Placing, Open Offer & Notice of GM

Released : 20/10/2016 15:04

RNS Number : 0966N
Hurricane Energy PLC
20 October 2016
 

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THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION AS STIPULATED UNDER THE MARKET ABUSE REGULATION (EU No. 596/2014). UPON THE PUBLICATION OF THIS ANNOUNCEMENT VIA REGULATORY INFORMATION SERVICE THIS INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN.

20 October 2016

Hurricane Energy plc

("Hurricane" or the "Company")

£70 million Placing and up to £4.4 million Open Offer and Notice of General Meeting

Hurricane Energy plc, the UK-based oil and gas company focused on hydrocarbon resources in naturally fractured basement reservoirs, is pleased to announce that it has conditionally raised gross proceeds of £70 million through a proposed issue of 205,882,353 Placing Shares at a price of 34 pence per share.

The Company is also proposing separately to make an Open Offer to all Qualifying Shareholders to enable Qualifying Shareholders to have the opportunity to participate in the capital raising process at the Issue Price. It is proposed that the Open Offer will raise up to £4.4 million (being less than the €5 million maximum amount permitted without requiring the publication by the Company of a prospectus under the Prospectus Rules), in addition and separate to the funds raised pursuant to the Placing.

The Company is grateful for the support of its existing shareholders, including Kerogen Investor and Crystal Amber who have conditionally subscribed for 93,017,647 of the Placing Shares to raise gross proceeds of £31.63 million. Kerogen Investor has agreed not to subscribe for any Open Offer Shares under the Open Offer in order to allow for other Qualifying Shareholders to apply for Excess Shares under the Excess Application Facility. The Company is pleased with the strong demand received, which led to the Placing being oversubscribed at the Issue Price, and is delighted to welcome a number of new institutional shareholders to the share register.

Further details on the Open Offer will be provided in due course and the Company expects to post a Circular to Shareholders in connection with the Open Offer tomorrow. The Placing and the Open Offer are conditional, amongst other things, on Shareholder approval.

Highlights and Use of Proceeds

·     £70 million to be raised by way of the Placing with existing and other institutional investors at a price of 34 pence per share

significant demand received from a number of institutions leading to the Placing being oversubscribed at the Issue Price;

a discount of 12.26 per cent. to the closing middle market price of 38.75 pence per Ordinary Share on 19 October 2016 and a discount of 11.13 per cent. to the 30 trading day volume weighted average price of 38.26 pence per Ordinary Share

·     £70 million secures EPS development timeline and drilling of two wells with the net proceeds primarily to be used to:

advance the development of the Greater Lancaster Area fields by funding the FEED and certain other engineering studies for the EPS phase of Lancaster;

secure the development timetable for the EPS by acquiring the Subsea Equipment, buoy, mooring and control system long lead items; and

further delineate the Greater Lancaster Area by drilling an exploration well on Lincoln and an exploration well on Warwick or another similarly risked Rona Ridge prospect with the potential for up to approximately 500 million barrels of unrisked Prospective Resources across the Lincoln and Warwick prospects (assuming analogous to Lancaster);

·     The Directors believe that the opportunity to commence drilling in November potentially locks in bottom-of-the-cycle rig costs

This timing also allows the Company to potentially drill back-to-back wells and continue using Transocean's Spitsbergen Rig, which is designed for use in challenging weather conditions, as well as the same experienced crew that has drilled the Lancaster 7 wells 

·     Purchasing certain long lead items now will reduce scheduling risk and reliance on EPS financing in H1 2017

·     Farmout discussions expected to recommence later this year following completion of technical analysis of Lancaster 7 wells with the Company in a stronger negotiating position as a result of recent operational delivery, enhanced resources expectation for the Greater Lancaster Area and strengthened financial position

·     Continued support from Kerogen Investor demonstrates endorsement by a technically experienced, specialist upstream investor

·     Introduction of a number of new institutional investors adds further credibility to the Company's continuing transformation and delivery of its strategy

·     The Directors believe the Company will be in a position to make a final investment decision on the EPS phase of development in H1 2017, with first oil targeted for in H1 2019

·     The Placing and the Open Offer are subject to Shareholder approval, with the General Meeting to be held on 7 November 2016

Support from Shareholders of the Company, who have provided irrevocable undertakings to vote in favour of the transaction in respect of, in aggregate, approximately 355 million of the Existing Ordinary Shares.

A circular in connection with the proposed Fundraising and notice of General Meeting (the "Circular") will be posted to Shareholders tomorrow.  The Circular sets out in detail (i) the background to and reasons for the Fundraising and (ii) the resolutions which are required to be passed by Shareholders at the General Meeting to be held at the offices of Dentons UKMEA LLP, One Fleet Place, London EC4M 7WS at 2.30 p.m. on 7 November 2016. All capitalised terms in this announcement are as defined in the Circular which will be available on the Company's website www.hurricaneenergy.com.

Dr Robert Trice, Chief Executive, commented:

"Hurricane has had an exceptionally busy operational period of activity with outstanding results from the Pilot and Horizontal Sidetrack wells. Building on those results, we are delighted to announce today's Fundraising which allows us to capitalise on the operational momentum and proceed imminently with a campaign to further improve our understanding of the Greater Lancaster Area, potentially add considerable near-field resources and secure the development timetable for the Lancaster Early Production System. I am delighted that the proceeds from the Fundraising enable us to benefit from valuable operational continuity through the continued use of Transocean's Spitsbergen Rig and experienced crew at a beneficial point in the oilfield services cycle. Together with the recently announced appointment of Technip and FMC Technologies as our exclusive subsea solutions provider, our work on Lancaster and its wider potential is achieving genuine momentum which we believe will deliver significant value to shareholders and a sizeable resource for the UK.

"The transaction also allows us to continue to strengthen the quality of our investor base. We are grateful for the support from our existing shareholders, particularly Kerogen Investor and Crystal Amber, and also extremely pleased to welcome a number of new blue-chip institutional shareholders to our register following the strong interest received in the Placing. We believe that this reflects both the potential of Hurricane's resource base and our ability to deliver against our strategy, as well as the growing confidence in the fractured basement opportunity in the UK.

"With a number of catalysts including the results from the two new wells, securing an FPSO for the EPS, further results from the Lancaster 7 well drilling, a new Competent Person's Report in 1H 2017, and sanction of the EPS, the next twelve months are expected to be an exciting period for the Company."

Contact Details:

Hurricane Energy plc

+44 (0)1483 862 820

Dr Robert Trice, Chief Executive Officer

Alistair Stobie, Chief Financial Officer




Cenkos Securities plc

+44 (0)131 220 6939

Nominated Adviser, Joint Broker and Joint Bookrunner


Derrick Lee/Nick Tulloch/Beth McKiernan




Macquarie Capital (Europe) Limited

+44 (0)20 3037 2000

Joint Broker and Joint Bookrunner


Alex Reynolds / Guy de Freitas




Vigo Communications

+44 (0) 7830 9700

Public Relations Adviser to Hurricane


Patrick d'Ancona/Ben Simons




This announcement contains certain statements that are or may be deemed to be "forward-looking statements" which are based on current expectations and projections about current events. These statements typically contain words such as "targets", "believes", "intends", "may", "will", "should", "expects" and "anticipates" and words of similar import. By their nature, forward looking statements involve risk and uncertainty because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance.

Statements contained in this announcement regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future.

The information contained in this announcement is subject to change without notice and, except as required by applicable law or the AIM Rules, the Company does not assume any responsibility or obligation to update publicly or review any forward-looking statements contained herein. You should not place undue reliance on forward-looking statements, which speak only as of the date of this announcement. No statement in this announcement is or is intended to be a profit forecast or to imply that the earnings of the Company for the current or future financial years will necessarily match or exceed the historical or published earnings of the Company.

The price of shares and the income from them may go down as well as up and investors may not get back the full amount invested on disposal of the shares. Past performance is no guide to future performance and persons who require advice should consult an independent financial adviser.

The distribution of this announcement and the offering of the Placing Shares and Open Offer Shares in certain jurisdictions may be restricted by law. No action has been taken by the Company or any of the Joint Bookrunners that would permit an offering of such shares or possession or distribution of this announcement or any other offering or publicity material relating to such shares in any jurisdiction where action for that purpose is required. Persons into whose possession this announcement comes are required by the Company and the Joint Bookrunners to inform themselves about, and to observe, any such restrictions.

Background to and reasons for the Fundraising

Hurricane is a UK-based oil and gas company focused on the exploration and exploitation of fractured basement reservoirs.

On 10 May 2016, the Company successfully completed a fundraising whereby pursuant to the April 2016 Placing and the Kerogen Subscription the Company raised approximately £52.1 million (before expenses) through the issue of 347,245,265 new Ordinary Shares to Kerogen Capital, Crystal Amber and Marlborough Fund Nominees at a price of 15 pence per share. The net proceeds of the April 2016 Placing and the Kerogen Subscription have been used to fund the drilling of a pilot well and a horizontal sidetrack well on the Lancaster field and for general corporate purposes.

The Directors believe there is an opportunity to secure attractive oilfield service contract rates given the continued depressed environment for the oilfield service supply chain. The support of Kerogen Investor, together with certain existing and new institutional Shareholders and the availability of the Rig, will allow the Company to capitalise on this opportunity. As a result of the Rig Contract Amendments the Company is in a position to begin drilling the first of the two new wells in early November with the drilling of these wells potentially contributing to the delineation of the Greater Lancaster Area to enable a more considered full field development. The Fundraising will also assist the Company to secure the critical path development timeline of the EPS phase of the Lancaster development.

Use of proceeds

The gross proceeds receivable by the Company pursuant to the Fundraising will be £70 million, before expenses (excluding any proceeds of the Open Offer). The Company intends to use the net proceeds it receives from the Fundraising, together with its existing cash resources, to:

•        advance the development of the Greater Lancaster Area fields by funding the FEED and certain other engineering studies for the EPS phase of the Lancaster development - approximately £7m;

•        acquire the Subsea Equipment, buoy, mooring and control system long lead items for the EPS phase of Lancaster, including additional engineering work and contingency - approximately £21m; and

•        further delineate the Greater Lancaster Area by drilling an exploration well on Lincoln and an exploration well on Warwick. The Company is also actively seeking a number of targets in order to establish the potential to drill a well on the Rona Ridge including in areas contiguous to the Company's existing licence areas, which would have a risk profile no worse than that of Warwick, instead of the proposed exploration well on Warwick - approximately £43m.

Given Hurricane's existing cash position, and assuming receipt of the net proceeds anticipated to be raised under the Placing, Hurricane's strategy is not contingent upon a full take-up under the Open Offer, and any Open Offer funds received will be additional to the Company's immediate funding requirements.  The Open Offer will primarily be used to allow retail and other non-institutional Shareholders to participate in the Fundraising. 

The amount of approximately £43m in relation to further drilling to delineate the Greater Lancaster Area assumes that Hurricane exercises its option under the Rig Contract Amendments by 21 November 2016 to use the Rig to drill a back-to-back well on Warwick or another Rona Ridge prospect which has a risk profile no worse than that of Warwick.  If the Company does not exercise this option, and instead drills the second well between April and September 2017, there may be additional costs involved in securing a new rig. 

Lancaster

Preliminary third party analysis of the Pilot Well has indicated that a very significant hydrocarbon column of at least 620 metres is present within the basement extending well below structural closure, confirming the Company's reservoir model for Lancaster. Provisional third party analysis indicates a minimum ODT at 1,620 metres TVDSS and 240 metres TVD below structural closure. The penetrated aquifer interval is porous and permeable. Initial interpretation of well test data indicates that there are no pressure barriers detected in the reservoir in the vicinity of this wellbore. This is consistent with third party well test analysis of the Company's Lancaster wells which indicate that no pressure barriers have been identified within the basement reservoir. A DST of the basement reservoir produced a maximum natural flow rate of 6,600 bopd and a maximum flow rate of 11,000 bopd (artificial lift with an electrical submersible pump) of good quality 38º API oil with no indication of aquifer water being produced at surface.  This flow is interpreted as predominantly emanating from a short interval of high-permeability fractures within the basement. The Directors now estimate recoverable resources in excess of 300 MMbbls, an increase of approximately 50 per cent. from the previous estimate of 200 MMbbls based on the 2C case from the CPR.

After plugging and abandoning the Pilot Well as planned, the Company has drilled the Horizontal Sidetrack Well. A DST of the one km Horizontal Sidetrack Well produced a sustainable flow rate of 14,500 stock tank bopd (artificial lift with an electrical submersible pump) of good quality 38º API oil with no produced formation water. The flow rate was constrained by test equipment.

Following completion of the DST testing, the Horizontal Sidetrack Well will now be suspended as a future producer for the EPS phase of the Lancaster development.

The Company believes the development of the Greater Lancaster Area will occur by way of a phased development, the first phase of which is the EPS phase. In addition, the Company intends to further delineate the Greater Lancaster Area to assist with planning for future phases of development.

The EPS phase of development comprises the two previously drilled and tested one kilometre horizontal subsea production wells on Lancaster which will be tied back to a FPSO host facility. The Directors' current expectation is that the EPS should produce approximately 62 million barrels in aggregate with plateau production of approximately five years. It is currently expected that the annual average aggregate production during plateau per day from the two-well development will be 17,000 barrels, taking into account the expected downtime for maintenance, weather and unplanned interruptions to production. Current indications are that the operating costs per barrel will be approximately USD26.

The Company currently expects to sanction the EPS phase of the Lancaster development by the end of H1 2017 and to achieve first oil during H1 2019. To expedite this, the Company has identified a FPSO which can be redeployed to the Lancaster field and is at present undertaking early stage FEED studies. The Company expects to obtain an exclusive right to deploy the FPSO before the end of 2016, subject to the Directors concluding acceptable commercial terms with the owner of the FPSO and confirming that the FPSO can be converted at an acceptable cost to operate on the Lancaster field.

Additionally, the Directors have selected providers for the Subsea Equipment. The Company intends to acquire the most time critical part of the required Subsea Equipment, buoy, mooring and control system long lead items with part of the proceeds of the Fundraising such that, subject to the final selection of the FPSO, agreement of the commercial terms and successful conversion of the FPSO, the installation of the Subsea Equipment should not delay the development of the EPS phase of Lancaster.

On 12 October 2016, Hurricane announced that it had provisionally selected Technip and FMC Technologies, under their alliance, as its exclusive provider of subsea solutions for the EPS and for subsequent development of the Greater Lancaster Area.

Following completion of operations at the Horizontal Sidetrack Well and the removal of the wear bushing from the Lancaster 6 Well, the necessary well stock for the EPS phase of development will have been drilled and subject to final completions will be ready to be connected to the Subsea Equipment.

A preliminary estimate is that the capital expenditure required to achieve first oil from the EPS, excluding the two horizontal wells which have already been drilled and tested, is expected to be up to USD400 million. This estimate comprises vessel hull and topside conversion, vessel repair and life extension, turret, buoy and mooring, Subsea Equipment, well completions and vessel deployment and associated service and engineering costs (including the Subsea Equipment, buoy, mooring and control system long lead items funded by the Fundraising).

Hurricane is considering a range of financing options for the EPS phase of the Lancaster development and currently intends to finance the EPS via a combination of some or all of the following options: equity, production pre-payment facility, deferred vendor finance, deferred yard and fabricator finance, hybrid ownership of the FPSO, export credit agency guarantees and farmout.

On completion of the initial FEED studies, the Company intends to progress its production pre-payment facility, deferred yard finance and export credit agency options with a view to these being executable at the end of FEED.

The Directors believe that Hurricane's Rona Ridge prospects have been significantly de-risked following the results of the Pilot Well.  Accordingly, Hurricane also intends to further delineate the Greater Lancaster Area and to continue to benefit from reduced oil field service rates. On 7 October 2016 and 14 October 2016, the Company entered into the Rig Contract Amendments with Transocean. These gave the Company the option to use the Rig to drill one well on the Lincoln prospect, which the Company exercised on 19 October 2016, and one well on Warwick or another prospect specified by the Company in the West of Shetland area, as further set out below. 

Lincoln and Warwick are both located on the Rona Ridge to the south-west of Lancaster and are believed by the Directors to be analogous to the Lancaster discovery. Both wells are planned to be inclined deviated wells whose principal aim will be to determine the extent of the oil column. A high quality geological dataset will also be obtained in order to fully evaluate the basement reservoir post drilling. The Directors believe that these wells will establish Contingent Resources which will assist the Company in sizing a full field development.

The Company is currently evaluating a number of prospects on the Rona Ridge, including in areas contiguous with the Company's existing licence areas which are expected to have a risk profile no worse than that of Warwick. The Board may opt to drill one of these prospects in preference to the Warwick prospect if, in the opinion of the Directors, it better delineates the extent of the Rona Ridge.

Proposed new wells

Lincoln

The Lincoln basement prospect is geologically similar to the nearby Lancaster structure. Seismic interpretation indicates the likely presence of fracturing within the Lincoln basement and, encouragingly, a previous well (205/26-1) drilled in 1975 by Arco on the down-dip flank of the Lincoln structure found oil in sandstones immediately above the basement, thus mitigating the oil charge risk to the prospect. Subsequent analysis by Hurricane identified traces of oil in the short interval of basement that was drilled below the oil bearing sandstones. The basement interval in which the Company believes oil to be is 2,135m TVDSS which is 355m TVD below the structural closure interpreted by RPS Energy Limited in the CPR.

Given its proximity to the Lancaster field (approximately nine kilometres) and its resource potential, the Directors believe Lincoln is an attractive prospect that could deliver significant incremental value via tie-back to a Lancaster development hub in a subsequent phase of development of the Greater Lancaster Area. The CPR identified P50 Prospective Resources of 150 million barrels in the Lincoln field. Following the success of the Pilot Well drilled by the Company on the Lancaster field, the Directors believe that the Lincoln field could have unrisked Prospective Resources of up to approximately 250 million barrels assuming, as the Director believe, the Lincoln field is analogous to the Lancaster field.

It is expected that the Lincoln well will spud in November this year, directly following the completion of the Horizontal Sidetrack Well and the anticipated removal of the wear bushing from the Lancaster 6 Well. It is expected to be completed before year end.

Drilling the Lincoln well will also contribute towards the Company fulfilling its commitments under Licence P1368.

Warwick

The Warwick prospect comprises a robust four-way dip closure at top basement level. It is located approximately 13 kilometres southwest of the Lancaster field on the same Rona Ridge trend. Although slightly deeper than Lancaster at around 1,700 metres below sea level, conceptually Warwick and Lancaster are very similar. From seismic data, the Warwick basement appears to be highly faulted and fractured, so is expected to have reservoir properties analogous to those found at Lancaster. The Warwick structure is believed to have been charged from the prolific Kimmeridge Clay source rock in the Faroe-Shetland Basin, located immediately to the north.

The seal on Warwick is comprised of the same thick succession of Upper Cretaceous claystones that cover Lancaster. The four-way dip closure on Warwick does not benefit from any existing well penetrations. However, nearby offset well data has been used to help constrain the geological analysis of the region, and much of the data that has been gathered from the Lancaster field is directly applicable to Warwick.

The Warwick prospect was not included in the CPR because the Company did not have the applicable licence at the time. However, based on assumptions derived from the results of the Pilot Well and the work undertaken for the CPR, the Directors believe that the Warwick prospect may have unrisked Prospective Resources of up to approximately 250 million barrels assuming, as the Directors believe, the Warwick prospect is analogous to the Lancaster field. 

Under the Rig Contract Amendments, Hurricane has the option to use the Rig to drill a back-to-back well on Warwick or on another Rona Ridge prospect exercisable until 21 November 2016. 

The Company continues to evaluate other prospects on the Rona Ridge, including in area contiguous to the Company's existing licence areas which may contribute to the delineation of the Greater Lancaster Area to enable a more considered full field development. As stated above, in the event that such a prospect is identified prior to electing to drill a back-to-back well by 21 November 2016, the Company may substitute the drilling of the Warwick well for a more suitable prospect.

The Board's decision whether to exercise this option will be taken among other things in light of the preliminary work the Company is able to undertake prior to that date and the required regulatory approvals.  If the Company does not exercise this option, the Company intends to drill the second well between April and September 2017, subject to rig availability.

Rig Contract

The Rig Contract was originally due to expire on completion of the Horizontal Sidetrack Well in October 2016. On 7 October 2016 and 14 October 2016, the Company and Transocean entered into the Rig Contract Amendments, pursuant to which Transocean granted the Company the following options to extend the Rig Contract:

·     an option for running downhole gauges into well 7Z prior to temporary suspension ,which the Company exercised on 14 October 2016;

·     an option for a mutually agreed scope of work at the nearby 6 well ,which the Company exercised on 14 October 2016;

·     an option to drill one well on the Lincoln prospect , which the Company exercised on 19 October 2016;

·     a further option to drill one well in the West of Shetland area (which includes Warwick), which the Company may exercise at any time up to 21 November 2016; and

·     subject to Transocean's agreement, an option to drill a further well in the West of Shetland area, which the Company may exercise if it exercises its further option referred to above to drill a well in the West of Shetland area, and which is exercisable within 21 days following the commencement of that well.

Update on farmout

In June 2016, the Company temporarily suspended farmout discussions until completion of the Lancaster 7 Wells and subsequent analysis.

It is expected that the farmout process will recommence towards the end of the year once the Lancaster 7 Wells data has been fully analysed.

Interim results for the six months ended 30 June 2016

On 22 September 2016, the Company announced its interim results for the six months ended 30 June 2016. These are available from the Company's website at www.hurricaneenergy.com

Details of the Placing

The Company has conditionally raised £70 million (before expenses) through the issue of 205,882,353 Placing Shares to existing and other institutional investors at a price of 34 pence per Placing Share.

The Placing Shares will represent approximately 17.12 per cent. of the Enlarged Share Capital immediately following completion of the Fundraising assuming full take-up under the Open Offer.

The Placing Shares will be allotted and issued free of all liens, charges and encumbrances and will, when issued and fully paid, rank pari passu in all respects with the Existing Ordinary Shares, including the right to receive all dividends and other distributions declared, made or paid after the date of their issue. Application will be made for the Placing Shares to be admitted to trading on AIM. It is expected that Admission and dealings in Placing Shares will commence at 8.00 am on 8 November 2016.

Placing Agreement

On 20 October 2016 the Company entered into the Placing Agreement with the Joint Bookrunners pursuant to which the Joint Bookrunners, as agents for the Company, have agreed to use their reasonable endeavours to procure subscribers for the Placing Shares at the Issue Price.

The Placing is conditional upon, amongst other things:

·     the passing of the Resolutions without amendment to be proposed at the General Meeting;

·     the Rig Contract not having lapsed or been terminated or amended in any material respect (without the prior consent of the Joint Bookrunners which shall not be unreasonably withheld or delayed);

·     the Placing Agreement having become unconditional (save for Admission) and not having been terminated in accordance with its terms prior to Admission; and

·     Admission taking place by no later than 8.00 a.m. on 8 November 2016 (or such later date as the Joint Bookrunners may agree, being not later than 8.00 a.m. on 21 November 2016).

The Placing Agreement contains customary warranties given by the Company in favour of the Joint Bookrunners in relation to, inter alia, the accuracy of the information in this document and other matters relating to the Group and its business. In addition, the Company has agreed to indemnify the Joint Bookrunners in relation to certain liabilities which the Joint Bookrunners may incur in respect of the Placing.

The Joint Bookrunners have the right to terminate the Placing Agreement in certain circumstances prior to Admission, in particular, in the event of a breach of any of the warranties or a material adverse change.

The Placing Agreement also provides for the Company to pay all costs, charges and expenses of, or incidental to, the Placing and Admission including all legal and other professional fees and expenses.

The Placing Shares have not been made available to the public and have not been offered or sold in any jurisdiction where it would be unlawful to do so.

Details of the Open Offer

The Company considers it important that Qualifying Shareholders have an opportunity (where it is practicable for them to do so) to participate in the Fundraising on equivalent terms and conditions to the Placing, and accordingly the Company is making the Open Offer to Qualifying Shareholders. The Company is proposing to raise up to £4,402,241 (before expenses) through the issue of up to 12,947,767 Open Offer Shares.

The Open Offer Shares are available to Qualifying Shareholders pursuant to the Open Offer at the Issue Price of 34 pence per Open Offer Share, payable in full on acceptance. Any Open Offer Shares not subscribed for by Qualifying Shareholders will be available to Qualifying Shareholders under the Excess Application Facility. The balance of any Open Offer Shares not subscribed for under the Excess Application Facility will not be available to placees under the Placing.

Kerogen Investor has agreed not to subscribe for any Open Offer Shares under the Open Offer in order to allow for other Qualifying Shareholders to apply for Excess Shares under the Excess Application Facility.

Qualifying Shareholders may apply for Open Offer Shares under the Open Offer at the Issue Price on the following basis:

1 Open Offer Share for every 76 Existing Ordinary Shares held by the Shareholder on the Record Date

Entitlements of Qualifying Shareholders will be rounded down to the nearest whole number of Open Offer Shares. Fractional entitlements which would otherwise arise will not be issued to the Qualifying Shareholders but will be made available under the Excess Application Facility. The Excess Application Facility enables Qualifying Shareholders to apply for Excess Shares in excess of their Open Offer Entitlement. Not all Shareholders will be Qualifying Shareholders.

Qualifying Shareholders should note that the Open Offer is not a rights issue and therefore the Open Offer Shares which are not applied for by Qualifying Shareholders will not be sold in the market for the benefit of the Qualifying Shareholders who do not apply under the Open Offer.

Further details of the Open Offer and the terms and conditions on which it is being made will be made available to Qualifying Shareholders in the Circular.

Participation by existing major shareholders and Related Party Transaction

Kerogen Investor and Crystal Amber have conditionally subscribed for 93,017,647 Placing Shares pursuant to the Placing to raise gross proceeds of £31.63 million.

Kerogen Investor, by virtue of its holding of more than 10 per cent. of the Existing Ordinary Shares, is considered a related party of the Company under the AIM Rules and its participation in the Placing is considered a related party transaction under the AIM Rules. The Directors, having consulted with the Company's nominated advisor Cenkos, consider that the terms of the Placing are fair and reasonable insofar as Shareholders are concerned.

Effect of the Fundraising

Upon Admission, and assuming full take up of the Open Offer Entitlements and no further exercise of options under the Company's share schemes, the Enlarged Share Capital is expected to be 1,202,860,397 Ordinary Shares. On this basis, the New Ordinary Shares will represent approximately 18.19 per cent. of the Company's Enlarged Share Capital.

Following the issue of the New Ordinary Shares pursuant to the Placing and the Open Offer, assuming full take up of the Open Offer Entitlements and no further exercise of options under the Company's share schemes, Qualifying Shareholders who do not take up any of their Open Offer Entitlements nor participate in the Placing will suffer a dilution of approximately 18.19 per cent. to their interests in the Company. If a Qualifying Shareholder takes up his Open Offer Entitlement in full, and does not participate in the Placing, he will suffer a dilution of approximately 17.12 per cent. to his interest in the Company.

Management incentivisation arrangements

At the same time as the Fundraising, the Company intends to implement a new management incentivisation arrangement, being the Value Creation Plan.

The purpose of the Value Creation Plan is to incentivise, retain and reward executive Directors and other staff members an fully align the Hurricane management team with the shareholders. It has been proposed as an alternative to the existing Performance Share Plan to better reflect the Company's current and long-term strategy.

The participants in the Value Creation Plan will be entitled to subscribe for growth shares in a wholly owned subsidiary of the Company, Hurricane Group Limited (the "Growth Shares"). The Value Creation Plan has been designed so that participants will only benefit if exceptional, additional value is delivered to Shareholders.

The Value Creation Plan will run for five years from the date of grant of the Growth Shares (or vesting may occur earlier upon certain defined maturity events occurring). At the end of the performance period the value delivered to the participants will represent 10% of the increase in value of the Ordinary Shares above the Issue Price subject to a defined hurdle price (the "Hurdle Price") being achieved. The Hurdle Price will be set at approximately 61% above the Issue Price (being an implied 10% compound annual growth rate over the five year performance period). The proportion of the value increase that will ultimately be delivered to participants will also be subject to certain other performance targets having been met. Subject to these conditions and the Hurdle Price being reached, the participants will be entitled to sell their Growth Shares to the Company to be satisfied by the issue of new Ordinary Shares of an equivalent value.

For the avoidance of doubt, the Growth Shares will have no value if, at the relevant maturity event, the price per Ordinary Share is less than the Hurdle Price of £0.55 per Ordinary Share.

It is proposed that participation in the Value Creation Plan will be offered to the following executive Directors (in addition to other staff members):

Name

Role

Percentage allocation of total Growth Shares

Dr Robert Trice

Chief Executive Officer

14%

Neil Platt

Chief Operations Officer

14%

Alistair Stobie

Chief Financial Officer

14%

 

The awards mentioned above are conditional on the participants electing to participate in the Value Creation Plan failing which they will have the ability to remain within the existing Performance Share Plan (which shall be amended to align with the performance conditions in the Value Creation Plan). Any current employees wishing to join the Value Creation Plan, will surrender all interests in the current Performance Share Plan.

In the event that they elect to participate in the Value Creation Plan, participants will have the option of becoming employee shareholders under section 205A of the Employment Rights Act 1996 and, in such event, Growth Shares will, subject to the relevant statutory requirements, be issued within the employee shareholder scheme.

The existing NED Plan shall remain in place (which shall also be amended to align with the performance conditions in the Value Creation Plan).

Working capital

Having made due and careful enquiry, the Directors are of the opinion that, taking into account the net proceeds of the Placing, the Company will have sufficient working capital available for its present requirements, that is, for at least 12 months following the date of Admission.

Additional information

The attention of Shareholders is drawn to the risk factors set out in Appendix I, which provide additional information on the Fundraising.

General Meeting

The General Meeting will be convened by the Company for 2.30 p.m. on 7 November 2016. The Circular, containing a notice of the General Meeting and further details on the Fundraising, will be despatched to Shareholders of the Company tomorrow outlining terms of the Fundraising and seeking the necessary Shareholder approvals.

A summary and explanation of the Resolutions to be included in the notice of General Meeting is set out below. Shareholders will be asked to consider and, if thought fit, to pass the Resolutions. Should shareholder approval of the Resolutions required to enable the Fundraising to proceed not be obtained at the General Meeting, then the Fundraising as currently envisaged will not proceed and the proceeds of the Fundraising will not be available to the Company with a consequent likely adverse impact on the expenditure plans for the Company as detailed in the Use of Proceeds paragraph above.

·     Resolution 1, which is an ordinary resolution to authorise the Directors to allot relevant securities up to an aggregate nominal amount of £218,830.12, being equal to 218,830,120 New Ordinary Shares (i.e. the maximum number of New Ordinary Shares available under the Placing and the Open Offer); and

·     Resolution 2, which is conditional on the passing of Resolution 1 and is a special resolution to authorise the Directors to issue and allot up to 218,830,120 New Ordinary Shares pursuant to the Placing and the Open Offer on a non-pre-emptive basis.

The authorities to be granted pursuant to the Resolutions will expire on the date falling six months from the date of the passing of the Resolutions (unless renewed varied or revoked by the Company before or on that date) and will be in addition to the Directors' authorities to allot relevant securities on a non pre-emptive basis granted at the Company's annual general meeting held on 8 June 2016.

Application will be made for Admission and, subject to the necessary shareholder approvals being obtained at the General Meeting, it is expected that Admission will become effective at 8.00 a.m. on 8 November 2016.

Irrevocable Undertakings

The Company has received irrevocable undertakings from Kerogen Investor, Awal Bank B.S.C and Dr Robert Trice to vote in favour of the Resolutions in respect of their respective entire holdings of Existing Ordinary Shares representing, in aggregate, approximately 36.04 per cent. of the Existing Ordinary Shares. When aggregated with the holdings of the other Directors (which represent 0.15 per cent. of the Existing Ordinary Shares, and which the Directors intend to vote in favour of the Resolutions), these represent, in aggregate, approximately 36.19 per cent. of the Existing Ordinary Shares.

Disclaimer

This Announcement is not for release, publication or distribution, in whole or in part, directly or indirectly, in or into the United States, Australia, Canada, Japan or the Republic of South Africa or any jurisdiction into which the publication or distribution would be unlawful. This Announcement is for information purposes only and does not constitute an offer to sell or issue or the solicitation of an offer to buy or acquire shares in the capital of the Company in the United States, Australia, Canada,  the Republic of South Africa or Japan or any jurisdiction in which such offer or solicitation would be unlawful or require preparation of any prospectus or other offer documentation or would be unlawful prior to registration, exemption from registration or qualification under the securities.

Neither the Placing Shares nor the Open Offer Shares have been nor will be registered under the United States Securities Act of 1933, as amended ("Securities Act"), and may not be offered, sold or transferred, directly or indirectly, within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and the securities laws of any state or other jurisdiction of the United States. Any offering to be made in the United States will be made to a limited number of "qualified institutional buyers" ("QIBs") within the meaning of Rule 144A under the Securities Act pursuant to an exemption from registration under the Securities Act in a transaction not involving any public offering. The Placing Shares and the Open Offer Shares are being offered and sold outside the United States in accordance with Regulation S under the Securities Act ("Regulation S"). No public offering of the Placing Shares or the Open Offer Shares is being made in the United States, United Kingdom or elsewhere.

Cenkos Securities plc ("Cenkos") is authorised and regulated in the United Kingdom by the FCA. Cenkos is acting exclusively for the Company and no one else in connection with the Placing. Cenkos does not regard any other person as its client in relation to the Placing and will not be responsible to anyone other than the Company for providing the protections afforded to its clients, nor for providing advice in relation to the Placing, the contents of this announcement or any transaction, arrangement or other matter referred to herein.

Macquarie Capital (Europe) Limited ("Macquarie") is authorised and regulated in the United Kingdom by the FCA. Macquarie is acting exclusively for the Company and no one else in connection with the Placing. Macquarie does not regard any other person as its client in relation to the Placing and will not be responsible to anyone other than the Company for providing the protections afforded to its clients, nor for providing advice in relation to the Placing, the contents of this announcement or any transaction, arrangement or other matter referred to herein.

This Announcement has been issued by, and is the sole responsibility, of the Company. No representation or warranty, express or implied, is or will be made as to, or in relation to, and no responsibility or liability is or will be accepted by either Cenkos or Macquarie or by any of their respective affiliates or agents as to or in relation to, the accuracy or completeness of this Announcement or any other written or oral information made available to or publicly available to any interested party or its advisers, and any liability therefore is expressly disclaimed.

EXPECTED TIMETABLE OF PRINCIPAL EVENTS

 

Record Date for entitlement under the Open Offer

6.00 p.m. on 18 October2016



Announcement of the Placing and the Open Offer

20 October 2016



Posting of the Circular, Proxy Form and, to Qualifying non-CREST Shareholders only, the Application Form

21 October 2016

 

Ex-entitlement Date for the Open Offer

 

21 October 2016



Open Offer Entitlements and Excess Open Offer Entitlements credited to stock accounts in CREST of Qualifying CREST Shareholders 

8.00 a.m. on 21 October 2016



Latest recommended time and date for requesting withdrawal of Open Offer Entitlements and Excess CREST Open Offer Entitlements from CREST 

4.30 p.m. on 1 November 2016



Latest time for depositing Open Offer Entitlements and Excess CREST Open Offer Entitlements into CREST

3.00 p.m. on 2 November 2016



Latest time and date for splitting Application Forms


(to satisfy bona fide market claims) 

3.00 p.m. on 3 November 2016



Latest time and date for receipt of Forms of Proxy

2.30 p.m. on 5 November  2016

 

Latest time and date for receipt of completed Application Forms and payment in full under the Open Offer or settlement of relevant CREST instruction (as appropriate) 

11.00 a.m. on 7 November 2016

 


General Meeting

2.30 p.m. on 7 November  2016



Announcement of results of the General Meeting and Open Offer

7 November 2016



Admission effective and dealings in New Ordinary Shares expected to commence on AIM

8.00 a.m. on 8 November 2016



Expected date for crediting of New Ordinary Shares in uncertificated form to CREST stock accounts

8.00 a.m. on 8 November 2016



Despatch of share certificates in respect of Placing Shares and Open Offer Shares in certificated form

within 14 days from Admission

 

Notes:

1.     Each of the times and dates in the above timetable, and shown elsewhere in this document, are indicative only and if any of the details contained in the timetable above should change, the revised times and dates will be notified to Shareholders by means of an announcement through a Regulatory Information Service.

2.     All of the above times refer to London time unless otherwise stated.

3.     All events listed in the above timetable following the General Meeting are conditional on the passing of the Resolutions at the General Meeting.

FUNDRAISING STATISTICS

 

Issue Price

34p



Number of Placing Shares

205,882,353



Number of Open Offer Shares

12,947,767



Number of Existing Ordinary Shares in issue as at the date of this document

984,030,277



Enlarged Share Capital following Admission

1,202,860,397*

 

Percentage of the Enlarged Share Capital represented by the New Ordinary Shares

18.19 per cent.*



Gross Proceeds of the Placing

£70 million  



Gross Proceeds of the Open Offer

£4.4 million*



Estimated net proceeds of the Placing and the Open Offer

Approximately £71.7 million*



Entitlement under the Open Offer

1 Open Offer share for every

76 Existing Ordinary Shares



Ordinary Share ISIN

GB00B580MF54



Open Offer Basic Entitlements ISIN

GB00BZCNTB57



Open Offer Excess Entitlements ISIN

GB00BZCNTC64



* assuming full take-up under the Open Offer


 

DEFINITIONS

 

The following definitions apply throughout this document unless the context otherwise requires:

"Admission"

admission of the New Ordinary Shares to trading on AIM becoming effective in accordance with the AIM Rules

"AIM"

the AIM market operated by the London Stock Exchange

"AIM Rules"

the rules published by the London Stock Exchange entitled AIM Rules for Companies in force from time to time

"April 2016 Chairman's Letter"

the letter from the Chairman of the Company included in the April 2016 Circular

"April 2016 Circular"

the circular dated 18 April 2016 sent by the Company to Shareholders in connection with the April 2016 Placing and the Kerogen Subscription

"April 2016 Placing"

the placing of 53,333,334 Ordinary Shares at 15 pence per Ordinary Share by the Joint Bookrunners on behalf of the Company described in the April 2016 Circular

"Articles"

the articles of association of the Company

"Business Day"

any day which is not a Saturday, Sunday or public holiday on which banks are open for business in the City of London

"Cenkos"

Cenkos Securities plc

"certified" or in "certificated form"

a share or other security which is not in certificated form (that is, not in CREST)

"Circular"

the circular to be sent tomorrow by the Company to the Shareholders in connection with the Fundraising

"Company" or "Hurricane"

Hurricane Energy plc, a company registered in England and Wales with company number 05245689

"Computershare Investor Services"

Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol, BS99 6ZZ

"CPR"

the Group's Competent Person's Report dated 19 November 2013 prepared by RPS Energy Limited

"CREST"

the relevant system (as defined in the Uncertificated Securities Regulations 2001) in respect of which Euroclear UK & Ireland Limited is the Operator (as defined in such regulations)

"CREST Manual"

the CREST manual published by Euroclear

"Crystal Amber"

Crystal Amber Fund Limited

"Directors" or "Board"

the directors of the Company as at the date of this document, or any duly authorised committee thereof

"EHS"

environment, health and safety

"Enlarged Share Capital"

the issued Ordinary Shares immediately following Admission

"Euroclear"

Euroclear UK & Ireland Limited

"Excess Application Facility"

the arrangement pursuant to which Qualifying Shareholders may apply for additional Open Offer Shares in excess of their Open Offer Entitlement in accordance with the terms and conditions of the Open Offer

"Excess CREST Open Offer Entitlements"

in respect of each Qualifying CREST Shareholder, the entitlement (in addition to his Open Offer Entitlement) to apply for Open Offer Shares pursuant to the Excess Application Facility, which is conditional on him taking up his Open Offer Entitlement in full and which may be subject to scaling back in accordance with the provisions of the Circular

"Excess Open Offer Entitlements"

an entitlement for each Qualifying Shareholder to apply to subscribe for Open Offer Shares in addition to his Open Offer Entitlement pursuant to the Excess Application Facility which is conditional on him taking up his Open Offer Entitlement in full and which may be subject to scaling back in accordance with the provisions of the Circular

"Excess Shares"

Open Offer Shares applied for by Qualifying Shareholders under the Excess Application facility

"Ex-entitlement Date"

the date on which the Existing Ordinary Shares are marked "ex" for entitlement under the Open Offer, being 21 October 2016

"Existing Ordinary Shares"

the 984,030,277 Ordinary Shares currently in issue at the date of this Announcement

"FCA"

the Financial Conduct Authority

"FSMA"

the Financial Services and Markets Act 2000, as amended

"Fundraising"

"General Meeting"

the Placing and the Open Offer

the general meeting of the Company convened for 2.30 p.m. on 7 November 2016, notice of which is set out in this document, and any adjournment thereof

"Greater Lancaster Area"

the potential development comprising Lancaster, Lincoln, Warwick and other potential discoveries which may be developed together

"Group"

the Company, its subsidiaries, and its subsidiary undertakings

"Growth Shares"

the growth shares to be issued under the Value Creation Plan, as described in this Announcement

"Horizontal Sidetrack Well"

well 205/21a-7Z, being the one km horizontal sidetrack well which is one of the Lancaster 7 Wells

"Issue Price"

34 pence per New Ordinary Share

"Joint Bookrunners"

Macquarie and Cenkos

 "Kerogen Capital"

Kerogen Manager and its associated companies which act as a manager of other funds

 "Kerogen General Partner"

Kerogen General Partner II Limited

 "Kerogen Investor"

Kerogen Investments No.18 Limited

 "Kerogen Manager"

Kerogen Capital II Limited, the manager of Kerogen Investor

 "Kerogen Subscription"

the subscription for 293,911,931 new Ordinary Shares by Kerogen Investor pursuant to the Subscription Agreement described in the April 2016 Circular

 "Lancaster"

the Group's wholly owned oil discovery West of Shetland known as Lancaster

"Lancaster 6 Well"

well 205/21a-6, being the one kilometre horizontal well on Lancaster which the Company drilled and tested in 2014

"Lancaster 7 Wells"

the Company's 2016 drilling and testing programme for Lancaster, incorporating among other things a Pilot Well and a Horizontal Sidetrack Well, drilled from the same top hole location, as described in the letter from the Chairman of the Company included in the April 2016 Circular

 "Lincoln"

the Group's prospect West of Shetland known as Lincoln, lying to the south west of the Lancaster discovery

"London Stock Exchange"

London Stock Exchange plc

"Macquarie"

Macquarie Capital (Europe) Limited

"Money Laundering Regulations"

the Money Laundering Regulations 2007 and obligations in connection with the money laundering under the Criminal Justice Act 1993 and the Proceeds of Crime Act 2002

"NED Plan"

the existing "Hurricane Energy 2013 Nominal-Cost Share Option Plan" adopted by the Company by resolution of the Board on 15 April 2013 (as amended on 11 November 2013 and further amended on 23 September 2014) offered to non-executive Directors as a non-executive management incentive plan

"New Ordinary Shares"

the Placing Shares and the Open Offer Shares

 "Notice of General Meeting"

the notice convening the General Meeting which will be set out in the Circular

"Open Offer"

the conditional invitation by the Company to Qualifying Shareholders to apply to subscribe for the Open Offer Shares at the Issue Price on the terms and subject to the conditions set out in the Circular and, in the case of Qualifying Non-CREST Shareholders, in the Application Form

"Open Offer Entitlement"

the individual entitlements of Qualifying Shareholders to subscribe for Open Offer Shares allocated to Qualifying Shareholders pursuant to the Open Offer

"Open Offer Shares"

the up to 12,947,767 new Ordinary Shares to be issued by the Company pursuant to the Open Offer

"Ordinary Shares"

ordinary shares of £0.001 each in the capital of the Company

"Overseas Shareholders"

Shareholders with a registered address outside the United Kingdom

 "Performance Share Plan"

the existing "Hurricane Energy 2013 Performance Share Plan" adopted by the Company by resolution of the Board on 15 April 2013 (as amended) offered to executive Directors and other staff members as an incentive plan

"Pilot Well"

well 205/21a-7 which is one of the Lancaster 7 Wells

"Placing"

the conditional placing of the Placing Shares at the Issue Price by the Joint Bookrunners, details of which are set out in this Announcement

"Placing Agreement"

the conditional agreement dated 20 October 2016 between the Company and the Joint Bookrunners relating to the Placing, further details of which are set out in this Announcement

"Placing Shares"

the205,882,353 new Ordinary Shares to be issued by the Company pursuant to the Placing

"Prospectus Rules"

the rules made for the purposes of Part VI of FSMA in relation to offers of securities to the public and admission of securities to trading on a regulated marked

"Proxy Form"

the form of proxy for use in connection with the General Meeting which will accompany the Circular

"Qualifying CREST Shareholders"

Qualifying Shareholders holding Existing Ordinary Shares in uncertificated form

"Qualifying Non-CREST Shareholders"

Qualifying Shareholders holding Existing Ordinary Shares in certificated form

"Qualifying Shareholders"

holders of Existing Ordinary Shares on the register of members of the Company at the Record Date but excluding any Overseas Shareholder who has a registered address in any Restricted Jurisdiction

"Record Date"

6.00 p.m. on 18 October 2016

"Registrars"

Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol, BS99 6ZZ

"Regulatory Information Service"

a regulatory information service that is approved by the FCA as meeting primary information provider criteria and that is on the list of regulatory information services maintained by the FCA

"Resolutions"

the resolutions set out in the Notice of General Meeting

"Restricted Jurisdiction"

the United States of America, Canada, Australia, Japan, the Republic of Ireland and the Republic of South Africa and any other jurisdiction where the extension or availability of the Open Offer would breach any applicable law or regulations

"Rig"

the Transocean Spitsbergen semi-submersible drilling rig which the Company has contracted from Transocean under the terms of the Rig Contract

"Rig Contract"

the agreement dated 18 April 2016 between the Company and Transocean under which the Company conditionally contracted the Rig, as described in paragraph 4 of the April 2016 Chairman's Letter, as amended by the Rig Contract Amendments

 "Rig Contract Amendments"

together the agreements dated between 7 October 2016 and 19 October 2016 between the Company and Transocean by way of amendment to the Rig Contract under which Transocean has granted the Company options for further use of the Rig, as described in this Announcement

"Rona Ridge"

a prominent NE-SW-trending basement high which acts as a structural feature separating the Faroe-Shetland Basin from the West Shetland and the East Solan basins

"Shareholders"

holders of Ordinary Shares

"stock account"

an account within a member account in CREST to which a holding of a particular share or other security in CREST is credited

 "Subscription Agreement"

the agreement dated 18 April 2016 between the Company, Kerogen Investor and Kerogen General Partner pursuant to which Kerogen Investor agreed to subscribe for the Kerogen Shares, as described in paragraph 10 of the April 2016 Chairman's Letter

"Transocean"

Transocean Drilling UK Limited

"UKCS"

the UK Continental Shelf

"uncertificated" or "in uncertificated form"

a share or security recorded in the Company's register of members as being held in uncertificated form, and title to which may be transferred by means of CREST

"United Kingdom" or "UK"

the United Kingdom of Great Britain and Northern Ireland

"United States of America", "United States"  or "US"

the United States of America, its territories and possessions, any state of the United States of America and the District of Columbia and all areas subject to its jurisdiction

"USD"

United States Dollars, the lawful currency of the United States of America

"US Securities Act"

the United States Securities Act of 1933 (as amended)

"Value Creation Plan"

the new management incentivisation growth share plan ("Hurricane Energy 2016 Value Creation Plan") to be adopted on or around the date of the Placing and offered to executive Directors and other staff members

"Warwick"

the Group's prospect West of Shetland known as Warwick, lying to the south-west of the Lancaster discovery

"£" and "pence"

respectively, pounds and pence sterling, the lawful currency  of the United Kingdom

 

 

GLOSSARY

 

The following glossary of terms applies throughout this document, unless the context otherwise requires:

2C

denotes a best estimate scenario of Contingent Resources

2D seismic

seismic data acquired in a single traverse or series of traverses. 2D seismic data provides single cross sections

3D seismic

seismic data acquired as multiple, closely spaced traverses. 3D seismic data typically provides a more detailed and accurate image of the subsurface than 2D seismic

API

American Petroleum Institute

appraisal

the phase of petroleum operations immediately following a successful discovery. Appraisal is carried out to determine size, production rate and the most efficient development of a field

appraisal well

a well drilled as part of an appraisal of a field

aquifer

a water-bearing portion of a petroleum reservoir which can act as a reservoir-drive mechanism, driving the oil through the reservoir. As the reservoir depletes, the water moving in from the aquifer below displaces the oil until the aquifer energy is expended or the well eventually produces too much water to be viable

boe

barrels of oil equivalent. Converting gas volumes to oil equivalent

is customarily done on the basis of the nominal heating content or

calorific value of the fuel. Before aggregating, the gas volumes must be converted to the same temperature and pressure. Common

industry gas conversion factors usually range between 1 barrel of

oil equivalent = 5,600 scf of gas to 6,000 scf of gas

bopd

barrels of oil per day

Christmas Tree

an assembly of valves, spools, and fittings used for an oil well and other types of wells

Contingent Resources

these are resources that are potentially recoverable but not yet considered mature enough for commercial development due to technological or business hurdles. For contingent resources to move into the reserves category, the key conditions, or contingencies, that prevented commercial development must be clarified and removed. As an example, all required internal and external approvals should be in place or determined to be forthcoming, including environmental and governmental approvals. There also must be evidence of firm intention by a company's management to proceed with development within a reasonable time frame (typically five years, though it could be longer)

dip

the angle at which a rock stratum or structure is inclined from the horizontal

discovery

an exploration well which has encountered oil and gas for the first

time in a structure

DST

drill stem test

EPS

early production system

exploration

the phase of operations which covers the search for oil or gas by

carrying out detailed geological and geophysical surveys followed

up where appropriate by exploratory drilling

exploration well

a well drilled to find hydrocarbons in an unproved area or to extend significantly a known oil or natural gas reservoir

farmout

a term used to describe when a company sells a portion of the

acreage in a block to another company, usually in return for

consideration and for the buying company taking on a portion of

the selling company's work commitments

FEED

front end engineering and design

field

a geographical area under which either a single oil or gas reservoir

or multiple oil or gas reservoirs lie, all grouped on or related to the

same individual geological structure feature and/or stratigraphic

condition

FPSO

floating production storage and offloading vessel

formation

a body of rock identified by lithic characteristics and stratigraphic position which is mappable at the earth's surface or traceable in the subsurface

formation water

water that occurs naturally within the pores of rock

fracture

a natural break in the rock forming due to the effects of cooling of the original rock melt and/or tectonic forces acting on the rock mass. These result in a void extending away from the wellbore for varying distance (centimetres to hundreds of metres) which can be associated with commercially producible oil

geophysical

geophysical exploration is concerned with measuring the earth's

physical properties to delineate structure, rock type and fluid

content - these measurements include electrical, seismic, gravity

and magnetics

hook-up

the connection of the wells via the Subsea Equipment to the FPSO such that production can commence

hydrocarbon

a compound containing only the elements hydrogen and carbon.

May exist as a solid, a liquid or a gas. The term describes any

combination of oil, gas and/or condensate

infrastructure

oil and gas processing, transportation and off-take facilities

licence

an exclusive right to explore for petroleum, usually granted by a

national governing body

long lead item

the equipment, product or system that is identified at the earliest stage of a project to have a delivery time long enough to affect directly the overall lead time of the project

MMbbl

million barrels

ODT

oil down to

oil

a mixture of liquid hydrocarbons of different molecular weight

oil column

vertical thickness of an oil accumulation above an oil/water contact

P50

denotes a scenario which has at least a 50 per cent. probability of occurring

petroleum

a generic name for oil and gas, including crude oil, natural gas

liquids, natural gas and their products

phase

a distinct state of matter in a system, e.g. liquid phase or gas phase

pressure barriers

a barrier that prevents the pressure pulse generated by the DST being transmitted through the reservoir, in effect compartmentalising the reservoir

production well

a well producing fluids (oil, gas or water)

prospect

an identified trap that may contain hydrocarbons. A potential hydrocarbon accumulation may be described as a lead or prospect depending on the degree of certainty in that accumulation. A prospect is generally mature enough to be considered for drilling

Prospective Resources

are estimated volumes associated with undiscovered accumulations. These represent quantities of petroleum which are estimated, as of a given date, to be potentially recoverable from oil and gas deposits identified on the basis of indirect evidence but which have not yet been drilled. This class represents a higher risk than Contingent Resources since the risk of discovery is also added. For prospective resources to become classified as Contingent Resources, hydrocarbons must be discovered, the accumulations must be further evaluated and an estimate of quantities that would be recoverable under appropriate development projects prepared

reservoir

an underground porous and permeable formation where oil and

gas has accumulated

seal

a relatively impermeable rock, commonly shale, anhydrite or salt, that forms a barrier or cap above and around reservoir rock such that fluids cannot migrate beyond the reservoir. A seal is a critical component of a complete petroleum system

scf

standard cubic feet measured at 14.7 pounds per square inch and

60° F

sedimentary

a deposit made up of pieces of other rocks

shut-in

to stop a well from flowing and close the valves

Sidetrack

a secondary wellbore drilled away from the original hole

Spud

to start the well drilling process by removing rock, dirt and other sedimentary material with the drill bit

structural closure

a term used to define the volume of rock in which oil, or gas, can accumulate; closure is based on the shape of a geological structure and is usually defined as a specific depth; in some reservoirs oil can accumulate outside of structural closure and such reservoirs are referred to as having their hydrocarbon stratigraphically trapped; stratigraphic traps accumulate oil in deposits shaped by processes such as rivers, beaches, reefs and fractures

Subsea Equipment

fully submerged ocean equipment, comprising, inter alia, Christmas Trees and subsea control modules, electrical submersible pumps, variable speed drives and subsea umbilicals, risers and flexibles

TVD

true vertical depth

TVDSS

true vertical depth (sub-sea)

wear bushing

retrievable cylindrical device that protects the internal surfaces of wellhead equipment and the top of the last casing suspended

Wireline

a cabling technology used by operators of oil and gas wells  to lower a wireline tool, which is equipment or measurement devices, into a borehole

 

APPENDIX I - RISK FACTORS

Any investment in the Company is subject to a number of risks.  Accordingly, prospective investors should carefully consider the risk factors set out below as well as the other information contained in this document before making a decision whether to invest in the Company. The risks described below are not the only risks that the Group faces. Additional risks and uncertainties that the Directors are not aware of or that the Directors currently believe are immaterial may also impair the Group's operations. Any of these risks may have a material adverse effect on the Group's business, financial condition, results of operations and prospects. In that case, the price of the Ordinary Shares could decline and investors may lose all or part of their investment. Prospective investors should consider carefully whether an investment in the Company is suitable for them in light of the information in this document and their personal circumstances.

Before making an investment, prospective investors are strongly advised to consult an investment adviser authorised under FSMA who specialises in investments of this kind. A prospective investor should consider carefully whether an investment in the Company is suitable in the light of his or her personal circumstances, the financial resources available to him or her and his or her ability to bear any loss which might result from such investment.

The following factors do not purport to be a complete list or explanation of all the risk factors involved in investing in the Company. In particular the Company's performance may be affected by changes in the market and/or economic conditions and in legal, regulatory and tax requirements.

1.    RISKS RELATING TO THE GROUP'S BUSINESS

1.1.  The Group may not be able to develop commercially its contingent and prospective resources

The Company is an oil and gas exploration company focused on fractured basement reservoirs which has not yet begun to generate revenues and is not yet trading profitably. However, none of the assets has achieved commercial production to date and the commercial viability of each of the Company's assets is dependent on a range of factors, including establishing the presence of extensive fracture networks at such fields.

All the Group's assets are currently classified as Contingent or Prospective resources. The Group's success will depend upon converting its assets, that are currently classified as Contingent or Prospective resources, into reserves and commercial production. The resources may not be considered commercially recoverable by the Group for a variety of reasons, including the high costs involved in recovering the resources, the price of oil and gas at the time, the availability of the Group's operational resources and other development plans that the Group may have.

If the Group is not successful in achieving commercial production from its assets, or fails to meet its targeted production timelines, the Group's business, financial condition, results of operations and prospects would be materially adversely affected.

1.2.  The Group's business plan requires substantial capital expenditure and the future expansion and development of the Group's business may require additional capital. As such, the Group may not be able to generate sufficient cash flows or finance its activities in the longer term if it is unable to raise additional capital

The Group's business plan to exploit and commercialise its assets will require significant capital expenditure. The Group will also be required to make substantial capital expenditure for the identification, acquisition, exploration, development and production of oil and gas resources and/or reserves in the future.

The Group has good visibility of its near term capital expenditure requirements, and specifically for the EPS phase on Lancaster and upcoming well drilling which are supported by detailed internally produced current year annual budgets. These annual budgets detail, inter alia, the necessary equipment, personnel and time lines for such programmes, and estimates for the year's expenditure based on the current market rates plus appropriate contingencies. In addition, regular meetings of management committees support forecast estimates for the work programme and expenditure in the next period.

However, in the longer term, future annual budgets may turn out to be higher than currently planned by the Group (for example, for reasons of oil industry-wide cost inflation, project delays or redesign, new technology, acceleration of work programmes in particular decommissioning, and/or best practice for seismic, drilling, development and/or decommissioning and other operations) and the Group may need to seek additional funds at that time to cover increased costs or the fact that the Group may no longer be tax optimised as planned due to unforeseen or earlier than expected costs, which it may not be able to secure on reasonable commercial terms or at all or it may need to divert funds from other projects to satisfy the increased capital expenditure requirements. If this happens, it may have a material adverse effect on the Group's business and financial condition in the longer term.

The Group currently intends to use the net proceeds from the Fundraising to (i) advance the development of the Greater Lancaster Area fields by funding the FEED and certain other engineering studies for the EPS phase of Lancaster; (ii) acquire the Subsea Equipment, buoy, mooring and control system long lead items for the EPS phase of Lancaster; and (iii) further delineate the Greater Lancaster Area by drilling an exploration well on Lincoln and an exploration well on Warwick or another Rona Ridge prospect which has a risk profile no worse than that of Warwick, if deemed appropriate by the Board.

However, given that the Group's business involves substantial capital expenditure, it would require additional capital to fund expenditure beyond the above mentioned work programme. In the opinion of the Directors, subject as referred to in paragraph 1.16 below, the net proceeds of the Fundraising receivable by the Company will be sufficient to finance such work programme, and beyond this, the Group may enter into arrangements for debt or equity financing for its operations or exploration, appraisal, development or production plans. However, there is no assurance that the Group will be able to generate sufficient internal cash flow, or that additional debt or equity financing, will be available, or will be sufficient, to meet the Group's funding requirements in the longer term to pursue its future strategic decisions, or that, if additional debt or equity financing is available, it will be on terms acceptable to the Group given, for example in the context of debt financing, the limited amount of cash reserves the Group currently has.

More generally, the Group may not be able to generate sufficient cash flows or finance its activities in the longer term if it is unable to raise additional capital. The Group's inability to access sufficient capital for its operations may have a material adverse effect on its business, financial condition, results of operations and prospects.

1.3.  The Group's operation and success depends on its ability to explore, appraise and develop oil and gas resources, in particular fractured basement reservoirs, that are economically recoverable

The Group's long-term commercial success depends on its ability to explore, appraise, develop and commercially produce oil and gas resources. Future increases in the Group's resources or conversion of any of them into reserves will depend not only on its ability to explore, appraise and develop its existing assets but also on its ability to select and acquire suitable additional assets either through awards at licensing rounds or through acquisitions. From time to time the Group may submit applications for further licences in the UKCS. However, there can be no assurance that the Group will be awarded such licences, that the Group will accept such licences (if so awarded) or that the Group will be able to commercially develop the assets which are the subject of such licences.

There are many reasons why the Group may not be able to find or acquire oil and gas reserves or resources or develop them for commercially viable production. For example, the Group may be unable to negotiate commercially reasonable terms for its acquisition, appraisal, development or production activities. Factors such as adverse weather conditions, natural disasters, equipment or services shortages, procurement delays or difficulties arising from the political, environmental and other conditions in the areas where the reserves or resources are located or through which the Group's products are transported may increase costs and make it uneconomical to develop potential reserves or resources. The Group is exploring in remote geographical areas with a lack of existing infrastructure, where environmental conditions are challenging and costs can be high. The costs of drilling, completing and operating wells is often uncertain. As a result, the Group may incur cost overruns or may be required to curtail, delay or cancel drilling operations because of many factors, including unexpected drilling conditions, unforeseeable operating problems, irregularities in geological formations, equipment failures or accidents, adverse weather conditions, compliance with environmental regulations, governmental requirements and shortages and delays in the availability of drilling rigs and the delivery of equipment. Without successful acquisition or exploration activities, the Group's resources, production and revenues (if achieved) will decline. There is no assurance that the Group will discover, acquire or develop further commercial quantities of hydrocarbons.

In particular, the Company is an oil and gas exploration company focused on fractured basement reservoirs. Although the occurrence of naturally fractured basement reservoirs has been known within the oil and gas industry for a number of years, few of these reservoirs have historically been optimally exploited or exploited at all. Fractured basement reservoirs, where permeability is limited to the fractured reservoirs (Type 1 fractured basement reservoirs), which are the type of fractured basement reservoirs the Company is exploring, are more difficult and expensive to evaluate in the exploration and appraisal phase than sandstone reservoirs due to, amongst other factors, their heterogeneous nature and the difficulty in quantifying fluid distributions (water and oil) due to the inability to apply traditional wireline water saturation techniques to a Type 1 fractured basement reservoir. Although there have been recent advances in subsurface data acquisition technology, including 3D seismic, challenges remain in locating and identifying fractures determining the size and shape of drainage area, mapping formation water distribution and determining the precise location in which to drill. The techniques presently available to engineers and geologists to identify the existence and location of hydrocarbons are not infallible. Personal subjective judgement of engineers and/or geologists is involved in the selection of any prospect for drilling.

In addition, there can be no assurance that the Group will be able to develop its resources for commercial viable production. Such challenges and the failure to develop its resources for commercial viable production could have a material adverse effect on the Group's business, financial condition, results of operations and prospects.

1.4.  The Group's operations are dependent on the availability of drilling and other equipment and independent contractors

As described in paragraph 1.16 below, if the Company does not exercise its option under the Rig Contract Amendments to use the Rig to drill a back-to-back well this year, there is a risk that the Company will be unable to obtain a suitable rig to drill the second well between April and September 2017, or that there will be a delay before the Company is able to obtain a suitable rig. 

More generally, the Group's operations are dependent on the availability of rigs, other drilling equipment and offshore services, including third party services in the UKCS. The Group contracts or leases services and equipment from third party providers and suppliers. Such equipment and services may be scarce and may not be readily available at the times and places required and/or the specific service providers that the Group wishes to engage with may not be available at the relevant times. In addition, different types of fields require different types of rigs - the availability of which is, amongst other things, linked to the rig specifications. Even where the Group has secured rigs under a contract, the rigs will usually only be available for use after the current user has finished its drilling programme. If there are delays in the completion of the user's current drilling programme, the Group could be delayed in procuring contracted rigs. Under the terms of its licences, the Group may have a commitment to drill within a certain time frame. The Group, therefore, risks losing licences if it is delayed in obtaining, or fails to obtain, rigs and thus fails to meet its drilling commitments.

The scarcity of third party services and equipment (specifically, rigs and long lead items) as well as any increases in their costs, together with the failure of a third party provider or supplier to perform its contractual obligations, or an inability to achieve a commercially viable contract with a third party provider or supplier could delay, restrict or lower the profitability and viability of the Group's activities. This could have a material adverse effect on the Group's business, financial condition, results of operations and prospects.

In particular, the EPS phase requires the construction and/or commissioning of production facilities and other forms of infrastructure on Lancaster. The Group's ability to proceed with and deliver the EPS phase is dependent on the Company being funded and able to contract third party services and equipment (specifically, rigs and long lead items) to ensure that the fabrication, modification, construction, delivery, transportation, installation and commissioning of all materials and equipment required for the EPS phase can be undertaken in a timely and cost effective manner. Prior to the Company sanctioning the EPS phase, any delay or increase in costs, or failure by a third party provider or supplier to perform its contractual obligations, could lower the profitability of the EPS phase and restrict the Company's ability to fund and/or approve the EPS phase. After sanction of the EPS phase, any such delay or increase in costs could delay the commencement of production of hydrocarbons from EPS and lower the overall profitability of the EPS phase, consequently restricting the Company's future revenues and operational activities.

1.5.  The Assets are located in areas subject to variable weather conditions which may restrict the periods in which the Group can implement its drilling programme

The operations of the Group with respect to the assets have historically been seasonal due to weather conditions affecting all of the assets. In particular, implementation of its drilling programme in the West of Shetland may be restricted outside the April to September period due to the adverse weather conditions outside of these months. In particular, the Group is exposed to a higher risk of non-production time as a result of waiting on weather during the winter months. Accordingly, weather conditions could impede the Group's drilling and testing operations for its assets and otherwise have a material adverse effect on its business, financial condition, results of operations and prospects.

1.6.  Treatment of produced water and associated gas could result in significant financial and technical costs

There may be unforeseen liabilities resulting from the associated gas produced from the oil wells of the Group. The production of such associated gas may result in the Company incurring significant financial and technical costs to meet its environmental liabilities. Any associated gas produced from the oil wells of the Group will need to be either exported, re-injected into a reservoir or flared. Accordingly, excess gas content could adversely impact project economics and profitability. Controls on the quantities of oil that can be discharged in process waters in the course of offshore operations have been implemented in the UK by the Offshore Petroleum Activities (Oil Pollution Prevention and Control) Regulations 2005 (as amended). Under these Regulations, all releases and discharges of oil are prohibited unless in accordance with the terms of and conditions attached to a permit. The Secretary of State may attach conditions to such permits which are calculated to ensure that the concentration, frequency, quantity, location or duration of any discharge is subject to appropriate restrictions, and that appropriate measures are taken to minimise pollution, including the appropriate use of technology to limit discharges.

In particular, the EPS phase on Lancaster is being carried out to evaluate sustainable and commercial reservoir performance over an extended period of time, including whether or not the volume of water produced (if any) can be responsibly managed in a cost effective manner. There is a risk, following the commencement of production of hydrocarbons at Lancaster during the EPS phase, that there is a greater than anticipated volume of produced water which cannot be managed in a cost effective and operationally responsible manner, and that the level of production from the EPS phase of Lancaster may be restricted and/or result in a temporary or permanent cessation of production of hydrocarbons from Lancaster. Further, any such curtailment of production at Lancaster as a consequence of excessive water production during production operations may have a material adverse effect on the Group's ability to fund and/or proceed with the development of the Greater Lancaster Area.

1.7.  The Group may be unable to acquire, retain, convert or renew the licences, permits and other regulatory approvals necessary for its operations

The ability of the Group to develop and exploit oil and gas resources depends on the Group's continued compliance with the obligations of its current licences and the Group's ability to move into the production phase of each licence. The Group depends on licences whose grant and renewal is subject to the discretion of the relevant governmental authorities and cannot be assured. There can also be no assurance that the Group will be able to identify suitable licensing acquisition opportunities or that the Group will be able to make such acquisitions on appropriate terms.

It is also possible that the Group may be unable or unwilling to comply with the terms or requirements of the licences it holds, including the meeting of specified deadlines for prescribed tasks and other obligations set out in the work programmes attached to the licences. Non-compliance with these obligations may lead to revocation of the licence. Whilst in certain circumstances the relevant authority may agree to an extension of time to enable the licensee to agree to the obligation in question there is no guarantee that an extension will be given.

The Group, therefore, risks losing licences if it is delayed in obtaining, or fails to obtain, rigs and thus fails to meet its drilling commitments.

1.8.  The Group's success is dependent upon its ability to attract and retain key personnel

The Group's success depends, to a large extent, on certain of its key personnel having expertise in the areas of exploration and development, operations, engineering, business development, oil and gas marketing, finance and accounting. The Group was founded by Dr Trice and since then a number of key people have been retained by the Group and these people are influential to the development and continued operation of the Group's business. The loss of the services of any key personnel (in particular Dr Trice) could have a material adverse effect on the Group.

The Group does not maintain, nor does it plan to obtain, insurance against the loss of any of its key personnel. In addition, the competition for qualified personnel in the oil and gas industry is intense. There can be no assurance that the Group will be able to continue to attract and retain all personnel necessary for the development and operation of its business.

1.9.  The Group may be unable to manage the growth in its operations

The Group has experienced significant growth and development in a relatively short period of time. Management of that growth requires, among other things: implementation and continued development of financial, management and other controls, including financial and reporting procedures, and information technology systems; and hiring, training, motivating and retaining quality personnel. Failure to successfully manage the Group's business and expected growth and development could have a material adverse effect on the Group's business, financial condition, results of operations and prospects. Further, no assurance can be given that the Group's investment strategies can be implemented in the future.

1.10.              Fluctuations in currency exchange rates may materially and adversely affect the Group's financial condition and results of operation

The drilling rig contracts and certain other drilling equipment and offshore services contracts that the Group enters into are denominated in US dollars. In addition, the Group's cash and cash equivalents are predominately held in sterling although the Group holds cash balances in US dollars to meet actual or expected commitments in that currency. As a result, the Company is potentially exposed to adverse fluctuations in the exchange rates between sterling and US dollars.

1.11.              Future litigation could adversely affect the Group's business, results of operations or financial condition

Damages and/or other remedies claimed under any litigation are difficult to predict, and may be material. The outcome of such litigation may materially impact the Group's business, financial condition, results of operations and prospects. While the Group will assess the merits of each lawsuit and defend itself accordingly, it may be required to incur significant expenses or devote significant resources to defending itself against such litigation. In addition, adverse publicity surrounding such claims may have a material adverse effect on the Group's business, financial condition, results of operations and prospects.

1.12.              The Group cannot accurately predict its future decommissioning liabilities

The Group, through its licence interests, expects to assume certain obligations in respect of the decommissioning of its wells, fields and related infrastructure. These liabilities are derived from legislative and regulatory requirements concerning the decommissioning of wells and production facilities and require the Group to make provisions for and/or underwrite the liabilities relating to such decommissioning. It is difficult to accurately forecast the costs that the Group will incur in satisfying its decommissioning obligations. When its decommissioning liabilities crystallise, the Group will be liable either on its own or jointly and severally liable for them with any other former or current partners in the field. In the event that it is jointly and severally liable with other partners and such partners default on their obligations, the Group will remain liable and its decommissioning liabilities could be magnified significantly through such default. Any significant increase in the actual or estimated decommissioning costs that the Group incurs may adversely affect its financial condition.

1.13.              The Group may farm down part of its licence interests and may rely on third parties to operate such licence interests and/or certain wells

In due course the Group may, subject to Oil and Gas Authority consent, farm down part of its licence interests to third parties, some of which may act as operator. Operating agreements with third party operators typically provide for a right of consultation or consent in relation to significant matters and generally impose standards and requirements in relation to the operator's activities. However, in the event that the Group does not act as operator in respect of certain of its licence interests and/or wells, the Group will generally have limited control over the day-to-day management or operations of those assets and will therefore be dependent upon the third party operator. A third party operator's mismanagement of an asset may result in significant delays or materially increased costs to the Group. The Group's return on assets operated by others will therefore depend upon a number of factors that may be outside the Group's control, including the timing and amount of capital expenditures, the operator's expertise and financial resources, the approval of other participants, the selection of technology and risk management practices.

Generally, failure by any licence partner (whether the operator or otherwise) to fulfil its financial obligations may increase the Group's exposure related to the licence in question. Any significant increase in costs as a consequence of joint and several liabilities may materially adversely affect the financial condition of the Group.

1.14.              Reliance on third party infrastructure

The Group's activities and business model of field development are dependent upon the availability of third party infrastructure which if it fails, or is not, or ceases to be, available on reasonable commercial terms, or at all, may result in delays to field development and production or impossibility of field development and production which would result in delayed, lower than expected or no cash generation by the Group. This would have a material adverse effect on the Group's business, prospects, financial condition and operations.

1.15.              The Group will incur Rig costs for the proposed Lincoln well if Shareholders do not approve the Fundraising and the Lincoln well cannot be drilled

On 19 October 2016, the Company exercised its option under the Rig Contract Amendments to use the Rig to drill one well on the Lincoln prospect.  This is not conditional on Shareholders approving the Fundraising or on the Fundraising proceeding.  Accordingly, if Shareholders do not approve the Fundraising or the Fundraising does not otherwise proceed, the Company is likely to have to terminate the contracted use of the Rig.  In these circumstances, the Company will incur an early termination fee of approximately USD7.5 million.

1.16.              The Group may incur additional costs in securing a new rig if the option to use the Rig to drill a second well is not exercised by 21 November 2016 and may be unable to secure a suitable new rig.

If the Company does not exercise its option, which expires on 21 November 2016, under the Rig Contract Amendments to use the Rig to drill a back-to-back well on Warwick or on a Rona Ridge prospect which has a risk profile no worse than that of Warwick, there may be additional costs involved in securing a new rig to drill the second well between April and September 2017. In the event that there are such additional costs, there is no certainty that the Company will be able to fund those additional costs from its existing resources or will be able to raise additional funds to cover such increase in costs. There is also a risk that, in these circumstances, the Company will be unable to obtain a suitable rig to drill the second well between April and September 2017 or that there will be a delay before the Company is able to obtain a suitable rig.   

2.    RISKS RELATED TO THE OIL AND GAS INDUSTRY

2.1.  A material decline in oil and gas prices may adversely affect the Group's results of operations and financial condition, and prices may not return to levels seen in recent years

Both oil and gas prices can be volatile and subject to fluctuation in response to relatively minor changes in the supply of, and demand for, oil and gas, market uncertainty and a variety of additional factors that are beyond the control of the Group. Historically and indeed recently, oil and gas prices have fluctuated widely for many reasons, including global and regional supply and demand; political, economic and military developments in oil and gas producing regions, particularly the Middle East; domestic and foreign governmental regulations and actions; global and regional economic conditions and weather conditions and natural disasters. It is impossible to predict accurately future oil and gas price movements. Accordingly, oil and gas prices may not remain at their current levels. Although the Group is not yet an active producer of oil and gas, declines in oil and gas prices may adversely affect market sentiment and as a consequence the market price of the Ordinary Shares and furthermore affect the Group's cash flow, liquidity and profitability, and limit the amount of oil and gas that the Group could potentially market in the future.

Although oil and gas prices have fallen significantly since mid 2014, they may not return to levels previously seen within any foreseeable timeframe.

The Group can give no assurance that future prices for oil and gas will be sufficient to generate an economic return. Any further decline in such prices could result in reduced cash flows from the Group's assets and a reduction in the valuation of the Group's assets, which in turn may result in a reduction in the debt available to the Group. This would have a material adverse effect on the Group's financial condition, business, prospects and results of operations.

2.2.  Conservation measures and technological advances could reduce demand for oil and natural gas

Fuel conservation measures, alternative fuel requirements, increasing consumer demand for alternatives to oil and natural gas, technological advances in fuel economy and energy-generation devices could reduce demand for oil and natural gas. The impact of the changing demand for oil and natural gas services and products may have a material adverse effect on the Group's business, financial condition and results of operations.

2.3.  Estimation of reserves, resources and production profiles is not exact

The estimation of oil and gas reserves, and their anticipated production profiles, involves subjective judgements and determinations based on a number of variable factors and assumptions, such as expected reservoir characteristics based on geological, geophysical and engineering assessments, future production rates based on historical performance and expected future operating investment activities, future oil and natural gas prices and quality differentials, production rates, ultimate reserve recovery, timing and amount of capital expenditures, marketability of oil and gas, royalty rates, the assumed effects of regulation by governmental agencies and future operating costs, all of which may vary materially from actual results. They are not exact determinations and are inherently uncertain. In addition, these judgements may change based on new information from production or drilling activities or changes in economic factors, as well as from developments such as acquisitions and disposals, new discoveries and extensions of existing fields and the application of improved recovery techniques. Published reserve estimates are also subject to correction for errors in the application of published rules and guidance.

The reserves, resources and production profile data contained in this document are estimates only and should not be construed as representing exact quantities. They are based on production data, prices, costs, ownership, geophysical, geological and engineering data, and other information assembled by the Group. The estimates may prove to be incorrect and potential investors should not place undue reliance on the forward-looking statements contained in this document concerning the Group's reserves and resources or production levels.

If the assumptions upon which the estimates of the Group's reserves, resources or production profiles have been based prove to be incorrect, the Group may be unable to recover and produce the estimated levels or quality of oil and gas set out in this document and this may have a material adverse effect on the Group's business.

2.4.  The Group may miss out on operational opportunities if it is unable to successfully co-ordinate its exploration projects

The Group's operational projects require key asset delivery personnel to be resourced and the co-ordination of a number of activities including obtaining seismic data, carrying out subsea surveys and securing rig capacity for the necessary drilling. There are long lead times to arrange these activities and if the Group fails to successfully obtain the necessary personnel in time or to co-ordinate the timely delivery or completion, as the case may be, of any of these activities, it may miss out on operational opportunities or may be required to incur additional expenditure. The Group's exploration projects also require the procurement of long lead items such as rig contracts, well heads, well test equipment and specialist logging tools. A failure to procure these items in a timely manner may delay operations and increase expenditure.

2.5.  Exploration and appraisal projects do not necessarily result in a profit on the investment or the recovery of costs

Exploration and appraisal activities are capital intensive and inherently uncertain in their outcome. The Group's oil and gas exploration and appraisal projects may involve unprofitable efforts, either from dry wells or from wells that are productive but do not produce sufficient net revenues to return a profit after development, operating and other costs. Completion of a well does not guarantee a profit on the investment or recovery of the costs associated with that well. In addition, drilling hazards or environmental damage could greatly increase the cost of operations, and various field operating conditions may adversely affect the production from successful wells. These conditions include delays in obtaining governmental approvals or consents, shut-ins of connected wells resulting from extreme weather conditions, insufficient storage or transportation capacity, adverse geological conditions and technical and operational difficulties as a result of the water depth and strata depth of the drilling environment (including operational difficulties in avoiding drilling fluid losses and preventing substantial formation damage during drilling) and other factors. While diligent well supervision and effective maintenance operations can contribute to maximising production rates over time, production delays and declines from normal field operating conditions cannot be eliminated and may adversely affect the Group's business, financial condition, results of operations and prospects.

2.6.  The Group's operations are subject to a number of risks and hazards that may result in material losses in excess of insurance proceeds

Oil and gas exploration, development and production operations are inherently risky and hazardous. Risks typically associated with these operations include unexpected formations or pressures, premature decline of reservoirs, drilling damage (which can lead to reduced productivity), early water encroachment and the intrusion of water into producing formations. Losses resulting from the occurrence of any of these risks could have a material adverse effect on the Group's business, financial position, results of operations and prospects. Hazards typically associated with offshore oil and gas exploration, development and production operations include fires, explosions, blowouts, marine perils (including severe storms and other adverse weather conditions which may restrict the periods in which the Group can implement its drilling programme), vessel collisions, gas leaks and oil spills, each of which could result in substantial damage to oil and gas wells, production facilities, other property and the environment or in personal injury or could result in government intervention which could in turn negatively impact on the Group's operations. Oil and gas installations are also known to be likely objects, and even targets, of military operations and terrorism.

Although the Group will exercise due care in the conduct of its business and obtains insurance prior to drilling in accordance with industry standards to cover certain of these risks and hazards, insurance is subject to limitations on liability and, as a result, may not be sufficient to cover all of the Group's losses. In addition, the risks or hazards associated with the Group's operations may not in all circumstances be insurable or, in certain circumstances, the Group may elect not to obtain insurance to deal with specific events due to the high premiums associated with such insurance or for other reasons. The occurrence of a significant event against which the Group is not fully insured, or the insolvency of the insurer of such event, could have a material adverse effect on the Group's business, financial condition, results of operations and prospects.

2.7.  The Group's business is subject to government regulation with which it may be difficult to comply and which may change

The Group's oil and gas operations are principally subject to the laws and regulations of England (and in certain instances Scotland), including those relating to health and safety, the environment and the production, pricing and marketing of oil and gas. In addition, the Group will be subject to laws affecting taxation, royalties and duties. In order to conduct its operations in compliance with these laws and regulations, the Group must obtain licences and permits from various government authorities. The grant, continuity and renewal of the necessary approvals, permits, licences and consents, including the timing of obtaining such licences and the terms on which they are granted, are subject to the discretion of the relevant governmental and local authorities in the United Kingdom and cannot be assured. In addition, the Group may incur substantial costs in order to maintain compliance with these existing laws and regulations and additional costs if these laws are revised or if new laws affecting the Group's operations are passed. No assurance can be given that relevant governments and local authorities will not revoke, or significantly alter the conditions of, the applicable exploration and development approvals, permits, licences and consents or that such exploration and development approvals, permits, licences and consents will not be challenged or impugned by third parties.

2.8.  The Group's operations expose it to significant compliance costs and liabilities in respect of EHS matters

The Group's operations and assets are affected by numerous laws and regulations concerning EHS matters including, but not limited to, those relating to discharges of hazardous substances into the environment, the handling and disposal of waste and the health and safety of employees. The technical requirements of these laws and regulations are becoming increasingly complex, stringently enforced and expensive to comply with and this trend is likely to continue. Any failure to comply with EHS laws and regulations may result in regulatory action (which strict, joint and several liability can include statutory orders requiring steps to be taken or prohibiting certain operations), the imposition of fines or the payment of compensation to third parties. All of these liabilities and any other regulatory actions could have a material adverse effect on the Group's business, financial condition, results of operations and prospects.

2.9.  A violation of EHS requirements and the occurrence of any accidents could disrupt the Group's operations and increase operating costs

EHS authorities such as Department for Business, Energy & Industrial Strategy, the Health and Safety Executive and the Offshore Safety Directive Regulator have extensive enforcement powers under EHS laws. These powers extend to statutory notices to require operational steps and to prohibit certain activities or operations until compliance is achieved. A violation of EHS laws or failure to comply with the instructions of the relevant EHS authorities could therefore lead to, among other things, a temporary shut down of all, or a portion of, the Group's facilities and the imposition of costly compliance procedures. If EHS authorities shut down all, or a portion of, the Group's facilities or impose costly compliance measures, the Group's business, financial condition, results of operations and prospects would be materially and adversely affected.

The nature of the Group's operations creates a risk of accidents and fatalities among its workforce, and the Group may be required to pay compensation or suspend operations as a result of such accidents or fatalities, which could have a material adverse effect on the Group's business, financial condition, results of operations and prospects.

2.10.              The Group operates in a competitive industry

The Group competes for scarce resources with numerous other participants, including major international oil and gas companies, in the search for and the acquisition of oil and gas assets, and in the marketing of oil and gas. The Group's ability to increase resources and create reserves in the future will depend not only on its ability to exploit and develop its present assets but also on its ability to select and acquire suitable producing assets or prospects for exploratory or appraisal drilling. A number of the Group's competitors have substantially greater financial and personnel resources. Larger and better capitalised competitors may be in a position to outbid the Company for particular licences and such competitors may be able to secure rigs for drilling operations preferentially to the Company. These competitors may also be better able to withstand sustained periods of unsuccessful drilling. Larger competitors may be able to absorb the burden of any changes in law and regulations more easily than the Company, which would adversely affect its competitive position. In addition, many of the Group's competitors have been operating for a much longer time and have demonstrated the ability to operate through industry cycles.

The Group's competitors have strong market power as a result of several factors, including the diversification and reduction of risk, including geological, price and currency risks; greater financial strength facilitating major capital expenditures; greater integration and the exploitation of economies of scale in technology and organisation; strong technical experience; increased infrastructure and reserves and strong brand recognition. In addition, there is an increased risk of competition should these companies decide to expand their operations into exploiting fractured basement reservoirs. Due to this competitive environment, the Group may be unable to acquire attractive, suitable assets, licences or prospects on terms that it considers acceptable. As a result, the Group's revenues may be adversely affected, thereby materially and adversely affecting its business, financial condition, results of operations and prospects.

Generally, risk is reduced through diversification. Diversification is maximised for example by drilling a large number of wells on a large number of exploration prospects having differing geological characteristics, in differing regulatory jurisdictions. The Group's current strategy is heavily focussed on offshore UK, and therefore has limited diversification in terms of the jurisdictions that it operates in.

2.11.              The Group's tax liability could increase substantially as a result of changes in, or new interpretations of, tax laws in the United Kingdom

The Group is subject to taxation in the United Kingdom where it is faced with increasingly complex tax laws. The amount of tax the Group pays could increase substantially as a result of changes in, or new interpretations of, these laws, which could have a material adverse effect on its liquidity and results of operations. During periods of high profitability in the oil and gas industry, there are often calls for increased or windfall taxes on oil and gas revenue. Taxes have increased or been imposed in the past and may increase or be imposed again in the future. Levels of taxation relief may also decrease or be no longer available to the Group due to changes in, or new interpretations of, tax laws. In addition, taxing authorities could review and question the Group's tax returns leading to additional taxes and penalties which could be material. The tax treatment of decommissioning expenditure (where relevant) could also have a material impact on the economics of the Group's assets.

2.12.              Macroeconomic risks could result in an adverse impact on the Group's financial condition

Global economic slowdowns may adversely affect the Group's major operations. The links between economic activities in different markets and sectors are complex and depend not only on direct drivers such as the balance of trade and investment between countries, but also on domestic monetary, fiscal and other policy responses to address macroeconomic conditions.

2.13.              Risk of crime and corruption

Oil and gas companies have been known to experience high levels of criminal activity and governmental and business corruption. They may be particular targets of criminal or terrorist actions. Criminal, corrupt or terrorist action against the Group and its directly or indirectly held assets or facilities could have a material adverse impact on the Group's business, results of operations or financial condition. In addition, the fear of criminal or terrorist actions against the Group could have an adverse effect on the ability of the Group to adequately staff and/or manage its operations or could substantially increase the costs of doing so.

The Company is not aware of any current or threatened investigations relating to or any adverse findings against the Company or any of its directors, employees, officers or joint venture partners. If any such investigations are made and substantiated in future against the Company, its directors, officers, employees or potentially its joint venture partners, or such persons are found to be involved in corruption or other illegal activity, this could result in criminal or civil penalties, including substantial monetary fines, against the Company, its directors, officers or employees. Any such findings in the future could damage the Company's reputation and its ability to do business and could adversely affect its financial condition and results of operations. Furthermore, alleged or actual involvement in corrupt practices or other illegal activities by any joint venture partners of the Company, or others with whom the Company directly or indirectly conducts business, could also damage the Company's reputation and business and adversely affect the Company's financial condition, results of operations and prospects.

2.14.              The Group is subject to cyber risks

The Group is at risk of financial loss, reputational damage and general disruption from a failure of its IT systems or an attack for the purposes of espionage, extortion, terrorism or to cause embarrassment. Any failure of, or attack against, Hurricane's IT systems may be difficult to prevent or detect, and Hurricane's internal policies to mitigate these risks may be inadequate or ineffective. Hurricane may not be able to recover any losses that may arise from a failure or attack.

2.15.              The Group faces risks relating to the UK's membership of the European Union and the possible future independence of Scotland

A referendum was held in the UK on 23 June 2016 on whether the UK will remain a member of the European Union, the result of which was a vote to leave. The Group faces risks associated with the potential uncertainty during the period following the referendum. The consequences that may flow from exiting the European Union are at this stage uncertain. Leaving the European Union could materially change the legal and regulatory framework that would be applicable to the Group's operations in the future. It is not possible to predict whether the consequences of these uncertainties will have a positive or negative impact on the Group's business, financial condition, results of operations and prospects.

There will also be potential uncertainty in the case of any future vote on independence in Scotland, for example resulting from the decision in the UK referendum on 23 June 2016 to leave the European Union. It is uncertain whether the consequences of independence in Scotland would have a positive or negative impact on the Group's business and prospects, for example on the Group's ability to obtain services from Scottish companies and on the economic rates at which the Group may be able to deliver hydrocarbons into Scotland in future.

3.    RISK FACTORS RELATING TO THE OPEN OFFER AND THE ORDINARY SHARES

3.1.  Future sales of Ordinary Shares could adversely affect the market price of the Ordinary Shares

Sales of additional Ordinary Shares into the public market following the Open Offer could adversely affect the market price of the Ordinary Shares if there is insufficient demand for the Ordinary Shares at the prevailing market price.

3.2.  If Resolutions 1 and 2 are not passed, the Company will not be able to proceed with the Open Offer in the form currently envisaged

Resolution 1 to be proposed at the General Meeting will be proposed as an ordinary resolution and, in order to be passed, will require the support of a simple majority of the total voting rights of Shareholders who (being entitled to do so) vote on such resolution at the General Meeting. Resolution 2 to be proposed at the General Meeting will be proposed as a special resolution and, to be passed, will require the support of not less than 75 per cent. of the total voting rights of Shareholders who (being entitled to do so) vote on such resolution at the General Meeting. The Open Offer is conditional, inter alia, on the passing of Resolutions 1 and 2.

In the event that Resolutions 1 and 2 are not passed, the Company will not be able to proceed with the Fundraising, with the result that the anticipated net proceeds of the Fundraising will not become available to fund proposed upcoming expenditure and achieve the objectives currently pursued by the Board. The Group's business plan and growth prospects may be adversely affected as a result.

3.3.  Holders of Existing Ordinary Shares who do not acquire Open Offer Shares pursuant to the Open Offer will experience a further dilution of their percentage ownership of the Company's Ordinary Shares

The proportionate ownership and voting interest in the Company of Shareholders not participating in the Placing will be reduced pursuant to the Placing. Shareholders' proportionate ownership and voting interest in the Company will be further reduced pursuant to Open Offer to the extent that Shareholders do not take up the offer of Open Offer Shares under the Open Offer. Subject to certain exceptions, Shareholders in the United States and other Restricted Jurisdictions will not be able to participate in the Open Offer.

3.4.  There is no public market for the Ordinary Shares in the United States or elsewhere outside the United Kingdom

Neither the Placing nor the Open Offer will be registered under the US Securities Act or the relevant laws of any state or other jurisdiction of the United States or those of any of the Restricted Jurisdictions and New Ordinary Shares may not be resold, transferred or delivered, directly or indirectly, within such jurisdictions except pursuant to an applicable exemption from the registration requirements of the US Securities Act and in compliance with any other applicable security laws. The Ordinary Shares have not been registered under the US Exchange Act and are not listed on any US securities exchange or interdealer quotation system. The Company has no intention to file any such registration statement or list the Ordinary Shares on any securities exchange or interdealer quotation system (other than AIM). As a consequence, an active trading market is not expected to develop for the Ordinary Shares outside the United Kingdom and investors outside the United Kingdom may not be able to sell the Ordinary Shares or achieve an acceptable price. As a prospective purchaser, you should be aware that you may be required to bear the financial risks of this investment for an indefinite period of time.

3.5.  Pre-emption rights may not be available to Overseas Shareholders of Ordinary Shares

In the case of certain increases in the Company's issued share capital, holders of Ordinary Shares have the benefit of statutory pre-emption rights to subscribe for such shares, unless Shareholders waive such rights by a resolution passed at a Shareholders' meeting, or in certain other circumstances. United States and other overseas holders of shares are very likely to be excluded from exercising any such pre-emption rights they may have, unless a registration statement under the US Securities Act is effective with respect to those rights, or an exemption from the registration requirements under the US Securities Act is available. The Company is unlikely to file any such registration statement, and the Company cannot assure prospective investors that any exemption from those registration requirements would be available to enable United States or other overseas shareholders to exercise such pre-emption rights or, if available, that the Company will utilise any such exemption.

3.6.  Shareholders may be exposed to fluctuations in currency exchange rates

The Existing Ordinary Shares and the New Ordinary Shares are priced in pounds sterling, and will be quoted and traded in pounds sterling. Accordingly, Shareholders resident in non-UK jurisdictions are subject to risks arising from adverse movements in the value of their local currencies against pounds sterling, which may reduce the value of the Ordinary Shares. This is particularly relevant given the uncertainty around the UK's exit from the European Union.

3.7.  The ability of Overseas Shareholders to bring actions or enforce judgements against the Company or the Directors may be limited

The ability of an Overseas Shareholder to bring an action against the Company may be limited under law. The Company is a public limited company incorporated in England and Wales. The rights of holders of Ordinary Shares are governed by English law and by the Articles. These rights differ from the rights of shareholders in typical US corporations and some other non-UK corporations. An Overseas Shareholder may not be able to enforce a judgement against the Company, the Group or some or all of the Directors and executive officers. Consequently, it may not be possible for an Overseas Shareholder to effect service of process upon the Company or the Directors and executive officers within the Overseas Shareholder's country of residence or to enforce against the Company or the Directors and executive officers within the Overseas Shareholder's country of residence or to enforce against the Company or the Directors and executive officers' judgements of courts of securities laws. There can be no assurance that an Overseas Shareholder will be able to enforce any judgements in civil and commercial matters or any judgements under the securities laws of countries other than the UK against the Company or the Directors or executive officers who are residents of the UK or countries other than those in which judgement is made. In addition, English or other courts may not impose civil liability on the Company or the Directors or executive officers in any original action based solely on foreign securities laws brought against the Company or the Directors in a court of competent jurisdiction in England or other countries.

3.8.  The New Ordinary Shares may not be suitable as an investment

The New Ordinary Shares may not be a suitable investment for all the recipients of this document. Before making a final decision, investors are advised to consult an independent investment adviser authorised under the FSMA who specialises in advising on the acquisition of shares and other securities. The value of the New Ordinary Shares and any income received from them can go down as well as up and investors may get back less than their original investment.

3.9.  The Company's securities are traded on AIM rather than the Official List

The Existing Ordinary Shares are, and the New Ordinary Shares will be, traded on AIM rather than the Official List. An investment in shares traded on AIM may carry a higher risk than those listed on the Official List. The market price of the Ordinary Shares may be subject to wide fluctuations in response to many factors, including variations in the operating results of the Group, divergence in financial results from analysts' expectations, changes in estimates by stock market analysts, general economic conditions, overall market or sector sentiment, legislative changes in the Group's sector and other events and factors outside of the Group's control. Stock markets have from time to time experienced severe price and volume fluctuations, a recurrence of which could adversely affect the market price for the Ordinary Shares. Prospective investors should be aware that the value of the Ordinary Shares may be volatile and could go down as well as up, and investors may therefore not recover their original investment especially as the market in the Ordinary Shares may have limited liquidity. Admission to AIM should not be taken as implying that there will be a liquid market for the Ordinary Shares.

3.10.              The Company's share price fluctuates

The market price of the Ordinary Shares could be subject to significant fluctuations due to a change in sentiment in the market regarding the Ordinary Shares (or securities similar to them). Such risks depend on the market's perception of the likelihood of success of the Fundraising, and/or may occur in response to various facts and events, including any variations in the Group's operating results, business developments of the Group and/or its competitors. Stock markets have, from time to time, experienced significant price and volume fluctuations that have affected the market prices for securities and which may be unrelated to the Group's operating performance or prospects. Furthermore, the Group's operating results and prospects from time to time may be below the expectations of market analysts and investors. Any of these events could result in a decline in the market price of the Ordinary Shares and investors may, therefore, not recover their original investment.

Any sale of Ordinary Shares could have an adverse effect on the market price of the Ordinary Shares. Furthermore, it is possible that the Company may decide to offer additional shares in the future. An additional offering could also have an adverse effect on the market price of the Ordinary Shares.

3.11.              The Company does not plan on making dividend payments in the foreseeable future

There can be no assurance as to the level of future dividends. The declaration, payment and amount of any future dividends of the Company are subject to the discretion of the Directors and will depend on, among other things, the Company's results of operations and financial condition, its future business prospects, any applicable legal or contractual restrictions and availability of profits. A dividend may never be paid and, at present, there is no intention to pay a dividend.

3.12.              Major shareholder Kerogen Investor is able to exercise significant influence over matters requiring Shareholder approval

Kerogen Investor currently owns 29.9 per cent. in aggregate of the Existing Ordinary Shares.

As a result, Kerogen Investor is able to exercise a significant degree of influence over matters requiring Shareholder approval, including the election of Directors and significant corporate transactions. Kerogen Investor is participating in the Placing pro rata to its current shareholding in the Company.

The risks above do not necessarily comprise all those faced by the Company and are not intended to be presented in any assumed order of priority. The investment offered in this document may not be suitable for all of its recipients. Investors are accordingly advised to consult an investment adviser, who is authorised under the FSMA if you are resident in the United Kingdom or, if not, from another appropriate authorised independent financial adviser and who or which specialises in investments of this kind before making a decision to apply for New Ordinary Shares.

 

 

 


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