Company has worked tirelessly
with both OPRED and the NSTA to address the environmental impact of
new investment.
With OPRED we have sought to demonstrate that the new well has
no significant environmental impact beyond the environmental
approvals already given. Interaction has been extensive, and
positive, and we believe that we have demonstrated that the P8 well
would remain within the limits of the existing approvals.
The work with the NSTA has been to show that the project
proposal is in line with the regulations and meets the OGA
Strategy's central obligations, and would allow for an increase in
the production, flare and vent consents to be awarded when applied
for. This would be just prior to the start-up of the new well.
We believe we have shown that the project is consistent with the
requirements placed upon Hurricane to maximise economic recovery as
part of the OGA Strategy's central obligation 2a. Whilst the
project would lead to a short-term increase in emissions, we also
believe we are fully aligned with the OGA Strategy's central
obligation 2b, which is to assist the Secretary of State in meeting
the country's Net Zero targets.
Interaction on this latter point has been detailed, and rightly
both challenging and highly scrutinised. The situation Hurricane
faces is that the retrofitting of a new gas export or disposal
system to the existing development is technically challenging, with
a high capex requirement. The expected recovery of gas from an
additional well, including the benefit of the extended life of the
field, is such that the economics of the investment are
significantly below the threshold considered appropriate for
Hurricane to commit to such a project.
Thus, we have been working with the NSTA team in two specific
areas. Firstly, to demonstrate that there is no technical and
economically viable solution to mitigate the emissions that is
reasonable in the circumstances. Secondly, in order to make the
significant financial commitments to the equipment and services
required to execute and deliver the P8 well in 2023, Hurricane has
been seeking comfort that the NSTA would provide, when requested,
the required increase in production, flare and vent consents for
the new well, subject to:
a. OPRED confirming that the impact of the new well has no
significant environmental impact beyond the current environmental
approvals given; and
b. Demonstration that there is no technical and economically
viable solution to mitigate the emissions that is reasonable in the
circumstances.
Without such comfort from the NSTA the risk of proceeding with
the drilling of the well, without knowing if production, flare and
vent consent approvals are likely to be granted, is too high.
We are fully aware of the challenge the NSTA faces in terms of
the interaction between the competing objectives of maximising
economic recovery whilst reducing emissions. The Company therefore
offered that all incremental emissions as a result of the new well
(including those associated with the extension of the life of the
field) would be covered by verifiable carbon offsetting.
The informal feedback from the NSTA during the six months of
interaction was that, even where there is no technical and
economically viable solution to mitigate the emissions that is
reasonable in the circumstances, then the NSTA still may or may not
grant the consents when requested even if positive support from
OPRED was forthcoming.
The project and the level of financial commitments are of major
significance to the Company. Therefore, to seek clarity this issue
was raised with the most senior levels within the NSTA. Having now
considered this, the NSTA finally confirmed on 29 September 2022
that, in response to our requests, it does not give such
comfort.
Whilst the Company believes the proposed P8 project would be
within the regulatory guidance, the Board has concluded that in the
face of regulatory opposition, the additional financial commitments
to offshore equipment suppliers and the associated financial risk
of proceeding with P8 is too great.
Therefore, with great reluctance and regret, the Board has
decided that no further investment is possible in relation to an
additional well on the Lancaster Field. This decision will not
result in any accounting impairment or any adjustment to our
current reserves estimates.
Greater Warwick Area (GWA) & Halifax Licence
In April, the GWA Joint Venture ("JV") announced that it had
reassessed its understanding of the Greater Warwick area,
evaluating both the basement and the Mesozoic potential of the JV's
licences, and considered all options for further appraisal and
routes to possible development.
In June, Hurricane reported that it had determined that further
appraisal and development costs to reach an economic development on
the Warwick discovery within the remaining licence term was not
feasible for the Company. Further to discussions with the Company's
JV partner, Spirit Energy, the GWA JV therefore decided to
relinquish the P2294 licence area. This was in addition to the
previously announced decision to relinquish the Lincoln P1368(S)
licence sub area.
The carrying value of the P2294 asset in the Company's accounts
of c.$4.9 million, has therefore been impaired. This impairment is
an accounting charge only and will not have any cash impact.
In addition, in September 2022 the Company determined that the
costs required to further evaluate the Halifax licence (P2308) and
the low likelihood of a successful economic development means that
the right next step is to relinquish the licence. As with the GWA
licences, there is no reasonable expectation that the P2308 licence
could generate any near-term cash realisation, and therefore
voluntarily relinquishing the licence at this time allows the
Company to focus its time and financial resources on alternative
and more attractive opportunities. All previously capitalised costs
relating to Halifax have already been impaired and therefore no
further impairments are required.
The decisions regarding the GWA and Halifax licences followed
the deployment of the rigorous screening criteria that Hurricane
brings to all opportunities in terms of determining the most
appropriate allocation of capital to deliver the best value for
shareholders.
New Business Opportunities
As has been previously reported, in addition to considering
investing further in the Lancaster Field, the Company has been
actively pursuing potential opportunities outside the Company's
current asset base.
Focusing on the UKCS, the Company has and continues to evaluate
a number of farm in opportunities, acquisitions and mergers.
Hurricane's management and staff have extensive experience in both
oil and gas, through all stages of the asset life-cycle, and
therefore the scope covers a range of new oil and gas investment
opportunities. We will continue to look for both asset and
corporate level opportunities that will help diversify our asset
base, deliver value to shareholders, and strengthen the Company for
the future.
Despite the volatility in prices, and the uncertainties these
create, Hurricane believes that its strong balance sheet, technical
and operational expertise, and proven track record of capital
project delivery offer a strong competitive advantage among its
peer group.
Financial
During the first half of 2022, the Company generated revenues of
$159.5 million.
Post period end, Hurricane repaid in full its outstanding
$78,515,000 7.50 per cent Convertible Bonds (the "Bonds") plus $1.5
million of accrued interest by the maturity date of 24 July 2022.
Accordingly, the Bonds were delisted from The International Stock
Exchange and cancelled.
The repayment leaves the Company debt free, with significant
cash on hand, further cash due in the near term from further
liftings from the FPSO, and ongoing cash generative production from
the Lancaster field.
As of 30 June 2022, the Company had net free cash of $126.9
million. Following the repayment of the outstanding Bonds and the
July lifting, the Company held net free cash of $76.6 million as at
31 August 2022.
Cost control was an important aspect of our work in the first
half of 2022 with opex at Lancaster stable and close management of
costs a central part of our work on the field and the wider
business as a whole.
Energy Profits Levy
On the 26 May 2022, the UK Government announced the introduction
of the Energy Profits Levy ("EPL"). Our industry works within the
framework of long investment cycles and highly volatile commodity
markets. Fiscal stability is key in supporting the investment
decision-making to meet the UK's energy transition targets and the
introduction of the EPL is unhelpful in that regard. However, as a
potential investor in future UK oil and gas assets, we also stand
to benefit from the Investment Allowances included as part of the
EPL.
The headline rate was an increase in tax of 25%, with no ability
to utilise existing carried forward losses. The legalisation for
the EPL has now been enacted and the Company has reviewed the
implications and the potential impact on the business. For 2022,
the Company is forecasting that its EPL liability will be less than
$5 million. This amount is lower than originally expected largely
due to the impact of our capital allowances available in the period
as well as the effect of the Investment Allowance that is included
within the EPL legislation.
Corporate
We have strengthened and diversified our Board.
In March Philip Wolfe stepped up to take on the role of Chair,
and Juan Morera joined as a Non Executive Director as a
representative of our major shareholder, Crystal Amber.
In May, we were pleased to announce that Linda Beal had joined
as an Independent Non Executive Director. Her extensive experience
as a tax partner at both PwC and Grant Thornton advising
international E&P clients, coupled with her recent career
serving as a director of listed small cap natural resources
businesses, brings an immediate and meaningful contribution to the
work of our Board. Her in-depth financial knowledge and governance
expertise will be of great benefit as Audit and Risk Committee
Chair.
After the period end, in July, we also welcomed Robin Allan as
an Independent Non Executive Director. His wide experience at
executive level with Premier Oil, including as Director, North Sea
and Exploration, and his role as Chairman of BRINDEX, the
Association of British Independent Exploration Companies, will
serve the Company well as it makes important financial and
strategic decisions for the next stage of its growth.
Outlook
With the ongoing success of our technical and operations teams,
especially in beating the target for scheduled maintenance, the
Company anticipates that, barring any unforeseen issues, production
from Lancaster will be towards the upper end of our production
target of 7,500 - 8,600 bopd during 2022. On this basis, if the
price of oil is up to $90/bbl for the remaining cargoes in 2022, we
forecast our year end net free cash being up to $110 million.
Our staff and management, together with our contractors, have
done a great job over the period and I would like to thank them for
their excellent performance and contribution to the Company's
current strong position.
While water cut will continue to increase and pressure to
decline, the field is expected to remain highly cash generative
into 2024 at current commodity prices. Retaining these funds for
further investment and acquisition for the future will be key but
always measured against delivery of value to stakeholders.
The decision not to proceed with P8 is very disappointing. While
the current extreme volatility of oil and gas prices makes it
harder to plan for the future, we are confident that we can deliver
additional value for our shareholders. Whether this is in further
investment in new opportunities in the UK oil and gas sector, or
beyond, Hurricane is well placed for a successful future.
Antony Maris
Chief Executive Officer
29 September 2022
Non-IFRS measures. See Appendix B for definition and
reconciliation to nearest equivalent statutory IFRS measures.
Financial Review
Highlights
First half 2022 First half 2021 Full year 2021
Production 1,632 Mbbl 2,004 Mbbl 3,748 Mbbl
---------------- ---------------- ----------------------
Average production rate* 9,000 bopd 11,100 bopd 10,300 Bopd
---------------- ---------------- ----------------------
Sales volumes 1,601 Mbbl 2,004 Mbbl 3,576 Mbbl
---------------- ---------------- ----------------------
Revenue $159.5m $124.5m $240.5m
---------------- ---------------- ----------------------
Average sales price realised $99.6/bbl $62.2/bbl $67.3/bbl
---------------- ---------------- ----------------------
Cash production cost per barrel $35.4/bbl $24.8/bbl $28.2/bbl
---------------- ---------------- ----------------------
Cash generated from operations $110.1m $75.9m $147.0m
---------------- ---------------- ----------------------
Closing net free cash $126.9m $132.3m $51.5m
---------------- ---------------- ----------------------
Restricted cash (and liquid investments) $60.8m $59.9m $45.7m
---------------- ---------------- ----------------------
Net cash/(debt) $48.4m $(97.7)m $(27.0)m
---------------- ---------------- ----------------------
Underlying profit / (loss) before tax $66.6m $(1.2)m $10.8m
---------------- ---------------- ----------------------
Profit/(loss) after tax $67.0.m $42.8m $18.2m
---------------- ---------------- ----------------------
* Rounded to nearest 100 bopd
Non-IFRS measures. See Appendix B for definition and
reconciliation to nearest equivalent statutory IFRS measures.
During the first half of 2022, over 1.6 million barrels of
Lancaster crude were sold across three cargoes, generating $159.5
million in revenue. The Group generated positive cash flow from
operations of $110.1 million, thanks to high oil prices and the
production efficiency of the Lancaster EPS.
Revenue
Revenue for the period was $159.5 million, with an average price
realised of $99.6/bbl across three cargoes, versus an average Dated
Brent price for the period of $108/bbl. Under the sales and
marketing agreement with BP, the sale of Lancaster crude is priced
at either the first five or last five days of the month of lifting
(at buyer's option) and as such the applicable Dated Brent price
is, on average, lower than the spot price at date of sale.
The average discount to Brent realised for H1 2022 was $2.2/bbl
(H1 2021: $3.0/bbl; FY 2021: $2.7/bbl) (representing the discount
or premium offered by the refinery purchasing the crude, BP's
marketing fee, and the freight costs incurred by BP in transporting
crude to its ultimate destination). All cargoes sold to date have
been on time, within specification and contractual terms, and as
such Hurricane has a good reputation of being a reliable
producer.
Cost of sales
Cost of sales were $78.5 million, including $36.9 million of
DD&A. Cash production costs (which exclude DD&A and
accounting movements in inventory, but include the fixed lease
charges for the Aoka Mizu) were $57.7 million, equivalent to
$35.4/bbl versus $28.2/bbl for the full year 2021. The increase in
cash production costs, on a per-barrel basis, is driven by lower
average production rates and higher realised sales prices
(increasing the revenue-linked incentive tariff payable). Excluding
the revenue-linked incentive tariff, cash production costs
increased from $22.8/bbl full year 2021 to $27.5/bbl in H1 2022. As
production from the P6 well continues to decline naturally over
time, cash production costs per barrel will increase given the
largely fixed operational cost base. Cash production costs are
currently forecast to be c. $34/bbl for the full year 2022
(excluding the incentive tariff).
Non-cash adjustments to oil and gas and exploration and
evaluation assets
On 25 March 2022, Hurricane announced that it has signed a
contract with Bluewater, for an extension to the Bareboat Charter
beyond the previous expiry date of 4 June 2022. The extension is
expected to cover the remaining economic life of the Lancaster
field given the significant economic incentive for both sides based
on the current forward price curve and production profiles. In
accordance with IFRS 16 the liability has been remeasured by
discounting the revised lease payments covering the economic life
of field. This resulted in an increase to the lease liability of
$54.5 million and corresponding increase to the associated
right-of-use asset cost of $54.5 million
General and administrative expenses
General and administrative costs ("G&A") for the six months
ended 30 June 2022 were $3.1 million (H1 2021: $21.2 million).
After removing non-cash charges (DD&A and share-based payment
expense) and amounts recharged to cost of sales and capitalised
into fixed assets, gross cash G&A for the period was $8.5
million (H1 2021: $26.7 million). The decrease in gross cash
G&A was primarily driven by a decrease in non-staff costs due
to the legal and professional fees incurred in the six months to 30
June 2021 in preparation for the proposed financial restructuring
process of c.$14 million. Staff costs were $5.2 million (H1 2021:
$8.4 million), with the decrease being driven by the reduction in
headcount from an average of 60 employees in H1 2021 to the current
average of 35 in H1 2022. A reconciliation of G&A costs is
shown in note 3.3 to the Interim Financial Statements. We continue
to pursue cost reduction opportunities in relation to our G&A
base.
Underlying profit before tax
Underlying profit before tax for H1 2022 was $66.6 million
compared to an underlying loss before tax of $1.2 million for H1
2021. The improvement in performance for the current period was
driven by higher oil prices, reduced cost of sales due to a reduced
volume of cargoes sold in the period (1,601 thousand barrels from
three cargoes in H1 2022 vs 2,004 thousand barrels from four
cargoes in H1 2021), and reduced G&A costs as detailed
above.
Convertible Bond accounting
The accounting for the Convertible Bond (issued in July 2017)
required the recognition of an embedded derivative liability
related to the equity conversion option. The fair value of the
embedded derivative is valued using an option pricing model, with
the key inputs being the Company's share price and its share price
volatility. Any increase in the liability creates a corresponding
non-cash charge in the income statement, and vice versa. See note
5.1 to the Financial Statements for further details.
Bond repayment
On 25 July 2022, Hurricane announced that it had repaid in full
its outstanding $78,515,000 7.50 per cent Convertible Bonds plus
$1.5 million of accrued interest by the maturity date of 24 July
2022. The Bonds have now been delisted from The International Stock
Exchange and cancelled.
Decommissioning estimates
A net decrease of $2.0 million to decommissioning estimates has
been recognised due to a reassessment of expected costs. During the
period, Hurricane agreed with the Regulator to place an additional
GBP5.7 million ($7.7 million) of funds into trust, in order to
provide security for the estimated decommissioning liability on the
Lancaster EPS on a pre-tax basis. At 30 June 2022, a total of $41.4
million was held in trust as decommissioning security for the
Lancaster EPS.
Cash flow
Net free cash bridge for H1 2022:
Opening Free Capital Movement Coupon Movements Other Closing
net free Cashflow* expenditure in restricted payments in working net free
cash funds capital cash
$51.5m $96.4m $(4.5)m $(15.1)m $(2.9)m $1.2m $0.3m $126.9m
----------- ------------- --------------- ---------- ------------ ------ ----------
*Comprises operating cash flow excluding decommissioning spend
and including fixed lease repayments
At 30 June 2022, the Group had $126.9 million of net free cash
(being unrestricted cash net of payables and accruals and including
trade receivables), an increase of $75.4 million from 31 December
2021.
Average realised sales price was $99.6/bbl and cash production
costs were $35.4/bbl, generating cash per barrel (before working
capital movements) of $70.4/bbl in H1 2022 (full year 2021:
$39.1/bbl).
Other operating cash outflows included the general and
administrative costs of staff and other overheads. After adjusting
for movements in working capital the Group's operating cash inflow
for the period amounted to $110.1 million.
Capital expenditure in the period was $4.5 million, comprising
primarily previously committed purchases of long lead items for
GLA, licences, geological studies, storage costs for inventory and
capitalised time-writing costs.
Financing outflows of $16.8 million included fees in relation to
coupon payments on the Convertible Bond and fixed lease repayments
primarily for the Aoka Mizu.
Included within the terms of the extension to the Bareboat
Charter is the requirement to set aside a certain amount of cash to
cover the FPSO day rate during the six month notice period, along
with amounts to cover the estimated decommissioning costs
associated with the vessel's departure from the Lancaster Field.
These funds replace the previous escrowed amounts that were in
place under the original charter terms to cover early termination
costs. At 30 June 2022, this amount was $19.4 million (31 December
2021: $7.9 million), resulting in an increase of $11.5 million into
restricted funds during the period. An additional $7.7million was
placed into trust in relation to Lancaster EPS decommissioning
arrangements (as outlined above), resulting in a net decrease of
$15.1 million to net free cash in relation to restricted cash
movements once foreign exchange losses of $4.2 million are taken
into account.
Cash flow outlook
As of 31 August 2022, the Company had net free cash of $76.6
million. The main movements over the two-month period from 30 June
2022 were:
-- Revenue of c.$60.2 million from one lifting of Lancaster crude
-- Operating costs and G&A of c.$20 million
-- Repayment of Convertible Bonds of $78.5 million and quarterly
cash coupon payments of c.$1.5 million.
-- Net cash capital expenditure of c.$1.1 million
-- Net movements out of restricted cash of c.$0.9 million
-- Decrease in net working capital of c.$10.3 million
The Convertible Bonds have now been repaid in full.
The Company needs to keep a portion of its net free cash at
August 2022 aside to fund ongoing operating, staff and overhead
expenses; as well as to cover any additional decommissioning costs
(above those held in trust) that could arise should an unplanned
cessation of production event occur and decommissioning activities
need to take place earlier than previously assumed.
The Company anticipates that, barring any unforeseen issues,
production from Lancaster will be towards the upper end of the
production guidance of 7,500 - 8,600 bopd during 2022. On this
basis, if the price of oil is up to $90/bbl for the remaining
cargoes in 2022, the year-end net free cash is forecast to be up to
$110 million as at 31 December 2022. Hurricane will continue its
work to identify the most effective capital allocation
opportunities both within and outside the existing asset base.
Principal risks
There are a number of potential risks and uncertainties which
could have a material impact on the Group's performance. Certain of
these risks impacted the Company in the first half of 2022 and
could continue to impact the Company over the remaining six months
of 2022 and could cause actual results to differ materially from
expected and historical results. The Group's principal risks are as
follows:
-- Substantial capital requirements
-- Exploration, appraisal and development operational risks
-- Production operational risks
-- Geological and reservoir risk
-- Regulatory
-- Oil price fluctuations
-- Third-party infrastructure
-- Development project delivery
-- Health, Safety and Environmental
-- Compliance
-- Joint venture operations
-- Strategy execution and staff retention
-- Climate change and energy transition
-- Litigation
The principal risks and uncertainties, along with the mitigation
measures in place to reduce risks to acceptable levels, are
consistent with those as at 31 December 2021 except as described
below. Further information on the principal risks and uncertainties
and the manner in which they are managed and mitigated provided on
pages 22 to 30 of the 2021 Annual Report and Group Financial
Statements.
The principal risk 'Repayment of Convertible Bond' previously
disclosed is no longer directly relevant, following the payment in
full of the Bond on 24 July 2022.
Related party transactions
There have been no new material related party transactions in
the period. As of 30 June 2022, Crystal Amber Fund Limited
("Crystal Amber") held 28.9% of the Company's Ordinary Shares, and
Crystal Amber has classified its investment in Hurricane as an
associate. As such, Crystal Amber is considered to be a related
party of the Group.
Going concern
At the time of preparation of these Interim Financial
Statements, the Directors have a reasonable expectation that the
Group has adequate resources to continue to operate and meet its
liabilities as they fall due for the foreseeable future, a period
considered to be at least twelve months from the date of signing
these Financial Statements. For this reason, they continue to adopt
the Going Concern Basis for preparing the Interim Financial
Statements.
Further details on the going concern assessment, and key
assumptions used therein, are described in Note 1.3 to the Interim
Financial Statements below.
REPORT ON REVIEW OF INTERIM FINANCIAL INFORMATION - INDEPENT
REVIEW REPORT TO HURRICANE ENERGY PLC
Conclusion
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2022 which comprises The Condensed
Consolidated Income Statement, the Condensed Consolidated Balance
Sheet, the Condensed Consolidated Statement of Changes in Equity,
the Condensed Consolidated Cash Flow Statement and related notes.
We have read the other information contained in the half-yearly
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2022 is not prepared, in all material respects, in accordance
with UK adopted International Accounting Standard 34 and the AIM
Rules for Companies.
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410, "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity", issued for use in the United Kingdom. A review of interim
financial information consists of making enquiries, primarily of
persons responsible for financial and accounting matters, and
applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does
not enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit.
Accordingly, we do not express an audit opinion.
As disclosed in note 1.1, the annual financial statements of the
group are prepared in accordance with UK-adopted IASs. The
condensed set of financial statements included in this half-yearly
financial report has been prepared in accordance with UK adopted
International Accounting Standard 34, "Interim Financial
Reporting".
Conclusions relating to going concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
conclusion section of this report, nothing has come to our
attention to suggest that management have inappropriately adopted
the going concern basis of accounting or that management have
identified material uncertainties relating to going concern that
are not appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with ISRE (UK) 2410, however future events or conditions
may cause the group to cease to continue as a going concern.
Responsibilities of directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the AIM Rules for
Companies.
In preparing the half-yearly financial report, the directors are
responsible for assessing the group's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the review of financial
information
In reviewing the half-yearly report, we are responsible for
expressing to the group a conclusion on the condensed set of
financial statements in the half-yearly financial report. Our
conclusion, including our conclusions relating to going concern,
are based on procedures that are less extensive than audit
procedures, as described in the Basis for conclusion paragraph of
this report.
Use of our report
This report is made solely to the company's directors, as a
body, in accordance with the terms of our engagement letter. Our
review has been undertaken so that we might state to the company's
directors those matters we have agreed to state to them in a
reviewer's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone, other than the company and the company's directors as a
body, for our work, for this report, or for the conclusions we have
formed.
PKF Littlejohn LLP 15 Westferry Circus
Statutory Auditor Canary Wharf
London E14 4HD
29 September 2022
Condensed Consolidated Statement of Comprehensive Income
for the 6 months ended 30 June 2022
6 months 6 months 12 months
ended ended ended
Notes 30 Jun 30 Jun 2021 31 Dec 2021
2022
$'000 $'000 $'000
Revenue 2.1 159,461 124,501 240,540
Cost of sales 2.2 (78,518) (88,017) (173,125)
--------------------------------------- ----- -------- ----------- -----------
Gross profit 80,943 36,484 67,415
General and administrative expenses 3.3 (3,129) (21,223) (26,749)
Gain on revision of lease term 5.2 - 49,125 49,125
Decrease/(increase) in decommissioning
estimates expensed 2.5 795 (1,751) (1,972)
Impairment of intangible exploration
and evaluation assets and exploration
expense written off 2.4 (4,907) (32) (54,280)
--------------------------------------- ----- -------- ----------- -----------
Operating profit 73,702 62,603 33,539
Finance income 3.2 39 745 27
Finance costs 3.2 (11,290) (17,190) (30,656)
Net gain on repurchase of Convertible
Bonds - - 17,201
Fair value gain/(loss) on Convertible
Bond embedded derivative 5.1 27 (3,304) (1,901)
Profit before tax and other
comprehensive income 62,478 42,854 18,210
Tax 6.1 4,484 (78) 26
--------------------------------------- ----- -------- ----------- -----------
Profit for the period and other
comprehensive income 66,962 42,776 18,236
--------------------------------------- ----- -------- ----------- -----------
Cents Cents Cents
Earnings per share (basic) 3.1 3.36 2.15 0.92
Earnings per share (diluted) 3.1 3.35 2.15 0.92
--------------------------------------- ----- -------- ----------- -----------
All results arise from continuing operations.
Condensed Consolidated Balance Sheet
as at 30 June 2022
Notes 30 Jun 2022 30 Jun 2021 31 Dec 2021
$'000 $'000 $'000
Non-current assets
Intangible exploration and
evaluation assets 2.4 128 56,573 3,830
Oil and gas assets 2.3 117,052 146,410 98,296
Other non-current assets 1,199 2,361 1,373
Deferred tax assets 6.2 - - 104
Liquid investments 4.1 - 38,938 37,783
118,379 244,282 141,386
Current assets
Inventory 2.2 30,216 16,816 27,488
Trade and other receivables 4.2 2,777 11,520 2,591
Cash and cash equivalents 4.1 203,885 169,056 76,792
------------------------------------- ----- ----------- ----------- -----------
236,878 197,392 106,871
------------------------------------- ----- ----------- ----------- -----------
Total assets 355,257 441,674 248,257
------------------------------------- ----- ----------- ----------- -----------
Current liabilities
Trade and other payables 4.3 (16,685) (24,924) (18,843)
Lease liabilities 5.2 (27,745) (26,468) (13,880)
Convertible Bond liability 5.1 (79,324) - (77,373)
Convertible Bond embedded derivative 5.1 - - (27)
Decommissioning provisions 2.5 - (4,530) -
------------------------------------- ----- ----------- ----------- -----------
(123,754) (55,922) (110,123)
Non-current liabilities
Lease liabilities 5.2 (30,043) (2,175) (1,910)
Convertible Bond liability 5.1 - (221,062) -
Convertible Bond embedded derivative 5.1 - (4,189) -
Decommissioning provisions 2.5 (47,339) (47,698) (49,346)
------------------------------------- ----- ----------- ----------- -----------
(77,382) (275,124) (51,256)
------------------------------------- ----- ----------- ----------- -----------
Total liabilities (201,136) (331,046) (161,379)
------------------------------------- ----- ----------- ----------- -----------
Net assets 154,121 110,628 86,878
------------------------------------- ----- ----------- ----------- -----------
Equity
Share capital 5.4 2,885 2,885 2,885
Share premium 822,458 822,458 822,458
Share option reserve 23,321 22,512 23,321
Own shares reserve (564) (826) (845)
Foreign exchange reserve (90,828) (90,828) (90,828)
Accumulated deficit (603,151) (645,573) (670,113)
------------------------------------- ----- ----------- ----------- -----------
Total equity 154,121 110,628 86,878
------------------------------------- ----- ----------- ----------- -----------
Condensed Consolidated Statement of Changes in Equity
for the six months ended 30 June 2022
Share Foreign
Share Share option Own shares exchange Accumulated
capital premium reserve reserve reserve deficit Total
$'000 $'000 $'000 $'000 $'000 $'000 $'000
At 1 January
2021 2,885 822,458 21,443 (923) (90,828) (688,349) 66,686
-------- -------- -------- ---------- --------- ----------- --------
Profit for the
period and other
comprehensive
income - - - - - 42,776 42,776
Share-based
payments - - 1,069 97 - - 1,166
At 30 June 2021 2,885 822,458 22,512 (826) (90,828) (645,573) 110,628
-------- -------- -------- ---------- --------- ----------- --------
Loss for the
period and other
comprehensive
income - - - - - (24,540) (24,540)
Share-based
payments - - 809 (19) - - 790
At 31 December
2021 2,885 822,458 23,321 (845) (90,828) (670,113) 86,878
------------------ -------- -------- -------- ---------- --------- ----------- --------
Profit for the
period and other
comprehensive
income - - - - - 66,962 66,962
Share-based
payments - - - 281 - - 281
At 30 June
2022 2,885 822,458 23,321 (564) (90,828) (603,151) 154,121
------------------ -------- -------- -------- ---------- --------- ----------- --------
Condensed Consolidated Cash Flow Statement
for the 6 months ended 30 June 2022
6 months 6 months 12 months
ended ended ended
Notes 30 Jun 30 Jun 2021 31 Dec 2021
2022
$'000 $'000 $'000
Cash flows from operating activities
Operating profit 73,702 62,603 33,539
Adjustments for:
Depreciation of property, plant
and equipment 2.3 37,036 49,513 98,100
Impairment of oil and gas assets 2.3 - 1,751 -
Change in decommissioning estimates
on fully impaired assets 2.5 (795) - 1,972
Impairment of intangible exploration
and evaluation assets and exploration
expense written off 2.4 4,907 32 54,280
Gain on lease remeasurement 5.2 - (49,125) (49,125)
Impairment of other right-of-use
assets - - 719
Share-based payment charge 281 1,166 1,955
Expenditure on proposed financial
restructuring - 11,687 15,903
Decommissioning spend 2.5 (180) (748) (4,824)
---------------------------------------- ----- -------- ----------- -----------
Operating cash flow before working
capital movements 114,951 76,879 152,519
Movement in receivables (903) (2,324) 579
Movement in payables (800) 6,877 5,356
Movement in crude oil, fuel
and chemicals inventories (3,129) (5,531) (11,410)
---------------------------------------- ----- -------- ----------- -----------
Net cash from operating activities 110,119 75,901 147,044
---------------------------------------- ----- -------- ----------- -----------
Cash flows from investing activities
Interest received 39 20 27
Decrease / (increase) in liquid
investments 34,739 (15,530) (15,530)
Expenditure on oil and gas assets (3,137) (6,997) (6,618)
Expenditure on other fixed assets - (2) (2)
Expenditure on intangible exploration
and evaluation assets (1,383) (2,778) (2,782)
Movement in spares and supplies
inventories 401 - (4,793)
Tax refund relating to R&D expenditure 4,588 - -
Net cash from/(used in) investing
activities 35,247 (25,287) (29,698)
---------------------------------------- ----- -------- ----------- -----------
Cash flows from financing activities
Repurchase of Convertible Bond
principal for cancellation - - (130,346)
Transaction costs - - (1,311)
Convertible Bond interest paid 5.1 (2,944) (8,625) (17,372)
Lease repayments 5.2 (13,892) (4,808) (18,596)
Interest and other finance charges
paid (11) (20) (34)
Expenditure on proposed financial
restructuring - (11,687) (15,903)
New shares issued under employee -
share schemes - -
---------------------------------------- ----- -------- ----------- -----------
Net cash used in financing activities (16,847) (25,140) (183,562)
---------------------------------------- ----- -------- ----------- -----------
Increase/(decrease) in cash
and cash equivalents 128,519 25,474 (66,216)
---------------------------------------- ----- -------- ----------- -----------
Cash and cash equivalents at
beginning of period 76,792 143,703 143,703
Net increase/(decrease) in cash
and cash equivalents 128,519 25,474 (66,216)
Effects of foreign exchange rate
changes (1,426) (121) (695)
---------------------------------------- ----- -------- ----------- -----------
Cash and cash equivalents at
end of period 4.1 203,885 169,056 76,792
---------------------------------------- ----- -------- ----------- -----------
Notes to the Interim Financial Statements
for the 6 months ended 30 June 2022
Section 1 General information and basis of preparation
Hurricane Energy plc is a public company, limited by shares,
incorporated and domiciled in the United Kingdom and registered in
England and Wales under the Companies Act 2006 (registered company
number 05245689). The nature of the Group's operations and its
principal activity is exploration, development and production of
oil and gas reserves principally on the UK Continental Shelf. The
address of Hurricane Energy plc's registered office is The Wharf,
Abbey Mill Business Park, Lower Eashing, Godalming, Surrey, GU7
2QN. Hurricane Energy plc's shares are listed on the AIM market of
the London Stock Exchange.
This Interim Report and Financial Statements was approved by the
Board of Directors and authorised for issue on 29 September
2022.
This set of Interim Financial Statements for the six months
ended 30 June 2022 is unaudited and does not constitute statutory
accounts within the meaning of section 434 of the Companies Act
2006. Audited statutory Financial Statements for the year ended 31
December 2021 were approved by the Board of Directors on 27 April
2022 and have been delivered to the Registrar of Companies. The
auditor's report on those Financial Statements, issued by PKF
Littlejohn LLP, was unqualified, did not draw attention to any
matters by way of emphasis and did not contain a statement made
under Section 498 of the Companies Act 2006.
1.1 Basis of preparation
The Interim Financial Statements for the six months ended 30
June 2022 have been prepared in accordance with International
Accounting Standard 34 'Interim Financial Reporting' (IAS 34) in
conformity with the requirements of the Companies Act 2006 and the
AIM Rules. The annual financial statements of the Group are
prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006 and
UK-adopted international accounting standards. The consolidated
income statement and related notes represent results arising from
continuing operations, there being no discontinued operations in
the periods presented. The Interim Financial Statements have been
prepared using accounting bases and policies consistent with those
used in the preparation of the audited Financial Statements of the
Group for the year ended 31 December 2021.
1.2 Significant events and changes in the current reporting
period
The financial performance and position of the Group was affected
by the following events and changes during the six-month period to
30 June 2022:
-- a significant increase in revenue versus the comparative
six-month period due to the continued strong recovery in crude oil
prices (note 2.1);
-- an impairment of intangible exploration and evaluation assets
of $4.9m (note 2.4), following the decision to relinquish the
Lincoln (P1368 S) and Warwick (P2294) licences during the period
following an assessment of the options for further appraisal and
potential development in relation to these licences;
-- a significant reduction in finance costs versus the
comparative six-month period due to a significant repurchase of
Convertible Bonds during 2021 and consequent reduction in
associated debt (note 5.1); and
-- an increase in the lease liabilities and right-of-use assets
relating to the Aoka Mizu FPSO resulting from a renegotiation of
the bareboat charter of the Aoka Mizu FPSO and increase in the
lease term assumption against a background of higher oil prices and
consistent performance on Lancaster (notes 2.3 and 5.2)
Since the end of the reporting period, the Group repaid in full
its outstanding $78,515,000 7.50 per cent Convertible Bonds plus
$1.5 million of accrued interest (see note 7.2.1).
The Group's business and operations are not exposed to
seasonality or cyclicality. The Group has reviewed its exposure to
climate-related and other emerging business risks but has not
identified any of these risks that could impact the financial
performance or position of the group as at 30 June 2022. The
principal risks and uncertainties impacting the Group are outlined
within the Financial Review above.
1.3 Going concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Chief Executive Officer's review and Financial
Review above. The financial position of the Group, its cash flows
and liquidity position are set out in these Interim Financial
Statements. The Group ended the half year with $203.9 million of
cash and cash equivalents, of which $143.1 million was
unrestricted. After adjusting for working capital items, net free
cash at 30 June 2022 was $126.9 million (Appendix B). The Group's
most significant liabilities at 30 June 2022 were $78.5 million in
relation to Convertible Bonds which were paid in full in July 2022,
and committed lease liabilities in respect of the Aoka Mizu FPSO.
These Interim Financial Statements have been prepared in accordance
with the going concern basis of accounting, with the presumption of
going concern being a critical judgment.
The following key assumptions were used in the assessment of the
going concern position:
-- Dated Brent oil price of $100/bbl (average for remainder of
2022), $93/bbl (average for 2023) and $85/bbl (average for
2024);
-- no sanctioned capital or development projects;
-- continued use of the Aoka Mizu FPSO throughout the assessment period; and
-- production from the P6 well alone in line with approved
guidance and the production profiles supporting the most recent
CPR;
-- Oil and Gas Energy Profits Levy (EPL) effective from 26 May 2022 until 31 December 2025
Under the base case scenario, the Group had sufficient headroom
thereafter for a period of at least 12 months to fund ongoing
working capital requirements.
Sensitivity analysis was also undertaken to reflect the
following:
-- a reduction to the forecast oil price curve of $20/bbl; and
-- a 25% reduction to forecast production rates
Under the sensitivity cases above, both individually and in
aggregate, the Group is projected to have sufficient cash to
continue operating for a period of at least 12 months.
As a result of the going concern assessment presented above, the
directors have a reasonable expectation that, after also taking
into consideration the current macroeconomic situation, the Group
has adequate resources to continue in operational existence
throughout the going concern period.
Therefore, the directors continue to adopt the going concern
basis of accounting in preparing these consolidated financial
statements and the financial statements do not include the
adjustments that would result if the Group were unable to continue
as a going concern.
1.4 Accounting policies
The accounting policies adopted are consistent with those of the
annual Financial Statements for the year ended 31 December 2021.
New and amended standards that became applicable for the Group in
the current reporting period have not resulted in changes to
accounting policies or retrospective adjustments.
1.5 Critical accounting judgments and key sources of estimation
uncertainty
The key risks at 30 June 2022 are the same as those described in
the audited Financial Statements of the Group for the year ended 31
December 2021. Changes to underlying key estimates (as compared
with estimates made at 31 December 2021) primarily comprise of the
change to the lease liability and associated right-of use asset in
respect of the Aoka Mizu FPSO following a renegotiation of the
lease contract and reassessment of the lease term (notes 2.3 and
5.2).
Section 2 Oil and gas operations
2.1 Revenue
All revenue is derived from contracts with customers and is
comprised of one category and within one geographical location,
being the sale of crude oil from the Lancaster EPS. All sales were
made to one external customer (BP Oil International Limited).
6 months 6 months 12 months
ended ended ended
30 Jun 30 Jun 2021 31 Dec 2021
2022
$'000 $'000 $'000
Oil sales 159,461 124,501 240,540
-------------------------------------- ---------- -----------
Revenue from contracts with customers 159,461 124,501 240,540
-------------------------------------- ---------- ----------- -----------
Cargoes sold 3 4 7
Sales volumes 1,601 Mbbl 2,004 Mbbl 3,576 Mbbl
Average sales price realised $99.6/bbl $62.2/bbl $67.3/bbl
2.2 Cost of sales and inventory
Cost of sales
6 months 6 months 12 months
ended ended ended
30 Jun 2022 30 Jun 2021 31 Dec 2021
Note $'000 $'000 $'000
Operating costs 31,226 32,717 65,688
Depreciation of oil and gas
assets - owned 2.3 28,145 45,855 94,200
Depreciation of oil and gas
assets - leased 2.3 8,725 3,405 3,405
Movement in crude oil inventory (2,516) (5,059) (10,622)
Variable lease payments 5.2 12,938 11,099 20,454
-------------------------------- ---- ----------- ----------- -----------
Cost of sales 78,518 88,017 173,125
-------------------------------- ---- ----------- ----------- -----------
Inventory
30 Jun 2022 30 Jun 2021 31 Dec 2021
$'000 $'000 $'000
Crude oil 15,829 7,750 13,313
Fuel and chemicals 2,737 1,808 2,124
Spares and supplies 11,650 7,258 12,051
---------------------- ----------- ----------- -----------
Inventory 30,216 16,816 27,488
---------------------- ----------- ----------- -----------
No net realisable value provision was held for inventory.
2.3 Oil and gas assets
Leased Owned Total
Note $'000 $'000 $'000
Cost
At 1 January 2021 101,821 784,558 886,379
Additions - 5,568 5,568
Remeasurement of lease liability 5.2 (18,212) - (18,212)
Changes to decommissioning
estimates 2.5 - 287 287
--------------------------------- ---- -------- --------- ---------
At 30 June 2021 83,609 790,413 874,022
Additions - (996) (996)
Changes to decommissioning
estimates 2.5 1,961 1,227 3,188
--------------------------------- ---- -------- --------- ---------
At 31 December 2021 85,570 790,644 876,214
Additions - 2,314 2,314
Remeasurement of lease liability 5.2 54,493 - 54,493
Changes to decommissioning
estimates 2.5 - (1,181) (1,181)
--------------------------------- ---- -------- --------- ---------
At 30 June 2022 140,063 791,777 931,840
--------------------------------- ---- -------- --------- ---------
Depreciation and impairment
At 1 January 2021 (80,204) (598,148) (678,352)
Depreciation charge for the
period (3,405) (45,855) (49,260)
At 30 June 2021 (83,609) (644,003) (727,612)
--------------------------------- ---- -------- --------- ---------
Depreciation charge for the
period - (48,345) (48,345)
Provision for impairment (1,961) - (1,961)
--------------------------------- ---- -------- --------- ---------
At 31 December 2021 (85,570) (692,348) (777,918)
Depreciation charge for the
period (8,725) (28,145) (36,870)
At 30 June 2022 (94,295) (720,493) (814,788)
--------------------------------- ---- -------- --------- ---------
Carrying amount at 30 June
2021 - 146,410 146,410
--------------------------------- ---- -------- --------- ---------
Carrying amount at 31 December
2021 - 98,296 98,296
--------------------------------- ---- -------- --------- ---------
Carrying amount at 30 June
2022 45,768 71,284 117,052
--------------------------------- ---- -------- --------- ---------
Oil and gas assets held under leases comprise the Aoka Mizu FPSO
bareboat charter, which commenced in May 2019. During the current
period, the lease term was reassessed following a renegotiation of
the lease contract resulting in the leased asset value (see note
5.2). The Group has reasonable certainty that it will be able to
lease the Aoka Mizu FPSO until economic end of life of the
Lancaster field. Given that no indications of impairment existed at
30 June 2022 no impairment test for the purposes of determining the
recoverable amount of oil and gas assets has been performed.
Included within the cost of owned oil and gas assets is $42.8
million of capitalised borrowing costs (6 months ended 30 June 2021
and 12 months ended 31 December 2021: $42.8 million).
The total amount of depreciation charged in the period
(comprising depreciation of oil and gas assets above, and
depreciation of other fixed assets) was $37.0 million (6 months
ended 30 June 2021: $49.5 million; 12 months ended 31 December
2021: $98.1 million).
2.4 Intangible exploration and evaluation assets
6 months 6 months 12 months
ended ended ended
30 Jun 2022 30 Jun 2021 31 Dec 2021
Note $'000 $'000 $'000
At start of period 3,830 55,390 55,390
Additions 1,208 2,881 5,235
Provision for impairment and
exploration expense written
off (4,907) (32) (54,280)
Changes to decommissioning
estimates 2.5 (3) (1,666) (2,515)
----------------------------- ---- ----------- ----------- -----------
At end of period 128 56,573 3,830
----------------------------- ---- ----------- ----------- -----------
Intangible exploration and evaluation assets comprise the
Group's share of the cost of licence interests and exploration and
evaluation expenditure within its licensed acreage in the West of
Shetland area which, at 30 June 2022, comprise only the Halifax
(licence P2308) following the relinquishment of the Lincoln (P1368
S) and Warwick (P2294) licences during the period.
The Group and its joint operation partner Spirit Energy have
determined that further appraisal and development costs to reach an
economic development on the Greater Warwick Area (GWA) discovery
within the remaining licence term is not feasible. The Group and
its joint operation partner Spirit Energy therefore decided to
relinquish the Lincoln (P1368 S) and Warwick (P2294) licences, with
a consequent impairment charge of $4.9 million being recognised
during the period.
2.5 Decommissioning provisions
6 months 6 months 12 months
ended ended ended
30 Jun 2022 30 Jun 2021 31 Dec 2021
Note $'000 $'000 $'000
At start of period 49,346 61,141 61,141
Net new provisions and changes
in estimates (1,982) (1,293) (1,921)
Utilised and transferred to
accruals in period (180) (7,620) (9,894)
Unwinding of discount 3.2 155 - 20
-----------
At end of period 47,339 52,228 49,346
--------------------------------- ---- ----------- ----------- -----------
Of which:
Current - 4,530 -
Non-current 47,339 47,698 49,346
--------------------------------- ---- ----------- ----------- -----------
47,339 52,228 49,346
--------------------------------- ---- ----------- ----------- -----------
Restricted funds held in respect
of decommissioning:
Restricted cash 4.1 41,385 2,299 -
Liquid investments 4.1 - 38,938 37,783
--------------------------------- ---- ----------- ----------- -----------
41,385 41,237 37,783
--------------------------------- ---- ----------- ----------- -----------
The provision for decommissioning relates to the costs required
to decommission the Lancaster EPS installations and the costs
required to clean, remove and restore the Aoka Mizu FPSO at the end
of the charter term.
The utilisation of provisions during the period related to the
final payments relating to the plugging and abandoning of the
Lancaster 4Z well, and cessation of production planning for the
Lancaster EPS and FPSO.
Restricted funds held in respect of decommissioning at 30 June
2021 included an amount sitting in trust of $38.9m classified as
'Liquid Investments'. The amount at 30 June 2022 sitting in trust
of $41.4m was reclassified from 'Liquid Investments' to 'Restricted
Cash' due to the notice of those funds being less than 3 months on
this date.
2.6 Joint operation
In September 2018 the Group entered into a joint operation with
Spirit to share costs and risks associated with the Greater Warwick
Area (GWA) in exchange for granting Spirit a 50% interest in the
Group's Lincoln (P1368 South) and Warwick (P2294) licences. Costs
of the joint operation are currently being shared equally between
the joint operation partners. The Lincoln (P1368 South) and Warwick
(P2294) licences were relinquished in the period. Before the joint
operation is formally concluded, there remain a number of
operational and administrative matters to complete. The Group
currently acts as operator of the joint operation and will continue
to do so until these matters are concluded. Amounts due from and to
the joint operation partner are shown in notes 4.2 and 4.3
respectively.
Further details on the activities and progress of the joint
operation are described in the Chief Executive Officer's review
above.
2.7 Commitments
30 Jun 2022 30 Jun 2021 31 Dec 2021
$'000 $'000 $'000
Contractual commitments in respect
of oil and gas assets 6,516 7,643 1,201
Contractual commitments in respect
of intangible exploration and evaluation
assets 648 4,915 821
------------------------------------------ ----------- ----------- -----------
Section 3 Income Statement
3.1 Earnings per share
6 months 6 months 12 months
ended ended ended
30 Jun 30 Jun 2021 31 Dec 2021
2022
$'000 $'000 $'000
Profit attributable to holders of
Ordinary Shares in the Company used
in calculating basic earnings per
share (being profit after tax) 66,962 42,776 18,236
Add back impact of:
Convertible Bond - interest expense 4,896 n/a n/a
not capitalised
Convertible Bond - depreciation - n/a n/a
of interest capitalised in the year
Convertible Bond - fair value gain (27) n/a n/a
-------------------------------------- ------------- ------------- -------------
Profit attributable to holders of
Ordinary Shares in the Company used
in calculating diluted earnings per
share 71,831 42,776 18,236
-------------------------------------- ------------- ------------- -------------
Number Number Number
Weighted average number of Ordinary
Shares used in calculating basic
earnings per share 1,990,393,725 1,989,515,103 1,989,927,148
Potential dilutive effect of:
Convertible Bond 150,990,234 n/a n/a
-------------------------------------- ------------- ------------- -------------
Weighted average number of Ordinary
Shares and potential Ordinary Shares
used in calculating diluted earnings
per share 2,141,383,959 1,989,515,103 1,989,927,148
-------------------------------------- ------------- ------------- -------------
Cents Cents Cents
Basic earnings per share 3.36 2.15 0.92
Diluted earnings per share 3.35 2.15 0.92
-------------------------------------- ------------- ------------- -------------
For the 6 months ended 30 June 2021 and 12 months ended 31
December 2021, the potential impact of the conversion feature
included within the Convertible Bond was antidilutive as their
conversion to Ordinary Shares would have increased earnings per
share. The impact of the VCP and PSP share award schemes was
antidilutive in 2021 because market based conditions for both
schemes was not met at any point during the year.
3.2 Finance income and costs
6 months 6 months 12 months
ended ended ended
30 Jun 2022 30 Jun 2021 31 Dec 2021
Note $'000 $'000 $'000
Interest income on cash, cash
equivalents and liquid investments 39 20 27
Net foreign exchange gains - 725 -
----------------------------------------- ---- ----------- -----------
Finance income 39 745 27
----------------------------------------- ---- ----------- ----------- -----------
Convertible Bond interest expense 5.1 (4,896) (13,654) (24,810)
Interest on lease liabilities 5.2 (1,591) (3,402) (4,412)
Other interest expense and
bank charges (203) (134) (217)
Net foreign exchange losses (4,445) - (1,197)
Unwinding of discount on decommissioning
provisions 2.5 (155) - (20)
----------------------------------------- ---- ----------- ----------- -----------
Finance costs (11,290) (17,190) (30,656)
----------------------------------------- ---- ----------- ----------- -----------
Net finance costs (11,251) (16,445) (30,629)
----------------------------------------- ---- ----------- ----------- -----------
3.3 General and administrative expenditure
6 months 6 months Year ended
ended ended
30 Jun 30 Jun 2021 31 Dec
2022 2021
$'000 $'000 $'000
Wages and salaries 4,392 7,167 9,939
Social security costs 616 877 1,226
Defined contribution pension costs 224 370 689
--------------------------------------------- -------- ----------- -----------
Staff costs 5,232 8,414 11,854
Non-staff costs 3,278 18,280 22,958
Gross general and administrative expenditure
before recharges 8,510 26,694 34,812
Capitalised into oil and gas assets (1,095) (1,911) (3,025)
Capitalised into exploration and evaluation
assets (1,682) (2,438) (3,456)
Included within cost of sales (3,051) (2,542) (4,752)
--------------------------------------------- -------- ----------- -----------
Net general and administrative expenditure
before non-cash items 2,682 19,803 23,579
Non-cash general and administrative costs:
Net share-based payment charge 281 1,166 1,956
Depreciation of other fixed assets and
other right-of-use assets 166 254 495
Impairment of other right-of-use assets - - 719
--------------------------------------------- -------- ----------- -----------
General and administrative expenditure 3,129 21,223 26,749
--------------------------------------------- -------- ----------- -----------
Number Number Number
Average number of employees 35 60 55
Section 4 Cash, working capital and financial instruments
4.1 Cash and cash equivalents and liquid investments
30 June 31 December
2022 30 June 2021 2021
$'000 $'000 $'000
Unrestricted cash and cash equivalents
(current) 143,083 148,082 68,858
Restricted cash and cash equivalents
(current) 60,802 20,974 7,934
---------------------------------------- ------- ------------ -----------
Current cash and cash equivalents 203,885 169,056 76,792
Restricted cash and cash equivalents
(non-current) - - -
Liquid investments - 38,938 37,783
---------------------------------------- ------- ------------ -----------
Total cash and cash equivalents
and liquid investments 203,885 207,994 114,575
---------------------------------------- ------- ------------ -----------
Of which:
Unrestricted 143,083 148,082 68,858
Restricted 60,802 59,912 45,717
---------------------------------------- ------- ------------ -----------
203,885 207,994 114,575
--------------------------------------- ------- ------------ -----------
Restricted funds held in respect of decommissioning at 30 June
2021 included an amount sitting in trust of $38.9m classified as
'Liquid Investments'. The amount at 30 June 2022 sitting in trust
of $41.4m was reclassified from 'Liquid Investments' to 'Restricted
Cash' due to the notice of those funds being less than 3 months on
this date.
The carrying amounts of cash and cash equivalents and liquid
investments are considered to be materially equivalent to their
fair values.
The movement in restricted and unrestricted cash, cash
equivalents and liquid investments is as follows:
Six months ended 30 June 2022
-------------------------------------
Restricted Unrestricted Total
$'000 $'000 $'000
----------------------------------------- ----------- ------------- ---------
At 1 January 45,717 68,858 114,575
Operating cash flows - 110,119 110,119
Change in Lancaster EPS decommissioning
security arrangements 7,749 (7,749) -
Capital expenditure and other investing
cash flows - 508 508
Financing cash flows - (16,847) (16,847)
Movement in FPSO early termination
reserve 11,489 (11,489) -
Foreign exchange rate changes (4,153) (317) (4,470)
----------------------------------------- ----------- ------------- ---------
At 30 June 60,802 143,083 203,885
----------------------------------------- ----------- ------------- ---------
Six months ended 30 June 2021
-------------------------------------
Restricted Unrestricted Total
$'000 $'000 $'000
----------------------------------------- ----------- ------------- ---------
At 1 January 51,603 114,911 166,514
Operating cash flows -- 75,901 75,901
Change in Lancaster EPS decommissioning
security arrangements 15,530 (15,530) -
Capital expenditure and other investing
cash flows - (9,757) (9,757)
Financing cash flows - (25,140) (25,140)
Movement in FPSO early termination
reserve (7,872) 7,872 -
Foreign exchange rate changes 651 (175) 476
----------------------------------------- ----------- ------------- ---------
At 30 June 59,912 148,082 207,994
----------------------------------------- ----------- ------------- ---------
Year ended 31 Dec 2021
--------------------------------------
Restricted Unrestricted Total
$'000 $'000 $'000
----------------------------------------- ----------- ------------- ----------
At 1 January 51,603 114,911 166,514
Operating cash flows -- 147,970 147,970
Change in Lancaster EPS decommissioning
security arrangements 15,530 (15,530) -
Capital expenditure and other investing
cash flows - (15,095) (15,095)
Financing cash flows - (183,562) (183,562)
Movement in FPSO early termination
reserve (18,670) 18,670 -
Net release of other restricted funds (2,244) 2,244 -
Foreign exchange rate changes (502) (750) (1,252)
----------------------------------------- ----------- ------------- ----------
At 31 December 45,717 68,858 114,575
----------------------------------------- ----------- ------------- ----------
Included within restricted cash and cash equivalents is $19.4
million (31 December 2021: $7.9 million; 30 June 2021: $18.7
million) set aside in relation to the Aoka Mizu FPSO bareboat
charter. Under the terms of the contract, the Group is required to
ring-fence amounts to ensure it could meet its liability to the
lessor to cover the costs associated with the day rate for the
six-month notice period and decommissioning in respect of the
vessel.
The remaining $41.4 million of restricted cash comprises
decommissioning security in place for the Lancaster EPS. As part of
the original Lancaster Field Development Plan approval, the Group
was required to provide security of GBP16.8 million for its
decommissioning liability on the Lancaster field, being the
estimated post-tax amount to meet future decommissioning
obligations. In June 2021, the Group agreed with the Regulator to
place an additional GBP11.2 million ($15.5 million) into trust, in
order to provide security for its decommissioning liability on the
Lancaster field on a pre-tax basis, with a further GBP5.7 million
($7.7 million) being placed in February 2022.
4.2 Trade and other receivables
30 Jun 2022 30 Jun 2021 31 Dec 2021
$'000 $'000 $'000
Amounts due from joint operation
partner 300 6,800 813
Trade receivables 115 630 423
Prepayments 2,227 2,423 1,058
Other receivables 135 1,667 297
----------------------------------- ----------- ----------- -----------
Trade and other receivables 2,777 11,520 2,591
----------------------------------- ----------- ----------- -----------
The carrying amounts of trade and other receivables are
considered to be materially equivalent to their fair values and are
unsecured. Joint operation receivables represent expenses incurred
by the Group as operator of the joint operation which will be
recovered from the Group's joint operation partner. Amounts billed
to the joint operation partner accrued interest based at LIBOR in
the period and are generally due for settlement within ten
days.
4.3 Trade and other payables
30 Jun 2022 30 Jun 2021 31 Dec 2021
$'000 $'000 $'000
Trade payables 5,988 1,329 2,915
Other payables 304 628 351
Accruals 10,393 22,967 15,577
--------------------------- ----------- ----------- -----------
Trade and other payables 16,685 24,924 18,843
--------------------------- ----------- ----------- -----------
The carrying amounts of trade and other payables are considered
to be materially equivalent to their fair values and are unsecured.
Trade and other payables are non-interest bearing and generally
payable within 30 days.
Trade and other payables and accruals include the Group's share
of joint operation payables, including amounts that the Group
settles on behalf of joint operation partners. Accruals includes
expenditure relating to joint operations incurred by the Group as
operator which have yet to be billed to joint operation
partners.
Section 5 Capital and debt
5.1 Convertible Bond
In July 2017 the Group raised $230 million (gross) from the
successful placement of the Convertible Bond. The Convertible Bond
was issued at par and carries a coupon of 7.5% payable quarterly in
arrears. The Convertible Bond is convertible into fully paid
Ordinary Shares with the initial conversion price set at $0.52,
representing a 25% premium above the placing price of the
concurrent equity placement, being GBP0.32 (converted into US
Dollars at a USD/GBP rate of 1.30). At the time of issue, the
number of potential Ordinary Shares that could be issued if all the
bonds were converted was 442,307,692 (assuming conversion at the
initial conversion price of $0.52). The impact of these potential
Ordinary Shares on diluted earnings per share, where applicable, is
shown in note 3.1. During 2021, the Group repurchased $151.5
million of nominal Convertible Bonds debt for cash consideration of
$131.9 million, including accrued interest of $1.6 million. As at
30 June 2022, the nominal value of Convertible Bonds remaining in
issue was $78.5 million. Subsequent to the balance sheet date, in
July 2022, the Group repaid in full the outstanding $78.5 million
7.50 per cent Convertible Bonds plus $1.5 million of accrued
interest by the maturity date of 24 July 2022 - see note 7.2.1.
The Convertible Bond's carrying value is split between a debt
component (the host contract) measured at amortised cost (with an
effective interest rate of 13.5%) and an embedded derivative
component measured at fair value.
The amounts recognised in the Financial Statements relating to
the Convertible Bond, being all liabilities arising from financing
activities, are as follows:
Debt component Derivative component Total
$'000 $'000 $'000
Carrying value at 1 January
2021 216,034 885 216,919
Cash interest paid (8,625) - (8,625)
Fair value loss - 3,304 3,304
Interest charged 13,653 - 13,653
------------------------------- -------------- -------------------- ---------
Carrying value at 30 June
2021 221,062 4,189 225,251
------------------------------- -------------- -------------------- ---------
Cash interest paid (8,747) - (8,747)
Cash consideration for
repurchase of Convertible
Bond principal (130,346) - (130,346)
Gain on repurchase (15,753) (2,759) (18,512)
Fair value gain - (1,403) (1,403)
Interest charged 11,157 - 11,157
Carrying value at 31 December
2021 77,373 27 77,400
Cash interest paid (2,944) - (2,944)
Fair value gain - (27) (27)
Interest charged 4,895 - 4,895
------------------------------- -------------- -------------------- ---------
At 30 June 2022 79,324 - 79,324
------------------------------- -------------- -------------------- ---------
Fair value at 30 June
2021 132,825 4,189 137,014
------------------------------- -------------- -------------------- ---------
Fair value at 31 December
2021 75,449 27 75,476
------------------------------- -------------- -------------------- ---------
Fair value at 30 June
2022 78,711 - 78,711
------------------------------- -------------- -------------------- ---------
The Convertible Bond contains covenants relating to the
restrictions on incurrence of certain indebtedness. These covenants
were complied with for the current and prior periods. Further
details on the Convertible Bond and its covenants are disclosed in
note 5.1 to the Group's 2021 Annual Report and Financial
Statements.
The embedded derivative component of the Convertible Bond is
categorised within Level 3 of the fair value hierarchy, as the
derivatives themselves are not traded on an active market and their
fair values are determined using a valuation technique that uses
one key input that is not based on observable market data, being
share price volatility.
The key inputs used are share price volatility (calculated as
the volatility of one Hurricane Ordinary Share over a period
equivalent to the remaining expected term to redemption) and the
price of one Ordinary Share at 30 June 2022. In determining the
fair value of the embedded derivative, the likelihood of the early
redemption option being exercised and the likelihood of a change of
control of the Group within the life of the Convertible Bond were
considered. The likelihood of each was considered to be nil for the
purposes of the valuation.
The fair value calculation at 30 June 2022 used a share price
volatility assumption of 135.6% (31 December 2021: 117.6%; 30 June
2021: 171.4%) and the price of one Hurricane Energy plc Ordinary
Share as at the balance sheet date of GBP0.071 (31 December 2021:
GBP0.038; 30 June 2021: GBP0.036). Given the time to maturity, it
is not considered that there is a significant risk of changes to
these assumptions resulting in a material adjustment to the
carrying amounts of the embedded derivative between the balance
sheet date and the maturity date of 24 July 2022.
5.2 Leases
6 months 6 months 12 months
ended ended ended
30 Jun 2022 30 Jun 2021 31 Dec 2021
$'000 $'000 $'000
At start of period 15,790 97,321 97,321
Remeasurement of lease liability 54,493 (67,337) (67,337)
Cash payments of principal
and interest (13,892) (4,808) (18,596)
Interest charged 1,591 3,402 4,412
Foreign exchange movements (194) 65 (10)
At end of period 57,788 28,643 15,790
----------------------------------- ----------- ----------- -----------
Of which:
Current 27,745 26,468 13,880
Non-current 30,043 2,175 1,910
----------------------------------- ----------- ----------- -----------
57,788 28,643 15,790
--------------------------------- ----------- ----------- -----------
The Group's main lease is the bareboat charter of the Aoka Mizu
FPSO for which the Group makes fixed payments (which are included
within the lease liability measurement) and variable payments
(which are based on a percentage of the quantity and price of crude
oil sold, and recognised as an expense in the period in which the
related sales are made - see note 2.2 ). Variable lease payments
for the period were $12.9 million (6 months ended 30 June 2021:
$11.1 million; year ended 31 December 2021: $20.5 million).
The lease term for the Aoka Mizu FPSO was previously assessed to
have been six years from inception of the lease (to June 2025),
taking into account extension options and termination arrangements.
On 4 June 2021, the Group announced it had resolved not to exercise
its option to extend the bareboat charter of the Aoka Mizu FPSO for
a period of three years from June 2022 to June 2025. As the Group
had elected not to exercise an option previously included in its
determination of the lease term, the lease term was assessed, for
IFRS 16 accounting purposes, to be expiring at the end of the
contractual period (being June 2022), and therefore the liability
was remeasured by discounting the revised lease payments. This
resulted in a decrease to the lease liability of $67.3 million,
decrease to the associated right-of-use asset cost of $18.2 million
and a gain of $49.1 million recognised in profit and loss in the
Group's 2021 Annual Report and Financial Statements (note 5.2).
On 25 March 2022, the Group announced that it has signed a
contract with Bluewater, for an extension to the Bareboat Charter
beyond the previous expiry date of 4 June 2022. The extension is
expected to cover the remaining economic life of the Lancaster
field given the significant economic incentive for both sides to
extend the lease based on the current forward price curve and
production profiles. In accordance with IFRS 16 the liability has
been remeasured by discounting the revised lease payments covering
the economic life of field. This resulted in an increase to the
lease liability of $54.5 million (above) and corresponding increase
to the associated right-of-use asset cost of $54.5 million (note
2.3).
5.3 Maturity analysis of financial liabilities
The maturity analysis of contractual undiscounted cash flows for
non-derivative financial liabilities, as at the balance sheet
dates, is as follows:
Less than More than
6 months 6-12 months 1-2 years 2-5 years 5 years Total
$'000 $'000 $'000 $'000 $'000 $'000
Trade payables
and accruals 16,685 - - - - 16,685
Convertible Bond
interest 1,472 - - - - 1,472
Convertible Bond
principal 78,515 - - - - 78,515
Lease liabilities 13,952 13,877 27,800 7,844 787 64,260
------------------ --------- ----------- --------- --------- --------- -------
At 30 June 2022 110,624 13.877 27,800 7,844 787 160,932
------------------ --------- ----------- --------- --------- --------- -------
Less than More than
6 months 6-12 months 1-2 years 2-5 years 5 years Total
$'000 $'000 $'000 $'000 $'000 $'000
Trade payables
and accruals 24,924 - - - - 24,924
Convertible Bond
interest 8,625 8,625 4,313 - - 21,563
Convertible Bond
principal - - 230,000 - -
Lease liabilities 13,795 14,098 514 1,109 891 30,407
------------------ --------- ----------- --------- --------- --------- ------
At 30 June 2021 47,344 22,723 4,827 1,109 891 76,894
------------------ --------- ----------- --------- --------- --------- ------
Less than More than
6 months 6-12 months 1-2 years 2-5 years 5 years Total
$'000 $'000 $'000 $'000 $'000 $'000
Trade payables
and accruals 18,843 - - - - 18,843
Convertible Bond
interest 2,944 1,472 - - - 4,416
Convertible Bond
principal - 78,515 - - - 78,515
Lease liabilities 13,900 441 499 1,038 865 16,743
------------------ --------- ----------- --------- --------- --------- -------
At 31 December
2021 35,687 80,428 499 1,038 865 118,517
------------------ --------- ----------- --------- --------- --------- -------
The maturity analysis for lease liabilities includes only those
fixed lease repayments contracted to at the balance sheet date.
5.4 Share capital
Ordinary $'000
Shares
----------------------------------- ------------- -----
At 1 January 2021 1,991,871,556 2,885
Shares issued under employee share - -
schemes
----------------------------------- ------------- -----
At 30 June 2022, 31 December 2021
and 30 June 2021 1,991,871,556 2,885
-------------------------------------- ------------- -----
The Company has one class of Ordinary Share, which has a par
value of GBP0.001. No new shares were issued under employee share
schemes during the current period.
Section 6 Tax
6.1 Tax charge/credit for the period
6 months 6 months 12 months
ended ended ended
30 Jun 30 Jun 2021 31 Dec 2021
2022
$'000 $'000 $'000
UK corporation tax
Current tax - prior years (4,588) - -
-------------------------------------------- -------- ----------- -----------
Total current tax (4,588) - -
-------------------------------------------- -------- ----------- -----------
Deferred tax - current year 104 (78) 21
Effect of changes in tax rates - - 5
Total deferred tax 104 (78) 26
-------------------------------------------- -------- ----------- -----------
Tax (charge)/credit per Income Statement 4,484 (78) 26
-------------------------------------------- -------- ----------- -----------
Profit/(loss) on ordinary activities
before tax 62,478 42,854 18,210
-------------------------------------------- -------- ----------- -----------
Profit/(loss) on ordinary activities
multiplied by standard rate of corporation
tax in the UK applicable to oil and
gas companies of 40% (24,991) (17,142) (7,284)
Effects of:
Expenses not deductible for tax
purposes (643) (1,404) (1,934)
Income not chargeable for tax purposes - - 7,692
Items taxed at rates other than
the standard rate of 40% (562) (2,481) (2,064)
Ring fence expenditure supplement - - 20,560
Prior period current tax 4,588 - -
Prior period deferred tax - - 5
Utilisation of losses not previously
recognised 19,263 - -
Temporary differences not recognised 6,829
Impact of tax rate change - - 25
Chargeable gain - - (10,287)
-------------------------------------------- -------- ----------- -----------
Total tax (charge)/credit for the
period 4,484 (78) 26
-------------------------------------------- -------- ----------- -----------
In 2021 the Group made a claim under the SME and RDEC research
and development tax relief scheme in respect of the 2019 & 2020
financial years. GBP3.4 million was received in respect of this in
2022 and classified within cash flows from investing activities as
the original expenditure giving rise to the credit was reported
within investing activities.
The deferred tax charge for the current year of $0.1 million
wholly relates to the derecognition of the deferred tax asset
previously recognised at 31 December 2021 (note 6.2).
6.2 Deferred tax
6 months 6 months ended 12 months
ended ended
30 Jun 2022 30 Jun 2021 31 Dec 2021
$'000 $'000 $'000
Accelerated capital allowances - - 83
Other timing differences - - 21
Deferred tax asset - - 104
------------------------------- ----------- -------------- -----------
A potential deferred tax asset of $258.1 million has not been
recognised in relation to tax losses and allowances in the main
trading entity, Hurricane GLA Limited, as it has been concluded
that it is not appropriate to recognise any of this potential
deferred tax asset based on current forecasts of future
profitability. A further $73.9 million relates to pre-trading
expenditure losses not recognised after offset of the carrying
value of those pre-trading assets and includes potential claims for
ring fence expenditure supplement ('RFES'). The unrecognised
potential deferred tax assets relate to different types of tax
loss, each being calculated at a different rate, the highest being
that applicable to UK ring fence profits of 30%.
6.3 Factors which may affect future tax charges
The quantum of the deferred tax asset recognised, and
corresponding deferred tax charge or credit, is highly dependent on
management's estimate of future cash flows and taxable income.
Changes to estimates of future taxable profits will occur in future
periods due to movements in forecast oil prices, finalisation of
estimated reserves and resources, and the sanction or otherwise of
capital projects.
The Group has ring-fenced trading losses of $316.8 million at 30
June 2022 (30 June 2021: $357.7 million, 31 December 2021: $381.9
million) and supplementary charge losses and allowances of $484.5
million (30 June 2021: $574.4 million, 31 December 2021: $693.0
million) which have no expiry date and would be available for
offset against future trading profits. A potential RFES claim could
also be made for the current accounting period which would result
in additional trading losses of $31.7 million based on the position
at 30 June 2022. The Group also has unused capital allowances of
$275.3 million available to be used against future taxable profits
(30 June 2021: $389.1 million, 31 December 2021: $328.4
million).
In addition to the above, the Group has pre-trading expenditure
of $126.1 million which is carried forward at 30 June 2022, and tax
relief may be available should trading activities commence (this
expenditure could also be uplifted by RFES to $203.2 million).
On 26 May 2022, the UK Government announced the introduction of
an Energy Profits Levy ('EPL') on the profits earned from the
production of oil and gas in the UK with effect from that date. The
EPL enabling legislation, the Energy (Oil and Gas) Profits Levy Act
2022, was substantively enacted on 11 July 2022. The EPL is charged
at the rate of 25 per cent on taxable profits in addition to ring
fence corporation tax of 30 per cent and the Supplementary Charge
of 10 per cent.
As the legislation was not substantively enacted as at 30 June
2022, the tax charge in the half-year results does not include the
impact of EPL for the period which will instead be reflected in the
second half of 2022. If the EPL had been considered in the interim
period, no current tax liability would be expected to arise from
business performance in the period 26 May 2022 to 30 June 2022 due
to no revenue being recognised in that period. However, a
forecasted current tax liability of less than $5 million is
expected to arise in the second half of 2022, though the liability
will be dependent on numerous factors (including production and oil
prices). The EPL tax is a temporary measure and as enacted will
cease to apply on 31 December 2025.
Section 7 Other disclosures
7.1 Related party transactions
Related party transactions during the period comprise
remuneration and fees paid to directors, who are considered the
Group's key management personnel.
As of 30 June 2022, Crystal Amber Fund Limited ('Crystal Amber')
held 28.9% of the Company's Ordinary Shares, and Crystal Amber has
classified its investment in Hurricane as an associate. As such,
Crystal Amber is considered to be a related party of the Group.
7.2 Subsequent events
7.2.1 Repayment of Convertible Bonds
On 25 July 2022, Hurricane announced that it had repaid in full
its outstanding $78,515,000 7.50 per cent Convertible Bonds plus
$1.5 million of accrued interest by the maturity date of 24 July
2022. The bonds have now been delisted from The International Stock
Exchange and cancelled.
Appendix A: Glossary
AIM The AIM market of the London Stock Exchange
------------------ -------------------------------------------------------------
Aoka Mizu Aoka Mizu FPSO
------------------ -------------------------------------------------------------
bbl Barrel
------------------ -------------------------------------------------------------
Bluewater Bluewater Energy Services and affiliates
------------------ -------------------------------------------------------------
Bondholder A holder of one or more the Company's Convertible Bonds
------------------ -------------------------------------------------------------
Board Board of directors of the Company
------------------ -------------------------------------------------------------
Bopd Barrels of oil per day
------------------ -------------------------------------------------------------
BP BP Oil International Limited
------------------ -------------------------------------------------------------
bubble point The pressure at which gas begins to come out of solution
from oil within the reservoir
------------------ -------------------------------------------------------------
CEO Chief Executive Officer
------------------ -------------------------------------------------------------
CFO Chief Financial Officer
------------------ -------------------------------------------------------------
Company Hurricane Energy plc and/or its subsidiaries
------------------ -------------------------------------------------------------
Convertible $230 million of 7.5% convertible bonds issued by the
Bond(s) Company in July 2017
------------------ -------------------------------------------------------------
COO Chief Operations Officer
------------------ -------------------------------------------------------------
COVID-19 Coronavirus
------------------ -------------------------------------------------------------
CPR Competent Persons Report
------------------ -------------------------------------------------------------
Crystal Amber Crystal Amber Fund Limited
------------------ -------------------------------------------------------------
DD&A Depreciation, depletion and amortisation
------------------ -------------------------------------------------------------
Developed reserves Reserves that are expected to be recovered from existing
wells and facilities. Developed reserves may be further
sub-classified as producing or non-producing.
------------------ -------------------------------------------------------------
E&E Exploration and Evaluation
------------------ -------------------------------------------------------------
EPS Early Production System
------------------ -------------------------------------------------------------
ERCE ERC Equipoise Limited
------------------ -------------------------------------------------------------
ESG Environmental, Social and Governance
------------------ -------------------------------------------------------------
ESP Electrical submersible pump
------------------ -------------------------------------------------------------
EUR Euro
------------------ -------------------------------------------------------------
FPSO Floating production storage and offloading vessel
------------------ -------------------------------------------------------------
G&A General and Administrative costs
------------------ -------------------------------------------------------------
GBP British Pounds Sterling
------------------ -------------------------------------------------------------
GLA Greater Lancaster Area, comprising UKCS licences P1368
Central and P2308
------------------ -------------------------------------------------------------
Group Hurricane Energy plc, together with its subsidiaries
------------------ -------------------------------------------------------------
GWA Greater Warwick Area, comprising the Lincoln and Warwick
fields located on UKCS licences P1368 South and P2294
------------------ -------------------------------------------------------------
Hurricane Hurricane Energy plc, together with its subsidiaries
------------------ -------------------------------------------------------------
IAS International Accounting Standard
------------------ -------------------------------------------------------------
IFRS International Financial Reporting Standards
------------------ -------------------------------------------------------------
JV Joint venture
------------------ -------------------------------------------------------------
LLIs Long-Lead Items
------------------ -------------------------------------------------------------
Mbbl Thousand barrels of oil
------------------ -------------------------------------------------------------
MMbbl Million barrels of oil
------------------ -------------------------------------------------------------
NSTA North Sea Transition Authority
------------------ -------------------------------------------------------------
OGA Oil and Gas Authority
------------------ -------------------------------------------------------------
Ordinary Shares Ordinary shares in the Company of GBP0.001 each
------------------ -------------------------------------------------------------
P&A Plug and abandon
------------------ -------------------------------------------------------------
PP&E Property, Plant and Equipment
------------------ -------------------------------------------------------------
Regret costs Amounts that remain payable under contracts on cancellation
of a project
------------------ -------------------------------------------------------------
Regulator Oil and Gas Authority, Department for Business Energy
and Industrial Strategy, and/or The Health and Safety
Executive
------------------ -------------------------------------------------------------
Reserves Reserves are those quantities of petroleum anticipated
to be commercially recoverable by application of development
projects to known accumulations from a given date forward
under defined conditions.
------------------ -------------------------------------------------------------
RFES Ring fence expenditure supplement
------------------ -------------------------------------------------------------
Spirit Energy Spirit Energy Limited
------------------ -------------------------------------------------------------
SURF Subsea, Umbilical, Risers, Flowlines
------------------ -------------------------------------------------------------
Tier 1 contractors Hurricane's major direct contractors
------------------ -------------------------------------------------------------
UKCS United Kingdom Continental Shelf
------------------ -------------------------------------------------------------
USD United States Dollars
------------------ -------------------------------------------------------------
VIU Value in use
------------------ -------------------------------------------------------------
WOSPS West of Shetland Pipeline System
------------------ -------------------------------------------------------------
Appendix B: Non-IFRS Measures
Management believe s that certain non-IFRS measures (also
referred to as 'alternative performance measures') are useful
metrics as they provide additional useful information on
performance and trends. These measures are used by management for
internal performance analysis and incentive compensation
arrangements for directors and employees. The non-IFRS measures
presented below are not defined in IFRS or other GAAPs and
therefore may not be comparable with similarly described or defined
measures reported by other companies. They are not intended to be a
substitute for, or superior to, IFRS measures.
Definitions and reconciliations to the nearest equivalent IFRS
measure are presented below.
Underlying profit before tax
Underlying profit before tax is defined as profit before tax
under IFRS, before fair value gains or losses on the Convertible
Bond embedded derivative, fair value gains or losses on derivatives
not designated as hedging instruments in a hedging relationship,
impairment and write-offs of intangible exploration and evaluation
assets and oil and gas assets (including amounts relating to
increases in decommissioning estimates not recognised on the
balance sheet) , gains or losses on lease remeasurements, and gains
or losses on disposal of assets or subsidiaries.
Management believe underlying profit before tax is a useful
measure as it provides useful trends on the pre-tax performance of
the Group's core business and asset by removing certain items and
transactions within the income statement. These are the volatile
non-cash impact of the Convertible Bond embedded derivative
movement (the valuation of which is largely out of management's
control); and gains or losses arising from write-offs, impairments
and disposals of assets which do not reflect the Group core assets
and business.
6 months 6 months 12 months
ended ended ended
Note 30 Jun 30 Jun 2021 31 Dec 2021
2022
$'000 $'000 $'000
Profit before tax (IFRS measure) 62,478 42,854 18,210
Add back:
Fair value loss/(gain) on Convertible
Bond embedded derivative 5.1 (27) 3,304 1,901
Net gain on repurchase of Convertible
Bonds - - (17,201)
Gain on lease remeasurement - (49,125) (49,125)
Impairment and write-off of
intangible exploration and evaluation
assets 2.4 4,907 32 54,280
Impairment of other fixed assets
and other right-of-use assets - - 719
(Decrease)/increase in decommissioning
estimates expensed 2.5 (795) 1,751 -
Change in decommissioning estimates
on fully impaired assets - - 1,973
Underlying profit / (loss)
before tax 66,563 (1,184) 10,757
---------------------------------------- ---- -------- ----------- -----------
Cash production costs
Cash production costs are defined as cost of sales under IFRS,
less depreciation of oil and gas assets (including right-of-use
assets) and accounting movements of crude oil inventory (including
any net realisable value provision movements), plus fixed lease
payments payable for leased oil and gas assets.
Depreciation and movements in crude oil inventory are deducted
as they are non-cash accounting adjustments to cost of sales. Fixed
lease payments for oil and gas assets are added back because, under
IFRS 16, the charge relating to fixed lease payments is charged to
the income statement within both depreciation of oil and gas assets
and interest on lease liabilities. They are therefore included
within cash production costs as they are considered by management
to be operating costs in nature. Fixed lease payments payable for
the purposes of this measure are calculated as the day rate charge
multiplied by the number of days in the period. Cash production
cost per barrel is defined as cash operating costs divided by
production volumes.
Management believe that cash production costs, and cash
production cost per barrel are useful measures as they remove
non-cash elements from cost of sales, assist with cashflow
forecasting and budgeting, and provide indicative breakeven amounts
for the sale of crude oil.
6 months 6 months 12 months
ended ended ended
Note 30 Jun 30 Jun 2021 31 Dec 2021
2022
$'000 $'000 $'000
Cost of sales (IFRS measure) 2.2 78,518 88,017 173,125
Less:
Depreciation of oil and gas
assets - owned 2.3 (28,145) (45,855) (94,200)
Depreciation of oil and gas
assets - leased 2.3 (8,725) (3,405) (3,405)
Movements in crude oil inventory 2.2 2,516 5,059 10,622
Add:
Fixed lease payments payable
for oil and gas assets 13,575 5,838 19,638
----------------------------------- ---- ---------- ----------- -----------
Cash production costs 57,739 49,654 105,780
----------------------------------- ---- ---------- ----------- -----------
Variable lease payments (incentive
tariff) 5.2 (12,939) (11,099) (20,454)
----------------------------------- ---- ---------- ----------- -----------
Cash production costs (excluding
incentive tariff) 44,800 38,555 85,326
----------------------------------- ---- ---------- ----------- -----------
Production volumes 1,632 Mbbl 2,004 Mbbl 3,748 Mbbl
Cash production cost per barrel $35.4/bbl $24.8/bbl $28.2/bbl
Cash production cost per barrel $27.5/bbl $19.2/bbl $22.8/bbl
(excluding incentive tariff)
Net free cash and net debt
Net free cash is defined as current unrestricted cash and cash
equivalents, plus current financial trade and other receivables,
current oil price derivatives, less current financial trade and
other payables.
Management believe that net free cash is a useful measure as it
provides a view of the Group's available liquidity and resources
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.
Net debt is defined as net free cash less the par value of the
Convertible Bond; being the total amount repayable on maturity of
the Bond in July 2022 (unless previously converted, redeemed or
repurchased and cancelled).
Management believe that net debt is a useful measure as it aids
stakeholders in understanding the current financial position of the
Company.
Note 30 Jun 30 Jun 2021 31 Dec 2021
2022
$'000 $'000 $'000
Cash and cash equivalents (IFRS
measure) 4.1 203,885 207,994 76,792
Add:
Trade and other receivables 4.2 2,777 11,520 2,591
Less:
Restricted cash and cash equivalents 4.1 (60,802) (59,912) (7,934)
Prepayments 4.2 (2,227) (2,423) (1,058)
Trade and other payables 4.3 (16,685) (24,924) (18,843)
Net free cash 126,948 132,255 51,548
-------------------------------------- ---- -------- ----------- -----------
Par value of Convertible Bond 5.1 (78,515) (230,000) (78,515)
-------------------------------------- ---- -------- ----------- -----------
Net cash / (debt) 48,433 (97,745) (26,967)
-------------------------------------- ---- -------- ----------- -----------
Free cash flow
Free cash flow is defined as net cash inflow or outflow from
operating activities per the Cash Flow Statement, excluding
decommissioning spend and including fixed lease repayments,
adjusted for other items considered by management to be capital
rather than operating in nature. Free cash flow per barrel is
calculated as free cash flow divided by production volumes for the
year.
Management believes that free cash flow is a useful measure as
it shows cash generated from ongoing operations and G&A.
6 months 6 months Year ended
ended ended
Note 30 Jun 30 Jun 2021 31 Dec
2022 2021
$000 $'000 $'000
Net cash inflow from operating
activities (IFRS measure) 110,119 75,901 147,044
Adjustments:
Decommissioning spend 180 748 4,824
Lease repayments 5.2 (13,892) (4,808) (18,596)
------------------------------- ---- --------- ----------- ----------
Free cash flow 96,407 71,841 135,677
------------------------------- ---- --------- ----------- ----------
Free cash flow per barrel $59.1/bbl $35.8/bbl $36.2/bbl
------------------------------- ---- --------- ----------- ----------
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END
IR KZGZLFLKGZZZ
(END) Dow Jones Newswires
September 30, 2022 02:00 ET (06:00 GMT)
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