TIDMHUR
RNS Number : 7491W
Hurricane Energy PLC
13 December 2019
13 December 2019
Hurricane Energy plc
("Hurricane" or the "Company")
Trading and Operational Update
&
P1368 Licence Update
Hurricane Energy plc, the UK based oil and gas company focused
on hydrocarbon resources in naturally fractured basement
reservoirs, provides a trading and operational update, and reports
an update in relation to its P1368 licence.
Highlights
-- Strong performance of Lancaster Early Production System
("Lancaster EPS") wells - during recent individual well flow tests,
good natural flow rates were achieved with minimal bottom hole
pressure decline
-- P1368 licence extension
o Lancaster and Lincoln subareas of P1368 extended for five
years
o Whirlwind and Strathmore sub-areas to be relinquished
-- Work programme
o Licence extension requires the drilling of certain commitment
wells, resulting in a change to the forward work programme
o Sub-vertical well(s) to determine maximum extent of Lincoln
committed in 2020
o Sub-vertical well(s) to determine maximum extent of Lancaster
committed in 2021
o Hurricane considering accelerating Lancaster drilling in 2020
to utilise rig availability
-- FY2019 guidance
o Total production of 3.1 million barrels of oil, representing
an average rate of 13,300 barrels of oil per day
o Oil sales: 2.8 million barrels across seven cargoes
o Revenue: approximately $165 million
o Year-end unrestricted cash: approximately $150 million
-- FY2020 guidance
o Lancaster EPS average production rate guidance maintained:
20,000 barrels of oil per day (before operational downtime), to be
reviewed as part of the current testing programme
o Lancaster EPS facilities availability: 90%, before any
shut-ins required for tie-ins or debottlenecking
Lancaster EPS
The Lancaster EPS is benefiting from high vessel uptime and good
well productivity, as it delivers its objectives of providing
long-term data whilst generating cash flow. Production since 20
September has averaged approximately 12,500 barrels of oil per day,
exceeding guidance for the quarter of 11,000 barrels of oil per
day.
The heels of the 205/21a-6 well ("6 Well") and 205-21a-7Z well
("7Z Well") are only 350 metres apart. Data gathered thus far
indicates immediate and strong pressure communication between the
wells, suggesting that together they act as a single well.
Furthermore, the Company believes that only approximately 50-60
metres of each 1 kilometre wellbore is contributing to production.
Both wells are currently drawing on only a small section of the
reservoir. Since late October, Hurricane has been carrying out
individual flow tests to establish the optimum combined flow rate
from the two wells under these conditions, and to assess individual
well fluid dynamics. These results will refine understanding of
reservoir performance without the impact of interference from the
other well.
The 6 Well is currently flowing individually at approximately
14,700 barrels of oil per day with minimal water cut. In a prior
individual well test, the 7Z Well flowed at approximately 9,400
barrels of oil per day with a stable water cut within a range of
between 25-30%. These rates were achieved on natural flow. In both
cases, the bottom hole pressure showed minimal decline following an
initial stabilisation period, giving management confidence in the
long-term productivity of these wells and the Lancaster field. The
productivity performance of each well on an individual basis is in
excess of the Company's pre-start-up expectations.
The Company is confident that the water cut observed is related
to perched/stranded water, based on temperature data, lack of
rate-dependency, and water production behaviour after shut-in
periods.
Production will continue from the 6 Well on a standalone basis
until late January, at which point both wells will be flowed
concurrently. Results from the tests will be presented at the
Company's Q1 2020 Capital Markets Day. The Company has previously
outlined that it will take six to twelve months of steady state
production before it is able to confirm its reservoir model and
continues to see this timeline as an appropriate horizon.
Notwithstanding the instant communication between the two wells,
and that the wells are effectively acting as a single well bore,
the bottom hole pressure response observed to date gives the
Company sufficient confidence to reiterate 2020 guidance of 20,000
barrels of oil per day, before operational downtime. This will be
kept under review as the data acquisition programme continues.
Facilities availability for 2020 is expected to be 90% before any
shut-ins, which may be required for tie-ins or debottlenecking.
P1368 Licence Extension
The P1368 licence includes the following subareas:
P1368 (Central) - Lancaster
P1368 (South) - Lincoln
P1368 (North) - Whirlwind
P1368 (South West) - Strathmore
A deed of variation relating to Licence P1368 between the Oil
and Gas Authority ("OGA") and the licensees was executed by
licensees on 12 December 2019. This deed grants an extension of
five years to the P1368 licence, covering the Lancaster and Lincoln
subareas, subject to conditions including the drilling of certain
commitment wells.
The Lancaster sub-area extension is subject to spudding a
commitment well by 22 December 2021, to determine the maximum
extent of the Lancaster field, following which an updated field
determination will be made.
The Lincoln sub-area extension is subject to spudding a
commitment well by 22 December 2020, to determine the maximum
extent of the Lincoln field, following which a field determination
will be made.
The Whirlwind sub-area has been relinquished at the OGA's
requirement. The carrying value of Whirlwind of approximately $67
million will be fully impaired in the Company's 2019 financial
results. The Strathmore sub-area has also been relinquished by the
Company and the carrying value has already been fully impaired. The
Company will no longer recognise resources in relation to Whirlwind
(2C contingent resources of 179-205 mmboe) or Strathmore (2C
contingent resources of 32 mmboe).
Work Programme
As a result of the licence extension, Hurricane can now provide
an update on its planned work programme for 2020, which reflects
the requirements of this extension. All proposed activity remains
subject to regulatory consent and, where related to joint activity
with Spirit Energy, partner approval.
Greater Warwick Area ("GWA")
Hurricane is currently planning one or more sub-vertical wells
to determine the maximum vertical extent of the Lincoln field in
order to meet the commitment well requirement of the licence
extension. At a minimum, this well will seek to confirm the mid
case oil water contact at 2,200 metres TVDSS. As a consequence, the
Company no longer has plans to drill any additional horizontal
producers on the GWA in 2020. Well planning work is ongoing and an
announcement will be made once the well plan has been confirmed.
Drilling activity is not expected to start earlier than 1 June 2020
given the time required to undertake planning and permitting for
the well. As a result of this, there is likely to be a period of
time between February and June 2020 that the contracted rig is
standing idle, incurring a cost of up to $10 million net to
Hurricane. Hurricane is currently considering alternative options
to utilise the rig during this period.
The tie-back of a Lincoln well to the Aoka Mizu FPSO, tie-in to
WOSPS, and associated modifications to the FPSO are still planned
for 2020. Obtaining regulatory approval for this plan may, however,
delay activity until 2021. Confirmation of the tie-in programme is
expected during Q1 2020. In the absence of OGA approval for the
tie-in of the Lincoln Crestal well (205/26b-14), the licence
partners will be required to plug and abandon the well before 22
June 2020 in line with current regulatory approvals.
Greater Lancaster Area
The 2021 work programme will include one or more sub-vertical
wells to determine the maximum extent of the Lancaster field in
order to meet the commitment well requirement of the licence
extension. It is expected that these wells will be broadly similar
in design to the 2020 Lincoln commitment well(s).
Debottlenecking work will be undertaken in 2021, to be available
for the additional throughput from the Lancaster and Lincoln wells.
Total throughput on the Aoka Mizu FPSO is expected to be 40,000
barrels of oil per day, before operational downtime, from 2022
onwards.
Hurricane is currently in discussions with Spirit Energy for the
potential use of the Transocean Paul B. Lloyd Junior rig, which has
been contracted by the GWA joint venture for 2020 activity, to
accelerate the drilling of a third horizontal producing well in the
Lancaster field in order to minimise the time that the rig is
standing idle. Should this well proceed, it is envisaged that it
will be tied back to the Aoka Mizu FPSO in 2021 with first oil
expected at the end of 2021.
FY 2019 Financial Guidance
Production since 20 September has averaged approximately 12,500
barrels of oil per day. This is below the average rate achieved
since start-up due to individual well testing. Total production for
the year is expected to be approximately 3.1 million barrels of
oil, an average of 13,300 barrels of oil per day from introduction
of hydrocarbons on 11 May 2019.
Hurricane is targeting a seventh lifting from the Aoka Mizu FPSO
on or around 22 December 2019, taking total oil sales for the year
to 2.8 million barrels. At current oil prices, this will result in
revenue for the year of approximately $165 million and year-end
unrestricted cash of approximately $150 million.
The Company expects to report its full financial results for the
year ending 31 December 2019 on 19 March 2020.
Capital Markets Day
Hurricane plans to hold a Capital Markets Day on 25 March 2020
for sell-side analysts and institutional shareholders. Hurricane
will provide an update on the Lancaster EPS and the 2020 GWA
programme. Details will be provided closer to the date.
Dr Robert Trice, Chief Executive of Hurricane, commented:
"2019 has been a transformational year for Hurricane, as we saw
first oil from the first fractured basement development on the
UKCS. I am delighted with the performance of the Lancaster EPS and
look forward to presenting what we have learnt and what we expect
from this reservoir at our Capital Markets Day in March. The
results of the individual well tests have surpassed our
expectations.
"We are pleased to have extended the licence over the Lancaster
and Lincoln subareas for a further five years. We anticipate having
taken a final investment decision on full field development plans
for both fields by the end of that period. The deep wells that now
form part of our programme will target the delineation of the
maximum extent of both the Lancaster and Lincoln oil columns to a
more definitive level."
Contacts:
Hurricane Energy plc
Dr Robert Trice, Chief Executive Officer +44 (0)1483 862
Alistair Stobie, Chief Financial Officer 820
Stifel Nicolaus Europe Limited
Nominated Adviser & Joint Corporate Broker
Callum Stewart / Nicholas Rhodes / Ashton
Clanfield +44 (0)20 7710 7600
Morgan Stanley & Co. International plc
Joint Corporate Broker
Andrew Foster / Tom Perry / Alex Smart +44 (0)20 7425 8000
Vigo Communications
Public Relations
Patrick d'Ancona / Ben Simons
hurricane@vigocomms.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.
Glossary
bopd Barrels of oil per day
FPSO Floating production storage and offloading
vessel
===========================================
mmboe Million barrels of oil equivalent
===========================================
Spirit Energy Spirit Energy Limited
===========================================
TVDSS True vertical depth subsea
===========================================
UKCS UK Continental Shelf
===========================================
WOSPS West of Shetland Gas Pipeline System
===========================================
Inside Information
This announcement contains inside information as stipulated
under the market abuse regulation (EU no. 596/2014). Upon the
publication of this announcement via regulatory information service
this inside information is now considered to be in the public
domain.
Competent Person
The technical information in this release has been reviewed by
Dr Robert Trice, who is a qualified person for the purposes of the
AIM Guidance Note for Mining, Oil and Gas Companies. Dr Robert
Trice, Chief Executive Officer of Hurricane Energy plc, is a
geologist and geoscientist with a PhD in geology and has over 30
years' experience in the oil and gas industry.
Standard
Resource estimates 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.
This information is provided by RNS, the news service of the
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END
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