Hurricane Energy has outlined plans to enter a period of financial restructuring, after it announced it will not be in a position to repay its $230m (£162m) of convertible bond debt at maturity in July 2022.
The move comes as the oil company recorded losses in 2020 of $625.3m (£440.8m). This included impairment charges to its Lancaster oil and gas field off the coast of the Shetland Islands of $567.1m (£399.7m). This has been due to, in part, much poorer production rates than expected in 2020.
And, while the firm did retain $111m (£78m) of net free cash, this was significantly less than expected because of low oil prices and production rates at substantially lower and declining levels than original forecasts in 2020.
If approved and implemented, the proposed financial restructuring process is expected to take effect in June 2021. Its aim is to deliver a viable balance sheet from which to execute its revised strategy of maximising cash flow from existing Lancaster wells and infrastructure to pay down debt.
This process will see the business reduce its convertible bond principal outstanding from $230m (£162m) to $180m (126m), in exchange for the allotment and issue of new shares to existing bondholders representing approximately 95% of the group’s enlarged issued share capital after completion of the transaction. In addition to this, the amended bonds will carry an annual coupon rate of 9.4% (cash pay) plus 5% (payment in kind) interest accruing quarterly.
Commenting on the news, Hurricane Energy’s chief executive Antony Maris said: “The understanding of the West of Shetland fractured basement play has changed significantly. As a result, the potential of the Lancaster field is much smaller than originally thought and cannot support the level of debt in the company which was sized for a much larger Reserves and contingent resources base.
“Against this extremely challenging backdrop, the company has explored all potential options to resolve the company’s financial situation, with the proposed financial restructuring ultimately being deemed the best possible outcome. We understand the impact this will have on our shareholders and the strong feelings that have been expressed as a result, but this was a necessary move in order to secure the company’s future.
“If the proposed restructuring is approved and implemented, we will focus our efforts on maximising Lancaster cash flows to pay down debt, as well as making the case for further development of our West of Shetland asset base.”
Should the proposed financial restructuring not go ahead, the directors do not forecast a scenario where there would be sufficient free cash available to fully repay the $230m (£162m) principal due on the convertible bond in July 2022.