Hurricane Energy, the operator Lancaster – one of the largest undeveloped oil fields in the UK North Sea – has entered into an agreement to secure some cash to help preserve liquidity ahead of a future larger fundraising for the project.
The company on Friday said it signed a deal with Stifel Nicolaus Europe, an investment banking firm, entitling Stifel to subscribe 25,000,000 ordinary shares of 0.1p each in the capital of Hurricane Energy.
“In order to maintain the company’s existing targeted timetable towards first oil in H1 2019 from the company’s Early Production System (“EPS”) development at its Lancaster field, West of Shetland, the company has committed to, and plans to further commit to, certain pre-sanction long lead items, with expenditures to be incurred on a staged basis to the end of Q2 2017. By committing to these expenditures the Company reduces the risk that key equipment will not be available for installation during the benign weather window in Q2 and Q3 2018,” Hurricane said.
Hurricane said its plan was to apply its existing cash resources to cover these expenditures, however, it said, any proceeds arising from the issue of shares to Stifel will provide the company with additional resources and working capital. Importantly, Hurricane said, the deal will help preserve flexibility in respect of both the timing and structure of any future fundraising(s) required to fully fund the EPS.
The operator said it “has applied, and intends to continue to apply,” its existing cash resources toward certain pre-sanction long lead time items, including starting work on the FPSO and mooring buoy, ordering the fabrication of key subsea components such as Christmas trees, and undertaking certain geotechnical and geophysical studies in relation to the proposed location of the FPSO.
Hurricane Energy currently aims to sanction the EPS phase of the Lancaster development towards the end of H1 2017 or early H2 2017 and to achieve first oil during H1 2019 – subject to financing.
Hurricane will incur the long lead expenditures on a staged basis over the rest of Q2 2017, in line with its targeted timing for full EPS financing and final investment decision (“FID”).
Capital expenditure required to achieve first oil from the EPS, excluding the two horizontal wells which have already been drilled and tested, is expected to be approximately $467 million. This estimate includes all pre-sanction expenditures including front end engineering design studies, long lead items, project management and time writing to FID.
“The company is considering a range of financing options for the EPS phase of the Lancaster development and currently intends to finance the EPS via a combination of some or all of the following options: equity, deferred vendor finance, debt and debt-related securities and farmout,” Hurricane Energy said.
The Stifel deal
Under the Warrant Issue issued to Stifel, the exercise price under each of the Warrants is 95% of the volume weighted average price of the Ordinary Shares, calculated over the trading day prior to exercise.
Stifel will use reasonable endeavours to procure purchasers for the Ordinary Shares issued, if any, under the Warrants. The Warrants may be exercised in whole or in part by Stifel.
Unless the Company consents to a continuation of the Warrants, the Warrants will lapse on 31 May 2017. If the Warrants are continued they will lapse on the final longstop date of 30 June 2017.
In addition, the Company may also, at its election and without penalty, terminate or suspend the Warrants on any Business Day before 30 June 2017, after which date, in the event of a termination, any outstanding entitlement of Stifel to exercise Warrants will fall away.