REG - Hurricane Energy PLC - Formal Sale Process, Capital Return & Ops Update

Hurricane EnergyAnnouncement

02/11/2022 07:17

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RNS Number : 0490F  Hurricane Energy PLC  02 November 2022

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART, DIRECTLY OR
INDIRECTLY IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A
VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF THAT JURISDICTION

THIS IS AN ANNOUNCEMENT FALLING UNDER RULE 2.4 OF THE CITY CODE ON TAKEOVERS
AND MERGERS (THE "CODE") AND DOES NOT CONSTITUTE AN ANNOUNCEMENT OF A FIRM
INTENTION TO MAKE AN OFFER UNDER RULE 2.7 OF THE CODE.  THERE CAN BE NO
CERTAINTY THAT ANY FIRM OFFER WILL BE MADE FOR HURRICANE ENERGY PLC, NOR AS TO
THE TERMS ON WHICH ANY OFFER MAY BE MADE

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

 2 November 2022

Hurricane Energy plc

Formal Sale Process, Capital Return and Operational Update

Hurricane Energy plc ("Hurricane" or the "Company"), the UK based oil and gas
company, announces that, following receipt of an unsolicited offer and after a
period of engagement with the bidder (the "Bidder"), Hurricane has received an
offer for the entire issued share capital of the Company at an indicative
price of 7.7 pence per share in cash (the "Indicative Offer"). The Indicative
Offer is at a premium of only 13% compared to the mid-market closing price of
6.8 pence per share on 1 November 2022. The directors of Hurricane (the
"Board") have concluded that the Indicative Offer should not be recommended to
shareholders.

The Company is in a very strong financial and operational position. However,
Crystal Amber Fund Limited, which holds 28.9 per cent. of the Company's shares
and is the Company's largest shareholder, has indicated to the Board its
desire to monetise the value of its shareholding.

The Company has decided to launch a formal sale process (the "FSP") as
referred to in Note 2 on Rule 2.6 of the Code, in order to establish whether
there is a bidder prepared to offer a value that the Board considers
attractive, relative to the standalone prospects of Hurricane as a publicly
traded company and accordingly one that should be recommended to all
shareholders.

Whilst the outcome of the FSP is uncertain, the Board is confident of the
ongoing strength of the Company's business in both financial and operational
terms, including its:

·    Very strong financial position

o  Debt free, with forecast year end net free cash 1  of c. $118 million (at
$90/bbl oil)

o  Decommissioning liabilities fully funded

·    Valuable asset base

o  Significant oil price-geared cash generation from predictable P6 well

o  Material inventory held, covering drilling, completion and subsea
equipment

·    Significant tax loss position

o  Over $370 million of value available in tax losses, as at 30 June 2022 2 

In the event that the FSP does not result in a transaction, the Board intends
to commence a significant capital return programme with up to $70 million
(equivalent to 3.1 pence per share 3 ) to be returned to shareholders in Q1
2023, upon completion of a capital reduction.  Following that, and in the
absence of more favourable alternatives, further distributions could then be
made during 2023 and beyond.

 1  Unrestricted cash and cash equivalents, plus current financial trade and
other receivables, current oil price derivatives, less current financial trade
and other payables.

 2  The estimated value of these losses and allowances at prevailing tax
rates, including the Group's pre-trading expenditure, future decommissioning
costs and non-ring fence losses, was $373 million at 30 June 2022. This is the
maximum possible theoretical value at that date and is subject to timing and
circumstance; and it is unlikely that all of the potential value would be able
to be realised.

 3  Converted at an exchange rate of GBP 1.00: USD 1.15

 

Formal Sale Process

The Board has appointed Stifel Nicolaus Europe Limited ("Stifel") as its
financial adviser with regards to the FSP and as independent financial adviser
for the purposes of Rule 3 of the Code.

Parties interested in submitting any expression of interest should contact
Stifel through the contact details given below. It is currently expected that
any party interested in submitting any form of proposal will, at the
appropriate time, enter into a non-disclosure agreement and standstill
arrangement with the Company on terms satisfactory to the Board before being
permitted to participate in the process.

The Company then intends to provide such interested parties with certain
information on its business, following which interested parties shall be
invited to submit their proposals to Stifel. The Company will update the
market in due course regarding timings for the FSP.

Other than the unsolicited offer referred to above, the Company is not
currently in discussions with, nor in receipt of an approach from, any
potential offeror relating to an acquisition of the issued and to be issued
share capital of the Company. The Bidder referred to above is participating in
the FSP.

The Takeover Panel has agreed that any discussions with third parties may be
conducted within the context of a FSP under the Code, which will enable
conversations with parties interested in making a proposal to take place on a
confidential basis.

The Takeover Panel has granted a dispensation from the requirements of Rules
2.4(b) and 2.6(a) of the Code such that any interested party participating in
the FSP will not be required to be publicly identified (subject to note 3 to
Rule 2.2 of the Code) and will not be subject to the 28 day deadline referred
to in Rule 2.6(a), for so long as they are participating in the FSP.

The Board reserves the right to alter any aspect of the process as outlined
above or to terminate the process at any time and in such cases will make an
announcement as appropriate. The Board also reserves the right to reject any
approach or terminate discussions with any interested party at any time.

This announcement is being made without the consent of the Bidder.
Shareholders are advised this is not a firm intention to make an offer under
Rule 2.7 of the Code and there can be no certainty that any offers will be
made as a result of the FSP, that any sale or other transaction will be
concluded, nor as to the terms on which any offer or other transaction may be
made.

Philip Wolfe, Chairman of Hurricane commented:

"The Board intends to deliver near term shareholder returns through either the
successful outcome of the formal sale process or with a substantial capital
return programme. Hurricane is in a strong position with an experienced senior
team, robust balance sheet, profitable ongoing production and significant tax
losses - a platform capable of supporting distributions throughout Lancaster's
expected economically productive life. We look forward to updating
shareholders in due course."

Contacts:

 

 Hurricane Energy plc                                                +44 (0)1483 862820

 Antony Maris, Chief Executive Officer

 communications@Hurricaneenergy.com

 Stifel Nicolaus Europe Limited                                      +44 (0)20 7710 7600

 Financial Adviser, Nominated Adviser & Joint Corporate Broker

 Callum Stewart / Jason Grossman

 Investec Bank plc                                                   +44 (0)20 7597 5970

 Joint Corporate Broker

 Chris Sim / Charles Craven / Jarrett Silver

 Vigo Consulting                                                     +44 (0)20 7390 0230

 Public Relations

 Patrick d'Ancona / Ben Simons

 Hurricane@vigoconsulting.com

 

Reverse Takeovers

Hurricane has a strong balance sheet, transparent corporate structure and a
liquid shareholder base, all of which make it a suitable candidate for a
private or overseas listed company seeking a UK listing. In the right
circumstances, a reverse takeover may offer an opportunity for Hurricane
shareholders to participate in a larger, diversified company. The Board will
review such opportunities in parallel with the FSP.

Status Quo Case and Distributions Policy

Any proposals received in connection with the FSP, as well as alternative
transactions identified, will be measured against the Board's assessment of
the prospects of the Company under its current operational plan. Based on
current production forecasts and assuming oil prices of c.$90/bbl and no
mechanical issues, Hurricane anticipates that production will remain economic
until at least the end of H1 2024.  If oil prices are higher, or production
levels exceed expectations, then economic production could continue beyond
this date.

Currently the Company is unable to carry out a shareholder distribution as it
does not have any distributable reserves.  The Board will therefore shortly
propose a capital reduction (the "Capital Reduction") comprising the
cancellation of some or all of the Company's share premium account so as to
create positive distributable reserves. This would enable the Company to make
distributions or other returns of value to its Shareholders in the future
should it determine to do so, subject to the outcome of the FSP, the Company's
financial performance and compliance with applicable law. The Capital
Reduction will require the approval of shareholders and confirmation by the
High Court of Justice in England and Wales. It is expected that, if approved,
the Capital Reduction will become effective in Q1 2023. Further announcements
will be made in due course.

Following the Capital Reduction the Board would aim to return up to $70
million to shareholders in Q1 2023. In the absence of alternatives that would
generate better returns for shareholders, further distributions totalling up
to $110 million could be made during 2023 and 2024 in aggregate, with a final
distribution of up to $30 million in 2025, following the cessation of
production from the Lancaster operations. The amount of cash available to
distribute to shareholders following cessation of operations and
decommissioning is dependent on many factors, including oil price, ultimate
oil recovery from Lancaster, whether the decision to cease operations is
planned or forced and the cost and timing of decommissioning.

Operational and Commercial Update

Production

The following table details production volumes, water cut and minimum flowing
bottom hole pressure for the 205/21a-6 ("P6") well during October 2022.

October 2022 Lancaster Field Data

 

                                          P6     P7z((1))
 Oil produced during the month (Mbbls)    256    -
 Average oil rate (bopd)                  8,271  -
 Water produced during the month (Mbbls)  239    -
 Average water cut((2))                   48%    -
 Well gauge pressure (psia)((3))          1,532  -

1. The 205/21a-7z ("P7z") well was not on production during October 2022

2. Expressed as total water produced divided by total fluid (oil and water)
production

3. Pressure reported is the monthly minimum from well downhole gauges.

 

As of 31 October 2022, Lancaster was producing c. 8,100 bopd from the P6 well
alone with an associated water cut of c.49%.

Liftings

The 31st cargo of Lancaster oil, totalling approximately 545 Mbbls, was lifted
on 8 October 2022. This cargo was priced by reference to the average of the
last five days of October's Dated Brent quotes, being $93/bbl, resulting in
net revenue of c.$49 million equivalent to 2.1 pence per share(( 4 )). The
next cargo is anticipated to be lifted in December 2022.

Financial

As at 31 October 2022, the Company had net free cash 5  of c. $99 million
(including the revenue from the October lifting).

The Company has a creditable record of safe operations and delivering cargoes
on schedule. It continues to focus on delivering safe operations whilst
managing its cost base as effectively as possible. It is sized appropriately
for a publicly traded operator West of Shetland and over the past two years
has reduced its headcount to align with the scale of its current operations.
As at 31 December 2020 the Company had 54 employees.  By 31 December 2021
this had been reduced to 39 and as at 31 October 2022 the head count was 27.
This reduction in staffing has reduced the underlying salary costs by
approximately $2.8 million per annum. The Company continues to focus on
controlling its costs and the Board is further reviewing other cost saving
measures as part of its 2023 budget process.

 4  Converted at an exchange rate of GBP 1.00: USD 1.15

 5  Unrestricted cash and cash equivalents, plus current financial trade and
other receivables, current oil price derivatives, less current financial trade
and other payables

Taxation

The Energy Profits Levy ("EPL") charge for the Company for 2022 is currently
expected to be less than $5 million taking into account capital allowances
available in the period as well as the effect of the Investment Allowance that
is included within the EPL legislation.  This amount equates to an effective
rate of less than 10% of the Company's forecast profit before tax ("PBT") for
the period covered by the EPL (26 May - 31 December 2022).  It is currently
anticipated that the effective rate, when compared to PBT, will be similar for
2023, but this is heavily dependent on the Company's cost base for 2023 and
the achieved level of revenue, driven by the price of oil.

The estimated value of the tax losses and allowances held by the Company at
prevailing tax rates, including the Group's pre-trading expenditure, future
decommissioning costs and non-ring fence losses, was $373 million at 30 June
2022. This is the maximum possible theoretical value and is subject to timing
and circumstance; and it is unlikely that all of the potential value would be
able to be realised.

While the ongoing profit generated from Lancaster operations utilises some of
these tax losses, significant potential value remains that could be utilised
through new production. These tax losses could also be attractive to a
potential acquirer of Hurricane.

 

The person responsible for arranging the release of this announcement on
behalf of Hurricane is Antony Maris, CEO.

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.

Notices related to financial adviser and broker

Stifel Nicolaus Europe Limited, which is authorised and regulated by the
Financial Conduct Authority in the United Kingdom, is acting exclusively for
Hurricane and for no one else in connection with the subject matter of this
announcement and will not be responsible to anyone other than Hurricane for
providing the protections afforded to its clients or for providing advice in
connection with the subject matter of this announcement.

Investec Bank plc, which is authorised by the
Prudential Regulation Authority and regulated by the Financial Conduct
Authority and the Prudential Regulation Authority in the United Kingdom, is
acting exclusively for Hurricane and for no one else in connection with the
subject matter of this announcement and will not be responsible to anyone
other than Hurricane for providing the protections afforded to its clients or
for providing advice in connection with the subject matter of this
announcement.

Disclosure requirements of the Code

Under Rule 8.3(a) of the Code, any person who is interested in 1% or more of
any class of relevant securities of an offeree company or of any securities
exchange offeror (being any offeror other than an offeror in respect of which
it has been announced that its offer is, or is likely to be, solely in cash)
must make an Opening Position Disclosure following the commencement of the
offer period and, if later, following the announcement in which any securities
exchange offeror is first identified. An Opening Position Disclosure must
contain details of the person's interests and short positions in, and rights
to subscribe for, any relevant securities of each of (i) the offeree company
and (ii) any securities exchange offeror(s). An Opening Position Disclosure by
a person to whom Rule 8.3(a) applies must be made by no later than 3.30 pm
(London time) on the 10th business day following the commencement of the offer
period and, if appropriate, by no later than 3.30 pm (London time) on the 10th
business day following the announcement in which any securities exchange
offeror is first identified. Relevant persons who deal in the relevant
securities of the offeree company or of a securities exchange offeror prior to
the deadline for making an Opening Position Disclosure must instead make a
Dealing Disclosure.

Under Rule 8.3(b) of the Code, any person who is, or becomes, interested in 1%
or more of any class of relevant securities of the offeree company or of any
securities exchange offeror must make a Dealing Disclosure if the person deals
in any relevant securities of the offeree company or of any securities
exchange offeror. A Dealing Disclosure must contain details of the dealing
concerned and of the person's interests and short positions in, and rights to
subscribe for, any relevant securities of each of (i) the offeree company and
(ii) any securities exchange offeror, save to the extent that these details
have previously been disclosed under Rule 8. A Dealing Disclosure by a person
to whom Rule 8.3(b) applies must be made by no later than 3.30 pm (London
time) on the business day following the date of the relevant dealing.

If two or more persons act together pursuant to an agreement or understanding,
whether formal or informal, to acquire or control an interest in relevant
securities of an offeree company or a securities exchange offeror, they will
be deemed to be a single person for the purpose of Rule 8.3.

Opening Position Disclosures must also be made by the offeree company and by
any offeror and Dealing Disclosures must also be made by the offeree company,
by any offeror and by any persons acting in concert with any of them (see
Rules 8.1, 8.2 and 8.4). Details of the offeree and offeror companies in
respect of whose relevant securities Opening Position Disclosures and Dealing
Disclosures must be made can be found in the Disclosure Table on the Takeover
Panel's website at www.thetakeoverpanel.org.uk
(http://www.thetakeoverpanel.org.uk/)  , including details of the number of
relevant securities in issue, when the offer period commenced and when any
offeror was first identified. You should contact the Panel's Market
Surveillance Unit on +44 (0)20 7638 0129 if you are in any doubt as to whether
you are required to make an Opening Position Disclosure or a Dealing
Disclosure.

Rule 2.9 information

In accordance with Rule 2.9 of the Code, Hurricane confirms that as at the
close of business on 1 November 2022 its issued share capital consisted of
1,991,871,556 ordinary shares of £0.001 each (excluding shares held in
treasury). The International Securities Identification Number for Hurricane's
ordinary shares is GB00B580MF54.

Rule 26.1 disclosure

In accordance with Rule 26.1 of the Code, a copy of this announcement will be
available (subject to certain restrictions relating to persons resident in
restricted jurisdictions) at www.Hurricaneenergy.com by no later than 12 noon
(London time) on the business day following the date of this announcement. The
content of the website referred to in this announcement is not incorporated
into and does not form part of this announcement.

Additional Information

This announcement is not intended to, and does not, constitute or form part of
any offer, invitation or the solicitation of an offer to purchase, otherwise
acquire, subscribe for, sell or otherwise dispose of, any securities, or the
solicitation of any vote or approval in any jurisdiction, pursuant to this
announcement or otherwise. Any offer, if made, will be made solely by certain
offer documentation which will contain the full terms and conditions of any
offer, including details of how it may be accepted. The distribution of this
announcement in jurisdictions other than the United Kingdom and the
availability of any offer to shareholders of Hurricane who are not resident in
the United Kingdom may be affected by the laws of relevant jurisdictions.
Therefore any persons who are subject to the laws of any jurisdiction other
than the United Kingdom or shareholders of Hurricane who are not resident in
the United Kingdom will need to inform themselves about, and observe any
applicable requirements.

Nothing in this announcement is or should be relied on as a promise or
representation as to the future. This announcement includes certain
statements, estimates and projections provided by the Company in relation to
the Company's anticipated future performance. Such statements, estimates and
projections are based on various assumptions made by the Company concerning
anticipated results which may or may not prove to be correct. No
representations or warranties are made by any person as to the accuracy of
such statements, estimates or projections.

 

 

 

 

 

 

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