REG - Hurricane Energy PLC - Half-year Results
30/09/2022 07:00
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RNS Number : 2685B Hurricane Energy PLC 30 September 2022
30 September 2022
Hurricane Energy plc
("Hurricane", the "Company", or the "Group")
Half-year Results 2022
Hurricane Energy plc, the UK based oil and gas company, provides its 2022
interim report and unaudited half-year results for the six-month period ended
30 June 2022.
Highlights
Financial results
· Revenues of $159.5 million from three liftings of Lancaster crude
(H1 2021: $124.5 million from four liftings)
· Cash production costs† of $35.4/bbl (H1 2021: $24.8/bbl) in line
with expectations
· Generated $110.1 million of operating cash flow (H1 2021: $75.9
million), equivalent to $67.5/bbl (H1 2021: $37.9/bbl)
· Profit after tax for the period of $67.0 million (H1 2021: $42.8
million)
· Net cash† at 30 June 2022 of $48.4 million (31 December 2021 net
debt: $27 million) - repaid $78.5 million Convertible Bonds plus $1.5 million
of accrued interest after the period end to become debt free
· Net free cash† of $126.9 million at 30 June 2022 (31 December 2021:
$51.5 million) ($76.6 million as at 31 August 2022 following repayment of the
Convertible Bonds and the July lifting)
· Restricted cash of $60.8 million at 30 June 2022 relating to
decommissioning obligations and FPSO charter (31 December 2021: $45.7 million)
- Restricted cash is in addition to Net free cash
† Non-IFRS measures. See Appendix for definition and reconciliation to
nearest equivalent statutory IFRS measures
Operations
· Excellent operational performance at the Aoka Mizu FPSO with an
average Lancaster field production uptime of 98% in H1 2022 (H1 2021: 96%)
· Lancaster EPS production averaged 9,000 bopd for H1 2022 (H1 2021:
11,100 bopd) in line with expectations
· Annual planned maintenance shutdown successfully carried out in
September, with next lifting scheduled for early October 2022
Corporate
· Philip Wolfe appointed Chair in March 2022, replacing John Wright who
remains as a Non-Executive Director
· Juan Morera appointed to the Board as a Non-Executive Director in
March 2022, representing Crystal Amber, Hurricane's largest shareholder
· Linda Beal appointed to the Board as an Independent Non-Executive
Director in May 2022, taking on the role of Audit and Risk Committee Chair
· Robin Allan appointed to the Board as an Independent Non-Executive
Director in July 2022, taking on the role of ESG Committee Chair
Outlook
· Hurricane passed a key milestone with its repayment of the
outstanding Convertible Bonds post-period end in July 2022, and is focused on
building a positive long-term future for the benefit of all stakeholders
· Management will identify and pursue opportunities for the most
effective capital allocation of its funds
Antony Maris, Chief Executive Officer of Hurricane, commented:
"Repaying our Convertible Bonds and becoming debt-free has enabled us to
consider multiple trajectories for Hurricane's future. At the same time as
ensuring continuing production from Lancaster, we have been working diligently
on many workstreams, all with the aim of creating additional value for our
shareholders.
In terms of Lancaster, continuing our close collaboration with our FPSO
operator, we have been able to deliver superb uptime performance, leading to
the production of more oil in the period. Our team can be justifiably proud of
the fact that we bettered our targets set for the shutdown and unplanned
downtime without at any time compromising the safety of our operations.
Looking to Lancaster's future, we have expended considerable effort and some
funds into maintaining the ability to deliver a new well in the Lancaster
Field, termed P8, in order to meet our "maximum economic recovery" obligations
to the UK Government. Given our emissions challenges, we have worked closely
with the UK's offshore regulator, the North Sea Transition Authority ("NSTA"),
to plot a way forward for Lancaster. It is disappointing that despite the
enormous efforts of our team, and extensive interactions over many months, the
NSTA is unable to provide comfort to the Company with regard to the likelihood
of it being granted the necessary consents related to flaring for Hurricane to
make further commitments to investment in Lancaster.
In parallel, however, we have been pursuing alternative capital allocation
opportunities outside of our existing asset base - a task which is challenging
owing to the current market volatility - and one that we can now focus on
completely.
With our strong balance sheet, no debt, and our decommissioning liabilities
being fully funded, I believe Hurricane, with our committed and capable team,
is well placed to be able to create additional value for our shareholders."
Contacts:
Hurricane Energy plc +44 (0)1483 862 820
Antony Maris, Chief Executive Officer
communications@hurricaneenergy.com
Stifel Nicolaus Europe Limited +44 (0)20 7710 7600
Nominated Adviser & Joint Corporate Broker
Callum Stewart / Simon Mensley / Ashton Clanfield
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
About Hurricane
Visit Hurricane's website at www.hurricaneenergy.com
(http://www.hurricaneenergy.com)
Inside Information
This announcement is released by Hurricane Energy plc and contains inside information under Regulation (EU) 596/2014 on market abuse, as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018 (the UK MAR). For the purpose of the UK MAR, this announcement is made by Antony Maris, Chief Executive Officer at Hurricane Energy plc.
Competent Person
The technical information in this release has been reviewed by Antony Maris,
Chief Executive Officer, who is a qualified person for the purposes of the AIM
Guidance Note for Mining, Oil and Gas Companies. Mr Maris is a petroleum
engineer with 35 years' experience in the oil and gas industry. He has a B.Sc.
(Eng.) Petroleum Engineering (Hons) from the Imperial College of Science and
Technology (University of London) Royal School of Mines A.R.S.M. and an MBA
from Kingston Business School.
Standard
Reserves and resource estimates for the Lancaster field contained in this
announcement have been prepared in accordance with the Petroleum Resource
Management System guidelines endorsed by the Society of Petroleum Engineers,
World Petroleum Congress, American Association of Petroleum Geologists and
Society of Petroleum Evaluation Engineers.
Chief Executive Officer's Review
Introduction
The first half of 2022 has been an extraordinarily volatile period for our
sector due to surging commodity prices, exacerbated by the terrible events in
Ukraine. The resulting high oil price, combined with outstanding operational
performance at the Company's Lancaster field, has significantly strengthened
Hurricane's finances, and led post-period end to the full repayment in July
2022 of the outstanding Convertible Bonds. This represented a major milestone
for our Company.
During the year, the importance of domestic energy security has been
highlighted by Russia's invasion of Ukraine and by the subsequent concerns
over energy supplies across Europe. Companies such as Hurricane have an
important continuing contribution to make to meeting the UK's domestic energy
requirements.
Hurricane is now a company underpinned by firm financial foundations, without
debt and with significant cash in hand; as such, the Board is now able to
devote more time to addressing the future of Hurricane, prioritising the best
investment opportunities that could add significant value for shareholders.
Operational Review
Greater Lancaster Area (GLA)
The period saw a very strong operational performance by the Aoka Mizu FPSO at
the Company's Lancaster field.
The field has performed well and within guidance, delivering 9,000 barrels of
oil per day in the first half of 2022. The anticipated natural decline coupled
with increased water cut, offset by high uptime, informed production levels,
and these factors are expected to play their part in field performance during
the second half of 2022 and beyond. Based on current forecasts we expect
production for 2022 to be towards the upper end of our guidance range.
During the period there were three cargo liftings totalling 1.6 million
barrels and delivering revenues of $159.5 million.
Over a two-day period in May the Company conducted several flow performance
tests on the P7Z well that involved temporarily reducing the flow rate from
the P6 well. The data obtained will be useful in refining production forecasts
for P6.
In September the planned annual maintenance shutdown was carried out on the
Aoka Mizu with production being successfully restarted ahead of the planned
timeframe. As at 28 September 2022, production was c. 8,700 bopd with a water
cut of 46%. The current production rate and water cut are impacted from the
post shutdown flush production. We expect that production will settle at its
pre-shutdown level of c. 8,300 bopd (and c. 48% water cut) and then continue
its natural decline.
Alongside ongoing production operations, the Company has been progressing the
possibility of drilling an additional production well, the P8 well. Although
first discussed with the Regulators in 2021, in early 2022 when the Company
recognised that not only would it clear its debt but also have sufficient
funds to both fully cover the cost of a new well in Lancaster and also its
other operational requirements, we engaged with the Regulators concerning the
unique challenges Hurricane faces.
The originally approved development plan included flaring as the approved gas
disposal mechanism and, under the NSTA approval of the amendment to this plan,
allowed for production below the bubble point. Hurricane is subject to rolling
and declining three-monthly production, flare and vent consents under this
amendment.
The Company has worked hard to reduce its emissions and, as reported at the
2021 Full Year Results, had significant success in achieving reductions
through the combined hard work and efforts of our team and Bluewater.
Hurricane is fully cognisant of the increased scrutiny and oversight in this
area and is continuing to look at ways of further reducing our overall
environmental footprint in 2022 and beyond, where it is economically and
commercially viable to do so. However, being fully aware of the challenge
concerning flare volumes and the impact that any additional production would
have, the Company has worked tirelessly with both OPRED and the NSTA to
address the environmental impact of new investment.
With OPRED we have sought to demonstrate that the new well has no significant
environmental impact beyond the environmental approvals already given.
Interaction has been extensive, and positive, and we believe that we have
demonstrated that the P8 well would remain within the limits of the existing
approvals.
The work with the NSTA has been to show that the project proposal is in line
with the regulations and meets the OGA Strategy's central obligations, and
would allow for an increase in the production, flare and vent consents to be
awarded when applied for. This would be just prior to the start-up of the
new well.
We believe we have shown that the project is consistent with the requirements
placed upon Hurricane to maximise economic recovery as part of the OGA
Strategy's central obligation 2a. Whilst the project would lead to a
short-term increase in emissions, we also believe we are fully aligned with
the OGA Strategy's central obligation 2b, which is to assist the Secretary of
State in meeting the country's Net Zero targets.
Interaction on this latter point has been detailed, and rightly both
challenging and highly scrutinised. The situation Hurricane faces is that the
retrofitting of a new gas export or disposal system to the existing
development is technically challenging, with a high capex requirement. The
expected recovery of gas from an additional well, including the benefit of the
extended life of the field, is such that the economics of the investment are
significantly below the threshold considered appropriate for Hurricane to
commit to such a project.
Thus, we have been working with the NSTA team in two specific areas.
Firstly, to demonstrate that there is no technical and economically viable
solution to mitigate the emissions that is reasonable in the circumstances.
Secondly, in order to make the significant financial commitments to the
equipment and services required to execute and deliver the P8 well in 2023,
Hurricane has been seeking comfort that the NSTA would provide, when
requested, the required increase in production, flare and vent consents for
the new well, subject to:
a. OPRED confirming that the impact of the new well has no significant
environmental impact beyond the current environmental approvals given; and
b. Demonstration that there is no technical and economically viable
solution to mitigate the emissions that is reasonable in the circumstances.
Without such comfort from the NSTA the risk of proceeding with the drilling of
the well, without knowing if production, flare and vent consent approvals are
likely to be granted, is too high.
We are fully aware of the challenge the NSTA faces in terms of the interaction
between the competing objectives of maximising economic recovery whilst
reducing emissions. The Company therefore offered that all incremental
emissions as a result of the new well (including those associated with the
extension of the life of the field) would be covered by verifiable carbon
offsetting.
The informal feedback from the NSTA during the six months of interaction was
that, even where there is no technical and economically viable solution to
mitigate the emissions that is reasonable in the circumstances, then the NSTA
still may or may not grant the consents when requested even if positive
support from OPRED was forthcoming.
The project and the level of financial commitments are of major significance
to the Company. Therefore, to seek clarity this issue was raised with the
most senior levels within the NSTA. Having now considered this, the NSTA
finally confirmed on 29 September 2022 that, in response to our requests, it
does not give such comfort.
Whilst the Company believes the proposed P8 project would be within the
regulatory guidance, the Board has concluded that in the face of regulatory
opposition, the additional financial commitments to offshore equipment
suppliers and the associated financial risk of proceeding with P8 is too
great.
Therefore, with great reluctance and regret, the Board has decided that no
further investment is possible in relation to an additional well on the
Lancaster Field. This decision will not result in any accounting impairment or
any adjustment to our current reserves estimates.
Greater Warwick Area (GWA) & Halifax Licence
In April, the GWA Joint Venture ("JV") announced that it had reassessed its
understanding of the Greater Warwick area, evaluating both the basement and
the Mesozoic potential of the JV's licences, and considered all options for
further appraisal and routes to possible development.
In June, Hurricane reported that it had determined that further appraisal and
development costs to reach an economic development on the Warwick discovery
within the remaining licence term was not feasible for the Company. Further to
discussions with the Company's JV partner, Spirit Energy, the GWA JV therefore
decided to relinquish the P2294 licence area. This was in addition to the
previously announced decision to relinquish the Lincoln P1368(S) licence sub
area.
The carrying value of the P2294 asset in the Company's accounts of c.$4.9
million, has therefore been impaired. This impairment is an accounting charge
only and will not have any cash impact.
In addition, in September 2022 the Company determined that the costs required
to further evaluate the Halifax licence (P2308) and the low likelihood of a
successful economic development means that the right next step is to
relinquish the licence. As with the GWA licences, there is no reasonable
expectation that the P2308 licence could generate any near-term cash
realisation, and therefore voluntarily relinquishing the licence at this time
allows the Company to focus its time and financial resources on alternative
and more attractive opportunities. All previously capitalised costs relating
to Halifax have already been impaired and therefore no further impairments are
required.
The decisions regarding the GWA and Halifax licences followed the deployment
of the rigorous screening criteria that Hurricane brings to all opportunities
in terms of determining the most appropriate allocation of capital to deliver
the best value for shareholders.
New Business Opportunities
As has been previously reported, in addition to considering investing further
in the Lancaster Field, the Company has been actively pursuing potential
opportunities outside the Company's current asset base.
Focusing on the UKCS, the Company has and continues to evaluate a number of
farm in opportunities, acquisitions and mergers. Hurricane's management and
staff have extensive experience in both oil and gas, through all stages of the
asset life-cycle, and therefore the scope covers a range of new oil and gas
investment opportunities. We will continue to look for both asset and
corporate level opportunities that will help diversify our asset base, deliver
value to shareholders, and strengthen the Company for the future.
Despite the volatility in prices, and the uncertainties these create,
Hurricane believes that its strong balance sheet, technical and operational
expertise, and proven track record of capital project delivery offer a strong
competitive advantage among its peer group.
Financial
During the first half of 2022, the Company generated revenues of $159.5
million.
Post period end, Hurricane repaid in full its outstanding $78,515,000 7.50 per
cent Convertible Bonds (the "Bonds") plus $1.5 million of accrued interest by
the maturity date of 24 July 2022. Accordingly, the Bonds were delisted from
The International Stock Exchange and cancelled.
The repayment leaves the Company debt free, with significant cash on hand,
further cash due in the near term from further liftings from the FPSO, and
ongoing cash generative production from the Lancaster field.
As of 30 June 2022, the Company had net free cash of $126.9 million. Following
the repayment of the outstanding Bonds and the July lifting, the Company held
net free cash of $76.6 million as at 31 August 2022.
Cost control was an important aspect of our work in the first half of 2022
with opex at Lancaster stable and close management of costs a central part of
our work on the field and the wider business as a whole.
Energy Profits Levy
On the 26 May 2022, the UK Government announced the introduction of the Energy
Profits Levy ("EPL"). Our industry works within the framework of long
investment cycles and highly volatile commodity markets. Fiscal stability is
key in supporting the investment decision-making to meet the UK's energy
transition targets and the introduction of the EPL is unhelpful in that
regard. However, as a potential investor in future UK oil and gas assets, we
also stand to benefit from the Investment Allowances included as part of the
EPL.
The headline rate was an increase in tax of 25%, with no ability to utilise
existing carried forward losses. The legalisation for the EPL has now been
enacted and the Company has reviewed the implications and the potential impact
on the business. For 2022, the Company is forecasting that its EPL liability
will be less than $5 million. This amount is lower than originally expected
largely due to the impact of our capital allowances available in the period as
well as the effect of the Investment Allowance that is included within the EPL
legislation.
Corporate
We have strengthened and diversified our Board.
In March Philip Wolfe stepped up to take on the role of Chair, and Juan Morera
joined as a Non Executive Director as a representative of our major
shareholder, Crystal Amber.
In May, we were pleased to announce that Linda Beal had joined as an
Independent Non Executive Director. Her extensive experience as a tax partner
at both PwC and Grant Thornton advising international E&P clients, coupled
with her recent career serving as a director of listed small cap natural
resources businesses, brings an immediate and meaningful contribution to the
work of our Board. Her in-depth financial knowledge and governance expertise
will be of great benefit as Audit and Risk Committee Chair.
After the period end, in July, we also welcomed Robin Allan as an Independent
Non Executive Director. His wide experience at executive level with Premier
Oil, including as Director, North Sea and Exploration, and his role as
Chairman of BRINDEX, the Association of British Independent Exploration
Companies, will serve the Company well as it makes important financial and
strategic decisions for the next stage of its growth.
Outlook
With the ongoing success of our technical and operations teams, especially in
beating the target for scheduled maintenance, the Company anticipates that,
barring any unforeseen issues, production from Lancaster will be towards the
upper end of our production target of 7,500 - 8,600 bopd during 2022. On
this basis, if the price of oil is up to $90/bbl for the remaining cargoes in
2022, we forecast our year end net free cash being up to $110 million.
Our staff and management, together with our contractors, have done a great job
over the period and I would like to thank them for their excellent performance
and contribution to the Company's current strong position.
While water cut will continue to increase and pressure to decline, the field
is expected to remain highly cash generative into 2024 at current commodity
prices. Retaining these funds for further investment and acquisition for the
future will be key but always measured against delivery of value to
stakeholders.
The decision not to proceed with P8 is very disappointing. While the current
extreme volatility of oil and gas prices makes it harder to plan for the
future, we are confident that we can deliver additional value for our
shareholders. Whether this is in further investment in new opportunities in
the UK oil and gas sector, or beyond, Hurricane is well placed for a
successful future.
Antony Maris
Chief Executive Officer
29 September 2022
† Non-IFRS measures. See Appendix B for definition and reconciliation to
nearest equivalent statutory IFRS measures.
Financial Review
Highlights
First half 2022 First half 2021 Full year 2021
Production 1,632 Mbbl 2,004 Mbbl 3,748 Mbbl
Average production rate* 9,000 bopd 11,100 bopd 10,300 Bopd
Sales volumes 1,601 Mbbl 2,004 Mbbl 3,576 Mbbl
Revenue $159.5m $124.5m $240.5m
Average sales price realised $99.6/bbl $62.2/bbl $67.3/bbl
Cash production cost per barrel† $35.4/bbl $24.8/bbl $28.2/bbl
Cash generated from operations $110.1m $75.9m $147.0m
Closing net free cash† $126.9m $132.3m $51.5m
Restricted cash (and liquid investments) $60.8m $59.9m $45.7m
Net cash/(debt)† $48.4m $(97.7)m $(27.0)m
Underlying profit / (loss) before tax† $66.6m $(1.2)m $10.8m
Profit/(loss) after tax $67.0.m $42.8m $18.2m
* Rounded to nearest 100 bopd
† Non-IFRS measures. See Appendix B for definition and reconciliation to
nearest equivalent statutory IFRS measures.
During the first half of 2022, over 1.6 million barrels of Lancaster crude
were sold across three cargoes, generating $159.5 million in revenue. The
Group generated positive cash flow from operations of $110.1 million, thanks
to high oil prices and the production efficiency of the Lancaster EPS.
Revenue
Revenue for the period was $159.5 million, with an average price realised of
$99.6/bbl across three cargoes, versus an average Dated Brent price for the
period of $108/bbl. Under the sales and marketing agreement with BP, the sale
of Lancaster crude is priced at either the first five or last five days of the
month of lifting (at buyer's option) and as such the applicable Dated Brent
price is, on average, lower than the spot price at date of sale.
The average discount to Brent realised for H1 2022 was $2.2/bbl (H1 2021:
$3.0/bbl; FY 2021: $2.7/bbl) (representing the discount or premium offered by
the refinery purchasing the crude, BP's marketing fee, and the freight costs
incurred by BP in transporting crude to its ultimate destination). All cargoes
sold to date have been on time, within specification and contractual terms,
and as such Hurricane has a good reputation of being a reliable producer.
Cost of sales
Cost of sales were $78.5 million, including $36.9 million of DD&A. Cash
production costs (which exclude DD&A and accounting movements in
inventory, but include the fixed lease charges for the Aoka Mizu) were $57.7
million, equivalent to $35.4/bbl versus $28.2/bbl for the full year 2021. The
increase in cash production costs, on a per-barrel basis, is driven by lower
average production rates and higher realised sales prices (increasing the
revenue-linked incentive tariff payable). Excluding the revenue-linked
incentive tariff, cash production costs increased from $22.8/bbl full year
2021 to $27.5/bbl in H1 2022. As production from the P6 well continues to
decline naturally over time, cash production costs per barrel will increase
given the largely fixed operational cost base. Cash production costs are
currently forecast to be c. $34/bbl for the full year 2022 (excluding the
incentive tariff).
Non-cash adjustments to oil and gas and exploration and evaluation assets
On 25 March 2022, Hurricane announced that it has signed a contract with
Bluewater, for an extension to the Bareboat Charter beyond the previous expiry
date of 4 June 2022. The extension is expected to cover the remaining economic
life of the Lancaster field given the significant economic incentive for both
sides based on the current forward price curve and production profiles. In
accordance with IFRS 16 the liability has been remeasured by discounting the
revised lease payments covering the economic life of field. This resulted in
an increase to the lease liability of $54.5 million and corresponding increase
to the associated right-of-use asset cost of $54.5 million
General and administrative expenses
General and administrative costs ("G&A") for the six months ended 30 June
2022 were $3.1 million (H1 2021: $21.2 million). After removing non-cash
charges (DD&A and share-based payment expense) and amounts recharged to
cost of sales and capitalised into fixed assets, gross cash G&A for the
period was $8.5 million (H1 2021: $26.7 million). The decrease in gross cash
G&A was primarily driven by a decrease in non-staff costs due to the legal
and professional fees incurred in the six months to 30 June 2021 in
preparation for the proposed financial restructuring process of c.$14 million.
Staff costs were $5.2 million (H1 2021: $8.4 million), with the decrease being
driven by the reduction in headcount from an average of 60 employees in H1
2021 to the current average of 35 in H1 2022. A reconciliation of G&A
costs is shown in note 3.3 to the Interim Financial Statements. We continue to
pursue cost reduction opportunities in relation to our G&A base.
Underlying profit before tax
Underlying profit before tax for H1 2022 was $66.6 million compared to an
underlying loss before tax of $1.2 million for H1 2021. The improvement in
performance for the current period was driven by higher oil prices, reduced
cost of sales due to a reduced volume of cargoes sold in the period (1,601
thousand barrels from three cargoes in H1 2022 vs 2,004 thousand barrels from
four cargoes in H1 2021), and reduced G&A costs as detailed above.
Convertible Bond accounting
The accounting for the Convertible Bond (issued in July 2017) required the recognition of an embedded derivative liability related to the equity conversion option. The fair value of the embedded derivative is valued using an option pricing model, with the key inputs being the Company's share price and its share price volatility. Any increase in the liability creates a corresponding non-cash charge in the income statement, and vice versa. See note 5.1 to the Financial Statements for further details.
Bond repayment
On 25 July 2022, Hurricane announced that it had repaid in full its outstanding $78,515,000 7.50 per cent Convertible Bonds plus $1.5 million of accrued interest by the maturity date of 24 July 2022. The Bonds have now been delisted from The International Stock Exchange and cancelled.
Decommissioning estimates
A net decrease of $2.0 million to decommissioning estimates has been
recognised due to a reassessment of expected costs. During the period,
Hurricane agreed with the Regulator to place an additional £5.7 million ($7.7
million) of funds into trust, in order to provide security for the estimated
decommissioning liability on the Lancaster EPS on a pre-tax basis. At 30 June
2022, a total of $41.4 million was held in trust as decommissioning security
for the Lancaster EPS.
Cash flow
Net free cash† bridge for H1 2022:
Opening net free cash† Free Cashflow* Capital expenditure Movement in restricted funds Coupon payments Movements in working capital Other Closing net free cash†
$51.5m $96.4m $(4.5)m $(15.1)m $(2.9)m $1.2m $0.3m $126.9m
*Comprises operating cash flow excluding decommissioning spend and including
fixed lease repayments
At 30 June 2022, the Group had $126.9 million of net free cash† (being
unrestricted cash net of payables and accruals and including trade
receivables), an increase of $75.4 million from 31 December 2021.
Average realised sales price was $99.6/bbl and cash production costs were
$35.4/bbl, generating cash per barrel (before working capital movements) of
$70.4/bbl in H1 2022 (full year 2021: $39.1/bbl).
Other operating cash outflows included the general and administrative costs of
staff and other overheads. After adjusting for movements in working capital
the Group's operating cash inflow for the period amounted to $110.1 million.
Capital expenditure in the period was $4.5 million, comprising primarily
previously committed purchases of long lead items for GLA, licences,
geological studies, storage costs for inventory and capitalised time-writing
costs.
Financing outflows of $16.8 million included fees in relation to coupon
payments on the Convertible Bond and fixed lease repayments primarily for the
Aoka Mizu.
Included within the terms of the extension to the Bareboat Charter is the
requirement to set aside a certain amount of cash to cover the FPSO day rate
during the six month notice period, along with amounts to cover the estimated
decommissioning costs associated with the vessel's departure from the
Lancaster Field. These funds replace the previous escrowed amounts that were
in place under the original charter terms to cover early termination costs. At
30 June 2022, this amount was $19.4 million (31 December 2021: $7.9 million),
resulting in an increase of $11.5 million into restricted funds during the
period. An additional $7.7million was placed into trust in relation to
Lancaster EPS decommissioning arrangements (as outlined above), resulting in a
net decrease of $15.1 million to net free cash in relation to restricted cash
movements once foreign exchange losses of $4.2 million are taken into account.
Cash flow outlook
As of 31 August 2022, the Company had net free cash† of $76.6 million. The
main movements over the two-month period from 30 June 2022 were:
· Revenue of c.$60.2 million from one lifting of Lancaster crude
· Operating costs and G&A of c.$20 million
· Repayment of Convertible Bonds of $78.5 million and quarterly cash
coupon payments of c.$1.5 million.
· Net cash capital expenditure of c.$1.1 million
· Net movements out of restricted cash of c.$0.9 million
· Decrease in net working capital of c.$10.3 million
The Convertible Bonds have now been repaid in full.
The Company needs to keep a portion of its net free cash at August 2022 aside
to fund ongoing operating, staff and overhead expenses; as well as to cover
any additional decommissioning costs (above those held in trust) that could
arise should an unplanned cessation of production event occur and
decommissioning activities need to take place earlier than previously assumed.
The Company anticipates that, barring any unforeseen issues, production from
Lancaster will be towards the upper end of the production guidance of 7,500 -
8,600 bopd during 2022. On this basis, if the price of oil is up to $90/bbl
for the remaining cargoes in 2022, the year-end net free cash is forecast to
be up to $110 million as at 31 December 2022. Hurricane will continue its work
to identify the most effective capital allocation opportunities both within
and outside the existing asset base.
Principal risks
There are a number of potential risks and uncertainties which could have a
material impact on the Group's performance. Certain of these risks impacted
the Company in the first half of 2022 and could continue to impact the Company
over the remaining six months of 2022 and could cause actual results to differ
materially from expected and historical results. The Group's principal risks
are as follows:
· Substantial capital requirements
· Exploration, appraisal and development operational risks
· Production operational risks
· Geological and reservoir risk
· Regulatory
· Oil price fluctuations
· Third-party infrastructure
· Development project delivery
· Health, Safety and Environmental
· Compliance
· Joint venture operations
· Strategy execution and staff retention
· Climate change and energy transition
· Litigation
The principal risks and uncertainties, along with the mitigation measures in
place to reduce risks to acceptable levels, are consistent with those as at 31
December 2021 except as described below. Further information on the principal
risks and uncertainties and the manner in which they are managed and mitigated
provided on pages 22 to 30 of the 2021 Annual Report and Group Financial
Statements.
The principal risk 'Repayment of Convertible Bond' previously disclosed is no
longer directly relevant, following the payment in full of the Bond on 24 July
2022.
Related party transactions
There have been no new material related party transactions in the period. As
of 30 June 2022, Crystal Amber Fund Limited ("Crystal Amber") held 28.9% of
the Company's Ordinary Shares, and Crystal Amber has classified its investment
in Hurricane as an associate. As such, Crystal Amber is considered to be a
related party of the Group.
Going concern
At the time of preparation of these Interim Financial Statements, the
Directors have a reasonable expectation that the Group has adequate resources
to continue to operate and meet its liabilities as they fall due for the
foreseeable future, a period considered to be at least twelve months from the
date of signing these Financial Statements. For this reason, they continue to
adopt the Going Concern Basis for preparing the Interim Financial Statements.
Further details on the going concern assessment, and key assumptions used
therein, are described in Note 1.3 to the Interim Financial Statements below.
REPORT ON REVIEW OF INTERIM FINANCIAL INFORMATION - INDEPENDENT REVIEW REPORT
TO HURRICANE ENERGY PLC
Conclusion
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2022 which comprises The Condensed Consolidated Income Statement, the
Condensed Consolidated Balance Sheet, the Condensed Consolidated Statement of
Changes in Equity, the Condensed Consolidated Cash Flow Statement and related
notes. We have read the other information contained in the half-yearly
financial report and considered whether it contains any apparent misstatements
or material inconsistencies with the information in the condensed set of
financial statements.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2022 is not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34 and the AIM Rules for Companies.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity", issued for use in the United Kingdom.
A review of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting matters, and
applying analytical and other review procedures. A review is substantially
less in scope than an audit conducted in accordance with International
Standards on Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit opinion.
As disclosed in note 1.1, the annual financial statements of the group are
prepared in accordance with UK-adopted IASs. The condensed set of financial
statements included in this half-yearly financial report has been prepared in
accordance with UK adopted International Accounting Standard 34, "Interim
Financial Reporting".
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410, however future events or conditions may cause the group to
cease to continue as a going concern.
Responsibilities of directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the AIM Rules for Companies.
In preparing the half-yearly financial report, the directors are responsible
for assessing the group's ability to continue as a going concern, disclosing,
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the group
or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the review of financial information
In reviewing the half-yearly report, we are responsible for expressing to the
group a conclusion on the condensed set of financial statements in the
half-yearly financial report. Our conclusion, including our conclusions
relating to going concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for conclusion paragraph of
this report.
Use of our report
This report is made solely to the company's directors, as a body, in
accordance with the terms of our engagement letter. Our review has been
undertaken so that we might state to the company's directors those matters we
have agreed to state to them in a reviewer's report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone, other than the company and the company's directors
as a body, for our work, for this report, or for the conclusions we have
formed.
PKF Littlejohn
LLP
15 Westferry Circus
Statutory
Auditor
Canary Wharf
London E14 4HD
29 September 2022
Condensed Consolidated Statement of Comprehensive Income
for the 6 months ended 30 June 2022
6 months ended 6 months ended 12 months ended
Notes 30 Jun 2022 30 Jun 2021 31 Dec 2021
$'000 $'000 $'000
Revenue 2.1 159,461 124,501 240,540
Cost of sales 2.2 (78,518) (88,017) (173,125)
Gross profit 80,943 36,484 67,415
General and administrative expenses 3.3 (3,129) (21,223) (26,749)
Gain on revision of lease term 5.2 - 49,125 49,125
Decrease/(increase) in decommissioning estimates expensed 2.5 795 (1,751) (1,972)
Impairment of intangible exploration and evaluation assets and exploration 2.4 (4,907) (32) (54,280)
expense written off
Operating profit 73,702 62,603 33,539
Finance income 3.2 39 745 27
Finance costs 3.2 (11,290) (17,190) (30,656)
Net gain on repurchase of Convertible Bonds - - 17,201
Fair value gain/(loss) on Convertible Bond embedded derivative 5.1 27 (3,304) (1,901)
Profit before tax and other comprehensive income 62,478 42,854 18,210
Tax 6.1 4,484 (78) 26
Profit for the period and other comprehensive income 66,962 42,776 18,236
Cents Cents Cents
Earnings per share (basic) 3.1 3.36 2.15 0.92
Earnings per share (diluted) 3.1 3.35 2.15 0.92
All results arise from continuing operations.
Condensed Consolidated Balance Sheet
as at 30 June 2022
Notes 30 Jun 2022 30 Jun 2021 31 Dec 2021
$'000 $'000 $'000
Non-current assets
Intangible exploration and evaluation assets 2.4 128 56,573 3,830
Oil and gas assets 2.3 117,052 146,410 98,296
Other non-current assets 1,199 2,361 1,373
Deferred tax assets 6.2 - - 104
Liquid investments 4.1 - 38,938 37,783
118,379 244,282 141,386
Current assets
Inventory 2.2 30,216 16,816 27,488
Trade and other receivables 4.2 2,777 11,520 2,591
Cash and cash equivalents 4.1 203,885 169,056 76,792
236,878 197,392 106,871
Total assets 355,257 441,674 248,257
Current liabilities
Trade and other payables 4.3 (16,685) (24,924) (18,843)
Lease liabilities 5.2 (27,745) (26,468) (13,880)
Convertible Bond liability 5.1 (79,324) - (77,373)
Convertible Bond embedded derivative 5.1 - - (27)
Decommissioning provisions 2.5 - (4,530) -
(123,754) (55,922) (110,123)
Non-current liabilities
Lease liabilities 5.2 (30,043) (2,175) (1,910)
Convertible Bond liability 5.1 - (221,062) -
Convertible Bond embedded derivative 5.1 - (4,189) -
Decommissioning provisions 2.5 (47,339) (47,698) (49,346)
(77,382) (275,124) (51,256)
Total liabilities (201,136) (331,046) (161,379)
Net assets 154,121 110,628 86,878
Equity
Share capital 5.4 2,885 2,885 2,885
Share premium 822,458 822,458 822,458
Share option reserve 23,321 22,512 23,321
Own shares reserve (564) (826) (845)
Foreign exchange reserve (90,828) (90,828) (90,828)
Accumulated deficit (603,151) (645,573) (670,113)
Total equity 154,121 110,628 86,878
Condensed Consolidated Statement of Changes in Equity
for the six months ended 30 June 2022
Share Share Share Own shares reserve Foreign exchange reserve Accumulated Total
capital premium option reserve deficit
$'000 $'000 $'000 $'000 $'000 $'000 $'000
At 1 January 2021 2,885 822,458 21,443 (923) (90,828) (688,349) 66,686
Profit for the period and other comprehensive income - - - - - 42,776 42,776
Share-based payments - - 1,069 97 - - 1,166
At 30 June 2021 2,885 822,458 22,512 (826) (90,828) (645,573) 110,628
Loss for the period and other comprehensive income - - - - - (24,540) (24,540)
Share-based payments - - 809 (19) - - 790
At 31 December 2021 2,885 822,458 23,321 (845) (90,828) (670,113) 86,878
Profit for the period and other comprehensive income - - - - - 66,962 66,962
Share-based payments - - - 281 - - 281
At 30 June 2022 2,885 822,458 23,321 (564) (90,828) (603,151) 154,121
Condensed Consolidated Cash Flow Statement
for the 6 months ended 30 June 2022
6 months ended 6 months ended 12 months ended
Notes 30 Jun 2022 30 Jun 2021 31 Dec 2021
$'000 $'000 $'000
Cash flows from operating activities
Operating profit 73,702 62,603 33,539
Adjustments for:
Depreciation of property, plant and equipment 2.3 37,036 49,513 98,100
Impairment of oil and gas assets 2.3 - 1,751 -
Change in decommissioning estimates on fully impaired assets 2.5 (795) - 1,972
Impairment of intangible exploration and evaluation assets and exploration 2.4 4,907 32 54,280
expense written off
Gain on lease remeasurement 5.2 - (49,125) (49,125)
Impairment of other right-of-use assets - - 719
Share-based payment charge 281 1,166 1,955
Expenditure on proposed financial restructuring - 11,687 15,903
Decommissioning spend 2.5 (180) (748) (4,824)
Operating cash flow before working capital movements 114,951 76,879 152,519
Movement in receivables (903) (2,324) 579
Movement in payables (800) 6,877 5,356
Movement in crude oil, fuel and chemicals inventories (3,129) (5,531) (11,410)
Net cash from operating activities 110,119 75,901 147,044
Cash flows from investing activities
Interest received 39 20 27
Decrease / (increase) in liquid investments 34,739 (15,530) (15,530)
Expenditure on oil and gas assets (3,137) (6,997) (6,618)
Expenditure on other fixed assets - (2) (2)
Expenditure on intangible exploration and evaluation assets (1,383) (2,778) (2,782)
Movement in spares and supplies inventories 401 - (4,793)
Tax refund relating to R&D expenditure 4,588 - -
Net cash from/(used in) investing activities 35,247 (25,287) (29,698)
Cash flows from financing activities
Repurchase of Convertible Bond principal for cancellation - - (130,346)
Transaction costs - - (1,311)
Convertible Bond interest paid 5.1 (2,944) (8,625) (17,372)
Lease repayments 5.2 (13,892) (4,808) (18,596)
Interest and other finance charges paid (11) (20) (34)
Expenditure on proposed financial restructuring - (11,687) (15,903)
New shares issued under employee share schemes - - -
Net cash used in financing activities (16,847) (25,140) (183,562)
Increase/(decrease) in cash and cash equivalents 128,519 25,474 (66,216)
Cash and cash equivalents at beginning of period 76,792 143,703 143,703
Net increase/(decrease) in cash and cash equivalents 128,519 25,474 (66,216)
Effects of foreign exchange rate changes (1,426) (121) (695)
Cash and cash equivalents at end of period 4.1 203,885 169,056 76,792
Notes to the Interim Financial Statements
for the 6 months ended 30 June 2022
Section 1 General information and basis of preparation
Hurricane Energy plc is a public company, limited by shares, incorporated and
domiciled in the United Kingdom and registered in England and Wales under the
Companies Act 2006 (registered company number 05245689). The nature of the
Group's operations and its principal activity is exploration, development and
production of oil and gas reserves principally on the UK Continental Shelf.
The address of Hurricane Energy plc's registered office is The Wharf, Abbey
Mill Business Park, Lower Eashing, Godalming, Surrey, GU7 2QN. Hurricane
Energy plc's shares are listed on the AIM market of the London Stock Exchange.
This Interim Report and Financial Statements was approved by the Board of
Directors and authorised for issue on 29 September 2022.
This set of Interim Financial Statements for the six months ended 30 June 2022
is unaudited and does not constitute statutory accounts within the meaning of
section 434 of the Companies Act 2006. Audited statutory Financial Statements
for the year ended 31 December 2021 were approved by the Board of Directors on
27 April 2022 and have been delivered to the Registrar of Companies. The
auditor's report on those Financial Statements, issued by PKF Littlejohn LLP,
was unqualified, did not draw attention to any matters by way of emphasis and
did not contain a statement made under Section 498 of the Companies Act 2006.
1.1 Basis of preparation
The Interim Financial Statements for the six months ended 30 June 2022 have
been prepared in accordance with International Accounting Standard 34 'Interim
Financial Reporting' (IAS 34) in conformity with the requirements of the
Companies Act 2006 and the AIM Rules. The annual financial statements of the
Group are prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006 and UK-adopted
international accounting standards. The consolidated income statement and
related notes represent results arising from continuing operations, there
being no discontinued operations in the periods presented. The Interim
Financial Statements have been prepared using accounting bases and policies
consistent with those used in the preparation of the audited Financial
Statements of the Group for the year ended 31 December 2021.
1.2 Significant events and changes in the current reporting period
The financial performance and position of the Group was affected by the
following events and changes during the six-month period to 30 June 2022:
· a significant increase in revenue versus the comparative six-month
period due to the continued strong recovery in crude oil prices (note 2.1);
· an impairment of intangible exploration and evaluation assets of $4.9m
(note 2.4), following the decision to relinquish the Lincoln (P1368 S) and
Warwick (P2294) licences during the period following an assessment of the
options for further appraisal and potential development in relation to these
licences;
· a significant reduction in finance costs versus the comparative
six-month period due to a significant repurchase of Convertible Bonds during
2021 and consequent reduction in associated debt (note 5.1); and
· an increase in the lease liabilities and right-of-use assets relating
to the Aoka Mizu FPSO resulting from a renegotiation of the bareboat charter
of the Aoka Mizu FPSO and increase in the lease term assumption against a
background of higher oil prices and consistent performance on Lancaster (notes
2.3 and 5.2)
Since the end of the reporting period, the Group repaid in full its
outstanding $78,515,000 7.50 per cent Convertible Bonds plus $1.5 million of
accrued interest (see note 7.2.1).
The Group's business and operations are not exposed to seasonality or
cyclicality. The Group has reviewed its exposure to climate-related and other
emerging business risks but has not identified any of these risks that could
impact the financial performance or position of the group as at 30 June 2022.
The principal risks and uncertainties impacting the Group are outlined within
the Financial Review above.
1.3 Going concern
The Group's business activities, together with the factors likely to affect
its future development, performance and position are set out in the Chief
Executive Officer's review and Financial Review above. The financial position
of the Group, its cash flows and liquidity position are set out in these
Interim Financial Statements. The Group ended the half year with $203.9
million of cash and cash equivalents, of which $143.1 million was
unrestricted. After adjusting for working capital items, net free cash at 30
June 2022 was $126.9 million (Appendix B). The Group's most significant
liabilities at 30 June 2022 were $78.5 million in relation to Convertible
Bonds which were paid in full in July 2022, and committed lease liabilities in
respect of the Aoka Mizu FPSO. These Interim Financial Statements have been
prepared in accordance with the going concern basis of accounting, with the
presumption of going concern being a critical judgment.
The following key assumptions were used in the assessment of the going concern
position:
· Dated Brent oil price of $100/bbl (average for remainder of 2022),
$93/bbl (average for 2023) and $85/bbl (average for 2024);
· no sanctioned capital or development projects;
· continued use of the Aoka Mizu FPSO throughout the assessment period;
and
· production from the P6 well alone in line with approved guidance and
the production profiles supporting the most recent CPR;
· Oil and Gas Energy Profits Levy (EPL) effective from 26 May 2022 until
31 December 2025
Under the base case scenario, the Group had sufficient headroom thereafter for
a period of at least 12 months to fund ongoing working capital requirements.
Sensitivity analysis was also undertaken to reflect the following:
• a reduction to the forecast oil price curve of $20/bbl;
and
• a 25% reduction to forecast production rates
Under the sensitivity cases above, both individually and in aggregate, the
Group is projected to have sufficient cash to continue operating for a period
of at least 12 months.
As a result of the going concern assessment presented above, the directors
have a reasonable expectation that, after also taking into consideration the
current macroeconomic situation, the Group has adequate resources to continue
in operational existence throughout the going concern period.
Therefore, the directors continue to adopt the going concern basis of
accounting in preparing these consolidated financial statements and the
financial statements do not include the adjustments that would result if the
Group were unable to continue as a going concern.
1.4 Accounting policies
The accounting policies adopted are consistent with those of the annual
Financial Statements for the year ended 31 December 2021. New and amended
standards that became applicable for the Group in the current reporting period
have not resulted in changes to accounting policies or retrospective
adjustments.
1.5 Critical accounting judgments and key sources of estimation uncertainty
The key risks at 30 June 2022 are the same as those described in the audited
Financial Statements of the Group for the year ended 31 December 2021. Changes
to underlying key estimates (as compared with estimates made at 31 December
2021) primarily comprise of the change to the lease liability and associated
right-of use asset in respect of the Aoka Mizu FPSO following a renegotiation
of the lease contract and reassessment of the lease term (notes 2.3 and 5.2).
Section 2 Oil and gas operations
2.1 Revenue
All revenue is derived from contracts with customers and is comprised of one
category and within one geographical location, being the sale of crude oil
from the Lancaster EPS. All sales were made to one external customer (BP Oil
International Limited).
6 months ended 6 months ended 12 months ended
30 Jun 2022 30 Jun 2021 31 Dec 2021
$'000 $'000 $'000
Oil sales 159,461 124,501 240,540
Revenue from contracts with customers 159,461 124,501 240,540
Cargoes sold 3 4 7
Sales volumes 1,601 Mbbl 2,004 Mbbl 3,576 Mbbl
Average sales price realised $99.6/bbl $62.2/bbl $67.3/bbl
2.2 Cost of sales and inventory
Cost of sales
6 months ended 6 months ended 12 months ended
30 Jun 2022 30 Jun 2021 31 Dec 2021
Note $'000 $'000 $'000
Operating costs 31,226 32,717 65,688
Depreciation of oil and gas assets - owned 2.3 28,145 45,855 94,200
Depreciation of oil and gas assets - leased 2.3 8,725 3,405 3,405
Movement in crude oil inventory (2,516) (5,059) (10,622)
Variable lease payments 5.2 12,938 11,099 20,454
Cost of sales 78,518 88,017 173,125
Inventory
30 Jun 2022 30 Jun 2021 31 Dec 2021
$'000 $'000 $'000
Crude oil 15,829 7,750 13,313
Fuel and chemicals 2,737 1,808 2,124
Spares and supplies 11,650 7,258 12,051
Inventory 30,216 16,816 27,488
No net realisable value provision was held for inventory.
2.3 Oil and gas assets
Leased Owned Total
Note $'000 $'000 $'000
Cost
At 1 January 2021 101,821 784,558 886,379
Additions - 5,568 5,568
Remeasurement of lease liability 5.2 (18,212) - (18,212)
Changes to decommissioning estimates 2.5 - 287 287
At 30 June 2021 83,609 790,413 874,022
Additions - (996) (996)
Changes to decommissioning estimates 2.5 1,961 1,227 3,188
At 31 December 2021 85,570 790,644 876,214
Additions - 2,314 2,314
Remeasurement of lease liability 5.2 54,493 - 54,493
Changes to decommissioning estimates 2.5 - (1,181) (1,181)
At 30 June 2022 140,063 791,777 931,840
Depreciation and impairment
At 1 January 2021 (80,204) (598,148) (678,352)
Depreciation charge for the period (3,405) (45,855) (49,260)
At 30 June 2021 (83,609) (644,003) (727,612)
Depreciation charge for the period - (48,345) (48,345)
Provision for impairment (1,961) - (1,961)
At 31 December 2021 (85,570) (692,348) (777,918)
Depreciation charge for the period (8,725) (28,145) (36,870)
At 30 June 2022 (94,295) (720,493) (814,788)
Carrying amount at 30 June 2021 - 146,410 146,410
Carrying amount at 31 December 2021 - 98,296 98,296
Carrying amount at 30 June 2022 45,768 71,284 117,052
Oil and gas assets held under leases comprise the Aoka Mizu FPSO bareboat
charter, which commenced in May 2019. During the current period, the lease
term was reassessed following a renegotiation of the lease contract resulting
in the leased asset value (see note 5.2). The Group has reasonable certainty
that it will be able to lease the Aoka Mizu FPSO until economic end of life of
the Lancaster field. Given that no indications of impairment existed at 30
June 2022 no impairment test for the purposes of determining the recoverable
amount of oil and gas assets has been performed.
Included within the cost of owned oil and gas assets is $42.8 million of
capitalised borrowing costs (6 months ended 30 June 2021 and 12 months ended
31 December 2021: $42.8 million).
The total amount of depreciation charged in the period (comprising
depreciation of oil and gas assets above, and depreciation of other fixed
assets) was $37.0 million (6 months ended 30 June 2021: $49.5 million; 12
months ended 31 December 2021: $98.1 million).
2.4 Intangible exploration and evaluation assets
6 months ended 6 months ended 12 months ended
30 Jun 2022 30 Jun 2021 31 Dec 2021
Note $'000 $'000 $'000
At start of period 3,830 55,390 55,390
Additions 1,208 2,881 5,235
Provision for impairment and exploration expense written off (4,907) (32) (54,280)
Changes to decommissioning estimates 2.5 (3) (1,666) (2,515)
At end of period 128 56,573 3,830
Intangible exploration and evaluation assets comprise the Group's share of the
cost of licence interests and exploration and evaluation expenditure within
its licensed acreage in the West of Shetland area which, at 30 June 2022,
comprise only the Halifax (licence P2308) following the relinquishment of the
Lincoln (P1368 S) and Warwick (P2294) licences during the period.
The Group and its joint operation partner Spirit Energy have determined that
further appraisal and development costs to reach an economic development on
the Greater Warwick Area (GWA) discovery within the remaining licence term is
not feasible. The Group and its joint operation partner Spirit Energy
therefore decided to relinquish the Lincoln (P1368 S) and Warwick (P2294)
licences, with a consequent impairment charge of $4.9 million being recognised
during the period.
2.5 Decommissioning provisions
6 months ended 6 months ended 12 months ended
30 Jun 2022 30 Jun 2021 31 Dec 2021
Note $'000 $'000 $'000
At start of period 49,346 61,141 61,141
Net new provisions and changes in estimates (1,982) (1,293) (1,921)
Utilised and transferred to accruals in period (180) (7,620) (9,894)
Unwinding of discount 3.2 155 - 20
At end of period 47,339 52,228 49,346
Of which:
Current - 4,530 -
Non-current 47,339 47,698 49,346
47,339 52,228 49,346
Restricted funds held in respect of decommissioning:
Restricted cash 4.1 41,385 2,299 -
Liquid investments 4.1 - 38,938 37,783
41,385 41,237 37,783
The provision for decommissioning relates to the costs required to
decommission the Lancaster EPS installations and the costs required to clean,
remove and restore the Aoka Mizu FPSO at the end of the charter term.
The utilisation of provisions during the period related to the final payments
relating to the plugging and abandoning of the Lancaster 4Z well, and
cessation of production planning for the Lancaster EPS and FPSO.
Restricted funds held in respect of decommissioning at 30 June 2021 included
an amount sitting in trust of $38.9m classified as 'Liquid Investments'. The
amount at 30 June 2022 sitting in trust of $41.4m was reclassified from
'Liquid Investments' to 'Restricted Cash' due to the notice of those funds
being less than 3 months on this date.
2.6 Joint operation
In September 2018 the Group entered into a joint operation with Spirit to
share costs and risks associated with the Greater Warwick Area (GWA) in
exchange for granting Spirit a 50% interest in the Group's Lincoln (P1368
South) and Warwick (P2294) licences. Costs of the joint operation are
currently being shared equally between the joint operation partners. The
Lincoln (P1368 South) and Warwick (P2294) licences were relinquished in the
period. Before the joint operation is formally concluded, there remain a
number of operational and administrative matters to complete. The Group
currently acts as operator of the joint operation and will continue to do so
until these matters are concluded. Amounts due from and to the joint operation
partner are shown in notes 4.2 and 4.3 respectively.
Further details on the activities and progress of the joint operation are
described in the Chief Executive Officer's review above.
2.7 Commitments
30 Jun 2022 30 Jun 2021 31 Dec 2021
$'000 $'000 $'000
Contractual commitments in respect of oil and gas assets 6,516 7,643 1,201
Contractual commitments in respect of intangible exploration and evaluation 648 4,915 821
assets
Section 3 Income Statement
3.1 Earnings per share
6 months ended 6 months ended 12 months ended
30 Jun 2022 30 Jun 2021 31 Dec 2021
$'000 $'000 $'000
Profit attributable to holders of Ordinary Shares in the Company used in 66,962 42,776 18,236
calculating basic earnings per share (being profit after tax)
Add back impact of:
Convertible Bond - interest expense not capitalised 4,896 n/a n/a
Convertible Bond - depreciation of interest capitalised in the year - n/a n/a
Convertible Bond - fair value gain (27) n/a n/a
Profit attributable to holders of Ordinary Shares in the Company used in 71,831 42,776 18,236
calculating diluted earnings per share
Number Number Number
Weighted average number of Ordinary Shares used in calculating basic earnings 1,990,393,725 1,989,515,103 1,989,927,148
per share
Potential dilutive effect of:
Convertible Bond 150,990,234 n/a n/a
Weighted average number of Ordinary Shares and potential Ordinary Shares used 2,141,383,959 1,989,515,103 1,989,927,148
in calculating diluted earnings per share
Cents Cents Cents
Basic earnings per share 3.36 2.15 0.92
Diluted earnings per share 3.35 2.15 0.92
For the 6 months ended 30 June 2021 and 12 months ended 31 December 2021, the
potential impact of the conversion feature included within the Convertible
Bond was antidilutive as their conversion to Ordinary Shares would have
increased earnings per share. The impact of the VCP and PSP share award
schemes was antidilutive in 2021 because market based conditions for both
schemes was not met at any point during the year.
3.2 Finance income and costs
6 months ended 6 months ended 12 months ended
30 Jun 2022 30 Jun 2021 31 Dec 2021
Note $'000 $'000 $'000
Interest income on cash, cash equivalents and liquid investments 39 20 27
Net foreign exchange gains - 725 -
Finance income 39 745 27
Convertible Bond interest expense 5.1 (4,896) (13,654) (24,810)
Interest on lease liabilities 5.2 (1,591) (3,402) (4,412)
Other interest expense and bank charges (203) (134) (217)
Net foreign exchange losses (4,445) - (1,197)
Unwinding of discount on decommissioning provisions 2.5 (155) - (20)
Finance costs (11,290) (17,190) (30,656)
Net finance costs (11,251) (16,445) (30,629)
3.3 General and administrative expenditure
6 months ended 6 months ended Year ended
30 Jun 2022 30 Jun 2021 31 Dec 2021
$'000 $'000 $'000
Wages and salaries 4,392 7,167 9,939
Social security costs 616 877 1,226
Defined contribution pension costs 224 370 689
Staff costs 5,232 8,414 11,854
Non-staff costs 3,278 18,280 22,958
Gross general and administrative expenditure before recharges 8,510 26,694 34,812
Capitalised into oil and gas assets (1,095) (1,911) (3,025)
Capitalised into exploration and evaluation assets (1,682) (2,438) (3,456)
Included within cost of sales (3,051) (2,542) (4,752)
Net general and administrative expenditure before non-cash items 2,682 19,803 23,579
Non-cash general and administrative costs:
Net share-based payment charge 281 1,166 1,956
Depreciation of other fixed assets and other right-of-use assets 166 254 495
Impairment of other right-of-use assets - - 719
General and administrative expenditure 3,129 21,223 26,749
Number Number Number
Average number of employees 35 60 55
Section 4 Cash, working capital and financial instruments
4.1 Cash and cash equivalents and liquid investments
30 June 2022 30 June 2021 31 December 2021
$'000 $'000 $'000
Unrestricted cash and cash equivalents (current) 143,083 148,082 68,858
Restricted cash and cash equivalents (current) 60,802 20,974 7,934
Current cash and cash equivalents 203,885 169,056 76,792
Restricted cash and cash equivalents (non-current) - - -
Liquid investments - 38,938 37,783
Total cash and cash equivalents and liquid investments 203,885 207,994 114,575
Of which:
Unrestricted 143,083 148,082 68,858
Restricted 60,802 59,912 45,717
203,885 207,994 114,575
Restricted funds held in respect of decommissioning at 30 June 2021 included
an amount sitting in trust of $38.9m classified as 'Liquid Investments'. The
amount at 30 June 2022 sitting in trust of $41.4m was reclassified from
'Liquid Investments' to 'Restricted Cash' due to the notice of those funds
being less than 3 months on this date.
The carrying amounts of cash and cash equivalents and liquid investments are
considered to be materially equivalent to their fair values.
The movement in restricted and unrestricted cash, cash equivalents and liquid
investments is as follows:
Six months ended 30 June 2022
Restricted Unrestricted Total
$'000 $'000 $'000
At 1 January 45,717 68,858 114,575
Operating cash flows - 110,119 110,119
Change in Lancaster EPS decommissioning security arrangements 7,749 (7,749) -
Capital expenditure and other investing cash flows - 508 508
Financing cash flows - (16,847) (16,847)
Movement in FPSO early termination reserve 11,489 (11,489) -
Foreign exchange rate changes (4,153) (317) (4,470)
At 30 June 60,802 143,083 203,885
Six months ended 30 June 2021
Restricted Unrestricted Total
$'000 $'000 $'000
At 1 January 51,603 114,911 166,514
Operating cash flows -- 75,901 75,901
Change in Lancaster EPS decommissioning security arrangements 15,530 (15,530) -
Capital expenditure and other investing cash flows - (9,757) (9,757)
Financing cash flows - (25,140) (25,140)
Movement in FPSO early termination reserve (7,872) 7,872 -
Foreign exchange rate changes 651 (175) 476
At 30 June 59,912 148,082 207,994
Year ended 31 Dec 2021
Restricted Unrestricted Total
$'000 $'000 $'000
At 1 January 51,603 114,911 166,514
Operating cash flows -- 147,970 147,970
Change in Lancaster EPS decommissioning security arrangements 15,530 (15,530) -
Capital expenditure and other investing cash flows - (15,095) (15,095)
Financing cash flows - (183,562) (183,562)
Movement in FPSO early termination reserve (18,670) 18,670 -
Net release of other restricted funds (2,244) 2,244 -
Foreign exchange rate changes (502) (750) (1,252)
At 31 December 45,717 68,858 114,575
Included within restricted cash and cash equivalents is $19.4 million (31
December 2021: $7.9 million; 30 June 2021: $18.7 million) set aside in
relation to the Aoka Mizu FPSO bareboat charter. Under the terms of the
contract, the Group is required to ring-fence amounts to ensure it could meet
its liability to the lessor to cover the costs associated with the day rate
for the six-month notice period and decommissioning in respect of the
vessel.
The remaining $41.4 million of restricted cash comprises decommissioning
security in place for the Lancaster EPS. As part of the original Lancaster
Field Development Plan approval, the Group was required to provide security of
£16.8 million for its decommissioning liability on the Lancaster field, being
the estimated post-tax amount to meet future decommissioning obligations. In
June 2021, the Group agreed with the Regulator to place an additional £11.2
million ($15.5 million) into trust, in order to provide security for its
decommissioning liability on the Lancaster field on a pre-tax basis, with a
further £5.7 million ($7.7 million) being placed in February 2022.
4.2 Trade and other receivables
30 Jun 2022 30 Jun 2021 31 Dec 2021
$'000 $'000 $'000
Amounts due from joint operation partner 300 6,800 813
Trade receivables 115 630 423
Prepayments 2,227 2,423 1,058
Other receivables 135 1,667 297
Trade and other receivables 2,777 11,520 2,591
The carrying amounts of trade and other receivables are considered to be
materially equivalent to their fair values and are unsecured. Joint operation
receivables represent expenses incurred by the Group as operator of the joint
operation which will be recovered from the Group's joint operation partner.
Amounts billed to the joint operation partner accrued interest based at LIBOR
in the period and are generally due for settlement within ten days.
4.3 Trade and other payables
30 Jun 2022 30 Jun 2021 31 Dec 2021
$'000 $'000 $'000
Trade payables 5,988 1,329 2,915
Other payables 304 628 351
Accruals 10,393 22,967 15,577
Trade and other payables 16,685 24,924 18,843
The carrying amounts of trade and other payables are considered to be
materially equivalent to their fair values and are unsecured. Trade and other
payables are non-interest bearing and generally payable within 30 days.
Trade and other payables and accruals include the Group's share of joint
operation payables, including amounts that the Group settles on behalf of
joint operation partners. Accruals includes expenditure relating to joint
operations incurred by the Group as operator which have yet to be billed to
joint operation partners.
Section 5 Capital and debt
5.1 Convertible Bond
In July 2017 the Group raised $230 million (gross) from the successful
placement of the Convertible Bond. The Convertible Bond was issued at par and
carries a coupon of 7.5% payable quarterly in arrears. The Convertible Bond is
convertible into fully paid Ordinary Shares with the initial conversion price
set at $0.52, representing a 25% premium above the placing price of the
concurrent equity placement, being £0.32 (converted into US Dollars at a
USD/GBP rate of 1.30). At the time of issue, the number of potential Ordinary
Shares that could be issued if all the bonds were converted was 442,307,692
(assuming conversion at the initial conversion price of $0.52). The impact of
these potential Ordinary Shares on diluted earnings per share, where
applicable, is shown in note 3.1. During 2021, the Group repurchased $151.5
million of nominal Convertible Bonds debt for cash consideration of $131.9
million, including accrued interest of $1.6 million. As at 30 June 2022, the
nominal value of Convertible Bonds remaining in issue was $78.5 million.
Subsequent to the balance sheet date, in July 2022, the Group repaid in full
the outstanding $78.5 million 7.50 per cent Convertible Bonds plus $1.5
million of accrued interest by the maturity date of 24 July 2022 - see note
7.2.1.
The Convertible Bond's carrying value is split between a debt component (the
host contract) measured at amortised cost (with an effective interest rate of
13.5%) and an embedded derivative component measured at fair value.
The amounts recognised in the Financial Statements relating to the Convertible
Bond, being all liabilities arising from financing activities, are as follows:
Debt component Derivative component Total
$'000 $'000 $'000
Carrying value at 1 January 2021 216,034 885 216,919
Cash interest paid (8,625) - (8,625)
Fair value loss - 3,304 3,304
Interest charged 13,653 - 13,653
Carrying value at 30 June 2021 221,062 4,189 225,251
Cash interest paid (8,747) - (8,747)
Cash consideration for repurchase of Convertible Bond principal (130,346) - (130,346)
Gain on repurchase (15,753) (2,759) (18,512)
Fair value gain - (1,403) (1,403)
Interest charged 11,157 - 11,157
Carrying value at 31 December 2021 77,373 27 77,400
Cash interest paid (2,944) - (2,944)
Fair value gain - (27) (27)
Interest charged 4,895 - 4,895
At 30 June 2022 79,324 - 79,324
Fair value at 30 June 2021 132,825 4,189 137,014
Fair value at 31 December 2021 75,449 27 75,476
Fair value at 30 June 2022 78,711 - 78,711
The Convertible Bond contains covenants relating to the restrictions on
incurrence of certain indebtedness. These covenants were complied with for the
current and prior periods. Further details on the Convertible Bond and its
covenants are disclosed in note 5.1 to the Group's 2021 Annual Report and
Financial Statements.
The embedded derivative component of the Convertible Bond is categorised
within Level 3 of the fair value hierarchy, as the derivatives themselves are
not traded on an active market and their fair values are determined using a
valuation technique that uses one key input that is not based on observable
market data, being share price volatility.
The key inputs used are share price volatility (calculated as the volatility
of one Hurricane Ordinary Share over a period equivalent to the remaining
expected term to redemption) and the price of one Ordinary Share at 30 June
2022. In determining the fair value of the embedded derivative, the likelihood
of the early redemption option being exercised and the likelihood of a change
of control of the Group within the life of the Convertible Bond were
considered. The likelihood of each was considered to be nil for the purposes
of the valuation.
The fair value calculation at 30 June 2022 used a share price volatility
assumption of 135.6% (31 December 2021: 117.6%; 30 June 2021: 171.4%) and the
price of one Hurricane Energy plc Ordinary Share as at the balance sheet date
of £0.071 (31 December 2021: £0.038; 30 June 2021: £0.036). Given the time
to maturity, it is not considered that there is a significant risk of changes
to these assumptions resulting in a material adjustment to the carrying
amounts of the embedded derivative between the balance sheet date and the
maturity date of 24 July 2022.
5.2 Leases
6 months ended 6 months ended 12 months ended
30 Jun 2022 30 Jun 2021 31 Dec 2021
$'000 $'000 $'000
At start of period 15,790 97,321 97,321
Remeasurement of lease liability 54,493 (67,337) (67,337)
Cash payments of principal and interest (13,892) (4,808) (18,596)
Interest charged 1,591 3,402 4,412
Foreign exchange movements (194) 65 (10)
At end of period 57,788 28,643 15,790
Of which:
Current 27,745 26,468 13,880
Non-current 30,043 2,175 1,910
57,788 28,643 15,790
The Group's main lease is the bareboat charter of the Aoka Mizu FPSO for which
the Group makes fixed payments (which are included within the lease liability
measurement) and variable payments (which are based on a percentage of the
quantity and price of crude oil sold, and recognised as an expense in the
period in which the related sales are made - see note 2.2). Variable lease
payments for the period were $12.9 million (6 months ended 30 June 2021: $11.1
million; year ended 31 December 2021: $20.5 million).
The lease term for the Aoka Mizu FPSO was previously assessed to have been six
years from inception of the lease (to June 2025), taking into account
extension options and termination arrangements. On 4 June 2021, the Group
announced it had resolved not to exercise its option to extend the bareboat
charter of the Aoka Mizu FPSO for a period of three years from June 2022 to
June 2025. As the Group had elected not to exercise an option previously
included in its determination of the lease term, the lease term was assessed,
for IFRS 16 accounting purposes, to be expiring at the end of the contractual
period (being June 2022), and therefore the liability was remeasured by
discounting the revised lease payments. This resulted in a decrease to the
lease liability of $67.3 million, decrease to the associated right-of-use
asset cost of $18.2 million and a gain of $49.1 million recognised in profit
and loss in the Group's 2021 Annual Report and Financial Statements (note
5.2).
On 25 March 2022, the Group announced that it has signed a contract with
Bluewater, for an extension to the Bareboat Charter beyond the previous expiry
date of 4 June 2022. The extension is expected to cover the remaining economic
life of the Lancaster field given the significant economic incentive for both
sides to extend the lease based on the current forward price curve and
production profiles. In accordance with IFRS 16 the liability has been
remeasured by discounting the revised lease payments covering the economic
life of field. This resulted in an increase to the lease liability of $54.5
million (above) and corresponding increase to the associated right-of-use
asset cost of $54.5 million (note 2.3).
5.3 Maturity analysis of financial liabilities
The maturity analysis of contractual undiscounted cash flows for
non-derivative financial liabilities, as at the balance sheet dates, is as
follows:
Less than 6 months 6-12 months 1-2 years 2-5 years More than Total
5 years
$'000 $'000 $'000 $'000 $'000 $'000
( ) ( )
Trade payables and accruals 16,685 - - - - 16,685
Convertible Bond interest 1,472 - - - - 1,472
Convertible Bond principal 78,515 - - - - 78,515
Lease liabilities 13,952 13,877 27,800 7,844 787 64,260
At 30 June 2022 110,624 13.877 27,800 7,844 787 160,932
Less than 6 months 6-12 months 1-2 years 2-5 years More than Total
5 years
$'000 $'000 $'000 $'000 $'000 $'000
( ) ( )
Trade payables and accruals 24,924 - - - - 24,924
Convertible Bond interest 8,625 8,625 4,313 - - 21,563
Convertible Bond principal - - 230,000 - -
Lease liabilities 13,795 14,098 514 1,109 891 30,407
At 30 June 2021 47,344 22,723 4,827 1,109 891 76,894
Less than 6 months 6-12 months 1-2 years 2-5 years More than Total
5 years
$'000 $'000 $'000 $'000 $'000 $'000
( ) ( )
Trade payables and accruals 18,843 - - - - 18,843
Convertible Bond interest 2,944 1,472 - - - 4,416
Convertible Bond principal - 78,515 - - - 78,515
Lease liabilities 13,900 441 499 1,038 865 16,743
At 31 December 2021 35,687 80,428 499 1,038 865 118,517
The maturity analysis for lease liabilities includes only those fixed lease
repayments contracted to at the balance sheet date.
5.4 Share capital
Ordinary Shares $'000
At 1 January 2021 1,991,871,556 2,885
Shares issued under employee share schemes - -
At 30 June 2022, 31 December 2021 and 30 June 2021 1,991,871,556 2,885
The Company has one class of Ordinary Share, which has a par value of £0.001.
No new shares were issued under employee share schemes during the current
period.
Section 6 Tax
6.1 Tax charge/credit for the period
6 months ended 6 months ended 12 months ended
30 Jun 2022 30 Jun 2021 31 Dec 2021
$'000 $'000 $'000
UK corporation tax
Current tax - prior years (4,588) - -
Total current tax (4,588) - -
Deferred tax - current year 104 (78) 21
Effect of changes in tax rates - - 5
Total deferred tax 104 (78) 26
Tax (charge)/credit per Income Statement 4,484 (78) 26
Profit/(loss) on ordinary activities before tax 62,478 42,854 18,210
Profit/(loss) on ordinary activities multiplied by standard rate of (24,991) (17,142) (7,284)
corporation tax in the UK applicable to oil and gas companies of 40%
Effects of:
Expenses not deductible for tax purposes (643) (1,404) (1,934)
Income not chargeable for tax purposes - - 7,692
Items taxed at rates other than the standard rate of 40% (562) (2,481) (2,064)
Ring fence expenditure supplement - - 20,560
Prior period current tax 4,588 - -
Prior period deferred tax - - 5
Utilisation of losses not previously recognised 19,263 - -
Temporary differences not recognised 6,829
Impact of tax rate change - - 25
Chargeable gain - - (10,287)
Total tax (charge)/credit for the period 4,484 (78) 26
In 2021 the Group made a claim under the SME and RDEC research and development
tax relief scheme in respect of the 2019 & 2020 financial years. £3.4
million was received in respect of this in 2022 and classified within cash
flows from investing activities as the original expenditure giving rise to the
credit was reported within investing activities.
The deferred tax charge for the current year of $0.1 million wholly relates
to the derecognition of the deferred tax asset previously recognised at 31
December 2021 (note 6.2).
6.2 Deferred tax
6 months ended 6 months ended 12 months ended
30 Jun 2022 30 Jun 2021 31 Dec 2021
$'000 $'000 $'000
Accelerated capital allowances - - 83
Other timing differences - - 21
Deferred tax asset - - 104
A potential deferred tax asset of $258.1 million has not been recognised in
relation to tax losses and allowances in the main trading entity, Hurricane
GLA Limited, as it has been concluded that it is not appropriate to recognise
any of this potential deferred tax asset based on current forecasts of future
profitability. A further $73.9 million relates to pre-trading expenditure
losses not recognised after offset of the carrying value of those pre-trading
assets and includes potential claims for ring fence expenditure supplement
('RFES'). The unrecognised potential deferred tax assets relate to different
types of tax loss, each being calculated at a different rate, the highest
being that applicable to UK ring fence profits of 30%.
6.3 Factors which may affect future tax charges
The quantum of the deferred tax asset recognised, and corresponding deferred
tax charge or credit, is highly dependent on management's estimate of future
cash flows and taxable income. Changes to estimates of future taxable
profits will occur in future periods due to movements in forecast oil prices,
finalisation of estimated reserves and resources, and the sanction or
otherwise of capital projects.
The Group has ring-fenced trading losses of $316.8 million at 30 June 2022 (30
June 2021: $357.7 million, 31 December 2021: $381.9 million) and supplementary
charge losses and allowances of $484.5 million (30 June 2021: $574.4 million,
31 December 2021: $693.0 million) which have no expiry date and would be
available for offset against future trading profits. A potential RFES claim
could also be made for the current accounting period which would result in
additional trading losses of $31.7 million based on the position at 30 June
2022. The Group also has unused capital allowances of $275.3 million
available to be used against future taxable profits (30 June 2021: $389.1
million, 31 December 2021: $328.4 million).
In addition to the above, the Group has pre-trading expenditure of $126.1
million which is carried forward at 30 June 2022, and tax relief may be
available should trading activities commence (this expenditure could also be
uplifted by RFES to $203.2 million).
On 26 May 2022, the UK Government announced the introduction of an Energy
Profits Levy ('EPL') on the profits earned from the production of oil and gas
in the UK with effect from that date. The EPL enabling legislation, the Energy
(Oil and Gas) Profits Levy Act 2022, was substantively enacted on 11 July
2022. The EPL is charged at the rate of 25 per cent on taxable profits in
addition to ring fence corporation tax of 30 per cent and the Supplementary
Charge of 10 per cent.
As the legislation was not substantively enacted as at 30 June 2022, the tax
charge in the half-year results does not include the impact of EPL for the
period which will instead be reflected in the second half of 2022. If the EPL
had been considered in the interim period, no current tax liability would be
expected to arise from business performance in the period 26 May 2022 to 30
June 2022 due to no revenue being recognised in that period. However, a
forecasted current tax liability of less than $5 million is expected to arise
in the second half of 2022, though the liability will be dependent on numerous
factors (including production and oil prices). The EPL tax is a temporary
measure and as enacted will cease to apply on 31 December 2025.
Section 7 Other disclosures
7.1 Related party transactions
Related party transactions during the period comprise remuneration and fees
paid to directors, who are considered the Group's key management personnel.
As of 30 June 2022, Crystal Amber Fund Limited ('Crystal Amber') held 28.9% of
the Company's Ordinary Shares, and Crystal Amber has classified its investment
in Hurricane as an associate. As such, Crystal Amber is considered to be a
related party of the Group.
7.2 Subsequent events
7.2.1 Repayment of Convertible Bonds
On 25 July 2022, Hurricane announced that it had repaid in full its
outstanding $78,515,000 7.50 per cent Convertible Bonds plus $1.5 million of
accrued interest by the maturity date of 24 July 2022. The bonds have now
been delisted from The International Stock Exchange and cancelled.
Appendix A: Glossary
AIM The AIM market of the London Stock Exchange
Aoka Mizu Aoka Mizu FPSO
bbl Barrel
Bluewater Bluewater Energy Services and affiliates
Bondholder A holder of one or more the Company's Convertible Bonds
Board Board of directors of the Company
Bopd Barrels of oil per day
BP BP Oil International Limited
bubble point The pressure at which gas begins to come out of solution from oil within the
reservoir
CEO Chief Executive Officer
CFO Chief Financial Officer
Company Hurricane Energy plc and/or its subsidiaries
Convertible Bond(s) $230 million of 7.5% convertible bonds issued by the Company in July 2017
COO Chief Operations Officer
COVID-19 Coronavirus
CPR Competent Persons Report
Crystal Amber Crystal Amber Fund Limited
DD&A Depreciation, depletion and amortisation
Developed reserves Reserves that are expected to be recovered from existing wells and facilities.
Developed reserves may be further sub-classified as producing or
non-producing.
E&E Exploration and Evaluation
EPS Early Production System
ERCE ERC Equipoise Limited
ESG Environmental, Social and Governance
ESP Electrical submersible pump
EUR Euro
FPSO Floating production storage and offloading vessel
G&A General and Administrative costs
GBP British Pounds Sterling
GLA Greater Lancaster Area, comprising UKCS licences P1368 Central and P2308
Group Hurricane Energy plc, together with its subsidiaries
GWA Greater Warwick Area, comprising the Lincoln and Warwick fields located on
UKCS licences P1368 South and P2294
Hurricane Hurricane Energy plc, together with its subsidiaries
IAS International Accounting Standard
IFRS International Financial Reporting Standards
JV Joint venture
LLIs Long-Lead Items
Mbbl Thousand barrels of oil
MMbbl Million barrels of oil
NSTA North Sea Transition Authority
OGA Oil and Gas Authority
Ordinary Shares Ordinary shares in the Company of £0.001 each
P&A Plug and abandon
PP&E Property, Plant and Equipment
Regret costs Amounts that remain payable under contracts on cancellation of a project
Regulator Oil and Gas Authority, Department for Business Energy and Industrial Strategy,
and/or The Health and Safety Executive
Reserves Reserves are those quantities of petroleum anticipated to be commercially
recoverable by application of development projects to known accumulations from
a given date forward under defined conditions.
RFES Ring fence expenditure supplement
Spirit Energy Spirit Energy Limited
SURF Subsea, Umbilical, Risers, Flowlines
Tier 1 contractors Hurricane's major direct contractors
UKCS United Kingdom Continental Shelf
USD United States Dollars
VIU Value in use
WOSPS West of Shetland Pipeline System
Appendix B: Non-IFRS Measures
Management 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 out of
management's control); and gains or losses arising from write-offs,
impairments and disposals of assets which do not reflect the Group core assets
and business.
6 months ended 6 months ended 12 months ended
Note 30 Jun 2022 30 Jun 2021 31 Dec 2021
$'000 $'000 $'000
Profit before tax (IFRS measure) 62,478 42,854 18,210
Add back:
Fair value loss/(gain) on Convertible Bond embedded derivative 5.1 (27) 3,304 1,901
Net gain on repurchase of Convertible Bonds - - (17,201)
Gain on lease remeasurement - (49,125) (49,125)
Impairment and write-off of intangible exploration and evaluation assets 2.4 4,907 32 54,280
Impairment of other fixed assets and other right-of-use assets - - 719
(Decrease)/increase in decommissioning estimates expensed 2.5 (795) 1,751 -
Change in decommissioning estimates on fully impaired assets - - 1,973
Underlying profit / (loss) before tax 66,563 (1,184) 10,757
Cash production costs
Cash production costs are defined as cost of sales under IFRS, less
depreciation of oil and gas assets (including right-of-use assets) and
accounting movements of crude oil inventory (including any net realisable
value provision movements), plus fixed lease payments payable for leased oil
and gas assets.
Depreciation and movements in crude oil inventory are deducted as they are
non-cash accounting adjustments to cost of sales. Fixed lease payments for oil
and gas assets are added back because, under IFRS 16, the charge relating to
fixed lease payments is charged to the income statement within both
depreciation of oil and gas assets and interest on lease liabilities. They are
therefore included within cash production costs as they are considered by
management to be operating costs in nature. Fixed lease payments payable for
the purposes of this measure are calculated as the day rate charge multiplied
by the number of days in the period. Cash production cost per barrel is
defined as cash operating costs divided by production volumes.
Management believe that cash production costs, and cash production cost per
barrel are useful measures as they remove non-cash elements from cost of
sales, assist with cashflow forecasting and budgeting, and provide indicative
breakeven amounts for the sale of crude oil.
6 months ended 6 months ended 12 months ended
Note 30 Jun 2022 30 Jun 2021 31 Dec 2021
$'000 $'000 $'000
Cost of sales (IFRS measure) 2.2 78,518 88,017 173,125
Less:
Depreciation of oil and gas assets - owned 2.3 (28,145) (45,855) (94,200)
Depreciation of oil and gas assets - leased 2.3 (8,725) (3,405) (3,405)
Movements in crude oil inventory 2.2 2,516 5,059 10,622
Add:
Fixed lease payments payable for oil and gas assets 13,575 5,838 19,638
Cash production costs 57,739 49,654 105,780
Variable lease payments (incentive tariff) 5.2 (12,939) (11,099) (20,454)
Cash production costs (excluding incentive tariff) 44,800 38,555 85,326
Production volumes 1,632 Mbbl 2,004 Mbbl 3,748 Mbbl
Cash production cost per barrel $35.4/bbl $24.8/bbl $28.2/bbl
Cash production cost per barrel (excluding incentive tariff) $27.5/bbl $19.2/bbl $22.8/bbl
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 2022 30 Jun 2021 31 Dec 2021
$'000 $'000 $'000
Cash and cash equivalents (IFRS measure) 4.1 203,885 207,994 76,792
Add:
Trade and other receivables 4.2 2,777 11,520 2,591
Less:
Restricted cash and cash equivalents 4.1 (60,802) (59,912) (7,934)
Prepayments 4.2 (2,227) (2,423) (1,058)
Trade and other payables 4.3 (16,685) (24,924) (18,843)
Net free cash 126,948 132,255 51,548
Par value of Convertible Bond 5.1 (78,515) (230,000) (78,515)
Net cash / (debt) 48,433 (97,745) (26,967)
Free cash flow
Free cash flow is defined as net cash inflow or outflow from operating
activities per the Cash Flow Statement, excluding decommissioning spend and
including fixed lease repayments, adjusted for other items considered by
management to be capital rather than operating in nature. Free cash flow per
barrel is calculated as free cash flow divided by production volumes for the
year.
Management believes that free cash flow is a useful measure as it shows cash
generated from ongoing operations and G&A.
6 months ended 6 months ended Year ended
Note 30 Jun 2022 30 Jun 2021 31 Dec 2021
$000 $'000 $'000
Net cash inflow from operating activities (IFRS measure) 110,119 75,901 147,044
Adjustments:
Decommissioning spend 180 748 4,824
Lease repayments 5.2 (13,892) (4,808) (18,596)
Free cash flow 96,407 71,841 135,677
Free cash flow per barrel $59.1/bbl $35.8/bbl $36.2/bbl
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