Final Results

Released : 14/05/2014 07:00

RNS Number : 0348H
Hurricane Energy PLC
14 May 2014
 

Embargoed: 7am, 14 May 2014

 

Hurricane Energy plc

("Hurricane" the "Company")

 

2013 Financial Results

&

Notice of AGM

 

Hurricane Energy plc, the UK-based oil and gas company focused on hydrocarbon resources in naturally fractured basement reservoirs, announces the publication of its financial results for the year ended 31 December 2013.

The full Annual Report and Group Financial Statements can be read and downloaded from the Company website: www.hurricaneenergy.com/Investors/AnnualReportsAccounts/

2013 Highlights

·     Pre-IPO fundraising through the issue of convertible loan notes, new equity and a warrant raised £31m before expenses

·     Updated Competent Person's Report including incremental subsurface and engineering studies

·     Agreed licence extensions with DECC

·     Secured Transocean Sedco 712 drilling rig for 2014 operations

·     Loss for the period ended 31 December 2013 £21.4m; (2012: loss £6.8m) reflecting one-off financing and IPO costs

·     New highly experienced Non-Executive Directors joined the Board

Highlights since 31 December 2013

·     Completed an IPO on 4 February 2014, admitting the Company's shares to AIM

·     IPO fundraising added a further £17m (net) cash to the balance sheet

·     Commenced operations on the Lancaster horizontal appraisal well, spudding on 26 April 2014

Lancaster operation

2014 is set to be a pivotal year for the Group. Currently, Hurricane's focus is to drill and test a horizontal well on Lancaster to demonstrate commercial flow rates of oil and on 26 April 2014 the well was spudded. The operation is fully underway and proceeding according to plan.

Dr Robert Trice CEO said: "This well is not only pivotal for Hurricane but also important for the UK's oil industry as this is the first time a one kilometre horizontal well has been attempted in the UK's fractured basement. Consequently this operation represents an important step change in evaluating the UK's basement reservoir potential. The one kilometer horizontal section is targeted within a reservoir volume of proven oil on the Lancaster field with the well path having been designed to cross at least nine faults identified from 3D seismic data. Hurricane's previous operation on Lancaster, inclined well 205/21a-4z, penetrated two seismic scale faults and tested at a flow rate of 2,500 barrels of oil per day. The current operation is intended to establish whether sustained higher oil flow rates can be achieved through horizontal drilling. Once drilled, the well will be tested to evaluate commercial flow rate potential. The overall operation is planned to take 75 days and results will be announced after third party analysis in summer 2014. Assuming the drilling operation is successful and the reservoir behaves as we expect the well will be suspended to join the existing 205/21a-4z well ready for tie-back to a host production facility as part of the proposed Phase 1 development plan for Lancaster."

 

Chairman's Statement

I was pleased to join the Board on 8 March 2013 and I now have the benefit of being Chairman for more than a year at the time of writing this statement. 2013 began promisingly with your management having signed up a rig for summer appraisal drilling on its Lancaster oil discovery when many commentators believed there were no rigs to be had; preparations for a summer flotation of the Company's shares via an Initial Public Offering (IPO) on the AIM market (AIM) of the London Stock Exchange were well advanced; and a pre-IPO fundraising of £31 million had been completed through the issue of one year convertible loan notes and new equity accompanied by a warrant to subscribe for further equity, with a view to additional funds being raised upon listing.

 

However, this bright start was overshadowed by events later in the year that were outside management's control, resulting in 2013 becoming a difficult and disappointing year for all. The availability of the rig was seriously delayed by problems elsewhere and, when the rig was finally available late in the summer, there was insufficient time remaining to complete the Group's drilling and testing programme before winter weather conditions would have closed down operations. The Group therefore reluctantly agreed to accept cancellation of the rig contract and consequently defer drilling to 2014. This decision created uncertainty over the timing of future activity which, in turn, caused the IPO to have to be postponed.

 

In the second half of 2013 management began the task of securing a new rig contract for 2014 appraisal drilling on Lancaster and to refresh the IPO plans around a revised schedule. It was also considered prudent to extend the term of the pre-IPO convertible loan notes and a one year extension to March 2015 was successfully agreed with note holders. It was frustrating for all involved to have worked so hard and come so close to a successful outcome on many fronts in 2013, only to lose hard won time and to have to start again. I would like to acknowledge the hard work that the Hurricane team and advisors have put in during the year to get the Group's plans back on track.

 

The first step was to secure a new rig and Transocean's Sedco 712 was contracted for drilling in 2014.

 

While these efforts continued, the financial background in the capital markets progressively deteriorated during 2013 and into 2014 with, it seemed, the small to mid-cap resources sector particularly out of favour. To give some perspective, in 2013 there were just seven IPOs on AIM in our sector raising a total of £111 million between them. In fact total money raised on AIM in the sector in 2013 was less than a quarter of that raised in 2010. Against this challenging background the Company was successful in floating its shares on AIM on 4 February 2014, raising an additional £18 million before expenses. With these funds and the pre-IPO cash raised previously, the Group added more than £47 million of cash to the balance sheet, after expenses, through the fundraising effort.

 

The share price performance in the period since flotation has been disappointing and we believe that we can address this over time by delivering a successful appraisal well result at Lancaster to further underpin the substantial value of Hurricane's assets. In the meantime, management has been working hard to ensure the market recognises the scale of the opportunity that Hurricane represents. An extensive and ongoing programme of meetings with brokers, analysts and industry commentators coupled with presentations at special investor events is underway to tell the Hurricane story. I am confident that management is being proactive in engaging with the investment community in an undoubtedly difficult market.

 

The Group is now at a key point in its activities. We announced on 28 April 2014 the spudding of the Lancaster appraisal well, designed to test for commercially sustainable oil flow rates from the fractured basement reservoir. Success in this well will not only demonstrate the significant commercial potential of the Lancaster discovery, it will also have a significant impact on how the industry values other fractured basement opportunities in the UK. Through the heightened awareness created by Hurricane of fractured basement plays, the UK government has for the first time put fractured basement on the map as a material component of the UK's remaining prospective resources. The government sponsored Pilot study describes fractured basement reservoirs as the most extensive underexplored play remaining on the UKCS. Your Group's licence holdings and unique expertise in fractured basement reservoirs in the UK leave it well placed to build further on success.

 

I look forward to meeting Shareholders at the Annual General Meeting on 23 June 2014.

 

John Hogan

Chairman

 

Chief Financial Officer's Review

 

Overview

The year ended 31 December 2013 saw the Group prepare and plan the Lancaster horizontal well to further appraise the Lancaster structure. In parallel, the Group focused its efforts to fund the appraisal drilling by raising £31.4 million (gross) in a pre-IPO round of fundraising and to continue with the planned IPO. In February 2014 the Company was successfully floated on AIM and raised a further £18.0 million (gross).

 

Fundraising

The Group completed a fundraising in April 2013 in anticipation of an IPO in mid 2013. The Group raised £31.4 million (gross)
by issuing a combination of convertible loan notes and issuing Ordinary Shares accompanied by a warrant to subscribe for further shares. As a result of raising this finance, the Group was able to enter into a rig contract to drill the Lancaster horizontal well. The rig contract for the use of the GSF Arctic III rig was signed in April 2013. However, due to the delays incurred by
the previous operator of the rig, the Group decided to accept cancellation of the rig contract in order to avoid our programme running into winter weather. This cancellation triggered a review of the IPO timetable to bring it in line with the revised rig schedule being negotiated. To help facilitate the revised IPO schedule, in November 2013, the convertible loan notes and warrant were successfully renegotiated in order to extend the maturity date to 24 months from issue.

 

On 4 February 2014 all of the Company's authorised shares were admitted to AIM, a market operated by the London Stock Exchange as part of its IPO. At the same time a total of 41,860,465 new Ordinary Shares were issued at a price of £0.43 per share, raising £18.0 million (gross).

 

The listing of the Company's shares on AIM triggered the conversion of all outstanding loan notes into Ordinary Shares of the Company to give the holders a conversion price at a 30% discount to the placing price. This resulted in 99,070,189 Ordinary Shares being issued to loan note holders.

 

The Admission of the Company's shares to trading on AIM also triggered the exercise of the warrant attached to the shares issued in April 2013. This resulted in the issue of Ordinary Shares at a price which gave the holder an average subscription price, across the Ordinary Shares already subscribed for and those

subscribed on exercise of the warrant, which equated to a discount of 30% to the placing price. This resulted in 7,663,453 new Ordinary Shares being issued to the warrant holder.

 

Immediately prior to the IPO in February 2014, the Group entered into an assignment agreement with Transocean Drilling UK Limited and Talisman Sinopec Energy UK Limited for the provision of the Sedco 712 semi submersible drilling rig for the drilling and testing of the Lancaster basement oil discovery. This committed the Group to $26.6 million of capital expenditure to lease the drilling rig for the operations.

 

Financial Review

The Group commenced 2013 with cash and cash equivalents of £22.4 million and spent £7.0 million during the period to further appraise Lancaster by planning the upcoming Lancaster horizontal well and assessing possible development scenarios for the Lancaster structure and the wider GLA. After further assessment of the Orkney prospect, situated within licence P1844, the decision was made not to continue to explore the area. The licence was relinquished in October 2013, resulting in £0.5 million being written off.

 

The Group's loss for the year increased to £21.3 million compared with £6.8 million in the previous 16 months. Although this appears to be a significant increase, it is primarily due to the effect of the Group's financing arrangements that were entered into in April 2013 as described below as well as the write off of exploration expenditure associated with licence P1844 and the effects of foreign exchange rate movements.

 

The losses associated with the Group's financing arrangements were non cash losses and have not affected the Group's funding position. This includes both the £5.7 million of effective interest on the convertible loan notes and the £8.8 million fair value movement of the derivatives associated with the conversion option of the loan notes and the warrant. The admission of the Company to AIM in 2014 triggered the conversion of all outstanding loan notes into Ordinary Shares of the Company, which extinguished all liabilities to the holders. The warrant was also exercised. The convertible loan note liability and derivative liabilities were both derecognised from the Group's Balance Sheet. Further details on accounting for the Groups pre IPO funding is included in note 23 of the Group Financial Statements.

 

Due to the nature of the Group's business, it has accumulated significant tax attributes since incorporation. As at 31 December 2013, the Group has pre-trading revenue expenses of £23.1 million and has incurred £119.4 million of capital expenditure on which tax relief should be available to carry forward against future trading profits.

 

In addition, the total pre-trading expenditure of £142.5 million may attract Ring Fenced Expenditure Supplement on the commencement of trade, which would result in a further uplift of £42.6 million of tax relief being available at that time.

 

Although 2013 was a challenging year without any drilling activity, it enabled the Group to strengthen its financial position by way of the pre-IPO funding round. This, together with the very limited financial impact of cancelling the rig contract for the GSF Arctic III, meant that the Group ended 2013 in a strong position to complete the IPO early in 2014.

The Group looks forward to progressing as an AIM traded Group through 2014 and is fully funded for the forthcoming drilling campaign.

 

Nicholas Mardon Taylor

Chief Financial Officer

 

Group Income Statement

for the Year Ended 31 December 2013


12 months ended

31 Dec 2013

16 months ended

31 Dec 2012


£'000

£'000




Operating expenses

(5,333)

(7,216)

Intangible exploration and evaluation costs written off

(534)

(9)

Operating loss

(5,867)

(7,225)




Investment revenue

125

103

Foreign exchange (losses/gains)

(1,101)

348

Finance costs

(5,695)

(7)

Fair value on derivative financial instruments

(8,792)

-

Loss before tax

(21,330)

(6,781)

Tax

(23)

(18)




Loss for the period

(21,353)

(6,799)




Loss per share, basic and diluted

(4.45) pence

(1.47) pence




 

 

Group Balance Sheet

as at 31 December 2013


 As at 31 Dec 2013

As at 31 Dec 2012


£'000

£'000

Non-current assets



Property, plant and equipment

330

-

Intangible exploration and evaluation assets

137,681

131,077

Other receivables

130

130


138,141

131,207

Current assets



Trade and other receivables

1,098

390

Cash and cash equivalents

40,167

22,390


41,265

22,780

Total assets

179,406

153,987




Current liabilities



Trade and other payables

(847)

(788)

Current tax liabilities

(25)

(22)

Borrowings

(26,145)

-

Derivative financial instruments

(15,692)

-


(42,709)

(810)

Non-current liabilities



Decommissioning provisions

(4,764)

(4,000)

Total liabilities

(47,473)

(4,810)




Net assets

131,933

149,177




Equity



Share capital

483

475

Share premium

167,328

163,910

Share option reserve

1,901

1,343

Own shares held by SIP Trust

(136)

(67)

Accumulated deficit

(37,643)

(16,484)




Total equity

131,933

149,177




 

Group Statement of Changes in Equity

for the Year Ended 31 December 2013

 


Share capital £'000

Share premium account £'000

Share option reserve £'000

Own shares held by SIP Trust £'000

Warrant reserve

Accumulated deficit

Total

Balance at 1 September 2011

488

135,436

451

(67)

795

(10,741)

(126,322)









Shares alloted

21

28,058

-

-

-

-

28,079

Transaction costs

-

(1,328)

-

-

-

-

(1,328)

Share option charge

-

(212)

902

-

-

448

1,138

Share options exercised

-

30

(10)

-

-

10

30

Warrants exercised

6

1,926

-

-

(197)

-

1,735

Warrants lapsed

-

-

-

-

(598)

598

-

Loss for the period

-

-

-

-

-

(6,799)

149,177

Balance at 31 December 2012

475

163,910

1,343

(67)

-

(16,484)

149,177









Shares alloted

8

3,514

-

-

-

-

3,522

Transaction costs

-

(165)

-

-

-

-

(165)

Share option charge

-

-

752

-

-

-

752

Share options exercised

-

-

(194)

-

-

194

-

Own shares held by SIP Trust

-

69

-

(69)

-

-

-

Loss for the period

-

-

-

-

-

(21,353)

(21,353)

Balance at 31 December 2013

483

167,328

1,901

(136)

-

(37,643)

131,933









 

Group Cash Flow Statement

for the Year Ended 31 December 2013


 12 Months Ended

 31 Dec 2013

16 Months Ended

31 Dec 2012


£'000

£'000




Net cash outflow from operating activities

(4,424)

(6,307)




Investing activities



Interest received

125

115

Expenditure on property, plant and equipment

(25)

-

Expenditure on intangible exploration and evaluation assets

(7,044)

(33,181)

Net cash used in investing activities

(6,944)

(33,066)




Financing activities



Interest paid

(3)

(7)

Net proceeds from issue of share capital and warrants

4,065

28,534

Net proceeds from issue of convertible loan notes

26,713

-

Expenses related to corporate finance activities

(529)

-

Net cash provided by financing activities

30,246

28,527




Net increase/(decrease) in cash and cash equivalents

18,878

(10,846)




Cash and cash equivalents at the beginning of the period

22,390

32,888




Net increase/(decrease) in cash and cash equivalents

18,878

(10,846)

Effects of foreign exchange rate changes

(1,101)

348

Cash and cash equivalents at the end of the period

40,167

22,390




 

Further detail may be read and downloaded from the Company website: www.hurricaneenergy.com/Investors/AnnualReportsAccounts/

 

Annual General Meeting

Hurricane Energy also announces that a Notice will be sent to shareholders today to convene the Annual General Meeting ("AGM") of the Company.  The AGM will be held at 11am on Monday 23 June at the offices of Deloitte LLP, 2 New Street Square, London EC4A 3BZ.  The AGM Notice is also available on the website: www.hurricaneenergy.com/Investors/AGM2014/

 

-Ends-

 

 

Contact Details:

Hurricane Energy plc

Keith Kirby,

Chief Administrative Officer

+44 1483 862 820

comms@hurricaneenergy.com

www.hurricaneenergy.com

Cenkos Securities plc

Derrick Lee

Beth McKiernan

+44 131 220 6939

dlee@cenkos.com

bmckiernan@cenkos.com

Media enquiries:

Vigo Communications

Patrick d'Ancona

Ben Simons

+44 20 7016 9573

+44 20 7016 9574

patrick.dancona@vigocomms.com

ben.simons@vigocomms.com

 

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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