HUR.L Share News (HUR)

(Sharecast News) - Hurricane Energy updated the market on its operations on Friday, reporting that since its update in early October, the Lancaster field had continued to produce from the 205/21a-6 well alone, except for a short period of testing the 205/21a-7z well to assist in the refinement of the Lancaster reservoir simulation model.
The AIM-traded firm said the 205/21a-6 well was currently producing at around 12,300 barrels of oil per day on artificial lift with a 23% water cut.

In early November, the company said it decided to limit production to around 12,000 barrels of oil per day for reservoir evaluation and management purposes, and was aiming to maintain production around that level in the near-term.

Since 1 September, the Lancaster field had averaged 12,500 barrels of oil per day and as a result, the company said it expected production for the period from 1 September to 31 December to be within the previously-announced 12,000 to 14,000 barrels of oil per day guidance range.

The firm also noted that the 17th and 18th cargoes of Lancaster crude were lifted in mid-October and mid-November, respectively.

Looking at future development options for Lancaster, Hurricane said that since the September technical update, a "significant" amount of work had been completed to further refine the revised technical interpretation of the reservoir systems, and formulate further development options for the field.

The board said that underpinning those efforts were two main objectives - to deliver production levels which ensured resilience in a volatile oil price environment, as well as to achieve optimal further development of the Lancaster field to maximise stakeholder value.

Building on the initial results of the technical review announced in September, a remapping exercise was completed to more accurately define the complex reservoir horizons now recognised in Lancaster.

The reservoir simulation model was also extensively rebuilt, using that remapping work, recognising the contribution from sandstones onlapping fractured basement, and using additional historical and regional data.

That simulation model was used to assess various near-term development options, which were currently under technical and commercial review.

While no firm decisions had been taken, the company said it had focussed on the location, operations planning and execution in 2021 of a new production well in the central 'attic' high of the Lancaster field, by re-entering and side-tracking the existing 205/21a-7z well.

That, the board said, could add "meaningfully "to the production capacity from the existing 205/21a-6 well, accelerate production of existing reserves, and, depending on oil price, materially improve near-term cash flow generation.

Development costs were currently estimated at around $60m, and subject to a sanction decision early in the first quarter of 2021 and securing a suitable rig and equipment, first production from that well should be possible by late 2021.

Hurricane said that implementing a water injection programme was important to provide pressure support generally, but also to sweep oil towards the producing wells in the centre of the field, which could materially improve recovery from Lancaster.

Preliminary evaluation had identified that injection into the north west of the field could provide the greatest benefit.

Ongoing assessment of that water injection option was focussed on finalising the well location, subsurface and floating production, storage and offloading (FPSO) modifications, operations planning and execution in 2022.

Costs were currently estimated at around $75m.

Hurricane said that it recently appointed ERC Equipoise as its independent competent person and reserves auditor, adding that a competent person's report covering its West of Shetland assets was still on track for completion by the end of the first quarter of 2021, at which time updated estimates of Lancaster reserves and resources would be available, together with updated resources estimates for its other assets.

Looking at its finances, at 30 November, Hurricane said it had net free cash of $87m.

The contemplated development activity was conditional on the approval of Hurricane's board, requisite regulatory approvals and the availability and contracting of long lead items.

It was also subject to achieving stakeholder support to underpin suitable funding arrangements.

At current production levels and oil prices, the Lancaster field was generating positive cash flow.

However, the reduced estimates of Lancaster reserves announced in September, combined with the reduction in oil prices since the first quarter of 2020, had negatively impacted the projected future cash generation potential of the field.

As a result, Hurricane said it had appointed Evercore Partners and Dentons UK and Middle East as its financial and legal advisors, respectively.

"Substantive discussions" with some key stakeholders and relevant third parties were expected to begin shortly around the funding of and required support for the development options.

Other technical options which could be available to improve production and recovery efficiency, as well as commercial options to manage projected funding requirements, were also being considered, while reductions to Hurricane's cost base were also being implemented.

"Options to enhance both Lancaster field performance and recovery have progressed considerably in recent months, utilising the revised geological model of the Lancaster field and a rebuilt simulation model incorporating additional reservoir data gathered since September," said chief executive officer Antony Maris.

"While several development options continue to be evaluated, a side-track of the existing 205/21a-7z well to an up-dip oil producer location could increase oil production from late 2021.

"This could be followed by a water injection well in the northwest of the Lancaster field, which, with related FPSO and subsea work, could provide pressure support and sweep oil within the onlapping sandstone reservoirs towards the producing wells from late 2022."

Maris said the company was now starting a period of stakeholder engagement to seek alignment on the merits of this further Lancaster activity, and the support and approvals which could be required to execute the programme.

"While there can be no certainty as to the outcome of this engagement, we continue to believe there is significant value in Lancaster and our broader West of Shetland portfolio, and we remain focused on delivering that value for the benefit of our stakeholders."

At 1137 GMT, shares in Hurricane Energy were down 30.03% at 2.95p.