TIDMHUR
RNS Number : 0490F
Hurricane Energy PLC
02 November 2022
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN
PART, DIRECTLY OR INDIRECTLY IN, INTO OR FROM ANY JURISDICTION
WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR
REGULATIONS OF THAT JURISDICTION
THIS IS AN ANNOUNCEMENT FALLING UNDER RULE 2.4 OF THE CITY CODE
ON TAKEOVERS AND MERGERS (THE "CODE") AND DOES NOT CONSTITUTE AN
ANNOUNCEMENT OF A FIRM INTENTION TO MAKE AN OFFER UNDER RULE 2.7 OF
THE CODE. THERE CAN BE NO CERTAINTY THAT ANY FIRM OFFER WILL BE
MADE FOR HURRICANE ENERGY PLC, NOR AS TO THE TERMS ON WHICH ANY
OFFER MAY BE MADE
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
2 November 2022
Hurricane Energy plc
Formal Sale Process, Capital Return and Operational Update
Hurricane Energy plc ("Hurricane" or the "Company"), the UK
based oil and gas company, announces that, following receipt of an
unsolicited offer and after a period of engagement with the bidder
(the "Bidder"), Hurricane has received an offer for the entire
issued share capital of the Company at an indicative price of 7.7
pence per share in cash (the "Indicative Offer"). The Indicative
Offer is at a premium of only 13% compared to the mid-market
closing price of 6.8 pence per share on 1 November 2022. The
directors of Hurricane (the "Board") have concluded that the
Indicative Offer should not be recommended to shareholders.
The Company is in a very strong financial and operational
position. However, Crystal Amber Fund Limited, which holds 28.9 per
cent. of the Company's shares and is the Company's largest
shareholder, has indicated to the Board its desire to monetise the
value of its shareholding.
The Company has decided to launch a formal sale process (the
"FSP") as referred to in Note 2 on Rule 2.6 of the Code, in order
to establish whether there is a bidder prepared to offer a value
that the Board considers attractive, relative to the standalone
prospects of Hurricane as a publicly traded company and accordingly
one that should be recommended to all shareholders.
Whilst the outcome of the FSP is uncertain, the Board is
confident of the ongoing strength of the Company's business in both
financial and operational terms, including its:
-- Very strong financial position
o Debt free, with forecast year end net free cash [1] of c. $118
million (at $90/bbl oil)
o Decommissioning liabilities fully funded
-- Valuable asset base
o Significant oil price-geared cash generation from predictable
P6 well
o Material inventory held, covering drilling, completion and
subsea equipment
-- Significant tax loss position
o Over $370 million of value available in tax losses, as at 30
June 2022 [2]
In the event that the FSP does not result in a transaction, the
Board intends to commence a significant capital return programme
with up to $70 million (equivalent to 3.1 pence per share[3]) to be
returned to shareholders in Q1 2023, upon completion of a capital
reduction. Following that, and in the absence of more favourable
alternatives, further distributions could then be made during 2023
and beyond.
[1] Unrestricted cash and cash equivalents, plus current
financial trade and other receivables, current oil price
derivatives, less current financial trade and other payables.
[2] The estimated value of these losses and allowances at
prevailing tax rates, including the Group's pre-trading
expenditure, future decommissioning costs and non-ring fence
losses, was $373 million at 30 June 2022. This is the maximum
possible theoretical value at that date and is subject to timing
and circumstance; and it is unlikely that all of the potential
value would be able to be realised.
[3] Converted at an exchange rate of GBP 1.00: USD 1.15
Formal Sale Process
The Board has appointed Stifel Nicolaus Europe Limited
("Stifel") as its financial adviser with regards to the FSP and as
independent financial adviser for the purposes of Rule 3 of the
Code.
Parties interested in submitting any expression of interest
should contact Stifel through the contact details given below. It
is currently expected that any party interested in submitting any
form of proposal will, at the appropriate time, enter into a
non-disclosure agreement and standstill arrangement with the
Company on terms satisfactory to the Board before being permitted
to participate in the process.
The Company then intends to provide such interested parties with
certain information on its business, following which interested
parties shall be invited to submit their proposals to Stifel. The
Company will update the market in due course regarding timings for
the FSP.
Other than the unsolicited offer referred to above, the Company
is not currently in discussions with, nor in receipt of an approach
from, any potential offeror relating to an acquisition of the
issued and to be issued share capital of the Company. The Bidder
referred to above is participating in the FSP.
The Takeover Panel has agreed that any discussions with third
parties may be conducted within the context of a FSP under the
Code, which will enable conversations with parties interested in
making a proposal to take place on a confidential basis.
The Takeover Panel has granted a dispensation from the
requirements of Rules 2.4(b) and 2.6(a) of the Code such that any
interested party participating in the FSP will not be required to
be publicly identified (subject to note 3 to Rule 2.2 of the Code)
and will not be subject to the 28 day deadline referred to in Rule
2.6(a), for so long as they are participating in the FSP.
The Board reserves the right to alter any aspect of the process
as outlined above or to terminate the process at any time and in
such cases will make an announcement as appropriate. The Board also
reserves the right to reject any approach or terminate discussions
with any interested party at any time.
This announcement is being made without the consent of the
Bidder. Shareholders are advised this is not a firm intention to
make an offer under Rule 2.7 of the Code and there can be no
certainty that any offers will be made as a result of the FSP, that
any sale or other transaction will be concluded, nor as to the
terms on which any offer or other transaction may be made.
Philip Wolfe, Chairman of Hurricane commented:
"The Board intends to deliver near term shareholder returns
through either the successful outcome of the formal sale process or
with a substantial capital return programme. Hurricane is in a
strong position with an experienced senior team, robust balance
sheet, profitable ongoing production and significant tax losses - a
platform capable of supporting distributions throughout Lancaster's
expected economically productive life. We look forward to updating
shareholders in due course."
Contacts:
Hurricane Energy plc
Antony Maris, Chief Executive Officer
communications@Hurricaneenergy.com +44 (0)1483 862820
Stifel Nicolaus Europe Limited
Financial Adviser, Nominated Adviser & Joint
Corporate Broker
Callum Stewart / Jason Grossman +44 (0)20 7710 7600
Investec Bank plc
Joint Corporate Broker
Chris Sim / Charles Craven / Jarrett Silver +44 (0)20 7597 5970
Vigo Consulting
Public Relations
Patrick d'Ancona / Ben Simons
Hurricane@vigoconsulting.com +44 (0)20 7390 0230
Reverse Takeovers
Hurricane has a strong balance sheet, transparent corporate
structure and a liquid shareholder base, all of which make it a
suitable candidate for a private or overseas listed company seeking
a UK listing. In the right circumstances, a reverse takeover may
offer an opportunity for Hurricane shareholders to participate in a
larger, diversified company. The Board will review such
opportunities in parallel with the FSP.
Status Quo Case and Distributions Policy
Any proposals received in connection with the FSP, as well as
alternative transactions identified, will be measured against the
Board's assessment of the prospects of the Company under its
current operational plan. Based on current production forecasts and
assuming oil prices of c.$90/bbl and no mechanical issues,
Hurricane anticipates that production will remain economic until at
least the end of H1 2024. If oil prices are higher, or production
levels exceed expectations, then economic production could continue
beyond this date.
Currently the Company is unable to carry out a shareholder
distribution as it does not have any distributable reserves. The
Board will therefore shortly propose a capital reduction (the
"Capital Reduction") comprising the cancellation of some or all of
the Company's share premium account so as to create positive
distributable reserves. This would enable the Company to make
distributions or other returns of value to its Shareholders in the
future should it determine to do so, subject to the outcome of the
FSP, the Company's financial performance and compliance with
applicable law. The Capital Reduction will require the approval of
shareholders and confirmation by the High Court of Justice in
England and Wales. It is expected that, if approved, the Capital
Reduction will become effective in Q1 2023. Further announcements
will be made in due course.
Following the Capital Reduction the Board would aim to return up
to $70 million to shareholders in Q1 2023. In the absence of
alternatives that would generate better returns for shareholders,
further distributions totalling up to $110 million could be made
during 2023 and 2024 in aggregate, with a final distribution of up
to $30 million in 2025, following the cessation of production from
the Lancaster operations. The amount of cash available to
distribute to shareholders following cessation of operations and
decommissioning is dependent on many factors, including oil price,
ultimate oil recovery from Lancaster, whether the decision to cease
operations is planned or forced and the cost and timing of
decommissioning.
Operational and Commercial Update
Production
The following table details production volumes, water cut and
minimum flowing bottom hole pressure for the 205/21a-6 ("P6") well
during October 2022.
October 2022 Lancaster Field Data
P6 P7z(1)
O il produced during the month -
(Mbbls) 2 56
------- -------
Average oil rate (bopd) 8,2 71 -
------- -------
W ater produced during the month 2 39 -
(Mbbls)
------- -------
A verage water cut(2) 48% -
------- -------
Well gauge p ressure (psia)(3) 1,53 2 -
------- -------
1. The 205/21a-7z ("P7z") well was not on production during
October 2022
2. Expressed as total water produced divided by total fluid (oil
and water) production
3. Pressure reported is the monthly minimum from well downhole
gauges.
As of 31 October 2022, Lancaster was producing c. 8,100 bopd
from the P6 well alone with an associated water cut of c.49%.
Liftings
The 31st cargo of Lancaster oil, totalling approximately 545
Mbbls, was lifted on 8 October 2022. This cargo was priced by
reference to the average of the last five days of October's Dated
Brent quotes, being $93/bbl, resulting in net revenue of c.$49
million equivalent to 2.1 pence per share ([4]) . The next cargo is
anticipated to be lifted in December 2022.
Financial
As at 31 October 2022, the Company had net free cash[5] of c.
$99 million (including the revenue from the October lifting).
The Company has a creditable record of safe operations and
delivering cargoes on schedule. It continues to focus on delivering
safe operations whilst managing its cost base as effectively as
possible. It is sized appropriately for a publicly traded operator
West of Shetland and over the past two years has reduced its
headcount to align with the scale of its current operations. As at
31 December 2020 the Company had 54 employees. By 31 December 2021
this had been reduced to 39 and as at 31 October 2022 the head
count was 27. This reduction in staffing has reduced the underlying
salary costs by approximately $2.8 million per annum. The Company
continues to focus on controlling its costs and the Board is
further reviewing other cost saving measures as part of its 2023
budget process.
[4] Converted at an exchange rate of GBP 1.00: USD 1.15
[5] Unrestricted cash and cash equivalents, plus current
financial trade and other receivables, current oil price
derivatives, less current financial trade and other payables
Taxation
The Energy Profits Levy ("EPL") charge for the Company for 2022
is currently expected to be less than $5 million taking into
account capital allowances available in the period as well as the
effect of the Investment Allowance that is included within the EPL
legislation. This amount equates to an effective rate of less than
10% of the Company's forecast profit before tax ("PBT") for the
period covered by the EPL (26 May - 31 December 2022). It is
currently anticipated that the effective rate, when compared to
PBT, will be similar for 2023, but this is heavily dependent on the
Company's cost base for 2023 and the achieved level of revenue,
driven by the price of oil.
The estimated value of the tax losses and allowances held by the
Company at prevailing tax rates, including the Group's pre-trading
expenditure, future decommissioning costs and non-ring fence
losses, was $373 million at 30 June 2022. This is the maximum
possible theoretical value and is subject to timing and
circumstance; and it is unlikely that all of the potential value
would be able to be realised.
While the ongoing profit generated from Lancaster operations
utilises some of these tax losses, significant potential value
remains that could be utilised through new production. These tax
losses could also be attractive to a potential acquirer of
Hurricane.
The person responsible for arranging the release of this
announcement on behalf of Hurricane is Antony Maris, CEO.
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.
Notices related to financial adviser and broker
Stifel Nicolaus Europe Limited, which is authorised and
regulated by the Financial Conduct Authority in the United Kingdom,
is acting exclusively for Hurricane and for no one else in
connection with the subject matter of this announcement and will
not be responsible to anyone other than Hurricane for providing the
protections afforded to its clients or for providing advice in
connection with the subject matter of this announcement.
Investec Bank plc, which is authorised by the Prudential
Regulation Authority and regulated by the Financial Conduct
Authority and the Prudential Regulation Authority in the United
Kingdom, is acting exclusively for Hurricane and for no one else in
connection with the subject matter of this announcement and will
not be responsible to anyone other than Hurricane for providing the
protections afforded to its clients or for providing advice in
connection with the subject matter of this announcement.
Disclosure requirements of the Code
Under Rule 8.3(a) of the Code, any person who is interested in
1% or more of any class of relevant securities of an offeree
company or of any securities exchange offeror (being any offeror
other than an offeror in respect of which it has been announced
that its offer is, or is likely to be, solely in cash) must make an
Opening Position Disclosure following the commencement of the offer
period and, if later, following the announcement in which any
securities exchange offeror is first identified. An Opening
Position Disclosure must contain details of the person's interests
and short positions in, and rights to subscribe for, any relevant
securities of each of (i) the offeree company and (ii) any
securities exchange offeror(s). An Opening Position Disclosure by a
person to whom Rule 8.3(a) applies must be made by no later than
3.30 pm (London time) on the 10th business day following the
commencement of the offer period and, if appropriate, by no later
than 3.30 pm (London time) on the 10th business day following the
announcement in which any securities exchange offeror is first
identified. Relevant persons who deal in the relevant securities of
the offeree company or of a securities exchange offeror prior to
the deadline for making an Opening Position Disclosure must instead
make a Dealing Disclosure.
Under Rule 8.3(b) of the Code, any person who is, or becomes,
interested in 1% or more of any class of relevant securities of the
offeree company or of any securities exchange offeror must make a
Dealing Disclosure if the person deals in any relevant securities
of the offeree company or of any securities exchange offeror. A
Dealing Disclosure must contain details of the dealing concerned
and of the person's interests and short positions in, and rights to
subscribe for, any relevant securities of each of (i) the offeree
company and (ii) any securities exchange offeror, save to the
extent that these details have previously been disclosed under Rule
8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies
must be made by no later than 3.30 pm (London time) on the business
day following the date of the relevant dealing.
If two or more persons act together pursuant to an agreement or
understanding, whether formal or informal, to acquire or control an
interest in relevant securities of an offeree company or a
securities exchange offeror, they will be deemed to be a single
person for the purpose of Rule 8.3.
Opening Position Disclosures must also be made by the offeree
company and by any offeror and Dealing Disclosures must also be
made by the offeree company, by any offeror and by any persons
acting in concert with any of them (see Rules 8.1, 8.2 and 8.4).
Details of the offeree and offeror companies in respect of whose
relevant securities Opening Position Disclosures and Dealing
Disclosures must be made can be found in the Disclosure Table on
the Takeover Panel's website at www.thetakeoverpanel.org.uk ,
including details of the number of relevant securities in issue,
when the offer period commenced and when any offeror was first
identified. You should contact the Panel's Market Surveillance Unit
on +44 (0)20 7638 0129 if you are in any doubt as to whether you
are required to make an Opening Position Disclosure or a Dealing
Disclosure.
Rule 2.9 information
In accordance with Rule 2.9 of the Code, Hurricane confirms that
as at the close of business on 1 November 2022 its issued share
capital consisted of 1,991,871,556 ordinary shares of GBP0.001 each
(excluding shares held in treasury). The International Securities
Identification Number for Hurricane's ordinary shares is
GB00B580MF54.
Rule 26.1 disclosure
In accordance with Rule 26.1 of the Code, a copy of this
announcement will be available (subject to certain restrictions
relating to persons resident in restricted jurisdictions) at
www.Hurricaneenergy.com by no later than 12 noon (London time) on
the business day following the date of this announcement. The
content of the website referred to in this announcement is not
incorporated into and does not form part of this announcement.
Additional Information
This announcement is not intended to, and does not, constitute
or form part of any offer, invitation or the solicitation of an
offer to purchase, otherwise acquire, subscribe for, sell or
otherwise dispose of, any securities, or the solicitation of any
vote or approval in any jurisdiction, pursuant to this announcement
or otherwise. Any offer, if made, will be made solely by certain
offer documentation which will contain the full terms and
conditions of any offer, including details of how it may be
accepted. The distribution of this announcement in jurisdictions
other than the United Kingdom and the availability of any offer to
shareholders of Hurricane who are not resident in the United
Kingdom may be affected by the laws of relevant jurisdictions.
Therefore any persons who are subject to the laws of any
jurisdiction other than the United Kingdom or shareholders of
Hurricane who are not resident in the United Kingdom will need to
inform themselves about, and observe any applicable
requirements.
Nothing in this announcement is or should be relied on as a
promise or representation as to the future. This announcement
includes certain statements, estimates and projections provided by
the Company in relation to the Company's anticipated future
performance. Such statements, estimates and projections are based
on various assumptions made by the Company concerning anticipated
results which may or may not prove to be correct. No
representations or warranties are made by any person as to the
accuracy of such statements, estimates or projections.
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