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I appreciate the 2C resources, but they do not easily become 2P reserves. The PRMS definition of contingent resources is as follows:
"Those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations by application of development projects, but which are not currently considered to be commercially recoverable owing to one or more contingencies."
The company has put forward their highest ranked option, the proposed P8 sidetrack. That well has 2C resources of 3.2 mmSTB, and the stakeholders could not be convinced to give it a go. This does not speak well for the remaining 2C resources on Lancaster. For Lincoln and Warwick Crest, all we know is that the exploration wells drilled so far tested at significantly lower rates and/or productivity indexes than the Lancaster wells. This does not inspire confidence in further investment on these fields.
My conclusion remains that it is very understandable how the risk-adjusted best option can be to do nothing.
Shift, thank you for your blah blah blah. You seem to have an agenda here. Probably sitting in a call centre ,boiler house. Working for the Bond holders to promote there agenda like the company board at present. Will wait and see as to how it plays out. Considering you are not invested in this company ,unlike me. Why the hell any shareholder should listen to your blah blah blah. Take a hike. My view is you are a being paid to put the drivel on the board or even worse you think that you are an arm chair expert, no money to make an investment.
"All Hurricane has to do is issue the 442,307,692 shares. The CB holders have no choice but to take the shares – they cannot demand US$230 million. Well done Hurricane!"
This is a ridiculous statement to make.
The point I was making in my last post is:
"although the number ofOrdinary Shares underlying the Convertible Bonds may change from time to time as the conversion pricewill be subject to adjustment pursuant to customary anti-dilution provisions dealing with, among otherthings, share consolidations, share splits, capital distributions, rights issues and bonus issues."
I don't need to say more.
You asked to be "corrected and educated", so I simply corrected your understanding of how conversions work, using the extract from HUR CB.
"Given the paucity of information I wonder how you managed to derive the figures you have broadcast. Do tell."
I assumed 20% discount to current share price to come to the figure. I'm sure you're able to derive the figures, estimates and assumptions from that using my stated figures.
I fully understand why the number of shares that will be issued in July 2022 will be 442,307,692 and I have previously referred to this.
What I said in my latest contribution, and what seems to have confused you is “…why the CB apparently holders agreed in 2017 to Hurricane’s mandatory conversion of the CB into the 442,307,692 shares at maturity in 2022.”
The reason for my statement is that I would have expected the CB holders to insist that the option of taking the cash, or shares was theirs, and theirs alone, not that of the Issuer. The CB holders in 2017 effectively gave the “whip hand” to Hurricane and thus removed the threat of Hurricanes losing its assets should they not make the required interest payments, or fulfil their obligations at maturity. All Hurricane has to do is issue the 442,307,692 shares. The CB holders have no choice but to take the shares – they cannot demand US$230 million. Well done Hurricane!
Your comment about the conversion price is correct – but it only comes into effect if Hurricane were to issue further shares or take some further measure resulting in dilution of the shares the CB holders are to receive in July 2022. It is therefore currently irrelevant.
Given the paucity of information I wonder how you managed to derive the figures you have broadcast. Do tell.
"Neither can I answer as to why the CB apparently holders agreed in 2017 to Hurricane’s mandatory conversion of the CB into the 442,307,692 shares at maturity in 2022."
Because the "set" share price for conversion was $0.52/share.
Here's the extract I read:
"The Convertible Bonds will be convertible into fully paid Ordinary Shares with the initial conversion priceset at US$0.5200, representing a 25 per cent. premium above the Placing Price of 32 pence per Placing Share(converted into US$ at a £/US$1.30 exchange rate). This implies that there will be approximately423,076,923 to 442,307,692 Ordinary Shares underlying the Convertible Bonds as at the issue date of theConvertible Bonds, depending on whether the over-allotment option is exercised, although the number ofOrdinary Shares underlying the Convertible Bonds may change from time to time as the conversion pricewill be subject to adjustment pursuant to customary anti-dilution provisions dealing with, among otherthings, share consolidations, share splits, capital distributions, rights issues and bonus issues.Upon conversion of the Convertible Bonds, the Company may elect to settle its obligations by way ofdelivery of Ordinary Shares, payment of a cash alternative amount (calculated by reference to the volumeweighted average price of an Ordinary Share over a specified period) or a combination of the two."
Note: "conversion pricewill be subject to adjustment pursuant to customary anti-dilution provisions dealing with, among otherthings, share consolidations, share splits, capital distributions, rights issues and bonus issues."
HUR are in talks with bondholders for restructuring and debt for equity swap.
The result will dilute shareholders "significantly".
I think HUR shareholders will be left with approx. 30% equity, if not less.
You are spot on. The shareholders will get the carcass and what’s left of it.
Can the company refinance the repayment of the bond? Can they not get a bank loan to repay the bond holders? Interest rates are at basement levels. To show the bank the company’s credit worthiness, pay the bond holders in July next year too with the cash HUR is sitting on?
What are the options available to HUR? A farm in too could be on the cards?
Hurricane’s position subsequent to the 2017 placement and CB issue was surely that:
- It had to ensure that it had an income stream / capital to service the interest payments from July 2019 – the first eight quarterly interest payments having already being lodged in a US bank.
- In July 2022 it had to be prepared to increase the current number of shares issued by, a not insignificant, 18.4%. Or, alternatively not dilute shareholders and substitute a cash payment in lieu of the share issue to the CB holders.
Hurricane’s current position on the matter of the CB is that:
- In July 2022 it has to dilute a majority of a shareholders holding by a significant 18.4%. This significant dilution can be avoided by selecting the option available to Hurricane, of the cash alternative (calculated by reference to the volume weighted average price of an Ordinary Share over a specified period). Now whilst that specified period is not currently known it is not unreasonable to speculate that the calculated SP might be the current 2.5p. The required cash alternative would be c£11million or cUS$15million, which is less than the annual current interest being paid on the CB’s and well within Hurricane’s current revenue and cash.
I cannot answer for the current trading price of the CB’s. Neither can I answer as to why the CB apparently holders agreed in 2017 to Hurricane’s mandatory conversion of the CB into the 442,307,692 shares at maturity in 2022.
I agree; the whole situation seems confused and illogical. I may have got this wrong! But as it stands no contributor has been able to counter my reasoning - which is based on research and the documentation provided by the company in 2017. Perhaps I am shouting that “the Emperor has no clothes,” or perhaps I am the mis-guided uneducated “fool on the hill.”
Delighted to be corrected and educated with an alternative coherent and resilient factual counter argument that clarifies the situation beyond doubt.
Research indicates that CB’s are exactly that: tradeable instruments that can be exchanged at the OPTION of the HOLDER into a predetermined number of shares. They tend to have the usual features of bonds issued by a corporation. They pay a set coupon, have a cash redemption value at maturity- if not converted or called, are debt, not equity. Being debt the holders have the right to put the issuer in default if they do not meet the obligations in the CB’s indenture.
A variation on a CB is one that is convertible at the OPTION of the ISSUER. This CB automatically converts on a specific date into a number of shares determined by a formula based on the SP at a specific date. They are treated as equity and not debt because the conversion into shares feature is certain, at the issuers option. This feature can lead to a conversion into shares worth less than the original issue price if the SP has declined. If the SP has not fallen, then the holder will receive shares worth at least the original issue SP or they may participate in a portion of the appreciation of the common stock.
In the particular case of Hurricane, the document used in 2017 to authorise the issue of the CB’s specifically states at Para 10 on page 20.
The Convertible Bonds will be issued at par and will bear interest at the rate of 7.50 per cent per annum, payable quarterly in arrears.
The Convertible Bonds will be convertible into fully paid Ordinary Shares with the initial conversion price set at US$0.52 representing a 25 per cent. premium above the Placing Price of 32 pence per Placing Share (converted into US$ at a £/US$1.30 exchange rate).
Upon conversion of the Convertible Bonds, the Company may elect to settle its obligations by way of delivery of Ordinary Shares, payment of a cash alternative amount (calculated by reference to the volume weighted average price of an Ordinary Share over a specified period) or a combination of the two.
As a result of issuing the CB Hurricane assumed the obligation to increase the number of issued shares in the Company by 442,307,692 on the 24 of July 2022. Having already increased the Company’s share capital by some 37.3% as a result of the 2017 placing at 32p the Company was effectively further enlarging this 2017 increased share capital by a further 18.4% in 2022.
To stay independant, as a going concern,Hurr has to do a deal with the bondholders.
Would they take 50 for the bonds and walk away which would mean Hurr going to the equity market via a discounted placing/rights issue with massive dilution.That, to me, is the stark reality which leaves no upside for current or future share holders @Fridays close 2.7p.I am all ears if someone can present a more plausible scenario.
Its worse than that mate. Equityholders are the bottom of the pile. There are all sorts of peeps that come above equityholders, not just bondholders.
if the company fails (or put into administration of whatever) the equityholders get what is left over after everyone else has gnawed on the bones to their full legal entitlement. Administrators, the taxman, employees (quite rightly), banks, the boat owner (is that a fixed contract if the wells are uneconomic if watered out ?), the bondholders, making the site environmentally clean, the people who supply the haggis, etc etc etc. Finally the equityholders get any dregs in the unlikely event there are any. There's plenty of precedents of bigger companies than this. Carillion, Sirrius, Debenhams etc etc. Don't think the equityholders got anything there, they didnt.
I will get shot down here, probably unpleasantly, but to you enthusiastic rampers who frequent this board and think you are going to make a fortune because the shareprice is a shadow of its former self then please think. Ask yourself why it it is less than 3p, not when it will go back to near 70p. Arguably the SP should be nearer 0p than it is.
Good luck all, you might not believe it but I mean that
52p, obviously 52 cents. Either way the SP is way off.
However you argue it the Bondholders are not going to be settling the debt they are owed by buying HUR shares at 52 cent
when the SP is currently about 3.5 cents. Do a reasonableness check - if that were the case how on earth could the bonds be worth 50p in the £ now? At a rough guess they would be worth around 5p.
You don't understand this type of financing. As suggested google CBs. You are walking blindfold over a cliff at the moment along with everyone else who shares the 'truth' that you erroneously believe. Its your money. You write well, but if I was you I'd forget what you (understandably) believe and research. You've got it wrong, if you were right then I would probably be buying HUR at the opening bell tomorrow. But you aren't, believe me.
I think you've misunderstood there.
The CB has to be redeemed on par. The bondholders will receive $230m in cash, or $230m worth in shares issued to bondholders when share price is at 32p or above.
If they receive neither at maturity, Bondholders have the right to take the company to administration, at which they are able to recoup what assets (including cash, assets, inventory etc.) HUR has.
If HUR has LESS than $230m in assets, Bondholders take it all, and will take a loss. Shareholders will not get anything.
If HUR has MORE than $230m in assets, then the remainder (once assets are sold) is distributed to shareholders.
JS Thank you for your contribution.
The points that I am making is that the rate of conversion was fixed at the outset.
The higher number of shares you refer to would be on the basis that the over-allotment had been exercised. This would result in US$230 million being received and at the rate of US$0.52 the number of shares required to be issued at maturity would be 442,307,692. Once this calculation has been made the US$0.52 figure loses all relevance in the pricing of the CB.
In its simplest form the CB is an undertaking by the Company to issue a pre-determined number of shares at a future (maturity) date to the holder of the CB the holder having already paid for the shares at a fixed historical price ie the US$0.52. It has nothing to do with the prevailing SP at that future maturity date.
The benefit to the CB holder in this arrangement is that they will receive a “guaranteed dividend,” ie interest payment, on these un-issued shares whereas an ordinary shareholder would not necessarily receive any dividend on their issued shares. Indeed, I recall Hurricane stating that it did not intend to make dividend payments for some time!
It is the convertibility feature that differentiates what Hurricane has done from issuing an ordinary Bond backed by the Company’s assets. I am not aware of any documentary evidence that the CB is secured by a charge on Hurricane’s assets - a material fact that would have to have been declared before the CB issue vote by shareholders in 2017.
In this particular CB case Hurricane has the option to choose not to issue the shares, but instead repay a cash amount equal to the US$ face value of the CB, if it so wishes. I would have thought that the potential CB holder would have required that THEY had the option to choose to take the shares or cash, or combination thereof – NOT the issuer!
As it currently stands it is in every-ones interest to have a much higher SP. It is not unreasonable to assume that Hurricane will survive until July 2022 on current income flows and bank balances. In July 2022 it must either pay the CB holders US$230 million or issue them with 442,307,692shares.
What would you do as the BoD when the CB matures?
Issue the 442,307,692 shares so that the CB holders can make their choice and sell them in the market. Based on Friday’s prices they would receive c£11million (442,307,692 @ 2.5p = £11million).
Repay the CB face value amount of £168 million.
This discussion has focused solely on the CB issue. There are other matters which affects Hurricane’s SP but it is reasonable to state that the interests of CB holders are aligned with shareholders wanting a higher SP.
Is the low SP a BoD strategy to force the CB holders to agree to some particular work /finance plan?
Once again, happy to be corrected. Am I missing something! If so, what is it? Could the better informed please elucidate?
PS Johnpwh – Puzzled by your ref to a 52p SP at maturity. The reference is
Yep Joe, I agree. The 'convertible' part of a convertible bond is added at issue as an inducement for institutions etc to buy the bonds. The conversion option is essentially at the bondholders behest. The only time 52p would come into proceedings to the advantage of equityholders is, I think, if the SP exceeds 52p when the company has the option to buy the bonds back at face value on certain dates. Otherwise the bondholders could convert their debt into equity at 52p at maturity if they want to but they are not compelled to. In other words, with the SP sub 3p and no realistic prospect of ever sniffing at 52p again, then just forget the 52p and conversion to new shares. Its simply not going to happen. As I said in an earlier post the Bond price of 50p in the £ implies the market doesn't think HUR has an icebergs hope of repaying the debt - else who in their right mind wouldn't buy the debt in the market at the moment? Double your money plus 7.5% Interest in 12 months, certainly beats the Nationwide. So unless the bondholders are the nicest people in the world (which they wont be) they will claim asset they can to the extent of their legal rights - all paid for by the current equity holder who stand little chance of avoiding being wiped out. The bondholders stand way above equityholders in terms of their rights. There are plenty of articles on the internet about debt holders, how the debt works, and the relative rights of debt holders and equity. Be a pretty good idea for anybody who still thinks HUR is a good bet to read them
"an honest look at the company's assets shows that there are no value-adding options that justify the risk."
Even after the most recent CPR and RNS, Hurricane's assets have 81.9mmboe 2C resources and 7.1m 2P reserves as of 31st December 2020.
c. 90m barrels of 2C oil isn't small amounts.
There is definitely value available with HUR's assets.
In my honest opinion, only 30m barrels of recoverable oil is required to return some value to shareholders.
But there is no value-adding, feasible or attractive FWP put forward by the BOD. They don't have the balls for it, probably because of incompetence.
Antony Maris is considered an "expert" in fractured basement, yet to put forward a FWP that costs $60m and provides 3.2m recoverable reserves (well 8) is just silly.
But are the BOD have already decided to think of HUR as "terminal cancer" at stage 4, before it's even reached stage 1.
Because of BOD incompetence, I don't believe there is a future for HUR or shareholders.
I see several posters at loss to understand why clear business plan has not been put forward.
If I was diagnosed with terminal cancer, my doctor may recommend palliative treatment, and spending the remaining days in the best way possible. There are "experts" out there who would be able to readily put forward a plan for curing me, likely including cannabis oil and kambo. In that case, the ones with a plan are charlatans, while those who throw their hands up are honest professionals.
When no value is ascribed to what was previous reported to be an oil discovery of hundreds of millions of barrels, it is not because the corrupt current management wants to bring their own company down. It is because the previous interpretation was tragically flawed, and the people who were responsible for it have been fired, enabling a more competent evaluation. The current management cannot make oil resources be where they never have been.
The explanation is simple - an honest look at the company's assets shows that there are no value-adding options that justify the risk. There's a sliver of hope that a higher oil price or improved field performance can change the picture, but don't count on it.
“BOD's obviously have a plan to hold back SP until "something" that is happening. They cannot seriously believe that continuously issuing an RNS like they have been is professional and keeping to the BOD standards.”
Spot on Botbot, and again as questioned in the article, one has to wonder “How is it possible that an independent assessment carried out in 2017 is able to produce in place volumes for Halifax amounting to 5,143 MMstb (best estimate), up to 9,043 MMstb as a High case, when only a few years later, without any more wells having been drilled on the discovery, its volumes essentially disappear from the radar?”
dflynch your post is not dissimilar to that from Mistakable @ 15:17 yesterday, so this is my understanding.
It was increased to $230m, and the number of shares would increase in proportion.
BUT the problem is that the field has not lived upto the projections [20,000b/d, and no water] and oil did not stay at c$60 with the consequence that the planned activities could not be funded and following on from the failures at Warwick and Lincoln, the commerciality is/was no longer assured leading to the collapse in the SP.
Therefore the $0.52 per share price conversion will not occur, and the alternative is that the Bonds are repaid in cash at par [$230m]. Problem is they might not have that amount of cash and they would default, meaning that the Bondholders take all the cash and assets that they can carry leaving the equity holder [you] with nothing.
Yes, in the success case, they would have received just under 20% of the company, but who would care if the SP was so high?
As they may not have sufficient cash, the Bonds fell to 25-30% of face value. They have now jumped to c50% because they can see half their cash in the Bank [the POO factor] and they will still get the interest.
But the company has to pay for the P&A of the Lincoln well this year and has no discretionary spend available without agreement from the Bondholders, who want their side of the deal honoured.
Until that $230 is sitting in the bank, the Bondholders are in control. The idea of paying the Bonds early is that they may be prepared to take slightly less for not going full term, which would then allow a risky equity raise to fund Well 8 which could wipe out existing holders but would see the company survive to extract the 2C oil in the CPR, if the remedies should prove successful.
With the proviso that OGA say yes to the amendment to the licence and Well 6 does not water out and the pumps do not fail in the meantime.
I’m not sure, but if you are correct and the company have the flexibility to do this, then I would think that the company would have to do this in order to maximise shareholder value?
I do feel for long term holders. But the whole rationale of the CPR was of analogous fields across Lincoln, Lancaster, Warwick and Halifax. So the failure at Warwick Deep in Summer 2019 had ramifications for all of the fields not just Warwick. There was plenty of analyst and bb discussion on these implications at the time.
Back in 2017 Hurricane raised funds by issuing both Ordinary Shares and Convertible Bonds (CB).
This CB issue is a bit of a confusing mystery to me.
My simplistic understanding of the situation is based upon the information published, and voted upon, in the “US$520 million Proposed Fundraising to Fully Finance the Lancaster Early Production System and Notice of General Meeting” document. This was issued on the 4th of July 2017. Specifically, Para 10 which begins on page 20 of the pdf document.
The value of the CB issue was US$220 million.
The maturity date for the CB is the 24th of July 2022.
On the maturity date the Company has to issue 423,076,923 Ordinary Shares in order that they be available to the Bondholders. This figure is calculated using the US$220 million CB par value and the $0.52 per share price.
Alternatively, the Company can pay back the US$220 million in cash. It can also satisfy the maturity requirements by a combination of issuing shares and returning cash. It is the Company’s choice - not the Bondholder.
Given all the angst regarding the company am I missing something! If so, what is it? Could the better informed please elucidate?
Continuing my simplistic, and possibly wrong interpretation of the issue.
The strategy for Hurricane to arrange purchase of all the CB’s, before maturity given their discounted value, doesn’t make sense.
To spend the Company’s increasing cash flow, when there is the more financially astute option to issue the required 424 million shares next year appears nonsensical. Yes, dilution would occur - by about 20% but potentially US$220 million cash would have been conserved in the process. This amount would equate to about 7p per share of the enlarged shareholding.
Once again am I missing something! If so, what is it? Could the better informed please elucidate?
it was also one of CAs highlights from there June statement suggesting Hur did buy back some of the CB at discount?
Hurricane i believe can only only settle/buy 100% of CB's , although that would not prohibit a 3rd party e.g. Investec , buying and thereafter selling to Hurricane at a future agreed price .
Should the CB agreement have banned this option , then there would be zero Discounted CB's in the market .
i.m.o Anyone ?
It just doesn’t make sense how with Brent prices where they are today along with forward bullish sentiment for H2 onwards, and HUR’s WoS exploration, development, and production potential in today’s ultra low interest rate environment, HUR Executive Team/BOD are simply unable to get required funding for a forward plan, maybe simply because they don’t have or want to have one at the moment, HUR CEO and Chairman along with rest of the board have so far done FA here apart from shown nothing but contempt for long suffering HUR shareholders which must now change by any/all possible means if HUR is to have the bright future which it very much deserves, GLA.
Thanks Goldenbadger 1,
Its just that I have a note of total liabilities of $320 m end 2020 which I am currently unable to verify.
I suspect it is prudent to await events for now but one to watch if not already in.