Hurricane, Shetland oil explorer, in $625m loss

West of Shetland oil and gas explorer Hurricane Energy plc said on Tuesday it made a loss of $625.3 million for the year to December 31, 2020, “including impairment charges totalling $567.1 million in respect of the Lancaster field and the company’s exploration assets and an associated deferred tax write-off of $54.2 million.”

Hurricane, which has proposed a financial restructuring, said Lancaster produced an average of 13,900 bopd in 2020 but that production “was significantly less than expected due to the field materially underperforming relative to pre-production expectations.”

Revenue recognised for the year was $180.1 million, with an average realised price of $35.2/bbl across 12 cargoes comprising 5.1 million barrels.

The firm said an internal technical review of the Lancaster field reservoir model resulted in “significant downgrades to Lancaster Reserves and Contingent Resources.”

Hurricane said its net free cash of $111.4 million at December 31 “was significantly less than anticipated due to lower oil prices caused by the Covid-19 pandemic as well as lower Lancaster production than anticipated.”

Net debt at year-end was $118.6 million.

In combination, lower than expected cash generation during 2020 and significantly reduced potential future cash flows from Lancaster means the company will not be in a position to repay its $230 million of convertible bond debt at maturity in July 2022,” said Hurricane.

“After exploring all possible alternatives, the company announced a proposed restructuring of the company’s convertible bond debt on 30 April 2021.

“Material uncertainties regarding the company’s ability to continue as a going concern have been identified, pending the results of the proposed financial restructuring process …

If duly approved and implemented, the proposed financial restructuring is expected to take effect in June 2021.

“This would deliver a viable balance sheet from which to execute the company’s revised strategy of maximising cash flow from the existing Lancaster wells and infrastructure to pay down debt.

“In parallel, the company will continue to develop the technical and commercial case for further development opportunities at Lancaster and, if supported by its bondholders, execute any further investment as efficiently as possible …”

Hurricane CEO Antony Maris said: “This has been a profoundly difficult period for Hurricane and its stakeholders.

“The understanding of the West of Shetland fractured basement play has changed significantly.

“As a result, the potential of the Lancaster field is much smaller than originally thought and cannot support the level of debt in the company which was sized for a much larger reserves and contingent resources base.

“Against this extremely challenging backdrop, the company has explored all potential options to resolve the company’s financial situation, with the proposed financial restructuring ultimately being deemed the best possible outcome.

“We understand the impact this will have on our shareholders and the strong feelings that have been expressed as a result, but this was a necessary move in order to secure the company’s future.

“If the proposed restructuring is approved and implemented, we will focus our efforts on maximising Lancaster cash flows to pay down debt, as well as making the case for further development of our West of Shetland asset base.”