Formal Sale Process, Capital Return & Ops Update

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 [e-mail]	[phone]
Stifel Nicolaus Europe Limited Financial Adviser, Nominated Adviser & Joint Corporate Broker Callum Stewart / Jason Grossman	[phone]
Investec Bank plc Joint Corporate Broker Chris Sim / Charles Craven / Jarrett Silver	[phone]
Vigo Consulting Public Relations Patrick d'Ancona / Ben Simons [e-mail]	[phone]

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 (Mbbls)	2 39	-
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 [phone] 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 £0.001 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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