The UK-based oil and gas company Hurricane Energy plc offers an update on Lancaster field operations and net free cash balances as of May 31, 2022.
Lancaster Field Operations Update
The following table details production volumes, water cut and minimum flowing bottom hole pressure for the 205/21a-6 ("P6") well and the 205/21a-7z ("P7z") well during May 2022.
May 2022 Lancaster Field Data
1- P7z production test carried out 12/05/2022 - 13/05/2022, average rates shown over the 48 hour test period
2- Expressed as total water produced divided by total fluid (oil and water) production
3- Pressure reported is the monthly minimum from well downhole gauges.
As of 14 June 2022, Lancaster was producing c.8,700 bopd from the P6 well alone with an associated water cut of c.45%.
Over a two-day period in May the Company performed a number of tests on the P7z well that involved temporarily reducing the flow rate from the P6 well. This has therefore reduced the overall average production rate for the month from P6. The data obtained will be useful in refining production forecasts for P6 and evaluating potential future field development opportunities.
The 29th cargo of Lancaster oil, totalling approx. 547 Mbbls, was lifted on 24 May 2022. This cargo was priced by reference to the average of the first five days of May's Dated Brent quotes, being $110/bbl, resulting in net revenue of $59.5 million. The next cargo is anticipated to be lifted in late July 2022.
As of 31 May 2022, the Company had net free cash(4) of $139 million compared to the last reported balance of $92 million as of 30 April 2022. $78.5 million of Convertible Bonds remain outstanding and are due to be repaid in July 2022. Following the repayment, assuming oil prices remain at over $90/bbl, at the end of July the Company is forecasting to be holding net free cash in excess of $75 million. If oil prices for the July cargo are above $120/bbl the net free cash forecast increases to be above $90 million.
4.Unrestricted cash and cash equivalents, plus current financial trade and other receivables, current oil price derivatives, less current financial trade and other payables.
Energy Profits Levy
On 26 May 2022 the UK Government announced the introduction of the Energy Price Levy ('EPL'). As the full details and related legislation of the EPL have not yet been published it is not yet possible to determine the full impact this will have on the Company. Included in the forecast July net free cash balance above is a preliminary estimate of the liability up to the end of July 2022, totalling approx. $5 million, based on the information available to date. It should be noted that this estimate could change and be significantly higher or lower depending on the actual details contained within the legislation.
As the EPL includes an investment allowance, should the Company decide to invest in further development on its existing assets or development on assets following an acquisition, such investment would partially offset the EPL charge. The full effect of such an offset will depend on the details of the EPL legislation and the size and nature of any such investment.
The Company will provide further information regarding the impact of the EPL in due course and following the release of the legislation.
Antony Maris, CEO of Hurricane, commented:
'Hurricane's production continues to generate significant positive cashflow enabling us to look beyond Bond repayment with a strong cash position and balance sheet. Management and the Board are working hard to assess and evaluate possible organic and inorganic investment opportunities.
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 investment incentives/relief.
'We believe there are some exciting opportunities ahead and that the Company is well placed to grow its asset base, deliver significant shareholder value and contribute to ensuring security of oil and gas supply for the UK.'