(Alliance News) - Hurricane Energy PLC on Friday downgraded its oil recovery estimate for the two existing early production system wells at the Lancaster field and posted a widened interim loss.
Shares in Hurricane plunged 50% to 3.16 pence in London in morning trading.
It marked the first anniversary of production from the Lancaster early production system. During the period, 2.7 million barrels of oil was produced from the field, compared to just 528,000 barrels a year ago, taking total production since field start up in May 2019 to 6.6 million barrels.
However, the Lancaster field has proved more complex than initially though and, instead of being primarily a basement reservoir, it has oil-bearing sandstones onlapping the basement flanks, which might contain significant volumes of oil but more work its needed to understand how these impact reservoir performance and their ultimate potential.
Lancaster oil water contact is estimated to be at 1,330 metres versus the initial 1,597 to 1,678 metres estimate in the 2017 competent person's report. This shallower oil water contact is consistent with observed earlier and higher water production, as well as more rapid reservoir pressure decline, compared to what had originally been expected.
Given these new technical interpretations, the company's unaudited estimate of recovery from the two existing Lancaster early production system wells, assuming no more activity, has been reduced to 16.0 million barrels from 37.3 million. Given oil produced to the end of August, remaining proved and probable reserves are estimated to be 9.4 million barrels subject to an economic limit test.
"Consideration of near-term future activity is being focused on means to provide reservoir pressure support primarily by water injection, which if successfully implemented could significantly add to reserves, and/or targeted development of the onlapping sandstone reservoirs," said Hurricane.
Reflecting this, Hurricane's unaudited estimate of proved and probable contingent resources in the Lancaster field has been reduced to 58 million barrels remaining from 486 million barrels in the 2017 report.
Hurricane Energy said revenue for the six months to the end of June rose to USD81.9 million from USD22.5 million, as sales volumes grew to 2.8 million barrels from 356,000 barrels year-on-year.
Average sales price realised were lower, however, at USD29.8 per barrel versus USD63.2 a barrel a year earlier.
Its pretax loss widened considerably to USD258.5 million from USD27.5 million on a USD238.9 million impairment of oil and gas assets relating to Lancaster, including the impact of Covid-19 on crude oil demand and the Lancaster reserves estimate downgrade.
"2020 is proving to be a hugely challenging year for Hurricane. We have had to contend with not only a significant fall in oil prices and the effects of the Covid-19 pandemic, but also poorer than expected reservoir performance from the Lancaster early production system," said Chair Steven McTiernan.
"On a more optimistic note, initial studies suggest water injection could partially mitigate the reserves downgrade, and onlapping sandstones at Lancaster could represent material upside potential," added McTiernan.
By Anna Farley; annafarley@alliancenews.com
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