TIDMHUR
RNS Number : 3244B
Hurricane Energy PLC
20 September 2018
20 September 2018
Hurricane Energy plc
("Hurricane", the "Company", or the "Group")
Half-year Results 2018
Hurricane Energy plc, the UK based oil and gas company focused
on hydrocarbon resources in naturally fractured basement
reservoirs, is pleased to provide its 2018 interim report and
half-year results for the period ended 30 June 2018.
Dr Robert Trice, Chief Executive of Hurricane, commented:
"During the first half of 2018, Hurricane has been focussed on
the Lancaster Early Production System (EPS) development. I am
delighted to report that operations have progressed to plan and
within budget, allowing us to reiterate our first oil guidance of
H1 2019.
The two production wells have been completed, the turret mooring
system (TMS), subsea umbilical, risers and flowlines (SURF) have
been installed at the field, and the upgrade and life extension of
the Aoka Mizu FPSO is in its final stages in Dubai. Sea trials for
the Aoka Mizu are due to commence by the end of September, with
sailaway to follow shortly thereafter.
At 30 June 2018, the Company had $210.1 million in cash and
liquid investments, of which $178.6 million was unrestricted. With
the well completion, TMS installation and SURF installation phases
complete, we remain confident in becoming cash generative based on
existing funds. I'd like to acknowledge the outstanding
contributions of all our staff and contractors, and our Tier 1
contractors: Bluewater Energy Services, TechnipFMC, Petrofac and
Transocean, in delivering the operational progress that has allowed
us to reach this position.
As we noted in our 2017 Annual Report, the task in front of us
is to de-risk and monetise the substantial contingent and
prospective resources across all of our assets. The recently
announced farm-in by Spirit Energy (post period-end) to the Greater
Warwick Area (GWA) is a first step on this path. The transaction
accelerates the appraisal and initial development of the GWA and
frees up cash flow from the Lancaster EPS to further appraise and
develop the Greater Lancaster Area (GLA) and Whirlwind. We are
delighted to have agreed a development strategy with a like-minded
company which brings significant operating and financial capacity,
together with experience in fractured basement reservoirs.
Following this transaction, Hurricane's outlook for 2019 now
includes three GWA wells in addition to first oil in H1 from the
Lancaster EPS. The next steps on the GLA remain subject to data
obtained from the EPS. However, we believe that we will be able to
undertake a drilling campaign on the GLA in 2020/21, ahead of
planning for further development. We are entering a very exciting
time for the Company and its shareholders. I look forward to first
revenues and continued appraisal and development of our significant
Rona Ridge resource base next year."
2018 Interim results summary
Financial results
-- The Group's loss after tax for the first half of 2018 was
$75.1 million (H1 2017: $4.2 million), including a non-cash fair
value loss on the embedded derivative element of the convertible
bond of $70.2 million
-- Operating expenses for the period were $4.7 million (H1 2017: $6.0 million)
-- As at 30 June 2018, the Group had cash, cash equivalents and
liquid investments of $210.1 million (31 December 2017: $360.1
million). This includes $39.0 million of liquid investments held in
term deposits which mature within 12 months and $31.5 million held
in escrow accounts
-- The net decrease in cash, cash equivalents and liquid
investments in the period was $149.9 million (including the effects
of foreign exchange rate changes), the majority of which was
related to investment in the ongoing development of the Lancaster
EPS, with net cash outflow from operating activities of $2.7
million
Operational and corporate developments/outlook
-- Lancaster EPS first oil guidance maintained at H1 2019
-- Significant Lancaster EPS development hurdles achieved, including:
o Delivery of TMS and SURF
o Completion of the two production wells
o Conclusion of the offshore installation programme which
included installation of TMS and SURF
o Final stages of Aoka Mizu life extension and upgrade works
reached in Dubai, with sea trials to commence by the end of
September and sailaway anticipated shortly thereafter
-- Spirit Energy farm-in to GWA completed
o Agreed five-phase work programme targeting development with
500 million barrels of reserves, significantly accelerating
development of the GWA
o Up to $387 million in carry
o Hurricane fully carried on first phase of up to $180.6
million, including the drilling of three wells on the GWA in
2019
-- Transocean Leader rig contracted for the three 2019 GWA wells, to begin in Q1
Contacts:
Dr Robert Trice (Chief Executive
Hurricane Energy Officer) / Alistair Stobie
plc (Chief Financial Officer) +44 (0)1483 862 820
Nominated Adviser and Joint
Corporate Broker
Stifel Nicolaus Callum Stewart / Nicholas
Europe Limited Rhodes / Ashton Clanfield +44 (0)20 7710 7600
Morgan Stanley & Joint Corporate Broker
Co. International Andrew Foster / Tom Perry
plc / Alex Smart +44 (0)20 7425 8000
Vigo Communications Public Relations +44 (0)20 7390 0230
Patrick d'Ancona / Ben Simons Hurricane@vigocomms.com
About Hurricane
Hurricane was established to discover, appraise and develop
hydrocarbon resources associated with naturally fractured basement
reservoirs. The Company's acreage is concentrated on the Rona
Ridge, in the West of Shetland region of the UK Continental
Shelf.
The Lancaster field (100%) is Hurricane's most appraised asset,
with five wells drilled by the Company to date. It has 2P reserves
and 2C contingent resources of 523 million stock tank barrels of
oil. The Company is currently proceeding towards the first phase of
development of Lancaster, an Early Production System which will be
the UK's first basement field development. It involves a two well
tie-back to the Aoka Mizu FPSO and is expected to initially produce
17,000 barrels of oil per day. First oil is targeted for 1H
2019.
Hurricane's other assets include Lincoln (50%), Warwick (50%),
Halifax (100%), Whirlwind (100%), and Strathmore (100%). Together
with Lancaster, these assets have total combined 2P reserves and 2C
contingent resources of 2.6 billion barrels of oil equivalent (2.3
billion barrels of oil equivalent net to Hurricane).
In September 2018, Spirit Energy farmed-in to 50% of the Lincoln
and Warwick assets, committing to a five-phase work programme
targeting sanction of full field development in 2021.
Inside Information
This announcement contains inside information as stipulated
under the market abuse regulation (EU no. 596/2014). Upon the
publication of this announcement via regulatory information service
this inside information is now considered to be in the public
domain.
Competent Person
The technical information in this release has been reviewed by
Dr Robert Trice, who is a qualified person for the purposes of the
AIM Guidance Note for Mining, Oil and Gas Companies. Dr Robert
Trice, Chief Executive Officer of Hurricane Energy plc, is a
geologist and geoscientist with a PhD in geology and has over 30
years' experience in the oil and gas industry.
Standard
Resource estimates contained in this announcement have been
prepared in accordance with the Petroleum Resource Management
System guidelines endorsed by the Society of Petroleum Engineers,
World Petroleum Congress, American Association of Petroleum
Geologists and Society of Petroleum Evaluation Engineers.
Chief Executive Officer's Review
Lancaster EPS
The first half of the year was principally marked by significant
construction and fabrication activities on the Aoka Mizu FPSO, and
on the TMS and SURF for the Lancaster EPS development.
The offshore installation phase of the development was
kicked-off with the successful installation of the Xmas trees by
the Far Superior construction vessel in Q2. This was followed
shortly thereafter by the completions of the Lancaster 6 and 7Z
wells by Transocean's Paul B Loyd Jr semi-submersible rig.
The Company had highlighted the construction and delivery of the
TMS buoy as being a key gating item to delivery of first oil in H1
2019. The TMS was successfully installed in early August and the
SURF installation completed in mid-September. The offshore
installation programme has therefore now been completed and the
system is ready for the arrival of the Aoka Mizu.
At the date of this report, the Aoka Mizu is expected to
commence sea trials by the end of September with sailaway
anticipated to follow shortly thereafter.
Spirit Energy farm-in
On 3 September 2018, Hurricane announced that Spirit Energy had
farmed-in to the GWA. The farm-in has been structured to target
significant reserve growth, with the partners agreeing a five-phase
work programme which targets a development of 500 million barrels
of reserves (gross) as the fifth phase. Following the drilling of
three exploration and appraisal wells, one is planned to be
tied-back to the Aoka Mizu. As with the Lancaster EPS, this will
enable collection of long-term reservoir data to be used in
planning for the initial stage of a full field development. One set
of facilities will be used to de-risk two accumulations in
parallel. The additional well will also be a source of reserves and
cash flow - the Company intends to make the most of these benefits,
subject to regulatory consents, by maximising production within the
constraints of the vessel's capacity and prudent reservoir
management.
The GWA farm-in significantly accelerates the development of the
GWA, providing a clear path to its phased development and bringing
forward a potential initial stage of a full field development final
investment decision (FID) by a number of years. Notwithstanding the
significant cash flow that the Lancaster EPS will deliver,
Hurricane would not have otherwise been able to undertake such a
development on a standalone basis, without impacting its ability to
continue progressing its GLA licences. The GWA farm-in provides
Hurricane with a new leg to its business, with a large portion of
the up-front capital expenditure funded, whilst freeing up cash
flow from the Lancaster EPS for appraisal and development of the
rest of its portfolio.
Spirit Energy will fund 100% (up to a maximum of $180.6 million)
of a three well 2019 drilling programme, together with certain
engineering work and long lead items for future phases, in exchange
for a 50% interest across the licences covering the GWA.
Subsequently, one of these GWA wells is planned to be tied-back to
the Aoka Mizu. Following FID, Spirit Energy will pay 75% (up to a
maximum of $140.7 million) of the anticipated gross cost of the tie
back and of the required modifications to the vessel, necessary to
allow for this additional production.
Hurricane and Spirit Energy also target drilling three
additional wells to further appraise the accumulation and to
undertake front end engineering and design (FEED) prior to
sanctioning the first phase of a standalone GWA full field
development in 2021. Spirit Energy has undertaken to make a
contingent contribution of a further $150 - $250 million in carry
at this stage, dependent on the reserves included in the FID for
the initial stage of full field development. Hurricane will remain
field operator until commencement of the full field development
workstreams (including FEED), at which point operatorship will
transfer to Spirit Energy, subject to regulatory approval.
Other corporate developments
In 2017, Hurricane's board undertook to progress its board
composition and governance towards compliance with the Financial
Reporting Council's UK Corporate Governance Code (the Code), a
standard not required of AIM-quoted companies. A significantly
expanded annual report was published for the year ended 2017 and
Steven McTiernan was appointed as Chairman of the board, effective
from 1 May 2018.
The board continues to review its composition, noting the recent
changes to corporate governance guidelines (including a new Code)
which will be in force for accounting periods commencing from 1
January 2019. The board also continues to review the
appropriateness of a listing on the premium segment of a recognised
stock exchange (Premium Listing). In this regard, Morgan Stanley
was appointed as co-Corporate Broker alongside Stifel and will be
working with the Company as the board weighs up the costs, benefits
and appropriate timing of a Premium Listing.
Dr Robert Trice
Chief Executive Officer
19 September 2018
Financial Review
During the first half of the year, the focus has remained on the
Lancaster EPS development and the initial stages of offshore
installation with capital expenditure continuing in line with
forecasts and budget. Expenditure on the EPS in the first six
months of 2018 was $136.4 million, all of which came from funds
already held at the beginning of the year.
Use of funds
In H1 2018 the Group's primary use of funds were:
i) Development expenditure on the EPS of $136.4 million
ii) Intangible exploration expenditure of $2.0 million,
including licence costs on the Group's exploration licences
iii) Operating cash outflow of $2.7 million
iv) Convertible bond coupon payments of $8.6 million
Income statement
The Group recorded a loss after tax for the first half of 2018
of $75.1 million (H1 2017: $4.2 million). This loss includes a
non-cash fair value loss on the embedded derivative element of the
convertible bond of $70.2 million. This is discussed in more detail
below. Excluding the fair value loss, the loss for the period was
$4.9 million. The majority of the loss relates to operating
expenses of $4.7 million (H1 2017: $6.0 million); the foreign
exchange losses in the period of $2.1 million were almost
completely offset by the interest income received.
Whilst the movement in the foreign exchange rate between the US
Dollar and Sterling resulted in the foreign exchange loss in the
period, at the time of the July 2017 fund raise the Group matched
the currency it held to its forecast currency expenditure. As such,
whilst foreign exchange rates have fluctuated, the Group's ability
to deliver planned operations has not been affected and the Group
continues to hold sufficient cash in each currency that it
forecasts using for the Lancaster EPS development.
Due to the nature of the Group's business, it has accumulated
significant tax losses since incorporation. The Group has trading
losses of $431.3 million at 30 June 2018, which have no expiry date
and would be available for offset against future trading profits
(though a deferred tax asset has not been recognised beyond
offsetting existing deferred tax liabilities). A potential Ring
Fence Expenditure Supplement claim could also be made which would
result in additional trading losses of $111.7 million. The Group's
tax loss position was not impacted by the GWA farm-in.
The Group had pre-trading expenditure of $84.3 million which was
carried forward at 30 June 2018. Tax relief will be available on
this amount as the Group's remaining licences reach the development
stage.
Cash flow
As at 30 June 2018, the Group had an unrestricted cash position
(including cash and cash equivalents and liquid investments, but
excluding cash held in escrow accounts) of $178.6 million (31
December 2017: $326.6 million). The net decrease in cash, cash
equivalents and liquid investments in the period was $149.9 million
(including the effects of foreign exchange rate changes). The
majority of the reduction in the period related to expenditure on
the EPS. Net cash outflow from operating activities of $2.7 million
was lower than the $4.7 million for the first half of 2017
(excluding H1 2017 tax receipts of $5.9 million). This was due to
the decrease in the level of corporate activity as the Group
focused on the EPS.
Convertible bond accounting
The accounting for the convertible bond (issued in July 2017)
required the recognition of an embedded derivative liability
related to the equity conversion option. The fair value of the
embedded derivative is based on a simulation model which is
impacted, in particular, by the volatility assumption applied and
the Group's share price at the reporting date. The higher the
assumed volatility and the higher the Group's share price, the more
the fair value of the derivative liability increases. Any increase
in the liability creates a corresponding non-cash charge in the
income statement.
At 31 December 2017, the fair value of the embedded derivative
liability was valued at $28.6 million. Between 31 December 2017 and
30 June 2018, Hurricane's share price rose from GBP0.32 to GBP0.475
per ordinary share, and the volatility assumption increased from
23.6% to 30.1%. The volatility assumption was calculated as a
blended average of the trading history of the Group's own shares
and shares in a relevant peer group, for a period of six months
prior to the measurement date. It is assumed that this is an
approximate forecast of the volatility in Hurricane's share price
for the period to conversion. These movements have driven an
increase in the derivative liability of $70.2 million, to a closing
figure at 30 June 2018 of $98.8 million. Further share price rises
would increase the liability and corresponding related losses,
assuming other factors remain the same, as outlined further in note
14.
The losses recognised do not have any impact on the Group's cash
position, amounts payable in respect of the convertible bond, or on
its tax position. On either the conversion of the bond or the
repayment of the bond the recognised derivative liability will be
released.
Principal risks
There are a number of potential risks and uncertainties which
could have a material impact on the Group's performance over the
remaining six months of 2018 and could cause actual results to
differ materially from expected and historical results. The
principal risks and uncertainties, along with the mitigation
measures in place to reduce risks to acceptable levels, remain
unchanged from those published on pages 18-21 of the 2017 Annual
Report and Accounts (summarised below) except for one addition,
discussed below.
Key risk factor Risk summary
Substantial The Group's business plan to exploit and commercialise
capital requirements its assets requires significant capital expenditure.
Future plans may be curtailed if the Group is
unable to generate sufficient funds from operational
cashflow and/or raise further funds.
---------------------------------------------------------
Exploration, There are a range of operational risks during
appraisal and offshore operations whether for exploration,
development appraisal or development. These include, but
operational are not limited to, failure of offshore vessels/rigs
risks or other crucial equipment, unforeseen problems
occurring during drilling or completion works,
and delays to offshore operations due to unfavourable
weather.
---------------------------------------------------------
Production operational There are many production-related operational
risks risks. These mainly relate to, but are not limited
to, the risk of unplanned downtime of production
facilities. This may be the result of mechanical
issues, unfavourable weather leading to delays
in operations, and/or other issues.
---------------------------------------------------------
Geological and The geology of the Group's licence areas and
reservoir risk the behaviour of the associated reservoirs rely
on various assumptions and interpretation techniques.
There is a risk that the reservoirs do not behave
as expected, such as earlier water production
than predicted, reserves/resources being less
than expected, or oil having different properties
than expected.
---------------------------------------------------------
Regulatory There is a risk that the Group and/or its primary
contractors are in breach of their regulatory
obligations with one of their principal regulators
in connection with the Group's activities. This
could restrict the Group and/or its primary
contractors' capacity to obtain permits and
to carry out the Group's activities on the UK
Continental Shelf. There is also a risk that
a change in the regulatory environment affects
the returns expected to be achieved from the
Group's assets.
---------------------------------------------------------
Oil price fluctuations Declines in oil prices may adversely affect
the cashflows generated from the EPS and may
also affect market sentiment and consequently,
the market price of the Company's Ordinary Shares
and the ability of the Group to raise finance.
---------------------------------------------------------
Third party Any field development, including gas export,
infrastructure is likely to be dependent upon the availability
of third party infrastructure. If this fails,
or is not available on reasonable commercial
terms, it may result in delays to field development,
production and cash generation. This would have
a material adverse effect on the Group's business,
prospects, financial condition and operations.
---------------------------------------------------------
Development Development projects are subject to various
project delivery risks including availability of third party
services and manufacturing slots, solvency of
major contractors, correct fabrication of key
components to specification, incident-free installation
operations, installation windows, permits, consents
and weather. Problems with any of the above
can cause project delays that would impact both
the timing for completion of the project, as
well as the cost.
---------------------------------------------------------
Health, Safety In performing offshore exploration, development
and Environmental or production activities and onshore fabrication
(HSE) activities there is a risk of harm to the workforce,
to the environment (e.g. from fabrication processes,
hydrocarbon releases and/or oil spills, damage
to seabed ecosystems or disturbance to marine
mammal populations from noise pollution), to
the assets during construction or in use, and
to the Company's reputation as a result of some
or all of the above.
---------------------------------------------------------
Compliance There is a risk of a major breach of the Group's
business or ethical conduct standards due to
unethical behaviour or breaches of anti-corruption
laws by the Group or its contractors, resulting
in investigations, fines, loss of reputation
and loss of assets.
---------------------------------------------------------
Further information on the above principal risks and
uncertainties facing the Group is included in the Strategic Report
of the 2017 Annual Report and Accounts. Also included in that
report is the manner in which the Group seeks to mitigate each of
these principal risks.
The only addition to these risks is, following the farm-out of
50% of the Lincoln and Warwick licences to Spirit Energy (discussed
in more detail above), the inclusion of the following:
Key risk factor Risk detail How is it managed?
Joint venture Operations in the oil and Due diligence will
partners gas industry are often conducted be used to review
in a joint venture environment. and assess any third
There is a risk that joint parties that the Group
venture partners are not enters into a joint
aligned in their objectives venture with in both
and drivers, which may lead operated and non-operated
to inefficiencies and delays. projects. The Group
Following farm-out transactions, will have continuous
the Group may not always and regular engagement
act as operator on certain with partners to ensure
licence interests. The Group that all partners'
will generally have limited interests are aligned,
control over the day to day and the Group is not
management of operations exposed to risks that
of those assets and will it believes are unacceptable.
therefore be dependent upon
a third-party operator.
---------------------------------- -------------------------------
Related party transactions
There have been no new material related party transactions in
the period and there have been no material changes to the related
party transactions described in Note 27 to the Consolidated
Financial Statements contained in the 2017 Annual Report and
Accounts.
Going concern
At the time of preparation of these Interim Financial
Statements, the directors have a reasonable expectation that the
Group has adequate resources to continue to operate and meet its
liabilities as they fall due for the foreseeable future, a period
considered to be at least twelve months from the date of signing
these Financial Statements. For this reason, they continue to adopt
the Going Concern Basis for preparing the Interim Financial
Statements. Further details are described in Note 3 in these
financial statements.
Independent Review Report
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2018 which comprises the condensed
consolidated statement of comprehensive income, the condensed
consolidated balance sheet, the condensed consolidated statement of
changes in equity, the condensed consolidated cash flow statement
and related notes 1 to 17. We have read the other information
contained in the half-yearly financial report and considered
whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of
financial statements.
This report is made solely to the Company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the Company those matters we are required to state to it
in an independent review report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company, for our review
work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the AIM Rules of the London Stock Exchange.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report have been prepared in
accordance with International Accounting Standard 34 "Interim
Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2018 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 "Interim Financial
Reporting" as adopted by the European Union and the AIM Rules of
the London Stock Exchange.
Deloitte LLP
Statutory Auditor
London, UK
19 September 2018
Condensed Consolidated Statement of Comprehensive Income
For the 6 months ended 30 June 2018
6 months 6 months 12 months
ended ended ended
Notes 30 Jun 2018 30 Jun 2017 31 Dec 2017
(Unaudited) (Unaudited) (Audited)
$'000 $'000 $'000
Write off / impairment of intangible
exploration and evaluation
assets - - (10,412)
Other operating expenses (4,714) (5,989) (14,586)
------------
Operating loss (4,714) (5,989) (24,998)
Interest income 1,911 66 880
Foreign exchange (loss) / gain 4 (2,056) 1,734 8,020
Finance costs (57) (37) (1,322)
Fair value (loss) / gain on
derivative financial instruments 10 (70,167) - 10,416
------------
Loss before tax (75,083) (4,226) (7,004)
Tax 5 - - -
------------
Total comprehensive loss for
the period (75,083) (4,226) (7,004)
------------ ------------ ------------
Loss per share, basic and diluted 6 (3.83 cents) (0.35 cents) (0.46 cents)
All of the Group's operations are classed as continuing.
Condensed Consolidated Balance Sheet
As at June 2018
Notes 30 Jun 2018 30 Jun 2017 31 Dec 2017
(Unaudited) (Unaudited) (Audited)
$'000 $'000 $'000
Non-current assets
Property, plant and equipment 7 633,276 18 445,291
Intangible exploration and
evaluation assets 8 127,720 373,493 126,365
Other receivables 198 170 202
Other non-current assets 7,397 3,034 16,089
----------- ----------- -----------
768,591 376,715 587,947
Current assets
Inventory 1,434 1,434 1,434
Trade and other receivables 5,589 3,611 4,737
Liquid investments 39,040 - 201,973
Cash and cash equivalents 163,694 29,090 141,956
----------- ----------- -----------
209,757 34,135 350,100
-----------
Total assets 978,348 410,850 938,047
Current liabilities
Trade and other payables 9 (51,484) (10,202) (28,833)
Derivative financial instruments (27) - (11)
-----------
(51,511) (10,202) (28,844)
Non-current liabilities
Convertible loan liability 10 (194,517) - (191,102)
Derivative financial instruments 10 (98,772) - (28,622)
Decommissioning provisions 11 (23,693) (6,975) (7,023)
----------- ----------- -----------
Total liabilities (368,493) (17,177) (255,591)
----------- ----------- -----------
Net assets 609,855 393,673 682,456
----------- ----------- -----------
Equity
Share capital 12 2,843 1,892 2,843
Share premium 813,681 524,459 813,496
Share option reserve 21,840 17,932 19,477
Own shares held by SIP Trust (389) (351) (323)
Foreign exchange reserve (92,659) (92,659) (92,659)
Accumulated deficit (135,461) (57,600) (60,378)
----------- ----------- -----------
Total equity 609,855 393,673 682,456
----------- ----------- -----------
Condensed Consolidated Statement of Changes in Equity
For the 6 months ended 30 June 2018
Share Share Share Own shares Foreign Accumulated Total
capital premium option held exchange deficit
reserve by SIP reserve
Trust
$'000 $'000 $'000 $'000 $'000 $'000 $'000
At 1 January
2017 1,860 508,510 15,648 (366) (92,659) (53,374) 379,619
(Audited)
Shares allotted 32 15,949 - - - - 15,981
Share options
charge - - 2,284 - - - 2,284
Own shares
held by SIP
Trust - - - 15 - - 15
Loss for the
period - - - - - (4,226) (4,226)
At 30 June
2017 1,892 524,459 17,932 (351) (92,659) (57,600) 393,673
(Unaudited)
-------- -------- -------- ---------- --------- ----------- --------
Shares allotted 951 303,924 - - - - 304,875
Transaction
costs - (14,887) - - - - (14,887)
Share options
charge - - 1,545 - - - 1,545
Own shares
held by SIP
Trust - - - 28 - - 28
Loss for the
period - - - - - (2,778) (2,778)
At 31 December
2017 2,843 813,496 19,477 (323) (92,659) (60,378) 682,456
(Audited)
-------- -------- -------- ---------- --------- ----------- --------
Shares allotted - 185 - - - - 185
Share option
charge - - 2,363 - - - 2,363
Own shares
held by SIP
Trust - - - (66) - - (66)
Loss for the
period - - - - - (75,083) (75,083)
-------- -------- -------- ---------- --------- ----------- --------
At 30 June
2018 (Unaudited) 2,843 813,681 21,840 (389) (92,659) (135,461) 609,855
-------- -------- -------- ---------- --------- ----------- --------
The share option reserve arises as a result of the expense
recognised in the income statement to account for the cost of
share-based employee compensation arrangements.
Condensed Consolidated Cash Flow Statement
For the 6 months ended 30 June 2018
6 months 6 months 12 months
ended ended ended
Notes 30 Jun 2018 30 Jun 2017 31 Dec 2017
(Unaudited) (Unaudited) (Audited)
$'000 $'000 $'000
Net cash (outflow) / inflow
from operating activities 13 (2,733) 1,124 (8,088)
Investing activities
Interest received 1,911 51 885
Decrease / (increase) in liquid
investments(1) 162,933 - (201,973)
Expenditure on property, plant
and equipment (136,382) (8) (85,062)
Expenditure on intangible exploration
and evaluation assets (2,043) (87,196) (180,612)
Expenditure on inventory - (991) (991)
----------- ----------- -----------
Net cash provided by (used
in) investing activities 26,419 (88,144) (467,753)
Financing activities
Bank charges (8) (3) (15)
Net proceeds from borrowing(2) - - 223,095
Additional borrowing transaction
costs(2) - - (303)
Interest payments (Convertible
Bonds) (8,625) - (4,313)
Proceeds from issue of share
capital and warrants 49 15,931 313,895
Additional equity issue transaction
costs - - (7,976)
Net cash (used in) / provided
by financing activities (8,584) 15,928 524,383
----------- ----------- -----------
Net increase / (decrease) in
cash and cash equivalents 15,102 (71,092) 48,542
----------- ----------- -----------
Cash and cash equivalents at
the beginning of the period(4) 158,045 101,482 101,482
Net increase /(decrease) in
cash and cash equivalents 15,102 (71,092) 48,542
Effects of foreign exchange
rate changes (2,057) 1,734 8,021
----------- ----------- -----------
Cash and cash equivalents at
the end of the period(4) 171,091 32,124 158,045
----------- ----------- -----------
1 Liquid investments comprise short-term liquid investments of
between 3 and 12 months maturity while cash and cash equivalents
comprise cash at bank and other short term highly liquid
investments of less than three months maturity. The combined cash
and cash equivalents and liquid investments balance at 30 June 2018
was $210,131,000 (30 June 2017: $32,124,000; 31 December 2017:
$360,018,000).
2 Total transaction costs relating to borrowings were $nil (6
months ended 30 June 2017: $nil; 12 months ended 31 December 2017:
$7,208,000 of which $6,905,000 were netted off against gross
proceeds of $230,000,000).
3 Total transaction costs relating to equity raises were $nil (6
months ended 30 June 2017: $715,000 all of which was netted off
against gross proceeds of $15,931,000;12 months ended 31 December
2017: $14,887,000 of which $6,911,000 were netted off against gross
proceeds of $320,806,000)
4 Cash and cash equivalents includes $7,397,000 (30 June 2017:
$3,034,000; 31 December 2017: $16,089,000) of cash held in escrow
which has been included in the balance sheet in other non-current
assets, and $24,102,000 (30 June 2017: $nil; 31 December 2017:
$17,327,000) of cash held in escrow which has been included in the
balance sheet in cash and cash equivalents.
1. General information
Hurricane Energy plc is a public company, limited by shares,
incorporated in the United Kingdom and registered in England and
Wales under the Companies Act 2006 (registered company number
05245689). The nature of the Group's operations and its principal
activity is exploration for oil and gas reserves principally on the
UK Continental Shelf. The address of Hurricane Energy plc's
registered office is The Wharf, Abbey Mill Business Park, Lower
Eashing, Godalming, Surrey, GU7 2QN. Hurricane Energy plc's shares
are listed on the AIM market of the London Stock Exchange.
This Interim Report and Financial Statements was approved by the
board of directors of Hurricane and authorised for issue on 19
September 2018.
This set of Interim Financial Statements for the 6 months ended
30 June 2018 is unaudited and does not constitute statutory
accounts as defined by the Companies Act. The information for the
year ended 31 December 2017 contained within these Interim
Financial Statements does not constitute statutory accounts as
defined in Section 435 of the Companies Act 2006. The Group
Financial Statements for the year ended 31 December 2017 have been
delivered to the Registrar of Companies. The auditor's report on
those Financial Statements was unqualified, did not draw attention
to any matters by way of emphasis and did not contain a statement
made under Section 498 of the Companies Act 2006.
2. Basis of preparation
The annual financial statements of the Group are prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union (IFRS). The Interim Financial
Statements have been prepared using accounting bases and policies
consistent with those used in the preparation of the audited
Financial Statements of the Group for the year ended 31 December
2017 with the exception of IFRS 9 'Financial Instruments' and IFRS
15 'Revenue from contracts with customers' (see note 2.1) and those
to be used for the year ending 31 December 2018.
The Interim Financial Statements have been prepared under the
historical cost convention, except for share based payments and
certain financial instruments, which have been measured at fair
value, and in accordance with the requirements of International
Accounting Standard (IAS) 34 'Interim Financial Reporting' as
adopted by the European Union and the AIM Rules.
2.1. International Financial Reporting Standards adopted in the period
In the current period, the following accounting standards became
effective and have been adopted:
2.1.1. IFRS 9 'Financial Instruments'
IFRS 9 has superseded IAS 32 'Financial Instruments:
Presentation' and IAS 39 'Financial Instruments: Recognition and
Measurement' in its entirety for accounting periods commencing on
or after 1 January 2018.
The core areas addressed within IFRS 9 are as follows:
-- Classification and measurement of financial instruments and liabilities
-- Impairment of financial assets
-- Hedge accounting
There have been no material changes in relation to the
classification and measurement of financial assets and liabilities,
impairment of financial assets or for hedge accounting other than
additional annual report disclosure requirements.
2.1.2. IFRS 15 'Revenue from contracts with customers'
IFRS 15 replaced IAS 18 'Revenue' and IAS 11 'Construction
Contracts' for accounting periods commencing on or after 1 January
2018. The core principle of the standard is that an entity will
recognise revenue at an amount that reflects the consideration to
which the entity expects to be entitled in exchange for
transferring promised goods or services to a customer.
The Group performed an impact assessment during the prior year
regarding the accounting requirements of IFRS 15. As the Group has
not previously had any revenue there has been no impact on adoption
of the standard.
2.2. New and revised standards: International Financial Reporting Standards
2.2.1. IFRS 16 'Leases'
IFRS 16 'Leases' will replace IAS 17 'Leases' for accounting
periods commencing on or after 1 January 2019. For Hurricane Energy
plc the effective date is the year commencing 1 January 2019. The
core principal of the standard is to provide a single lessee
accounting model, requiring lessees to recognise a right-of-use
asset and lease liability for all leases unless the term is less
than 12 months, or the underlying asset has a low value. IFRS 16's
approach to lessor accounting is mostly unchanged from IAS 17.
The transition to IFRS 16 will have a material impact on the
balance sheet as all operating leases will need to be recognised on
the balance sheet. Furthermore, operating lease expense in the
income statement will be replaced with depreciation and interest
expense. The Group has performed an initial impact assessment to
determine which current leases and which anticipated future leases
would be affected by this transition.
The primary objectives of this assessment are to: define
accounting policies in compliance with the standard; identify all
existing leases within the Group; identify anticipated future
leases within the Group; capture the necessary data for each lease,
including discount rates; determine a transition approach; and
understand and implement necessary system and operational
changes.
The Group is currently in the process of developing updated
accounting policies and is assessing the information requirements
for each lease. The Group currently plans to adopt the cumulative
catch-up transition approach. As such, the value of the asset and
liability recognised will be determined by the present value of the
future lease payments on the existing leases at the date of
transition (1 January 2019) and prior year comparatives will not be
restated. The Group currently anticipates that the impact at the
point of adoption of the standard is likely to be material as it
will bring a Right of Use asset and liability for the Aoka Mizu
FPSO and office properties onto the balance sheet. Further
quantitative information cannot be provided at this time as the
Group is continuing with its detailed assessment.
3. Going concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Chief Executive's Report. The financial position
of the Group, its cash flows and liquidity position are set out in
the Interim Financial Statements.
The Group has no source of operating revenue prior to first oil
from the Lancaster EPS (currently anticipated to occur in H1 2019)
and currently obtains working capital primarily through equity and
debt financing. During 2017, the Group raised gross funds of $547
million (before expenses), split between $317 million from the
issue of Ordinary Shares and $230 million from the issue of
Convertible Bonds.
The directors have performed a robust assessment, including a
review of the budget for the year ending December 2019 and
longer-term strategic forecasts and plans, including consideration
of the principal risks faced by the Company. In particular, the
directors considered a number of sensitivities which included the
impact of a delay in first oil from the Lancaster EPS, cost and
schedule overruns during the installation period and, following
first oil, downside sensitivities in relation to production rates,
operational uptime, oil price, opex and foreign exchange rates.
Following this review, the directors are satisfied that, taking
into consideration reasonably possible downside sensitivities, the
Group has adequate resources to continue to operate and meet its
liabilities as they fall due for the foreseeable future, a period
considered to be at least twelve months from the date of signing
these interim financial statements. For this reason, they continue
to adopt the Going Concern Basis for preparing the Interim
Financial Statements.
4. Foreign exchange gains and losses
Foreign exchange losses of $2.1 million (6 months ended 30 June
2017: gain of $1.7 million; 12 months ended 31 December 2017: gain
of $8.0 million) relate to fluctuations in the US Dollar to Pounds
Sterling exchange rate. The Group's cash and cash equivalents are
predominately held in US Dollars and Pounds Sterling.
5. Tax on loss on ordinary activities
6 months ended 6 months ended 12 months
ended
30 Jun 2018 30 Jun 2017 31 Dec 2017
(Unaudited) (Unaudited) (Audited)
$'000 $'000 $'000
UK corporation tax
Current tax - current year - - -
-------------- -----------
Total current tax - - -
-------------- -------------- -----------
Deferred tax - current year - - -
Total deferred tax - - -
-------------- -------------- -----------
Tax credit per income statement - - -
-------------- -------------- -----------
Loss on ordinary activities before
tax (75,083) (4,226) (7,004)
-------------- -------------- -----------
Loss on ordinary activities multiplied
by standard rate of corporation
tax in the UK applicable to oil
and gas companies of 40% (30,033) (1,690) (2,802)
Effects of:
Expenses not deductible for tax
purposes 973 940 1,576
Effect of changes in tax rates - - (2,395)
Losses and other temporary differences
not recognised 29,060 750 3,621
-------------- -----------
Total tax credit for the year - - -
-------------- -------------- -----------
In 2016 the Company made a claim under the SME Research &
Development tax relief scheme and has surrendered the resulting
losses for a payable tax credit. $0.9 million of the research and
development tax credit was received in cash during that year,
relating to the 2013 claim. The remaining $5.9 million relating to
the 2014 claim was received in February 2017.
5.1. Factors which may affect future tax charges
The Group has trading losses of $431.3 million at 30 June 2018
(31 December 2017: $393.6 million), which have no expiry date and
would be available for offset against future trading profits. A
potential Ring Fence Expenditure Supplement claim could also be
made which would result in additional trading losses of $111.7
million.
The Group has pre-trading expenditure of $84.3m which is carried
forward at 30 June 2018 and tax relief will be available when FDP
approval is obtained on the remaining licences.
5.2. Deferred tax asset / liability
6 months ended 6 months ended 12 months
ended
30 Jun 2018 30 Jun 2017 31 Dec 2017
(Unaudited) (Unaudited) (Audited)
$'000 $'000 $'000
Accelerated capital allowances 153,149 - 139,520
Other timing differences 4 - 4
Fair value movement on derivative - - 1,771
Tax losses carried forward (153,153) - (141,295)
-------------- -------------- -----------
Deferred tax liability - - -
-------------- -------------- -----------
No asset has been recognised in these Financial Statements for a
potential deferred tax asset of $29.5 million (31 December 2017:
$16.1 million). The Group's practice is generally not to recognise
potential deferred tax assets until such time as it has been
demonstrated that the Group will generate taxable profits. No
deferred tax asset has yet been recognised due to the inherent
uncertainty of success at this stage. The potential deferred tax
asset is calculated at a rate of 40% (30 June 2017 and 31 December
2017: 40%).
6. Loss per share
The basic and diluted loss per share has been calculated using
the loss for the period and a weighted average number of Ordinary
Shares in issue less treasury shares.
6 months ended 6 months ended 12 months
ended
30 Jun 2018 30 Jun 2017 31 Dec 2017
(Unaudited) (Unaudited) (Audited)
$'000 $'000 $'000
Loss after tax (75,083) (4,226) (7,004)
Number of Number of Number of
shares shares shares
Weighted average shares in issue
(basic and diluted) 1,958,438,402 1,207,828,832 1,583,803,716
Cents Cents Cents
-------------- -------------- -------------
Loss per share (basic and diluted) (3.83) (0.35) (0.46)
-------------- -------------- -------------
The effect of the warrants, options and Convertible Bonds
outstanding at the end of each period was anti-dilutive as the
Group incurred a loss and all the interest on the Convertible Bond
was capitalised.
7. Property, plant and equipment
Oil Other Total Oil Other Total Oil Other Total
and fixed and fixed and fixed
gas assets gas assets gas assets
properties properties properties
6 months 6 months 6 months 6 months 12 12
ended ended ended ended months months
ended ended
30 30 Jun 6 months 30 Jun 30 Jun 6 months 31 31 12
Jun 18 ended 17 17 ended Dec Dec months
18 17 17 ended
(Unaudited) (Unaudited) 30 Jun (Unaudited) (Unaudited) 30 Jun (Audited) (Audited) 31
18 17 Dec
17
$'000 $'000 (Unaudited) $'000 $'000 (Unaudited) $'000 $'000 (Audited)
$'000 $'000 $'000
Cost
At 1 January 445,237 1,053 446,290 - 995 995 - 995 995
Additions 188,004 - 188,004 - 8 8 109,381 58 109,439
Transfer from
intangible
assets - - - - - - 335,856 - 335,856
------------- ------------- ------------- ------------- ------------- ------------- ----------- ----------- -----------
At 30 June
/ 31
December 633,241 1,053 634,294 - 1,003 1,003 445,237 1,053 446,290
------------- ------------- ------------- ------------- ------------- ------------- ----------- ----------- -----------
Depreciation
At 1 January - (999) (999) - (977) (977) - (977) (977)
Charge for
the period - (19) (19) - (8) (8) - (22) (22)
------------- ------------- ------------- ------------- ------------- ------------- ----------- ----------- -----------
At 30 June
/ 31
December - (1,018) (1,018) - (985) (985) - (999) (999)
------------- ------------- ------------- ------------- ------------- ------------- ----------- ----------- -----------
Carrying
amount
at 30 June
/ 31
December 633,241 35 633,276 - 18 18 445,237 54 445,291
------------- ------------- ------------- ------------- ------------- ------------- ----------- ----------- -----------
Included within additions is $12,041,000 of borrowing costs that
have been capitalised in the period (30 June 2017: $nil; 31
December 2017: $10,448,000).
Also included in additions are $16,620,000 (30 June 2017: $nil;
31 December 2017: $nil) relating to the changes in decommissioning
estimates on the Lancaster field (note 11).
On 24 September 2017 approval was granted for the Lancaster EPS
field development. As a result, $335,856,000 of intangible
exploration and evaluation assets were reclassified as oil and gas
properties within property, plant and equipment. The oil and gas
property balance at 30 June 2018 solely relates to the Lancaster
development.
Depreciation of the oil and gas properties will commence once
production begins and will be on a unit of production (UOP)
basis.
Property, plant and equipment (other fixed assets) comprises the
Group's investment in leasehold improvements, fixtures, office
equipment and computer hardware.
8. Intangible exploration and evaluation assets
6 months 6 months 12 months
ended ended ended
30 Jun 2018 30 Jun 2017 31 Dec 2017
(Unaudited) (Unaudited) (Audited)
$'000 $'000 $'000
At start of period 126,365 302,539 302,539
Additions 851 981 169,113
Effects of additions / changes to
decommissioning estimates (note 11) 504 69,973 981
Impairment of intangible exploration
and evaluation assets - - (1,971)
Write off of intangible and evaluation
assets - - (8,441)
Transfer to property, plant and equipment - - (335,856)
-----------
At end of period 127,720 373,493 126,365
----------- ----------- -----------
Intangible exploration and evaluation expenditure comprises the
book cost of licence interests and exploration and evaluation
expenditure within the Group's licensed acreage in the West of
Shetlands.
The directors have fully considered and reviewed the potential
value of licence interests at 30 June 2018, including carried
forward exploration and evaluation expenditure. The directors have
considered the Group's tenure to its licence interests, its plans
for further exploration and evaluation activities in relation to
these and the likely opportunities for realising the value of the
Group's licences, either by farm-out or by development of the
assets. The directors have concluded that no impairment is
necessary at this time.
On 24 September 2017 approval was granted for the Lancaster EPS
field development. As a result, $335,856,000 of intangible assets
were reclassified as Oil and Gas properties within property, plant
and equipment.
In December 2017, the directors fully impaired the intangible
exploration and evaluation assets relating to Strathmore, being
$1,971,000. On 8 December 2017 the Group relinquished its P1485 and
P1834 licences (Typhoon and Tempest). As such, the intangible
exploration and evaluation assets relating to those licences of
$8,441,000 were fully written off.
9. Trade and other payables
30 Jun 2018 30 Jun 2017 31 Dec 2017
(Unaudited) (Unaudited) (Audited)
$'000 $'000 $'000
Trade payables 2,263 1,593 1,030
Other payables 166 114 159
Accruals 49,055 8,495 27,644
----------- ----------- -----------
51,484 10,202 28,833
----------- ----------- -----------
The accruals at 30 June 2018 includes significant expenditure in
relation to the EPS that has not yet been invoiced.
10. Borrowings
In July 2017 the Group raised $230 million (gross) from the
successful placement of Convertible Bonds ("the Bonds"). The Bonds
were issued at par and carry a coupon of 7.5% payable quarterly in
arrears. The Bonds are convertible into fully paid Ordinary Shares
of the Company with the initial conversion price set at $0.52,
representing a 25% premium above the placing price of the
Concurrent Equity Placement, being GBP0.32 (converted into US
dollars at USD/GBP 1.30). Unless previously converted, redeemed or
purchased and cancelled, the Bonds will be redeemed at par on 24
July 2022.
The conversion feature of the Bonds is classified as an embedded
derivative liability as it can be settled by the Group in cash and
hence does not meet the 'fixed for fixed' criteria for a compound
instrument outlined in IFRS 9 (see note 14). It has therefore been
measured at fair value through profit and loss. The amount
recognised at inception in respect of the host debt contract was
determined by deducting the fair value of the conversion option at
inception (the embedded derivative) from the fair value of the
consideration received for the convertible loan notes. The debt
component is then recognised at amortised cost, using the effective
interest method until extinguished upon conversion or at the
instrument's maturity date.
6 months ended 6 months ended 12 months
ended
30 Jun 2018 30 Jun 2017 31 Dec 2017
$'000 $'000 $'000
Proceeds of issue of convertible
bonds - - 230,000
Transaction costs - - (7,208)
-------------- -------------- -----------
Net proceeds on issue of convertible
loan notes - - 222,792
-------------- -------------- -----------
Transaction costs relating to liability
component - - 5,984
Transaction costs relating to derivative
liability - - 1,224
-------------- -------------- -----------
Total transaction costs - - 7,208
-------------- -------------- -----------
Liability component at start of period
(net of transaction costs) (191,102) - -
Liability component issued in period
(net of transaction costs) - (184,967)
Interest charged (12,041) - (10,448)
Interest paid 8,625 - 4,313
-------------- -------------- -----------
Liability at end of period (194,518) - (191,102)
-------------- -------------- -----------
Derivative liability at start of
period (28,622) - -
Derivative liability issued in the
period - (39,049)
Change in fair value recognised in
the income statement (note 14) (70,150) - 10,427
-------------- -------------- -----------
Derivative liability at end of period (98,772) - (28,622)
-------------- -------------- -----------
The interest expensed in the period is calculated by applying an
effective interest rate of 13.5% to the liability component for the
period. The liability component is measured at amortised cost. The
difference between the carrying amount of the liability component
at the date of issue and the amount reported in the balance sheet
at 30 June 2018 represents the interest charged at the effective
interest rate less interest paid to that date. All of the interest
charge has been capitalised within property, plant and equipment as
it is considered to relate to the development of the Lancaster
Field, a qualifying asset.
11. Decommissioning provisions
6 months 6 months 12 months
ended ended ended
30 Jun 2018 30 Jun 2017 31 Dec 2017
(Unaudited) (Unaudited) (Audited)
$'000 $'000 $'000
At start of period 7,023 5,959 5,959
Unwinding of discount rate 50 35 83
Additions 15,984 981 981
Changes to decommissioning estimate 636 - -
----------- ----------- -----------
At end of period 23,693 6,975 7,023
----------- ----------- -----------
The provision for decommissioning relates to the costs required
to decommission the suspended wells previously drilled on the
Lancaster, Whirlwind and Halifax exploration assets, and the costs
required to decommission the Lancaster EPS installations at 30 June
2018. The expected decommissioning cost for these assets is based
on the directors' best estimate of the cost of decommissioning the
assets at the end of 2025 discounted at 1.09% per annum (2017:
1.31%). The addition in 2018 was due to the work completed in 2018
in relation to the EPS installation on the Lancaster asset. This
work comprised the completion of the 6 and 7Z wells and
installation of the Xmas trees.
12. Called up share capital
6 months 6 months 12 months
ended ended ended
30 Jun 2018 30 Jun 2017 31 Dec 2017
(Unaudited) (Unaudited) (Audited)
$'000 $'000 $'000
Allotted, called up and fully paid
30 June 2018: 1,959,551,637; (30
June 2017: 1,227,988,123; 31 December
2017: 1,959,210,336) Ordinary Shares
of GBP0.001 each 2,843 1,892 2,843
----------- ----------- -----------
The Company does not have an authorised share capital.
On 24 January 2018 341,301 new Ordinary Shares were issued to
the Hurricane Energy plc Share Incentive Plan (SIP) at a
subscription price of GBP0.39 per share.
13. Reconciliation of operating loss to net cash (outflow) / inflow from operating activities
6 months 6 months 12 months
ended ended ended
30 Jun 2018 30 Jun 2017 31 Dec 2017
(Unaudited) (Unaudited) (Audited)
$'000 $'000 $'000
Operating loss (4,714) (5,989) (24,998)
Adjustments for:
Depreciation of property, plant
and equipment 19 8 22
Impairment / write off of intangible
exploration and evaluation assets - - 10,412
Share based payment charge 2,433 2,349 3,922
----------- ----------- -----------
Operating cash outflow before working
capital movements (2,263) (3,632) (10,642)
Increase in receivables (848) (2,192) (3,370)
Increase in payables 378 1,088 64
----------- ----------- -----------
Cash used in operating activities (2,733) (4,736) (13,948)
----------- ----------- -----------
Corporation tax received - 5,860 5,860
----------- ----------- -----------
Net cash (outflow) / inflow from
operating activities (2,733) 1,124 (8,088)
----------- ----------- -----------
14. Financial Instruments
The derivative financial instruments held by the Group are the
embedded derivative associated with the issue of the convertible
bonds, and the forward foreign exchange contracts the Group entered
into during 2017.
IFRS 7 'Financial Instruments: Disclosures' requires entities to
disclose the fair value of each class of financial assets and
financial liabilities in a way that permits it to be compared with
its carrying value. IFRS 7 also requires financial instruments to
be classified into a fair value hierarchy based on the lowest level
input that is significant to the fair value measurement.
The fair value hierarchy is defined in IFRS 13 'Fair Value
Measurement' and has the following levels:
Level 1 - quoted prices (unadjusted) in active markets for
identical assets or liabilities.
Level 2 - inputs other than quoted prices included within Level
1 that are observable for the asset or liability, either directly
or indirectly.
Level 3 - inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
Embedded Derivative
At inception and at the Balance Sheet date, the fair value of
the embedded derivative contained within the Convertible Bonds was
calculated based on the conversion option contained within. In
determining the fair value of the embedded derivative, the
likelihood of the early redemption option being exercised and the
likelihood of a change of control of the Group within the life of
the bonds were considered. The likelihood of each was considered to
be nil for the purposes of the valuation.
6 months ended 6 months ended 12 months ended
30 June 2018 30 June 2017 31 Dec 2017
(Unaudited) (Unaudited) (Audited)
$'000 $'000 $'000
Derivative liability at start
of period (28,622) - -
Derivative liability issued in
the period - (39,049)
Change in fair value recognised
in the income statement (70,150) - 10,427
-------------- ---------------
Derivative liability at end of
period (98,772) - (28,622)
-------------- -------------- ---------------
The derivatives that are a part of the Convertible Bond issue
have been assessed to be a Level 3 financial liability. This is
because the derivatives themselves are not traded on an active
market and their fair values are determined by a valuation
technique that uses one key input that is not based on observable
market data, being share price volatility.
Volatility is a key input in the valuation of the Convertible
Bond embedded derivative. Volatility is a measure of the
variability or uncertainty in return for a given underlying
derivative. It represents an estimate of how much a particular
instrument, parameter or index (in this case share price) will
change in value over time. The valuation technique was based on a
simulation model and the volatility was calculated as a blended
average of the trading history of the Group's own shares and shares
in a relevant peer group, for a period of six months prior to the
measurement date.
The fair value at 30 June 2018 was calculated using the
Hurricane share price on that date of GBP0.475 (31 December 2017:
GBP0.310) and a share price volatility assumption of 30.1% (31
December 2017: 23.6%). The effect on the fair value of the
derivative liability due to changes to the share price and share
price volatility have been considered below.
Base share price Base share price Base share price
(GBP0.475) -GBP0.10 (GBP0.375) +GBP0.10 (GBP0.575)
$,000 $,000 $,000
Fair value of derivative
liability 98,772 57,275 146,200
Base volatility Base volatility Base volatility
(30.1%) -5% (25.1%) +5% (35.1%)
$,000 $,000 $,000
Fair value of derivative
liability 98,772 90,856 106,955
As movements in the fair value are recognised directly in the
income statement these changes would directly affect the loss after
tax by the same amount.
Foreign exchange swaps
During 2017 the Group entered into several foreign exchange
swaps to cover specific foreign currency payments in the Group's
future. At the reporting date the Group had one remaining foreign
exchange swap for the purposes of settling a known Euro payment to
occur in October 2018.
These foreign exchange swaps were accounted for using the spot
rate on the date the swap was entered into, and subsequently
revalued at each reporting date for movements in the foreign
exchange rate. Any change in the forward spot rate at period-end is
accounted for by taking the fair value changes to the income
statement and recognising either a derivative asset or derivative
liability in the statement of financial position.
During the period, two of the foreign exchange swaps were
settled.
The following table details the foreign currency swaps
outstanding at 30 June 2018:
EUR Forward Forward Foreign Notional Trade Derivative
Rate (inception) Rate (30 Currency Value Value Liability
Jun 18) EUR'000 $'000 $'000 $'000
-------------- ------------------ ---------- ---------- --------- ------- -----------
3 - 6 months 0.8988 0.8867 1,700 1,998 1,971 (27)
-----------
(27)
-----------
6 months ended 6 months ended 12 months
ended
30 Jun 2018 30 Jun 2017 31 Dec 2017
(Unaudited) (Unaudited) (Audited)
$'000 $'000 $'000
Derivative liability at start of
period (11) - -
Termination of derivative liability
on FX swap 4 - -
Change in fair value recognised
in the income statement (20) - (11)
-------------- -------------- -----------
Derivative liability at end of
period (27) - (11)
-------------- -------------- -----------
The derivatives that are a part of the foreign exchange swaps
have been assessed to be a Level 2 financial liability. This is
because the foreign currency swaps themselves are not traded on an
active market. However, their fair values are determined by
valuation techniques that use observable market data, e.g. foreign
exchange rates.
15. Capital commitments
As at 30 June 2018 the Group had capital commitments of $70.3
million (30 June 2017: $69.0 million; 31 December 2017: $199.7
million).
16. Related parties
During the 6 months ended 30 June 2018, the only related party
transactions are those with the directors who are considered the
Group's key management personnel.
17. Subsequent events
On 3 July 2018, the Group transferred $22.1 million to the Law
Debenture Trust by way of security for the decommissioning of the
Lancaster EPS which will be classified as non-current restricted
cash.
On 3 September 2018, the Group announced that Spirit Energy
Limited has farmed-in to 50% of Hurricane's Lincoln (P1368 South)
and Warwick (P2294) licences together covering the Greater Warwick
Area . Further details are provided in the Chief Executive
Officer's Review in the front half of this report.
Glossary
2P reserves Proved plus probable reserves under the Society
of Petroleum Engineers' Petroleum Resources
Management System
2C contingent Best case contingent resources under the Society
resources of Petroleum Engineers' Petroleum Resources
Management System
-------------------------------------------------
AIM The AIM market of the London Stock Exchange
-------------------------------------------------
Aoka Mizu The Aoka Mizu FPSO
-------------------------------------------------
the Code The Financial Reporting Council's UK Corporate
Governance Code
-------------------------------------------------
Company Hurricane Energy plc and/or its subsidiaries
-------------------------------------------------
EPS Early production system
-------------------------------------------------
FEED Front end engineering and design
-------------------------------------------------
FID Final investment decision
-------------------------------------------------
FPSO Floating production storage and offloading
vessel
-------------------------------------------------
GLA Greater Lancaster Area, comprising the Lancaster
and Halifax fields located on UKCS licences
P.1368 Central and P.2308
-------------------------------------------------
the Group Hurricane Energy plc and its subsidiaries
-------------------------------------------------
GWA Greater Warwick Area, comprising the Lincoln
and Warwick fields located on UKCS licences
P.1368 South and P.2294
-------------------------------------------------
HSE Health, Safety and Environmental
-------------------------------------------------
Hurricane Hurricane Energy plc and its subsidiaries
-------------------------------------------------
IFRS International Financial Reporting Standards
as adopted by the European Union
-------------------------------------------------
Ordinary Shares Ordinary shares in the Company of GBP0.001
each
-------------------------------------------------
Premium Listing Listing on the premium segment of a recognised
stock exchange
-------------------------------------------------
SIP Share incentive plan
-------------------------------------------------
Spirit Energy Spirit Energy Limited
-------------------------------------------------
SURF Subsea umbilical, risers and flowlines
-------------------------------------------------
TMS Turret mooring system
-------------------------------------------------
UKCS United Kingdom Continental Shelf
-------------------------------------------------
UOP Unit of Production
-------------------------------------------------
Xmas trees An assembly of valves, spools and fittings
used at the head of an oil and gas well
-------------------------------------------------
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR FKCDPABKDPCD
(END) Dow Jones Newswires
September 20, 2018 02:00 ET (06:00 GMT)
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