TIDMHUR
RNS Number : 0162P
Hurricane Energy PLC
14 October 2021
14 October 2021
Hurricane Energy plc
("Hurricane", the "Company", or the "Group")
Half-year Results 2021 and Operational and Financial update
Hurricane Energy plc, the UK based oil and gas company focused
on hydrocarbon resources in naturally fractured basement
reservoirs, provides its 2021 interim report and half-year results
for the six-month period ended 30 June 2021, and an update on
Lancaster field operations and net cash balances as of 30 September
2021.
2021 Interim results summary
Financial results
-- Revenues of $124.5 million from four liftings of Lancaster
crude (H1 2020: $81.9 million from seven liftings)
-- Cash production costs of $24.8/bbl (H1 2020: $18.2/bbl)
-- Generated $75.9 million of operating cash flow (H1 2020:
$21.9 million), equivalent to $38.0/bbl (H1 2020: $8.2/bbl)
-- Profit after tax for the period of $42.8 million (H1 2020: loss after tax of $307.8 million)
-- Net free cash of $132.3 million at 30 June 2021 (31 December 2020: $111.4 million)
Non-IFRS measures. See Appendix B for definition and
reconciliation to nearest equivalent statutory IFRS measures
Operations - Greater Lancaster Area ("GLA")
-- The Aoka Mizu FPSO continues to deliver excellent uptime,
with an average field production uptime of 96% in H1 2021
-- 10-million-barrel production milestone reached during H1 2021
-- Lancaster EPS production averaged 11,100 bopd for H1 2021 (H1
2020: 14,600 bopd), primarily from the 205/21a-6 well ("P6 well")
alone, with the 205/21a-7z well remaining shut in to manage
reservoir voidage and pressure decline
-- Elected not to exercise the three-year extension option for
the Aoka Mizu that would have continued the contract to June 2025.
Hurricane remains in positive negotiations with Bluewater over
alternative extension options that would allow production to
continue beyond June 2022
Operations - Greater Warwick Area ("GWA")
-- Post period-end, in July 2021, completed the plug and
abandonment of the 205/26b-14 well, which Hurricane operates on
behalf of the GWA joint venture, fulfilling its regulatory
obligation. Contracted the Stena Don semi-submersible rig with the
operation completed within both schedule and budget
-- OGA previously agreed to extend the deadline for the GWA
licence commitment well from 31 December 2020 to 30 June 2022 as a
result of the disruption caused by the COVID-19 pandemic. The
Company continues to engage with the Joint Venture, and OGA, on the
most appropriate timeframes for future GWA activities
Corporate
-- The Company's proposed financial restructuring was ultimately
not pursued following the High Court Judgment that the
restructuring should not be implemented
-- In June 2021, the incumbent non-executive directors resigned
from the board, with John Wright and David Craik appointed to the
board as non-executive directors and John Wright assuming the
position of Interim Chairman
-- Post period-end, on 15 September 2021, the Company completed
the repurchase of approximately 34% of its outstanding $230 million
7.5% Convertible Bonds due in July 2022 at a cost of $62 million
(including accrued interest), reducing the par value of Convertible
Bonds held by third parties to $152 million
Outlook
-- As previously announced, production guidance for the six
months from 1 October 2021 is in the 8,500 - 10,000 bopd range,
based on an improved FPSO production uptime assumption of 96.5% and
production from the P6 well alone on artificial lift via ESP
-- Hurricane continues to evaluate options to bolster production
from the Lancaster field, in addition to engaging with GWA
stakeholders on possible pathways towards development for the
Lincoln discovery
-- Following the recent Convertible Bond buyback which saves the
Company approximately $22 million in future obligations to
bondholders, Hurricane continues to evaluate options to further
reduce its debt and improve the viability of its Balance Sheet
-- Stronger oil prices and current production forecasts,
combined with the impact of the bond buyback, internal cost cutting
exercises and other cost reduction measures, have reduced the
anticipated funding gap for the repayment of the Convertible Bonds.
Whilst there remains uncertainty if the Company will have
sufficient net free cash to repay the Convertible Bonds, the board
of directors are optimistic that even if a shortfall remains it may
be possible to bridge the gap
Antony Maris, Chief Executive Officer of Hurricane,
commented:
"The first six months of 2021 have proved very challenging. The
focus has been on exploring ways to provide a stable financial
platform for the Company, whilst in parallel delivering production
as safely and efficiently as possible from Lancaster. Recent
stronger oil prices combined with the impact of the bond buyback,
internal cost cutting, and other cost reduction measures, has
brought the possibility of bridging the funding gap for the
repayment of the bonds within reach. However, the challenge of
funding investment in our assets remains.
Going forward our near-term priority remains the repayment of
our convertible bonds, and as such we move into the second half of
the year with an overarching focus on capital discipline and
operational performance. We are optimistic that, despite the
economic and operational uncertainties that exist, even if a
shortfall remains it may be possible to find a solution to repay
the bond in full at maturity.
We continue to engage with all our key stakeholders regarding
our financing arrangements as we concentrate on removing the debt
burden as well as extracting further value from Lancaster and our
other discoveries."
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 / 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
Hurricane was established to discover, appraise and develop
hydrocarbon resources associated with naturally fractured basement
reservoirs. The Company's acreage is concentrated on the Rona
Ridge, in the West of Shetland region of the UK Continental
Shelf.
The Lancaster field (100% owned by Hurricane) is the UK's first
producing basement field. Hurricane is pursuing a phased
development of Lancaster, starting with an Early Production System
consisting of two wells tied-back to the Aoka Mizu FPSO.
Hydrocarbons were introduced to the FPSO system on 11 May 2019 and
the first oil milestone was achieved on 4 June 2019.
In September 2018, Spirit Energy farmed-in to 50% of the Lincoln
and Warwick assets, committing to a phased work programme targeting
sanction of an initial stage of full field development.
Visit Hurricane's website at www.hurricaneenergy.com
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
It remains a challenging time for Hurricane, with management's
focus in the first six months of 2021 on considering ways to ensure
the Company has a stable financial platform upon which to plan for
the future, whilst in parallel, overcoming operational hurdles to
deliver production as safely and efficiently as possible from its
Lancaster field. Despite these challenges, the Lancaster field
continues to demonstrate excellent uptime and the board is working
constructively to forge a path forward for the business that gives
it the best chance to maximise value from its assets for all of its
stakeholders.
In the first six months of 2021, the Company produced 2,004 Mbbl
(H1 2020: 2,658 Mbbl) of crude from the Lancaster field. The
volatile commodity price environment saw oil prices rise materially
during the period, enabling Lancaster's production to generate
significant cashflow in H1 2021. Revenues for the period were
$124.5 million from four liftings of Lancaster crude (H1 2020:
$81.9 million from seven liftings), generating operating cash flow
of $75.9 million (H1 2020: $21.9 million), equivalent to $38.0/bbl
(H1 2020: $8.2/bbl) with profit after tax for the period of $42.8
million (H1 2020: loss after tax of $307.8 million).
As of 30 September 2021, the Company had net free cash(1) of $73
million, compared to the last reported figure of $144 million as of
31 August 2021. This follows the completion of the repurchase of
approximately 34% of the Company's outstanding $230 million 7.5%
Convertible Bonds due in July 2022 at a cost of $62 million
(including accrued interest), as announced on 15 September
2021.
COVID-19's ongoing impact on markets remains profound even as
some countries begin to see their economies return to growth and
continue their recoveries from the worst of the pandemic's effects.
The commodity price reflected this reawakening of markets post
lockdowns. Dated Brent oil now stands at over $80 per barrel and
gas prices have seen unprecedented highs in recent weeks, with
commensurate impact on domestic and industrial energy costs. Whilst
markets remain volatile and the risks of the resurgence of the
virus through the winter remain clear, at the time of writing, the
Brent forward curve for oil suggests prices are likely to stay
reasonably stable in the coming 12 months.
(1) Unrestricted cash and cash equivalents, plus current
financial trade and other receivables, current oil price
derivatives, less current financial trade and other payables.
Operational review
Greater Lancaster Area ("GLA")
Operationally, the first half of 2021 was focused on managing
production from the Company's Lancaster field to maximise output
via the Aoka Mizu FPSO whilst also mitigating the impact of water
cut and pressure decline in the main producing well. This approach
resulted in an average production rate of 11,100 bopd for the
period versus 14,600 bopd in the first six months of 2020,
reflecting the decline in reservoir pressure and increasing water
cut.
The Company forecasts that average production for the year is
expected to be towards the upper-end of the annual production
guidance for the full year 2021 of 8,500 - 10,500 bopd, which is
based on an FPSO production uptime assumption of 90% and production
from the P6 well alone on artificial lift via ESP. The production
uptime assumption of 90% includes the impact of the annual
maintenance shutdown, evenly spread across the year.
Post period-end, in July 2021, the FPSO underwent a planned
maintenance shutdown which was completed safely with production
restarting in a timely manner. As previously noted, the production
rate immediately following the completion of the annual shutdown
was elevated leading to the average oil rate for August being
higher than in previous months, however, current oil production
performance has returned to that seen just prior to the
shutdown.
The following table details production volumes, water cut and
minimum flowing bottom hole pressure for the 205/21a-6 ("P6") well
during September 2021.
September 2021 Lancaster Field Data
P6 P7z(2)
O il produced during the month -
(Mbbls) 319
------- -------
Average oil rate (bopd) 10,642 -
------- -------
W ater produced during the 155 -
month (Mbbls)
------- -------
A verage water cut(3) 33% -
------- -------
Well gauge p ressure (psia)(4) 1,629 -
------- -------
(2) The 205/21a-7z ("P7z") well was not on production during September 2021
(3) Expressed as total water produced divided by total fluid (oil and water) production
(4) Pressure reported is the monthly minimum from well downhole gauge
As of 12 October 2021, Lancaster was producing c.10,450 bopd
from the P6 well alone with an associated water cut of c. 35%.
The 25(th) cargo of Lancaster oil, totalling approximately 530
Mbbls, was lifted on 9 October 2021. The next cargo is expected to
be lifted in late-November to early-December 2021.
In June 2021, the Company received approval of the Lancaster
Field Development Plan Addendum (the "FDPA") by the OGA. The FDPA
approval, together with associated production, flare, and vent
consents, enables production with the bottom hole flowing pressure
up to 300 psi below the bubble point pressure of the fluid (1,605
psia at 1,240 metres TVDSS), subject to the Company ensuring that
no incremental liberated gas is produced to surface.
The initial consent was for a three-month period from 16 June
2021 to 15 September 2021. Subsequent production, flare, and vent
consents have been received for the current period and future
consents will be issued on an ongoing three-monthly basis subject
to compliance with the terms of the FDPA. As noted in the Company's
announcement post-period end on 29 September 2021, based on current
trends, management estimates that bottom hole flowing pressure in
the Lancaster reservoir may reach the bubble point by the end of Q1
2022. As previously announced, there is a degree of uncertainty
regarding the timing and the full impact of this.
As announced in June 2021, the Company resolved not to exercise
its option to extend the bareboat charter of the Aoka Mizu FPSO as
it deemed it not to be in the best interest of the Company or its
stakeholders. The current initial three-year term is due to expire
in June 2022. Hurricane remains in positive negotiations with
Bluewater Energy Services B.V., the owner of the Aoka Mizu FPSO,
with regards to an alternative extension for a shorter period than
three years that would allow production to continue beyond June
2022.
Greater Warwick Area ("GWA")
The GWA JV (Hurricane 50%, Spirit Energy 50%) has spent the
first half of 2021 reassessing its understanding of the GWA licence
potential. Efforts have focused on evaluating the basement and the
Mesozoic potential over the licence. The GWA JV is looking at all
options on pathways for further appraisal and routes to the
possible development of resources on the licence including through
the addition of a third partner.
Owing to the disruption caused by the COVID-19 pandemic, an
agreement was reached with the OGA to extend the deadline for the
GWA licence commitment well from 31 December 2020 to 30 June 2022.
The GWA JV is now engaging with the OGA on the technical
re-evaluation and interpretation of the area to seek an appropriate
timeframe for this commitment. If the GWA JV does not achieve an
adjusted timeframe, it is likely that the Company will have to
engage with Spirit on options to remove this obligation including a
mutual surrender of the P1368(S) licence sub area.
Post period-end, in July 2021, Hurricane completed the plug and
abandonment of the 205/26b-14 ("Lincoln-14") well, which Hurricane
operates on behalf of the GWA JV. Hurricane contracted the Stena
Don semi-submersible rig with the operation completed within both
schedule and budget. The GWA JV had a regulatory obligation to plug
and abandon the Lincoln-14 well by 31 October 2021, and this
obligation has therefore now been fulfilled.
Reserves and Resources
In April 2021, ERC Equipoise completed its Competent Person's
Report ("CPR") on the Company's West of Shetland assets. This was
broadly consistent with the estimates for Lancaster and Lincoln
which were presented in the Company's technical review in September
2020 and the full report is available on Hurricane's website.
Corporate
As a result of the combined impact of operational difficulties
at Hurricane's Lancaster field, which saw lower production levels
due to the use of only one of the field's two wells, and markedly
lower oil prices in 2020 following the emergence of COVID-19, the
Company believed there was significant doubt over its ability to
repay its $230m convertible bond. Therefore, in late-2020,
Hurricane commenced engagement with stakeholders including an ad
hoc group of its bondholders to find a way to ensure it had a
viable financial platform on which to operate and potentially
invest further based on its anticipated cashflows.
As a result of those discussions, during the first half of the
year, the Company proposed the implementation of a financial
restructuring to its bondholders and shareholders in order to
provide the Company and its stakeholders with more financial
certainty. Following a hearing at which the views of multiple
stakeholders were heard, including shareholders and bondholders,
the High Court decided that the restructuring should not be
implemented.
A number of board changes were implemented in the wake of this
decision. The Company's incumbent non-executive directors resigned
from the board and John Wright and David Craik were appointed to
the board as non-executive directors on 29 June 2021 with Mr Wright
assuming the position of Interim Chairman. The Company wishes to
thank the previous Chairman and non-executive directors for their
long-standing support and dedication to the Company. The Company
continues to look to strengthen the Board through the addition of
experienced candidates to support its forward plans.
In September 2021, the Company undertook a bond tender exercise,
repurchasing approximately 34 per cent of its outstanding bonds at
a price of 78 cents in the dollar. This has reduced the par value
of bonds held by third parties to $152 million, using $62 million
of net free cash (inclusive of accrued interest). The effect of
this will save Hurricane approximately $22 million of future
obligations to bondholders in capital and interest, a positive
development for the Company in managing its outstanding debt.
ESG and Gas Export Update
In June 2021, Hurricane published its second standalone
Environmental, Social and Governance report. The ESG report covered
Hurricane's approach to ESG and performance across its operations
for the 2020 calendar year.
Currently, associated gas production from the Lancaster EPS is
partially used as fuel gas for the Aoka Mizu FPSO, with the
remainder flared under the consent within the approved Field
Development Plan Amendment. Further development of the Company's
West of Shetland licences may require the development of a gas
export solution. The Company remains fully committed to reducing
its greenhouse gas emissions where it is economically and
commercially viable to do so.
Outlook
The Company published updated production guidance in September
2021, maintaining its annual production guidance for the full year
2021 of 8,500 - 10,500 bopd. It also provided production guidance
from the Lancaster field for the six-month period 1 October 2021 to
31 March 2022 of 8,500 - 10,000 bopd, which is based on an improved
FPSO production uptime assumption of 96.5% and assuming no planned
shutdowns as these are anticipated to occur outside the period. The
guidance is slightly lower than the average for the full year 2021
due to the expected gradual production decline from the reservoir
over time, partially offset by the higher FPSO uptime
assumption.
Recent stronger oil prices and current production forecasts,
combined with the impact of the bond buyback, internal cost cutting
exercises and other cost reduction measures have reduced the
anticipated funding gap for the repayment of the bonds. Whilst
there remains uncertainty regarding the forecast cash available for
bonds holders at maturity, at the current oil prices and based on
current production forecasts the Company is anticipating that it
may have sufficient net free cash to repay the Convertible Bonds at
their maturity in July 2022 in full. In light of operational risks
and the significant volatility in oil price, and given that not all
the net free cash would be available for repayment of the bond, the
outcome remains uncertain. Nevertheless, we are optimistic that
even if a shortfall remains it may be possible to find a solution
to bridge the gap.
We continue to work with all our stakeholders to ensure a stable
financial platform for the business, not least with regards to the
Convertible Bond due in July 2022, and also to determine the best
route forward operationally to maximise the value of our assets
West of Shetland. In that context we are in active dialogue with
partners, shareholders, bondholders and the regulator to find the
best strategy for Hurricane in the coming months and years.
Antony Maris
Chief Executive Officer
13 October 2021
Non-IFRS measures. See Appendix B for definition and
reconciliation to nearest equivalent statutory IFRS measures.
Financial Review
Highlights
First half 2021 First half 2020 Full year 2020
Production 2,004 Mbbl 2,658 Mbbl 5,078 Mbbl
---------------- ---------------- ---------------
Average production rate* 11,100 bopd 14,600 bopd 13,900 bopd
---------------- ---------------- ---------------
Sales volumes 2,003 Mbbl 2,747 Mbbl 5,112 Mbbl
---------------- ---------------- ---------------
Revenue $124.5m $81.9m $180.1m
---------------- ---------------- ---------------
Average sales price realised $62.2/bbl $29.8/bbl $35.2/bbl
---------------- ---------------- ---------------
Cash production cost per barrel $24.8/bbl $18.2/bbl $17.9/bbl
---------------- ---------------- ---------------
Cash generated from operations $75.9m $21.9m $80.2m
---------------- ---------------- ---------------
Closing net free cash $132.3m $106.2m $111.4m
---------------- ---------------- ---------------
Net debt $97.7m $123.8m $118.6m
---------------- ---------------- ---------------
Underlying loss before tax $(1.2)m $(40.2)m $(36.0)m
---------------- ---------------- ---------------
Profit/(loss) after tax $42.8m $(307.8)m $(625.3)m
---------------- ---------------- ---------------
* 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 2021, over 2 million barrels of
Lancaster crude were sold across four cargoes, generating $124.5
million in revenue. The Group generated positive cash flow from
operations of $75.9 million, thanks to the low operating costs and
production efficiency of the Lancaster EPS. The Group exercised
tight capital discipline, with $9.8 million spent on capital
expenditure (excluding P&A activity).
Revenue
Revenue for the period was $124.5 million, with an average price
realised of $62.2/bbl across four cargoes, versus an average Dated
Brent price for the period of $65.0/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 realized for H1 2021 was $3.0/bbl
(H1 2020: $3.9/bbl; FY 2020: $2.9/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 $88.0 million, including $49.3 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 $49.7 million, equivalent to
$24.8/bbl versus $17.9/bbl for the full year 2020. 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 $14.6/bbl full year 2020 to $19.2/bbl in 2021. With
effect from June 2021, the fixed dayrate payable for the Aoka Mizu
increased from $25,000/day to $75,000/day. In addition to this
uplift, 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.
Non-cash adjustments to oil and gas and exploration and
evaluation assets
On 4 June 2021, Hurricane announced that it resolved not to
exercise its option to extend the bareboat charter of the Aoka Mizu
FPSO (the "Bareboat Charter") for a period of three years from June
2022 to June 2025. For the purposes of accounting for the lease
under IFRS 16, the lease term has now been re-assessed to end at
June 2022 (previously June 2025). This has resulted in a write-back
of the lease liability and corresponding lease asset. As the latter
had previously been impaired to materially less than the liability,
the balance has been credited to the income statement, resulting in
a non-cash gain of $49.1 million. Hurricane remains in positive
negotiations with Bluewater over an alternative extension to the
Bareboat Charter for a shorter period than three years.
Other non-cash charges included $1.8 million related to changes
to decommissioning estimates recognised directly in the income
statement.
General and administrative expenses
General and administrative costs ('G&A') for the six months
ended 2021 were $21.2 million (H1 2020: $3.6 million). After
adjusting for 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 $26.7
million (H1 2020: $10.8 million). The increase in gross cash
G&A was primarily driven by an increase in non-staff costs due
to the significant legal and professional fees incurred in
preparation for, during and after the proposed financial
restructuring process of c.$14 million. Staff costs were largely
flat, although the stronger Sterling in 2021 resulted in an
increase in reported amounts when translated to USD compared to the
prior period. A reconciliation of G&A costs is shown in note
3.3 to the Interim Financial Statements. We continue to investigate
internal cost cutting exercises and other cost reduction measures
on our G&A base.
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. On either
conversion, cancellation or repayment of the Bond (or part
thereof), the derivative liability (or part thereof) will be
released to the Income Statement.
The fair value loss recognised during the period in relation to
the embedded derivative was $3.3 million, primarily driven by
increases in the Company's share price and its volatility in the
period.
Bond repurchase
In September 2021, Hurricane repurchased and cancelled just over
one third of its outstanding Convertible Bonds at 78% of face value
for cash consideration of $62 million including accrued interest.
This repurchase will save approximately $22 million of future
obligations to bondholders in capital and interest.
Decommissioning estimates
A net increase of $1.3 million to decommissioning estimates has
been recognised, primarily due to increased estimates to the cost
of decommissioning the Lancaster EPS installations and wells,
offset by changes to the discount rate used, assumptions in timing
of the decommissioning activity, and lower than provisioned costs
realised in plugging and abandoning the Lincoln-14 well. During the
period, Hurricane agreed with the Regulator to place an additional
GBP11.2 million ($15.5 million) of funds into trust, in order to
provide security for the estimated decommissioning liability on
Lancaster EPS on a pre-tax basis. At 30 June 2021, a total of $38.9
million was held in trust as decommissioning security for the
Lancaster EPS.
At 30 June 2021, the Stena Don rig was in the process of
completing the plug and abandonment of the Lincoln-14 well. The
operation was successfully completed in July 2021, with the
majority of the cash flows relating to the P&A falling after
the balance sheet date.
Cashflow
Net free cash bridge for H1 2021:
Opening Cash Capital Movement Coupon Movements Other Closing
net free generated* expenditure in restricted payments in working net free
cash funds capital cash
$111.4m $59.4m $(9.8)m $(8.3)m $(8.6)m $(12.3)m $0.5m $132.3m
------------ ------------- --------------- ---------- ------------ ------ ----------
*Comprises operating cash flow, fixed lease payments and
financial restructuring costs
At 30 June 2021, the Group had $132.3 million of net free cash
(being unrestricted cash net of payables and accruals and including
trade receivables), an increase of $20.9 million from 31 December
2020.
Average realised sales price was $62.2/bbl and cash production
costs were $24.8/bbl, generating cash per barrel (before working
capital movements) of $37.4 in H1 2021 (full year 2020:
$17.3/bbl).
Other operating cash outflows included the general and
administrative costs of staff and other overheads, and the initial
costs of the Lincoln P&A activity. After adjusting for
movements in working capital the Group's operating cash inflow for
the period amounted to $76.1 million.
Capital expenditure in the period was $9.8 million, comprising
primarily previously committed purchases of long lead items for GLA
and GWA developments, licences, geological studies and capitalised
timewriting costs.
Financing outflows of $25.1 million included fees in relation to
the proposed financial restructuring, coupon payments of the
Convertible Bond and fixed lease repayments primarily for the Aoka
Mizu.
Following start-up of production from the EPS, the Group is
required to set aside a certain amount of cash to cover some of the
termination costs of the FPSO lease should it wish to exit the
charter before the end of the contract term. At 30 June 2021, this
amount was $18.7 million (31 December 2020: $26.6 million),
resulting in a release of $7.9 million into unrestricted funds
during the period. This was offset by an additional $15.5 million
placed into trust in relation to Lancaster EPS decommissioning
arrangements (as outlined above), resulting in a net decrease of
$7.6 million to net free cash in relation to restricted cash
movements.
Cashflow outlook
As of 30 September 2021, the Company had net free cash of $73
million. The main movements over the three-month period from 30
June 2021 were:
-- Revenue of c.$33m from one lifting of Lancaster crude in the quarter
-- Operating costs and G&A of c.$30 million (including share
of costs relating to the Lincoln-14 well plug and abandonment
activity)
-- Repurchase of Convertible Bonds of c.$62 million (including
accrued interest) and quarterly cash coupon payments of c.$4
million
-- Net cash capital expenditure of c.$3 million
-- Net movements out of restricted cash of c.$6 million
-- Decrease in net working capital of c.$1 million
The repurchase and cancellation of just over one third of the
outstanding Convertible Bonds, for cash consideration of $62
million (including accrued interest) at a price of 78 cents in the
dollar, will reduce the total amounts payable in Convertible Bond
principal and interest by $22 million.
Hurricane remains in negotiations with Bluewater over an
extension to the Aoka Mizu charter beyond June 2022. An extension
of the contract may require Hurricane to ring-fence material
additional funds as security. Furthermore, the increase to
decommissioning estimates as outlined above may result in the
Regulator requesting additional funds be placed into trust and
classified as restricted cash. These potential transactions would
reduce the amount of free cash available to repay the remaining
Convertible Bonds due in July 2022.
The Company would also need to keep a portion of its projected
net free cash at July 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.
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 2021 and
could continue to impact the Company over the remaining six months
of 2021 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
-- COVID-19
-- 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
-- Repayment of Convertible Bond
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 2020 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 14 to 23 of the 2020 Annual Report and Group Financial
Statements.
The principal risk 'Completion of proposed financial
restructuring' previously disclosed is no longer directly relevant,
following the proposed financial restructuring not being sanctioned
by the Court.
New principal risk, 'Repayment of Convertible Bond':
Following the decision of the Court in June 2021 not to sanction
the proposed restructuring, the Company must still address is
Convertible Bond debt which falls due in July 2022. This was partly
addressed in September 2021 via the bond tender offer process.
There is a risk that the Company would not have sufficient free
cash to repay the remaining Convertible Bonds due in July 2022,
taking into account cash required to fund existing operations and
cover unplanned contingencies. The size of any potential shortfall
is highly sensitive to movements in oil price and production rates
achieved from existing operations. If there is a shortfall, or
projections show that a shortfall is highly likely to occur,
between free cash (including any headroom required to fund existing
operations and unplanned contingencies) and the Convertible Bond
principal repayment, it is likely a form of restructuring of the
existing debt would be required, which, depending on the funding
gap, may result in dilution to existing shareholders' equity.
If there is not sufficient cash to repay the Bonds in July 2022,
no restructuring of the debt is agreed or undertaken, and no
alternative funding or finance is available then it is likely there
would be a controlled wind-down of the Group followed by an
insolvent liquidation. In such a scenario, the Group believes
shareholders would receive no recovery in respect of shares that
they hold, and Bondholders would rank as unsecured creditors of the
Group.
Until such time as the repayment of the Convertible Bonds is
addressed, there exists the risk of the uncertainty having a
destabilising effect on the business of the Group, and the accrual
of additional costs (for example, costs in relation to the
preparation and issue of documentation, or other elements of the
any debt restructuring or refinancing).
Related party transactions
There have been no new material related party transactions in
the period. As of 30 June 2021, Crystal Amber Fund Limited
('Crystal Amber') held 22.6% of the Company's Ordinary Shares, and
Crystal Amber have classified its investment in Hurricane as an
associate. As such, Crystal Amber are now considered to be a
related party of the Group.
Going concern
These Interim Financial Statements are prepared on the going
concern basis of accounting. The ability of the Company to continue
in operational existence for a period of at least twelve months
beyond the approval of these Interim Financial Statements is
dependent on (a) Hurricane being able to secure an acceptable
extension to the Aoka Mizu FPSO charter beyond its current expiry
date of June 2022 and (b) being able to successfully undertake
mitigating actions and/or refinancing transactions to address any
projected or actual shortfall in the amount required to repay its
Convertible Bond debt due in July 2022. For this reason, they
continue to adopt the Going Concern Basis for preparing the Interim
Financial Statements, however, as there can be no certainty of the
occurrence of the factors outlined above, there exists a material
financial uncertainty which may cast doubt on the Company's ability
to continue as a going concern.
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
Introduction
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 2021 which comprises the Condensed
Consolidated Statement of Comprehensive Income, Condensed
Consolidated Balance Sheet, Condensed Consolidated Statement of
Changes in Equity, 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.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
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 condensed set of financial
statements included in this half-yearly financial report has been
prepared in accordance with International Accounting Standard 34,
"Interim Financial Reporting" in accordance with international
accounting standards in conformity with the requirements of the
Companies Act 2006 as adopted by the UK.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity", issued by the Auditing Practices Board 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.
Conclusion
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 2021 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006 as adopted by the UK and the
AIM Rules.
Material uncertainty related to Going Concern
We draw attention to Note 1.3 in the half-yearly financial
report for the six months ended 30 June 2021, which indicates that
the Company's ability to continue as a going concern for a
foreseeable future is dependent on the occurrence of one or more
mitigating actions outlined in the Note. As there is no certainty
in terms of timing and occurrence of any of these events,
therefore, there exists a material uncertainty that may cast
significant doubt on the Company's ability to continue as a going
concern. Our opinion is not modified in respect of this matter.
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 may 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 the conclusion we have formed.
PKF Littlejohn LLP 13 October 2021
Statutory Auditor
15 Westferry Circus, Canary Wharf, London
E14 4HD
Condensed Consolidated Statement of Comprehensive Income
for the six months ended 30 June 2021
6 months 6 months 12 months
ended ended ended
Notes 30 Jun 2021 30 Jun 2020 31 Dec 2020
$'000 $'000 $'000
Revenue 2.1 124,501 81,871 180,083
Cost of sales 2.2 (88,017) (101,476) (179,816)
--------------------------------------- ----- ----------- ----------- -----------
Gross profit/(loss) 36,484 (19,605) 267
General and administrative expenses 3.3 (21,223) (3,552) (4,229)
Gain on revision of lease term 5.2 49,125 - -
Impairment of oil and gas assets 2.3 - (238,853) (519,152)
Increase in decommissioning estimates
expensed 2.5 (1,751) - (469)
Impairment of intangible exploration
and evaluation assets and exploration
expense written off 2.4 (32) (12,537) (47,476)
--------------------------------------- ----- ----------- ----------- -----------
Operating profit/(loss) 62,603 (274,547) (571,059)
Finance income 3.2 745 843 2,696
Finance costs 3.2 (17,190) (18,730) (38,160)
Fair value gain/(loss) on Convertible
Bond embedded derivative 5.1 (3,304) 33,956 35,431
Profit/(loss) before tax 42,854 (258,478) (571,092)
Tax 6.1 (78) (49,262) (54,233)
--------------------------------------- ----- ----------- ----------- -----------
Profit/(loss) for the period 42,776 (307,740) (625,325)
--------------------------------------- ----- ----------- ----------- -----------
Cents Cents Cents
Earnings per share (basic) 3.1 2.15 (15.47) (31.43)
Earnings per share (diluted) 3.1 2.15 (15.47) (31.43)
--------------------------------------- ----- ----------- ----------- -----------
All results arise from continuing operations.
Condensed Consolidated Balance Sheet
as at 30 June 2021
Notes 30 Jun 2021 30 Jun 2020 31 Dec 2020
$'000 $'000 $'000
Non-current assets
Intangible exploration and
evaluation assets 2.4 56,573 88,619 55,390
Oil and gas assets 2.3 146,410 513,614 208,027
Other non-current assets 2,361 2,862 2,605
Deferred tax assets 6.2 - 5,048 78
Liquid investments 4.1 38,938 - 22,811
Cash and cash equivalents 4.1 - 2,881 -
------------------------------------- ----- ----------- ----------- -----------
244,282 613,024 288,911
Current assets
Inventory 2.2 16,816 8,870 11,285
Trade and other receivables 4.2 11,520 36,718 14,524
Derivative financial instruments 4.4 - 2,542 -
Cash and cash equivalents 4.1 169,056 143,223 143,703
------------------------------------- ----- ----------- ----------- -----------
197,392 191,353 169,512
------------------------------------- ----- ----------- ----------- -----------
Total assets 441,674 804,377 458,423
------------------------------------- ----- ----------- ----------- -----------
Current liabilities
Trade and other payables 4.3 (24,924) (54,952) (16,356)
Lease liabilities 5.2 (26,468) (9,463) (18,479)
Decommissioning provisions 2.5 (4,530) (12,650) (15,466)
------------------------------------- ----- ----------- ----------- -----------
(55,922) (77,065) (50,301)
Non-current liabilities
Lease liabilities 5.2 (2,175) (88,561) (78,842)
Convertible Bond liability 5.1 (221,062) (211,097) (216,034)
Convertible Bond embedded derivative 5.1 (4,189) (2,360) (885)
Decommissioning provisions 2.5 (47,698) (41,437) (45,675)
------------------------------------- ----- ----------- ----------- -----------
(275,124) (343,455) (341,436)
------------------------------------- ----- ----------- ----------- -----------
Total liabilities (331,046) (420,520) (391,737)
------------------------------------- ----- ----------- ----------- -----------
Net assets 110,628 383,857 66,686
------------------------------------- ----- ----------- ----------- -----------
Equity
Share capital 5.4 2,885 2,885 2,885
Share premium 822,458 822,458 822,458
Share option reserve 22,512 21,141 21,443
Own shares reserve (826) (1,035) (923)
Foreign exchange reserve (90,828) (90,828) (90,828)
Accumulated deficit (645,573) (370,764) (688,349)
------------------------------------- ----- ----------- ----------- -----------
Total equity 110,628 383,857 66,686
------------------------------------- ----- ----------- ----------- -----------
Condensed Consolidated Statement of Changes in Equity
for the six months ended 30 June 2021
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
2020 2,883 821,910 20,828 (684) (90,828) (63,024) 691,085
Loss for the
period - - - - - (307,740) (307,740)
New shares
issued under
employee share
schemes 2 548 - (445) - - 105
Share-based
payments - - 313 94 - - 407
At 30 June
2020 2,885 822,458 21,141 (1,035) (90,828) (370,764) 383,857
Loss for the
period - - - - - (317,585) (317,585)
Share-based
payments - - 302 112 - - 414
At 31 December
2020 2,885 822,458 21,443 (923) (90,828) (688,349) 66,686
---------------- -------- -------- -------- ---------- --------- ----------- ---------
Profit for
the period - - - - - 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
---------------- -------- -------- -------- ---------- --------- ----------- ---------
Condensed Consolidated Cash Flow Statement
for the six months ended 30 June 2021
6 months 6 months 12 months
ended ended ended
Notes 30 Jun 2021 30 Jun 2020 31 Dec 2020
$'000 $'000 $'000
Cash flows from operating activities
Operating profit/(loss) 62,603 (274,547) (571,059)
Adjustments for:
Depreciation of property, plant
and equipment 2.3 49,513 55,881 97,136
Impairment of oil and gas assets 2.3 1,751 238,853 519,152
Impairment of intangible exploration
and evaluation assets and exploration
expense written off 2.4 32 12,537 47,945
Gain on lease remeasurement 5.2 (49,125) - -
Share-based payment charge 1,166 407 821
Purchase of derivative financial
instruments 4.4 - (3,420) (3,420)
Expenses paid related to corporate
finance activities 11,687 - -
Decommissioning spend (748) (2,100) (2,108)
---------------------------------------- ----- ----------- ----------- -----------
Operating cash flow before working
capital movements 76,879 27,611 88,467
Movement in receivables (2,324) (16,932) 159
Movement in payables 6,877 8,169 (10,352)
Movement in crude oil, fuel
and chemicals inventories (5,531) 3,041 1,946
Net cash from operating activities 75,901 21,889 80,220
---------------------------------------- ----- ----------- ----------- -----------
Cash flows from investing activities
Interest received 20 843 1,227
Increase in liquid investments (15,530) - (22,811)
Expenditure on oil and gas assets (6,997) (12,373) (23,396)
Expenditure on other fixed assets (2) (69) (69)
Expenditure on intangible exploration
and evaluation assets (2,778) (21,432) (35,269)
Movement in spares and supplies
inventories - (1,966) (3,286)
Net cash used in investing activities (25,287) (34,997) (83,604)
---------------------------------------- ----- ----------- ----------- -----------
Cash flows from financing activities
Convertible Bond interest paid 5.1 (8,625) (8,625) (17,250)
Lease payments 5.2 (4,808) (4,836) (9,658)
Interest and other finance charges
paid (20) (4) (15)
Expenses paid related to corporate
finance activities (11,687) - -
New shares issued under employee
share schemes - 105 105
---------------------------------------- ----- ----------- ----------- -----------
Net cash used in financing activities (25,140) (13,360) (26,818)
---------------------------------------- ----- ----------- ----------- -----------
Increase/(decrease) in cash and
cash equivalents 25,474 (26,468) (30,202)
---------------------------------------- ----- ----------- ----------- -----------
Cash and cash equivalents at
beginning of period 143,703 171,434 171,434
Net increase/(decrease) in cash
and cash equivalents 25,474 (26,468) (30,202)
Effects of foreign exchange rate
changes (121) 1,138 2,471
---------------------------------------- ----- ----------- ----------- -----------
Cash and cash equivalents at
end of period 4.1 169,056 146,104 143,703
---------------------------------------- ----- ----------- ----------- -----------
Notes to the Interim Financial Statements
Section 1 General information
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 13 October 2021.
This set of Interim Financial Statements for the six months
ended 30 June 2021 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 2020 were approved by the Board of Directors on 24 May
2021 and have been delivered to the Registrar of Companies. The
auditor's report on those Financial Statements, issued by Deloitte
LLP, was unqualified, but drew attention to material uncertainty
related to going concern by way of emphasis of matter, and did not
contain a statement made under Section 498 of the Companies Act
2006. At the Company's most recent Annual General Meeting, held on
30 June 2021, the Resolution to re-appoint Deloitte LLP as the
Company's auditors was not passed by the Company's shareholders.
The Group has subsequently engaged PKF Littlejohn LLP as its
statutory auditor, who have reviewed these Interim Financial
Statements and who will audit the statutory Financial Statements of
the Group for the year ending 31 December 2021 in due course.
1.1 Basis of preparation
The Interim Financial Statements for the six months ended 30
June 2021 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 2020.
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 2021:
-- a significant increase in revenue versus the comparative
six-month period due to a strong recovery in crude oil prices (note
2.1);
-- the incurrence of significant legal and professional costs
(for advisers engaged by the Group, bondholders and shareholders)
related to the proposed financial restructuring of the Group,
originally announced in April 2021, but ultimately not sanctioned
by the Court in June 2021 (note 3.3);
-- a reduction in lease liabilities, right-of-use assets and a
non-cash lease remeasurement gain arising from the decision not to
extend the bareboat charter of the Aoka Mizu FPSO beyond June 2022
(notes 5.2 and 2.3); and
-- the placing of an additional GBP11.2 million of cash into
restricted funds following a formal request by OPRED to increase
the amount of decommissioning security for the Lancaster field
(note 4.1).
Since the end of the reporting period, the Group repurchased and
cancelled $78 million in aggregate principal amount of its
Convertible Bonds (see note 7.2.2).
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 2021. 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 Interim 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. 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 $79/bbl (average for remainder of
2021), $74/bbl (average for 2022) and $69/bbl (average for
2023);
-- production from the P6 well alone (assuming continued
production, flare and vent consents are received from the
Regulator), with forecast production profiles based on internal
reservoir simulation modelling;
-- including the impact of the repurchase and cancellation of
$78 million principal of Convertible Bonds in September 2021;
-- renegotiated terms of the Aoka Mizu FPSO charter to allow
production to continue beyond June 2022;
-- no funding by Hurricane in respect of the joint operation's
regulatory obligation to commence drilling a commitment well on the
Lincoln field by 30 June 2022; and
-- no sanction of further investment cases.
These production profiles modelled incorporated different oil
price and technical assumptions to those included in the 2021 ERCE
CPR but were within the ranges of reserves and contingent resources
estimated by ERCE. The analysis included a review of the budget for
the year ending December 2021 and onwards, committed capital
expenditure, regret costs and longer-term forecasts and plans,
including consideration of the principal risks faced by the Company
and the Group, and taking into account the ongoing impact of the
global COVID-19 pandemic on the macroeconomic situation and any
potential impact to operations.
Under the production simulations and oil price assumptions used
as outlined above, it is forecast that the Group would not be able
to fully repay the remaining Convertible Bonds due in July 2022
whilst also leaving in place an appropriate level of headroom to
cover ongoing operating expenditure, general and administrative
costs and/or other contingencies to cover unplanned decommissioning
and abandonment costs in an unplanned cessation of production
scenario. As such the ability of the Group to continue trading as a
going concern would depend upon the occurrence of one or more of
the following:
-- a successful equity raise;
-- securing short-term bridging financing to temporarily meet any shortfall;
-- bondholders and creditors agreeing to financial waivers and/or amendments;
-- the Group agreeing alternative plans for a proposed financial
restructuring with stakeholders.
Under the scenario and assumptions outlined above, the quantum
of the shortfall (between the amount of free cash assessed to be
required by management to continue operations, and the Convertible
Bond principal repayment amount) is forecast to be of such a size
that the directors believe it is reasonably possible the one or
more of the above transactions could be successfully undertaken in
order to address the projected shortfall in meeting the remaining
Convertible Bond principal. However, until one or more of these has
been concluded, this outcome cannot be guaranteed. The projected
shortfall is highly sensitive to movements in forecast oil prices
and, due to declining production (meaning liftings occur less
frequently) the Company is more exposed to oil price
volatility.
One of the key assumptions above is that Hurricane does not fund
its share of the Lincoln commitment well due to be commenced by 30
June 2022. Unless other funding arrangements are agreed with third
parties in respect of the well, and/or the Regulator consents to a
significant deferral or change in scope of the activity, the joint
operation will automatically relinquish the Lincoln sub-area of the
P1368 licence.
As a result of the going concern assessment presented above, and
on the key assumptions that (a) the Company is able to secure an
acceptable extension to the Aoka Mizu FPSO charter beyond its
current expiry date of June 2022 and (b) Hurricane is able to
successfully undertake mitigating actions and/or refinancing
transactions to address any projected or actual shortfall in the
amount required to repay its Convertible Bond debt due in July
2022, the directors have a reasonable expectation that, after also
taking into consideration the current macroeconomic situation and
uncertainty arising from the COVID-19 pandemic, the Company has
adequate resources and support to continue in operational existence
for a period of at least 12 months from the approval of these
interim financial statements.
Therefore, the directors continue to adopt the going concern
basis of accounting in preparing these interim Financial
Statements, and the interim Financial Statements do not include the
adjustments that would result if the Company was unable to continue
as a going concern. However, as there can be no certainty of the
occurrence of one or more scenarios outlined above, there exists a
material financial uncertainty which may cast doubt on the
Company's ability 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 2020.
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 critical judgments made in applying those accounting
policies and the key sources of estimation uncertainty are the same
as those described in the audited Financial Statements of the Group
for the year ended 31 December 2020. Changes to underlying key
estimates (as compared with estimates made at 31 December 2020)
primarily comprise changes to the estimated future cashflows and
taxable profits used for the impairment test of oil and gas assets
(note 2.3.1) and assessment of deferred tax assets (note 6.2) as a
result of updates to forecast oil prices, production rates and
other projections; and a change in estimate to the volatility of
the Company's Ordinary Share price used in valuing the embedded
derivative component of the Convertible Bond (note 5.1) as a result
of movements in the Company's share price.
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 2021 30 Jun 2020 31 Dec 2020
$'000 $'000 $'000
Oil sales 124,501 81,871 180,083
-------------------------------------- ----------- -----------
Revenue from contracts with customers 124,501 81,871 180,083
-------------------------------------- ----------- ----------- -----------
Cargoes sold 4 7 12
Sales volumes 2,003 Mbbl 2,747 Mbbl 5,112 Mbbl
Average sales price realised $62.2/bbl $29.8/bbl $35.2/bbl
2.2 Cost of sales and inventory
Cost of sales
6 months 6 months 12 months
ended ended ended
30 Jun 2021 30 Jun 2020 31 Dec 2020
Note $'000 $'000 $'000
Operating costs 32,717 36,170 65,107
Depreciation of oil and gas
assets - owned 2.3 45,855 48,348 84,756
Depreciation of oil and gas
assets - leased 2.3 3,405 7,258 11,828
Movement in crude oil inventory (5,059) 2,113 1,733
Variable lease payments 5.2 11,099 7,587 16,392
-------------------------------- ---- ----------- ----------- -----------
Cost of sales 88,017 101,476 179,816
-------------------------------- ---- ----------- ----------- -----------
Inventory
30 Jun 2021 30 Jun 2020 31 Dec 2020
$'000 $'000 $'000
Crude oil 7,750 2,311 2,691
Fuel and chemicals 1,808 621 1,336
Spares and supplies 7,258 5,938 7,258
---------------------- ----------- ----------- -----------
Inventory 16,816 8,870 11,285
---------------------- ----------- ----------- -----------
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 2020 101,347 757,424 858,771
Additions - 13,762 13,762
Changes to decommissioning
estimates 2.5 (228) (1,616) (1,844)
--------------------------------- ---- -------- --------- ---------
At 30 June 2020 101,119 769,570 870,689
Additions - 9,890 9,890
Changes to decommissioning
estimates 2.5 702 5,098 5,800
--------------------------------- ---- -------- --------- ---------
At 31 December 2020 101,821 784,558 886,379
Additions - 5,568 5,5 68
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
--------------------------------- ---- -------- --------- ---------
Depreciation
At 1 January 2020 (8,210) (54,406) (62,616)
Depreciation charge for the
period (7,258) (48,348) (55,606)
Impairment (31,040) (207,813) (238,853)
--------------------------------- ---- -------- --------- ---------
At 30 June 2020 (46,508) (310,567) (357,075)
Depreciation charge for the
period (4,570) (36,408) (40,978)
Impairment (29,126) (251,173) (280,299)
--------------------------------- ---- -------- --------- ---------
At 31 December 2020 (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)
--------------------------------- ---- -------- --------- ---------
Carrying amount at 30 June
2020 54,611 459,003 513,614
--------------------------------- ---- -------- --------- ---------
Carrying amount at 31 December
2020 21,617 186,410 208,027
--------------------------------- ---- -------- --------- ---------
Carrying amount at 30 June
2021 - 146,410 146,410
--------------------------------- ---- -------- --------- ---------
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, resulting in a decrease in
the leased asset value to nil (see note 5.2). The Group remains in
negotiations with the owner of the Aoka Mizu FPSO, over an
alternative extension to the Bareboat Charter for a shorter period
and believes there is a reasonable prospect of negotiating such an
extension of the existing contract on acceptable terms as it would
be in the best interests of stakeholders so to do. As such, in
determining the recoverable amount of oil and gas assets for the
purposes of performing the impairment test as at 30 June 2021, one
of the key assumptions is that an extension to the charter is
agreed between the Group and the Aoka Mizu owner to allow
production to continue beyond June 2022.
Included within the cost of owned oil and gas assets is $42.8
million of capitalised borrowing costs (six months end 30 June 2020
and 12 months ended: $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 $49.5 million (six months
ended 30 June 2020: $55.9 million; 12 months ended 31 December
2020: $97.1 million).
2.3.1 Impairment testing of oil and gas assets
The Group assesses its assets and cash generating units ('CGUs')
in each reporting period to determine whether any indicators of
impairment exist. Where indicators exist, a formal impairment test
is undertaken to estimate the recoverable amount (which is
considered to be the higher of fair value less costs of disposal
('FVLCD') and value in use ('VIU')).
The non-sanction of the proposed financial restructuring and the
decision not to extend the lease of the Aoka Mizu FPSO beyond June
2022 both been identified as impairment triggers and as such a
formal impairment assessment was undertaken.
For the producing Lancaster field, the recoverable amount was
based on VIU which was estimated using a discounted cash flow model
over the field's life. The key assumptions used are based on best
estimates using past experience, latest internal technical analysis
and external factors, and include:
-- production profiles and operating performance based on
internal estimates and reservoir simulation models;
-- a negotiated extension to the charter of the Aoka Mizu FPSO
to allow production to continue until the end of the Lancaster
field's economic life should no further investment activity be
undertaken, estimated to be mid-2023 based on the assumed oil
prices, production profiles and operating costs;
-- Dated Brent oil price assumptions (in real terms) of $74/bbl
average for the remainder of 2021; $69/bbl average in 2022 and
$65/bbl average in 2023;
-- operating cost assumptions based on latest budgets and information from key contractors; and
-- a pre-tax real discount rate of 9.4%.
These estimates and assumptions are subject to risk and
uncertainty, and therefore changes to external factors and internal
developments and plans have the ability to significantly impact
these projections, which could lead to additional impairments or
future reversals in future periods.
The results of the impairment test were that no impairment
charge was necessary; although this was subject to the key judgment
that it would be possible to agree an alternative extension to the
bareboat charter beyond June 2022 until such time as, based on
management's forecast of production rates, operating costs and oil
prices, production became uneconomic.
The estimated impairment charge that would be recognised as a
result of changes to some of these key estimates and assumptions
made (in isolation) is as follows:
Impairment charge
$m
---------------------------------- ------------------
Oil price assumption:
$5/bbl decrease to price curve (11.8)
$10/bbl decrease to price curve (33.2)
Forecast production rates:
5% decrease (3.9)
10% decrease (17.5)
Cessation of production date:
June 2022 (30.8)
December 2022 (7.4)
---------------------------------- ------------------
The triggers for the prior period impairment charges were the
downward revision of estimated recoverable reserves as a result of
the Technical Review and updated CPR, the decline in oil prices
across the first half of 2020 and the market capitalisation of the
Group falling below its net assets. The charge was allocated
pro-rata to owned and leased assets based on their respective
carrying values pre-impairment.
2.4 Intangible exploration and evaluation assets
6 months 6 months 12 months
ended ended ended
30 Jun 2021 30 Jun 2020 31 Dec 2020
Note $'000 $'000 $'000
At start of period 55,390 75,874 75,874
Additions 2,881 24,080 25,623
Exploration expense written
off (32) (12,109) (12,079)
Provision for impairment - - (35,397)
Changes to decommissioning
estimates 2.5 (1,666) 774 1,369
---------------------------- ---- ----------- ----------- -----------
At end of period 56,573 88,619 55,390
---------------------------- ---- ----------- ----------- -----------
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 2021, comprise Lincoln (on licence
P1368 (South)), Warwick (licence P2294) and Halifax (licence
P2308).
The directors have fully considered and reviewed the potential
value of licence interests, including carried forward exploration
and evaluation expenditure. In doing so, they have considered the
Groups' tenure of its licence interests, its plan for further
exploration and evaluation activities in relation to these and the
likely opportunities for realising the value of those licences,
However, any appraisal and development activity would involve a
significant financial commitment for the Group (and its joint
operation partner); and the directors would also consider their
ability to realise value from the licences via sale or farm-out
transaction, subject to regulatory and joint operation partner
approval. The Group and its joint operation partner, Spirit Energy,
has a regulatory obligation to commence drilling a commitment well
on the Lincoln field by 30 June 2022. As outlined in note 1.3
above, one key assumption within the assessment of going concern is
that Hurricane does not fund its share of the commitment well in
2022. Unless other funding arrangements are agreed with third
parties in respect of the well, and/or the Regulator consents to a
significant deferral or change in scope of the activity, the joint
operation will automatically relinquish the Lincoln sub-area of the
P1368 licence. This relinquishment would trigger a write-off of
costs attributable to the Lincoln area ($53.3 million as at 30 June
2021) and reduction to Hurricane's share of 2C reserves of 18.5
MMbbl.
Amounts written off in the prior periods were $12.1 million,
comprising the Group's share of standby costs for the Paul B Loyd
Jr rig, which was not used for any drilling campaigns following the
OGA granting an extension to the licence commitments on the Lincoln
field in light of the COVID-19 pandemic.
Provision for impairment of $35.4 million was made in the year
ended 31 December 2020, being the full carrying amount of
exploration and evaluation expenditure attributable to the Halifax
licence, as the 2021 CPR did not attribute any Reserves or
Contingent Resources to that area.
2.5 Decommissioning provisions
6 months 6 months 12 months
ended ended ended
30 Jun 2021 30 Jun 2020 31 Dec 2020
Note $'000 $'000 $'000
At start of period 61,141 55,673 55,673
Net new provisions and changes
in estimates (1,293) 397 7,459
Utilised and transferred to
accruals in period (7,620) (2,100) (2,108)
Unwinding of discount 3.2 - 117 117
-----------
At end of period 52,228 54,087 61,141
--------------------------------- ---- ----------- ----------- -----------
Of which:
Current 4,530 12,650 15,466
Non-current 47,698 41,437 45,675
--------------------------------- ---- ----------- ----------- -----------
52,228 54,087 61,141
--------------------------------- ---- ----------- ----------- -----------
Restricted funds held in respect
of decommissioning:
Restricted cash 4.1 2,299 2,881 2,244
Liquid investments 4.1 38,938 - 22,811
--------------------------------- ---- ----------- ----------- -----------
41,237 2,881 25,055
--------------------------------- ---- ----------- ----------- -----------
The provision for decommissioning relates to the costs required
to decommission the suspended wells previously drilled on the
Lincoln-14 well and Lancaster 4z wells, 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
plugging and abandonment of the 205/26b-14 Lincoln well. As at 30
June 2021, the Stena Don semi-submersible rig was on location
conducting the plug and abandonment activity, with operations
concluding successfully in July 2021 in line with the remaining
gross decommissioning cost estimate.
The remaining decommissioning costs are expected to be incurred
the fourth quarter of 2021 (for the Lancaster 4z well) and the
second half of 2023 (for the Lancaster EPS and Aoka Mizu FPSO,
based on the remaining economic life of the Lancaster EPS producing
on the P6 well alone). As at 30 June 2021, a total of $41.3 million
is held under decommissioning security arrangements for these
decommissioning programmes ($39.0 million classified as restricted
liquid investments and $2.3 million classified as restricted cash;
see note 4.1).
Changes in estimates in the period have arisen from increases to
cost estimates change in the assumed discount rate, changes in
foreign exchange rates, and changes to the expected costs and
timing of decommissioning the EPS which is now expected to occur in
June 2023.
Of the total net new provisions and changes in estimates, $1.7
million was recorded as reductions to intangible exploration and
evaluation assets, $0.3 million as additions to oil and gas assets,
$1.7 million reduction to receivables due from the Group's joint
operation partner and $1.8 million charged to the income statement
(as it related to the Aoka Mizu FPSO right-of-use lease asset which
had been written down to nil as a result of the reassessment of
lease term).
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 Group currently acts as operator
of the joint operation and will continue to do so until full field
development workstreams commence. 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 2021 30 Jun 2020 31 Dec 2020
$'000 $'000 $'000
Contractual commitments for acquisition/construction
of oil and gas assets 7,643 11,847 9,089
Contractual commitments for acquisition/construction
of intangible exploration and evaluation
assets 4,915 4,624 3,888
----------------------------------------------------- ----------- ----------- -----------
Section 3 Income Statement
3.1 Earnings per share
6 months 6 months 12 months
ended ended ended
30 Jun 2021 30 Jun 2020 31 Dec 2020
$'000 $'000 $'000
Profit/(loss) attributable to holders
of Ordinary Shares in the Company
used in calculating basic earnings
per share (being profit/(loss) after
tax) 42,776 (307,740) (625,325)
Add back impact of:
Convertible Bond - depreciation n/a n/a n/a
of interest capitalised in the year
Convertible Bond - fair value gain n/a n/a n/a
-------------------------------------- ------------- ------------- -------------
Profit/(loss) attributable to holders
of Ordinary Shares in the Company
used in calculating diluted earnings
per share 42,776 (307,740) (625,325)
-------------------------------------- ------------- ------------- -------------
Number Number Number
Weighted average number of Ordinary
Shares used in calculating basic
earnings per share 1,989,515,103 1,989,515,103 1,989,607,524
Potential dilutive effect of:
Convertible Bond n/a n/a n/a
-------------------------------------- ------------- ------------- -------------
Weighted average number of Ordinary
Shares and potential Ordinary Shares
used in calculating diluted earnings
per share 1,989,515,103 1,989,515,103 1,989,607,524
-------------------------------------- ------------- ------------- -------------
Cents
Basic earnings per share 2.15 (15.47) (31.43)
Diluted earnings per share 2.15 (15.47) (31.43)
-------------------------------------- ------------- ------------- -------------
In the current period, 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, and the impact of employee share scheme awards was
antidilutive as market-based conditions had not been met at the
balance sheet date.
The potential effect of the conversion feature included within
the Convertible Bond, and the effect of outstanding share awards
and options, was antidilutive for the six months ended 30 June 2020
and 12 months ended 31 December 2020 as the Group incurred a
loss.
3.2 Finance income and costs
6 months 6 months 12 months
ended ended ended
30 Jun 2021 30 Jun 2020 31 Dec 2020
Note $'000 $'000 $'000
Interest income on cash, cash
equivalents and liquid investments 20 843 1,227
Net foreign exchange gains 725 - 1,469
----------------------------------------- ---- ----------- -----------
Finance income 745 843 2,696
----------------------------------------- ---- ----------- ----------- -----------
Convertible Bond interest expense 5.1 (13,654) (13,118) (26,680)
Interest on lease liabilities 5.2 (3,402) (3,846) (7,702)
Fair value losses on oil price
derivatives 4.4 - (878) (3,420)
Other interest expense and
bank charges (134) (121) (241)
Net foreign exchange losses - (650) -
Unwinding of discount on decommissioning
provisions 2.5 - (117) (117)
----------------------------------------- ---- ----------- ----------- -----------
Finance costs (17,190) (18,730) (38,160)
----------------------------------------- ---- ----------- ----------- -----------
Net finance costs (16,445) (17,887) (35,464)
----------------------------------------- ---- ----------- ----------- -----------
3.3 General and administrative expenditure
Year ended Year ended Year ended
30 Jun 2020 31 Dec
30 Jun 2021 2020
$'000 $'000 $'000
Wages and salaries 7,167 6,530 10,001
Social security costs 877 603 937
Defined contribution pension costs 370 351 720
--------------------------------------------- ----------- ----------- -----------
Staff costs 8,414 7,484 11,658
Non-staff costs 18,280 3,351 7,409
Gross general and administrative expenditure
before recharges 26,694 10,835 19,067
Capitalised into oil and gas assets (1,911) (956) (3,499)
Capitalised into exploration and evaluation
assets (2,438) (4,317) (7,121)
Included within cost of sales (2,542) (2,692) (5,591)
--------------------------------------------- ----------- ----------- -----------
Net general and administrative expenditure
before non-cash items 19,803 2,870 2,856
Non-cash general and administrative costs:
Net share-based payment charge 1,166 408 821
Depreciation of other fixed assets and
other right-of-use assets 254 275 552
--------------------------------------------- ----------- ----------- -----------
General and administrative expenditure 21,223 3,552 4,229
--------------------------------------------- ----------- ----------- -----------
Number Number Number
Average number of employees 60 60 62
Section 4 Cash, working capital and financial instruments
4.1 Cash and cash equivalents and liquid investments
31 December
30 June 2021 30 June 2020 2020
$'000 $'000 $'000
Unrestricted cash and cash equivalents
(current) 148,082 123,170 114,911
Restricted cash and cash equivalents
(current) 20,974 20,053 28,792
---------------------------------------- ------------ ------------ -----------
Current cash and cash equivalents 169,056 143,223 143,703
Restricted cash and cash equivalents
(non-current) - 2,881 -
Liquid investments 38,938 - 22,811
---------------------------------------- ------------ ------------ -----------
Total cash and cash equivalents
and liquid investments 207,994 146,104 166,514
---------------------------------------- ------------ ------------ -----------
Of which:
Unrestricted 148,082 123,170 114,911
Restricted 59,912 22,934 51,603
---------------------------------------- ------------ ------------ -----------
207,994 146,104 166,514
--------------------------------------- ------------ ------------ -----------
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 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
----------------------------------------- ----------- ------------- ---------
Six months ended 30 June 2020
-------------------------------------
Restricted Unrestricted Total
$'000 $'000 $'000
----------------------------------------- ----------- ------------- ---------
At 1 January 14,843 156,591 171,434
Operating cash flows -- 21,889 21,889
Capital expenditure and other investing
cash flows - (34,997) (34,997)
Financing cash flows - (13,360) (13,360)
Movement in FPSO early termination
reserve 8,312 (8,312) -
Foreign exchange rate changes (221) 1,359 1,138
----------------------------------------- ----------- ------------- ---------
At 30 June 22,934 123,170 146,104
----------------------------------------- ----------- ------------- ---------
Year ended 31 Dec 2020
-------------------------------------
Restricted Unrestricted Total
$'000 $'000 $'000
----------------------------------------- ----------- ------------- ---------
At 1 January 14,843 156,591 171,434
Operating cash flows -- 80,220 80,220
Change in Lancaster EPS decommissioning
security arrangements 22,811 (22,811) -
Capital expenditure and other investing
cash flows - (60,793) (60,793)
Financing cash flows - (26,818) (26,818)
Movement in FPSO early termination
reserve 14,807 (14,807) -
Net release of other restricted funds (892) 892 -
Foreign exchange rate changes 34 2,437 2,471
----------------------------------------- ----------- ------------- ---------
At 31 December 51,603 114,911 166,514
----------------------------------------- ----------- ------------- ---------
Included within restricted cash and cash equivalents is $18.7
million (31 December 2020: $26.5 million; 30 June 2020: $20.0
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 pay an
early termination fee to the lessor if the contract was terminated
by the Group earlier than at the expiry of an option period. The
remaining $2.3 million of restricted cash comprises decommissioning
security in place for the suspended Lancaster 205/21a-4z well,
which will be released following confirmation of the successful
abandonment of that well, expected to take place in the fourth
quarter of 2021.
The $38.9 million restricted liquid investment balance 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. This security was held in trust (classified within
restricted liquid investments) until February 2019 when it was
transferred into a decommissioning bond, and subsequently released
to unrestricted cash during 2019 as the bond conditions were
satisfied. Following the downwards revision of Reserves and
Contingent Resources in September 2020 and the ongoing uncertainty
with regard to oil prices, the bond provider requested that the
Company provide cash collateral for 100% of the bond's value. As
the Group would derive no benefit from the bond while still paying
fees to the bond provider, the decommissioning bond was terminated
by mutual agreement and the required security amount was placed
back into trust (classified within restricted liquid investments).
In June 2021, the Group agreed with the Regulator to place an
additional GBP11.2 million ($16.1 million) into trust, in order to
provide security for its decommissioning liability on the Lancaster
field on a pre-tax basis.
4.2 Trade and other receivables
30 Jun 2021 30 Jun 2020 31 Dec 2020
$'000 $'000 $'000
Receivables due from joint
operation partner 6,800 17,759 12,024
Trade receivables 630 17,414 393
Prepayments 2,423 1,256 1,644
Other receivables 1,667 289 463
------------------------------ ----------- ----------- -----------
Trade and other receivables 11,520 36,718 14,524
------------------------------ ----------- ----------- -----------
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 accrue interest at LIBOR and are
generally due for settlement within ten days.
4.3 Trade and other payables
30 Jun 2021 30 Jun 2020 31 Dec 2020
$'000 $'000 $'000
Amounts due to joint operation
partner - 1,120 -
Trade payables 1,329 9,500 2,748
Other payables 628 616 646
Accruals 22,967 43,716 12,962
--------------------------------- ----------- ----------- -----------
Trade and other payables 24,924 54,952 16,356
--------------------------------- ----------- ----------- -----------
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.
Amounts due to the joint operation partner represent cash calls the
Group has made as operator in advance of balances relating to the
joint operation falling due.
4.4 Derivative financial instruments
In June 2020, the Group hedged a portion of its forecast
production for the second half of 2020. At total of 1.8MMbbls (the
equivalent of c.10,000 bopd) were hedged with an average strike
price of $35/bbl, at a total cost of $3.4 million. The options
expired on 31 December 2020 out of the money. The fair value loss
attributable to the options recognised within finance costs for the
period ended 30 June 2020 was $0.9 million (year ended 31 December
2020: $3.4 million).
There were no other derivative commodity price contracts in
place or outstanding at the balance sheet date.
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). The number of potential
Ordinary Shares that could be issued if all the bonds were
converted is 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. Unless previously converted, redeemed or purchased and
cancelled, the Convertible Bond will be redeemed at par on 24 July
2022. Subsequent to the balance sheet date, in September 2021 the
Group repurchased and cancelled $78.0 million In aggregate
principal amount of its Convertible Bonds - see note 7.2.2.
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
2020 206,604 36,316 242,920
Cash interest paid (8,625) - (8,625)
Fair value gain - (33,956) (33,956)
Interest charged 13,118 - 13,118
------------------------------- -------------- -------------------- --------
Carrying value at 30 June
2020 211,097 2,360 213,457
Cash interest paid (8,625) - (8,625)
Fair value gain - (1,475) (1,475)
Interest charged 13,562 - 13,562
Carrying value at 31 December
2020 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
------------------------------- -------------- -------------------- --------
At 30 June 2021 221,062 4,189 225,251
------------------------------- -------------- -------------------- --------
Fair value at 30 June
2020 115,000 2,360 117,360
------------------------------- -------------- -------------------- --------
Fair value at 31 December
2020 102,615 885 103,500
------------------------------- -------------- -------------------- --------
Fair value at 30 June
2021 132,825 4,189 137,014
------------------------------- -------------- -------------------- --------
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 2020 Annual Report and Financial
Statements.
The embedded derivative component of the Convertible Bond has
been assessed to be a Level 2 financial liability, as the valuation
has been calculated using the Black-Scholes option pricing model
using direct and indirect observable inputs. The key inputs used
are share price volatility (calculated as the volatility of one
Hurricane Ordinary Share over two years period to the measurement
date) and the price of one Ordinary Share at 30 June 2021. 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 bonds were considered. The likelihood of each was considered to
be nil for the purposes of the valuation.
The fair value calculation at 30 June 2021 used a share price
volatility assumption of 171.4 % (31 December 2020: 118.2%; 30 June
2020: 88.3%) and the price of one Hurricane Energy plc Ordinary
Share as at the balance sheet date of GBP0.036 (31 December 2020:
GBP0.025; 30 June 2020: GBP0.058). The sensitivity of a reasonably
possible increase or decrease of those inputs to the Group's profit
before tax for the period ended 30 June 2021 is summarised below,
assuming all other variables were held constant:
Gain/(loss)
$'000
------------------------------------ ------------
Share price volatility assumption:
50% points increase (4,455)
50% points decrease 3,262
Share price at balance sheet date:
GBP0.05 increase (13,489)
GBP0.02 decrease 3,250
------------------------------------ ------------
5.2 Leases
6 months 6 months 12 months
ended ended ended
30 Jun 2021 30 Jun 2020 31 Dec 2020
$'000 $'000 $'000
At start of period 97,321 99,186 99,186
Remeasurement of lease liability (67,337) - -
Cash payments of principal
and interest (4,808) (4,836) (9,658)
Interest charged 3,402 3,846 7,702
Foreign exchange movements 65 (172) 91
At end of period 28,643 98,024 97,321
----------------------------------- ----------- ----------- -----------
Of which:
Current 26,468 9,463 18,479
Non-current 2,175 88,561 78,842
----------------------------------- ----------- ----------- -----------
28,643 98,024 97,321
--------------------------------- ----------- ----------- -----------
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 $11.1 million (six months ended 30 June 2020: $7.6
million; year ended 31 December 2021: $16.4 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
has elected not to exercise an option previously included in its
determination of the lease term, the lease term has now been
assessed, for IFRS 16 accounting purposes, to be expiring at the
end of the contractual period (being June 2022), and therefore the
liability has been remeasured by discounting the revised lease
payments. This has 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.
The assumption that the bareboat charter can be extended beyond
June 2022 is a critical judgment within the assessment of
impairment of oil and gas assets (note 2.3) and the presumption of
going concern (note 1.3). Should a revised contract be agreed with
the lessor, the lease term will be reassessed and the lease
liability and right-of-use asset remeasured accordingly.
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 24,924 - - - - 24,924
Convertible Bond
interest 8,625 8,625 4,313 - - 21,563
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 54,952 - - - - 54,952
Convertible Bond
interest 8,625 8,625 17,250 4,313 - 38,813
Lease liabilities 4,803 4,778 27,654 83,322 1,446 122,003
------------------ --------- ----------- --------- --------- --------- -------
At 30 June 2020 68,380 13,403 44,904 87,635 1,446 215,768
------------------ --------- ----------- --------- --------- --------- -------
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 16,356 - - - - 16,356
Convertible Bond
interest 8,625 8,625 12,938 - - 30,188
Lease liabilities 4,801 13,799 27,877 69,976 1,295 117,748
------------------ --------- ----------- --------- --------- --------- -------
At 31 December
2020 29,782 22,424 40,815 69,976 1,295 164,292
------------------ --------- ----------- --------- --------- --------- -------
Not included within the tables above is the Convertible Bond
principal of $230 million which, unless previously converted into
Ordinary Shares, redeemed or cancelled, is due to be redeemed on 24
July 2022 (see note 5.1). Following the repurchase and cancellation
of $78.0 million in aggregate principal amount of Convertible Bonds
for cash consideration of $61.7 million (including accrued
interest) in September 2021, the remaining aggregate principal
amount of Convertible Bonds due in July 2022 is now $152.0 million
(see note 7.2.2). The maturity analysis of the Convertible Bond
interest payments as at 30 June 2021 will now be $8.0 million (less
than six months), $5.7 million (6-12 months) and $2.9 million (1-2
years).
At 30 June 2021, $8.5 million (31 December 2020: $12.0 million;
30 June 2020 $17.8 million) was due from the Group's joint
operation partner to settle its share of trade payables and
accruals relating to the joint operation (see note 4.3).
5.4 Share capital
Ordinary $'000
Shares
----------------------------------- ------------- -----
At 1 January 2020 1,990,228,053 2,883
Shares issued under employee share
schemes 1,643,503 2
-------------------------------------- ------------- -----
At 30 June 2020, 31 December 2020
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 for the period
6 months 6 months 12 months
ended ended ended
30 Jun 2021 30 Jun 2020 31 Dec 2020
$'000 $'000 $'000
UK corporation tax
Current tax - prior years - - -
-------------------------------------------- ----------- ----------- -----------
Total current tax - - -
-------------------------------------------- ----------- ----------- -----------
Deferred tax - current year (78) (49,262) (44,501)
Effect of changes in tax rates - - (9,732)
Total deferred tax (78) (49,262) (54,233)
-------------------------------------------- ----------- ----------- -----------
Tax (charge)/credit per Income Statement (78) (49,262) (54,233)
-------------------------------------------- ----------- ----------- -----------
Profit/(loss) on ordinary activities
before tax 42,854 (258,478) (571,092)
-------------------------------------------- ----------- ----------- -----------
Profit/(loss) on ordinary activities
multiplied by standard rate of corporation
tax in the UK applicable to oil and
gas companies of 40% (17,142) 103,391 228,437
Effects of:
Expenses not deductible for tax
purposes (1,404) (2,432) (4,656)
Income not chargeable for tax purposes - 6,285 15,138
Items taxed at rates other than
the standard rate of 40% (2,481) (6,946) (24)
Ring fence expenditure supplement - - 22,769
Recognition of deferred tax not - - -
previously recognised
Prior period deferred tax - - (9,732)
Derecognition of losses and losses
not recognised 20,949 (149,560) (306,165)
-------------------------------------------- ----------- ----------- -----------
Total tax charge for the period (78) (49,262) (49,262)
-------------------------------------------- ----------- ----------- -----------
The tax charge for the prior periods of $0.1 million wholly
relates to the derecognition of most of the deferred tax asset
previously recognised at 31 December 2020.
6.2 Deferred tax
6 months ended 6 months ended 12 months
ended
30 Jun 2021 30 Jun 2020 31 Dec 2020
$'000 $'000 $'000
Accelerated capital allowances - (95,482) (2,645)
Other timing differences - - 16
Tax losses carried forward - 100,530 2,707
------------------------------- -------------- -------------- -----------
Deferred tax asset - 5,048 78
------------------------------- -------------- -------------- -----------
A potential deferred tax asset of $281.3 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 $45.0m 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
differed 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 differed 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 $357.7 million at 30
June 2021 (30 June 2020: $562.3 million; 31 December 2020: $468.7
million) and supplementary charge losses and allowances of $574.7
million (30 June 2020: $820.9 million; 31 December 2020: GBP707.8
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 $35.8 million based on the position
at 30 June 2021. The group also has unused capital allowances of
$389.1 million available to be used against future taxable profits
(30 June 2020: $377.5 million; 31 December 2020: $383.5
million).
In addition to the above, the Group has pre-trading expenditure
of $122.2 million which is carried forward at 30 June 2021, and tax
relief may be available should trading activities commence (this
expenditure could also be uplifted by RFES to $180.6 million).
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 2021, Crystal Amber Fund Limited ('Crystal Amber')
held 22.6% of the Company's Ordinary Shares, and Crystal Amber have
classified its investment in Hurricane as an associate. As such,
Crystal Amber are now considered to be a related party of the
Group.
7.2 Subsequent events
7.2.1 Lincoln-14 well plug and abandonment
On 7 July 2021, the operation to plug and abandon the 205/26b-14
well ("Lincoln 14") was completed within both schedule and
budget.
7.2.2 Bond tender offer
On 31 August 2021, the Group announced a tender offer to
repurchase a proportion of its outstanding Convertible Bonds, the
results of which were announced on 10 September 2021; being a final
acceptance of $78.0 million in aggregate principal amount of its
Convertible Bonds at a price of 78% of principal amount. On 15
September 2021, the Group completed the repurchase of the tendered
Convertible Bonds for cash consideration of $61.7 million
(including accrued interest). The repurchased bonds were cancelled
on 16 September 2021, following which $152.0 million in aggregate
principal amount of Convertible Bonds remain outstanding and due in
July 2022.
Appendix A: Glossary
2C Denotes best estimate of Contingent Resources
------------------ -------------------------------------------------------------
2P Denotes the best estimate of Reserves. The sum of
Proved plus Probable Reserves.
------------------ -------------------------------------------------------------
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
------------------ -------------------------------------------------------------
Contingent Those quantities of petroleum estimated, as of a
Resources given date, to be potentially recoverable from known
accumulations by application of development projects,
but which are not currently considered to be commercially
recoverable owing to one or more contingencies.
------------------ -------------------------------------------------------------
Convertible $230 million of 7.5% convertible bonds issued by
Bond(s) the Company in July 2017 ($152 million following
tender offer completed in September 2021)
------------------ -------------------------------------------------------------
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
------------------ -------------------------------------------------------------
FDP Field Development Plan
------------------ -------------------------------------------------------------
FDPA Field Development Plan Addendum
------------------ -------------------------------------------------------------
FPSO Floating production storage and offloading vessel
------------------ -------------------------------------------------------------
FVLCD Fair value less costs of disposal
------------------ -------------------------------------------------------------
FVTPL Fair value through profit and loss
------------------ -------------------------------------------------------------
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
------------------ -------------------------------------------------------------
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
------------------ -------------------------------------------------------------
TVDSS True Vertical Depth Sub Sea
------------------ -------------------------------------------------------------
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 believes 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 outwith 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 2021 30 Jun 2020 31 Dec 2020
$'000 $'000 $'000
Profit/(loss) before tax (IFRS
measure) 42,854 (258,478) (571,092)
Add back:
Fair value loss/(gain) on Convertible
Bond embedded derivative 5.1 3,304 (33,956) (35,431)
Fair value loss on unhedged
derivative financial instruments 4.4 - 878 3,420
Gain on lease remeasurement (49,125) - -
Impairment and write-off of
intangible exploration and evaluation
assets 2.4 32 12,537 47,476
Increase in decommissioning
estimates expensed 2.5 1,751 - 469
Impairment of oil and gas assets 2.3 - 238,853 519,152
---------------------------------------- ---- ----------- ----------- -----------
Underlying loss before tax (1,184) (40,166) (36,006)
---------------------------------------- ---- ----------- ----------- -----------
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 2021 30 Jun 2020 31 Dec 2020
$'000 $'000 $'000
Cost of sales (IFRS measure) 2.2 88,017 101,476 179,816
Less:
Depreciation of oil and gas
assets - owned 2.3 (45,855) (48,348) (84,756)
Depreciation of oil and gas
assets - leased 2.3 (3,405) (7,258) (11,828)
Movements in crude oil inventory 2.2 5,059 (2,113) (1,733)
Add:
Fixed lease payments payable
for oil and gas assets 5,838 4,550 9,150
----------------------------------- ---- ----------- ----------- -----------
Cash production costs 49,654 48,307 90,649
----------------------------------- ---- ----------- ----------- -----------
Variable lease payments (incentive
tariff) 5.2 (11,099) (7,587) (16,392)
----------------------------------- ---- ----------- ----------- -----------
Cash production costs (excluding
incentive tariff) 38,555 40,720 74,257
----------------------------------- ---- ----------- ----------- -----------
Production volumes 2,004 Mbbl 2,658 Mbbl 5,078 Mbbl
Cash production cost per barrel $24.8/bbl $18.2/bbl $17.9/bbl
Cash production cost per barrel $19.2/bbl $15.3/bbl $14.6/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 2021 30 Jun 2020 31 Dec 2020
$'000 $'000 $'000
Cash and cash equivalents (IFRS
measure) 4.1 207,994 146,104 143,703
Add:
Trade and other receivables 4.2 11,520 36,718 14,524
Derivative financial instruments 4.4 - 2,542 -
Less:
Restricted cash and cash equivalents 4.1 (59,912) (22,934) (28,792)
Prepayments 4.2 (2,423) (1,256) (1,644)
Trade and other payables 4.3 (24,924) (54,952) (16,356)
Net free cash 132,255 106,222 111,435
-------------------------------------- ---- ----------- ----------- -----------
Par value of Convertible Bond 5.1 (230,000) (230,000) (230,000)
-------------------------------------- ---- ----------- ----------- -----------
Net debt (97,745) (123,778) (118,565)
-------------------------------------- ---- ----------- ----------- -----------
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IR MJBLTMTJBBIB
(END) Dow Jones Newswires
October 14, 2021 02:00 ET (06:00 GMT)
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