Hurricane Energy : 664KB

30 September 2022

Hurricane Energy plc

("Hurricane", the "Company", or the "Group")

Half-year Results 2022

Hurricane Energy plc, the UK based oil and gas company, provides its 2022 interim report and unaudited half- year results for the six-month period ended 30 June 2022.

Highlights

Financial results

• Revenues of $159.5 million from three liftings of Lancaster crude (H1 2021: $124.5 million from four liftings)
• Cash production costs† of $35.4/bbl (H1 2021: $24.8/bbl) in line with expectations
• Generated $110.1 million of operating cash flow (H1 2021: $75.9 million), equivalent to $67.5/bbl
  (H1 2021: $37.9/bbl)
• Profit after tax for the period of $67.0 million (H1 2021: $42.8 million)
• Net cash† at 30 June 2022 of $48.4 million (31 December 2021 net debt: $27 million) - repaid $78.5 million Convertible Bonds plus $1.5 million of accrued interest after the period end to become debt free
• Net free cash† of $126.9 million at 30 June 2022 (31 December 2021: $51.5 million) ($76.6 million as at 31 August 2022 following repayment of the Convertible Bonds and the July lifting)
• Restricted cash of $60.8 million at 30 June 2022 relating to decommissioning obligations and FPSO charter (31 December 2021: $45.7 million) - Restricted cash is in addition to Net free cash
• Non-IFRSmeasures. See Appendix for definition and reconciliation to nearest equivalent statutory IFRS measures

Operations

• Excellent operational performance at the Aoka Mizu FPSO with an average Lancaster field production uptime of 98% in H1 2022 (H1 2021: 96%)
• Lancaster EPS production averaged 9,000 bopd for H1 2022 (H1 2021: 11,100 bopd) in line with expectations
• Annual planned maintenance shutdown successfully carried out in September, with next lifting scheduled for early October 2022

1

Corporate

• Philip Wolfe appointed Chair in March 2022, replacing John Wright who remains as a Non-Executive Director
• Juan Morera appointed to the Board as a Non-Executive Director in March 2022, representing Crystal Amber, Hurricane's largest shareholder
• Linda Beal appointed to the Board as an Independent Non-Executive Director in May 2022, taking on the role of Audit and Risk Committee Chair
• Robin Allan appointed to the Board as an Independent Non-Executive Director in July 2022, taking on the role of ESG Committee Chair

Outlook

• Hurricane passed a key milestone with its repayment of the outstanding Convertible Bonds post- period end in July 2022, and is focused on building a positive long-term future for the benefit of all stakeholders
• Management will identify and pursue opportunities for the most effective capital allocation of its funds

Antony Maris, Chief Executive Officer of Hurricane, commented:

"Repaying our Convertible Bonds and becoming debt-free has enabled us to consider multiple trajectories for Hurricane's future. At the same time as ensuring continuing production from Lancaster, we have been working diligently on many workstreams, all with the aim of creating additional value for our shareholders.

In terms of Lancaster, continuing our close collaboration with our FPSO operator, we have been able to deliver superb uptime performance, leading to the production of more oil in the period. Our team can be justifiably proud of the fact that we bettered our targets set for the shutdown and unplanned downtime without at any time compromising the safety of our operations.

Looking to Lancaster's future, we have expended considerable effort and some funds into maintaining the ability to deliver a new well in the Lancaster Field, termed P8, in order to meet our "maximum economic recovery" obligations to the UK Government. Given our emissions challenges, we have worked closely with the UK's offshore regulator, the North Sea Transition Authority ("NSTA"), to plot a way forward for Lancaster. It is disappointing that despite the enormous efforts of our team, and extensive interactions over many months, the NSTA is unable to provide comfort to the Company with regard to the likelihood of it being granted the necessary consents related to flaring for Hurricane to make further commitments to investment in Lancaster.

In parallel, however, we have been pursuing alternative capital allocation opportunities outside of our existing asset base - a task which is challenging owing to the current market volatility - and one that we can now focus on completely.

With our strong balance sheet, no debt, and our decommissioning liabilities being fully funded, I believe Hurricane, with our committed and capable team, is well placed to be able to create additional value for our shareholders."

Contacts:
Hurricane Energy plc	[phone]
Antony Maris, Chief Executive Officer
[e-mail]
Stifel Nicolaus Europe Limited	[phone]
Nominated Adviser & Joint Corporate Broker
Callum Stewart / Simon Mensley / Ashton Clanfield
Investec Bank plc	[phone]
Joint Corporate Broker
Chris Sim / Charles Craven / Jarrett Silver
Vigo Consulting	[phone]
Public Relations
Patrick d'Ancona / Ben Simons
[e-mail]

About Hurricane

Visit Hurricane's website at www.hurricaneenergy.com

Inside Information

This announcement is released by Hurricane Energy plc and contains inside information under Regulation (EU) 596/2014 on market abuse, as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018 (the UK MAR). For the purpose of the UK MAR, this announcement is made by Antony Maris, Chief Executive Officer at Hurricane Energy plc.

Competent Person

The technical information in this release has been reviewed by Antony Maris, Chief Executive Officer, who is a qualified person for the purposes of the AIM Guidance Note for Mining, Oil and Gas Companies. Mr Maris is a petroleum engineer with 35 years' experience in the oil and gas industry. He has a B.Sc. (Eng.) Petroleum Engineering (Hons) from the Imperial College of Science and Technology (University of London) Royal School of Mines A.R.S.M. and an MBA from Kingston Business School.

Standard

Reserves and resource estimates for the Lancaster field contained in this announcement have been prepared in accordance with the Petroleum Resource Management System guidelines endorsed by the Society of Petroleum Engineers, World Petroleum Congress, American Association of Petroleum Geologists and Society of Petroleum Evaluation Engineers.

Chief Executive Officer's Review

Introduction

The first half of 2022 has been an extraordinarily volatile period for our sector due to surging commodity prices, exacerbated by the terrible events in Ukraine. The resulting high oil price, combined with outstanding operational performance at the Company's Lancaster field, has significantly strengthened Hurricane's finances, and led post-period end to the full repayment in July 2022 of the outstanding Convertible Bonds. This represented a major milestone for our Company.

During the year, the importance of domestic energy security has been highlighted by Russia's invasion of Ukraine and by the subsequent concerns over energy supplies across Europe. Companies such as Hurricane have an important continuing contribution to make to meeting the UK's domestic energy requirements.

Hurricane is now a company underpinned by firm financial foundations, without debt and with significant cash in hand; as such, the Board is now able to devote more time to addressing the future of Hurricane, prioritising the best investment opportunities that could add significant value for shareholders.

Operational Review

Greater Lancaster Area (GLA)

The period saw a very strong operational performance by the Aoka Mizu FPSO at the Company's Lancaster field.

The field has performed well and within guidance, delivering 9,000 barrels of oil per day in the first half of 2022. The anticipated natural decline coupled with increased water cut, offset by high uptime, informed production levels, and these factors are expected to play their part in field performance during the second half of 2022 and beyond. Based on current forecasts we expect production for 2022 to be towards the upper end of our guidance range.

During the period there were three cargo liftings totalling 1.6 million barrels and delivering revenues of $159.5 million.

Over a two-day period in May the Company conducted several flow performance tests on the P7Z well that involved temporarily reducing the flow rate from the P6 well. The data obtained will be useful in refining production forecasts for P6.

In September the planned annual maintenance shutdown was carried out on the Aoka Mizu with production being successfully restarted ahead of the planned timeframe. As at 28 September 2022, production was c. 8,700 bopd with a water cut of 46%. The current production rate and water cut are impacted from the post shutdown flush production. We expect that production will settle at its pre-shutdown level of c. 8,300 bopd (and c. 48% water cut) and then continue its natural decline.

Alongside ongoing production operations, the Company has been progressing the possibility of drilling an additional production well, the P8 well. Although first discussed with the Regulators in 2021, in early 2022 when the Company recognised that not only would it clear its debt but also have sufficient funds to both fully cover the cost of a new well in Lancaster and also its other operational requirements, we engaged with the Regulators concerning the unique challenges Hurricane faces.

The originally approved development plan included flaring as the approved gas disposal mechanism and, under the NSTA approval of the amendment to this plan, allowed for production below the bubble point.

Hurricane is subject to rolling and declining three-monthly production, flare and vent consents under this amendment.

The Company has worked hard to reduce its emissions and, as reported at the 2021 Full Year Results, had significant success in achieving reductions through the combined hard work and efforts of our team and Bluewater. Hurricane is fully cognisant of the increased scrutiny and oversight in this area and is continuing to look at ways of further reducing our overall environmental footprint in 2022 and beyond, where it is economically and commercially viable to do so. However, being fully aware of the challenge concerning flare volumes and the impact that any additional production would have, the Company has worked tirelessly with both OPRED and the NSTA to address the environmental impact of new investment.

With OPRED we have sought to demonstrate that the new well has no significant environmental impact beyond the environmental approvals already given. Interaction has been extensive, and positive, and we believe that we have demonstrated that the P8 well would remain within the limits of the existing approvals.

The work with the NSTA has been to show that the project proposal is in line with the regulations and meets the OGA Strategy's central obligations, and would allow for an increase in the production, flare and vent consents to be awarded when applied for. This would be just prior to the start-up of the new well.

We believe we have shown that the project is consistent with the requirements placed upon Hurricane to maximise economic recovery as part of the OGA Strategy's central obligation 2a. Whilst the project would lead to a short-term increase in emissions, we also believe we are fully aligned with the OGA Strategy's central obligation 2b, which is to assist the Secretary of State in meeting the country's Net Zero targets.

Interaction on this latter point has been detailed, and rightly both challenging and highly scrutinised. The situation Hurricane faces is that the retrofitting of a new gas export or disposal system to the existing development is technically challenging, with a high capex requirement. The expected recovery of gas from an additional well, including the benefit of the extended life of the field, is such that the economics of the investment are significantly below the threshold considered appropriate for Hurricane to commit to such a project.

Thus, we have been working with the NSTA team in two specific areas. Firstly, to demonstrate that there is no technical and economically viable solution to mitigate the emissions that is reasonable in the circumstances. Secondly, in order to make the significant financial commitments to the equipment and services required to execute and deliver the P8 well in 2023, Hurricane has been seeking comfort that the NSTA would provide, when requested, the required increase in production, flare and vent consents for the new well, subject to:

1. OPRED confirming that the impact of the new well has no significant environmental impact beyond the current environmental approvals given; and
2. Demonstration that there is no technical and economically viable solution to mitigate the emissions that is reasonable in the circumstances.

Without such comfort from the NSTA the risk of proceeding with the drilling of the well, without knowing if production, flare and vent consent approvals are likely to be granted, is too high.

We are fully aware of the challenge the NSTA faces in terms of the interaction between the competing objectives of maximising economic recovery whilst reducing emissions. The Company therefore offered that all incremental emissions as a result of the new well (including those associated with the extension of the life of the field) would be covered by verifiable carbon offsetting.

The informal feedback from the NSTA during the six months of interaction was that, even where there is no technical and economically viable solution to mitigate the emissions that is reasonable in the circumstances,