RE: CA28 Jan 2022 07:02
Hurricane Energy ("Hurricane")
Hurricane is an oil exploration and production company targeting naturally fractured basement reservoirs in the West of Shetland, Scotland. The Fund's previous annual reports include background information on this investment. The Fund has been an investor in Hurricane since 2013 and has to date realised profits of GBP43 million.
In June 2021 at the High Court, Mr Justice Zacaroli refused to sanction the Hurricane board's attempt to force through a highly dilutive debt for equity swap. At the time, Executives of Hurricane claimed that without a debt for equity swap, bondholders would be able to recover no more than 56 per cent of their investment. The board had proposed that $50 million of the $230 million repayable to bondholders in July 2022 be converted into 95 per cent. of Hurricane's equity, with the remaining $180 million debt earning cash interest of 9.4 per cent per annum plus payment in kind interest of 5 per cent per annum.
Earlier this month, the board of Hurricane announced that as at 31 December 2021, net debt had reduced to $28.5 million and that net free cash, after repaying all outstanding bonds, of between $8 million and $38 million is expected by the end of July 2022. This is a remarkable transformation in just seven months. The Fund's actions not only averted a wholly unnecessary 95 per cent dilution but has positioned the Fund to benefit from Hurricane's exciting prospects.
Specifically, based on production from the existing P6 well alone, the Fund calculates that by February 2024, provided that production continues on the anticipated trajectory, Hurricane should be able to generate revenues of approximately $550 million and operating free cash flow of $278 million. This is based on a per barrel price of Brent of $85.4 and the forward curve. At the time of the High Court hearing, Hurricane published estimated production through to February 2024. For January 2022, production was forecast at 9,100 barrels per day, whereas actual production is averaging 9,650 barrels per day. The Fund believes that production could be extended through to at least January 2025 and, if so, based on the rate of production decline published by Hurricane in May 2021, this could generate revenues of approximately $750 million and operating free cash flow of approximately $375 million, equivalent to 14p per share.
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