Annual Report and Consolidated Financial Statements 2012
Hurricane Energy plc Annual Report and Consolidated Financial Statements
16 Months Ended 31 December 2012
Contents
2-5
6-7
8-9
12-17
18-21
24-27
28-31
32-33
34-35
38-39
40-67
Key Facts
Chairman’s Introduction
The Board
Chief Executive Officer’s Review
Chief Operations Officer’s Review
About Fractured Basement Reservoirs
Chief Administrative Officer’s Review
Health and Safety Policy
Environmental Policy
Chief Financial Officer’s Review
Financial Statements
ii
1
Hurricane Energy plc Annual Report and Consolidated Financial Statements
16 Months Ended 31 December 2012
Hurricane exists to discover, appraise and develop
hydrocarbon resources associated with fractured basement
reservoirs, thereby creating value for shareholders.
Hurricane’s acreage is on the United Kingdom Continental
Shelf (UKCS), West of Shetland on which the Company has
made two basement reservoir discoveries, each approximately
200 MMboe 2C Contingent Resources. The Company
also has approximately 440 MMboe of P50 Prospective
Resources in its portfolio of exploration opportunities.
We have 100% control of the licenses over all our
discoveries and prospects.
Hurricane’s most advanced asset is Lancaster. Our plans
are to drill a horizontal well on Lancaster in 2013, to be
followed by an exploration well on the Lincoln prospect in
2014. Lincoln is close to Lancaster and together they make
a potential combined development of around 350 MMboe
on acreage that we call the Greater Lancaster Area.
From a recent valuation of Lancaster alone, along with
our work started in 2012 on development strategy,
we believe that there is a clear path to realising value.
Key Strengths
Our History
• Track record of discovering hydrocarbons in fractured
basement reservoirs
• Leading expertise in fractured basement reservoir exploration
• Broad portfolio of licenses in the proven petroleum system
West of Shetland
• Planned appraisal and exploration drilling campaign in
2013 and 2014
• Strategy of maintaining 100% ownership of basement
properties in the discovery and early appraisal phases,
with aim to farm down from a position of strength
following their appraisal
• Experienced Board and management team with substantial
international experience in the oil and gas industry and,
in particular, fractured basement reservoirs
Did you know?
• Hurricane is the first UK oil company to focus on fractured
basement reservoirs. But basement has been exploited
around the world for decades, from California to Vietnam
• Fractured reservoirs contain around 20% of the world’s
remaining oil and gas resources
• With fractured basement reservoirs, large volumes of oil
can be found. Hurricane’s Competent Person’s Report
(CPR) shows the level of resources we have discovered
• Hurricane has around 450 million barrels of 2C Contingent
Resources that it controls 100%
Hurricane was founded in 2005 by Dr Robert Trice with the
help and encouragement of a private investor in the belief that
fractured basement reservoirs represent a significant untapped
resource. The Group began as a joint venture with Sunshine Oil
plc (Sunshine). We applied for our first nine licence blocks in the
23rd round and were awarded operatorship in 2006.
In 2007 Hurricane was awarded a further five blocks. In 2008 we
privately raised £43 million enabling us to buy out the interests
of Sunshine and to move towards drilling our first Lancaster
well in 2009 with 100% control. That was a significant operation
because we brought light oil to surface.
In 2010 we raised a further £60 million in a private fundraising,
attracting significant institutional interest that enabled us to
drill and test a sidetrack on Lancaster and also to drill on our
Whirlwind prospect for the first time.
In 2011 we raised £20 million enabling us to return to Whirlwind
where we again brought hydrocarbons to surface. The same
year we commissioned a Competent Person’s Report that
established 2C Contingent Resources of around 450 MMboe
and approximately a further 440 MMboe of P50
Prospective Resources.
In March 2012 we raised £28.1 million which was applied
as working capital and to invest in long lead items for
future operations.
Early in 2013 the Company completed a fundraising amounting
to £31.4 million enabling the signing of a rig contract for
summer 2013.
Beginning with just a few highly expert staff, Hurricane has
established a team of specialists with the skills, experience
and determination to locate and develop a potentially
strategic resource.
2
3
Hurricane Energy plc Annual Report and Consolidated Financial Statements
16 Months Ended 31 December 2012
Hurricane's Licensed blocks
Foinaven Field
Schiehallion Field
Whirlwind
Lancaster
Lincoln
Typhoon
Strathmore
Mmboe
3000
2500
2000
1500
1000
500
Prospective Resources
Contingent Resources
2008
In Hurricane’s comprehensive Competent
Person’s Report (CPR) it recognises 2C
Contingent Resources of 444-470 MMboe
and P50 Prospective Resources
of a further 432-442 MMboe.
93
188
1C+P90
442
470
984
2C+P50
3C+P10
Hurricane’s assets:
Contingent and Prospective Resources
Source: CPR 18 April 2013 (Whirlwind oil case)
R o n a Rid g e
(s h o w n sc h e m atic ally)
Clair Field
Shetland
Orkney blocks
Orkney
0
20
50km
4
5
I was appointed Non-Executive Chairman in March 2013 and so I am delighted to have this early opportunity to introduce the Group’s Annual Report for the 16 month period to the end of 2012. The Annual Report and Consolidated Financial Statements take into account Hurricane’s adjusted year end that is now based on the calendar year in line with common industry practice.Not being able to drill in 2012 was clearly frustrating for management and shareholders alike. The unprecedented difficulties in the financial markets coupled with high demand in the rig market conspired to make progress difficult. However, I am pleased to report that we now see signs of significant progress and all stakeholders can look forward to an exciting and successful period ahead.Hurricane specialises in the exploration, discovery and development of hydrocarbon resources from fractured basement reservoirs. Our licenses are located West of Shetland on the UKCS, south east and south west of the producing Schiehallion and Foinaven oil fields. Our discoveries at Lancaster and Whirlwind are located on or close to the Rona Ridge, the same geological structure on which the Clair Field sits, which itself holds in excess of eight billion barrels of oil equivalent in place. The Board believes that our assets have the potential to become a material resource from which we can unlock significant value. Hurricane is in the enviable position of having recoverable 2C Contingent Resources of some 450 MMboe. These resources are in licences which the Group owns 100%, which is an unusual situation and which gives Hurricane great scope and flexibility in how it manages this asset base in the future.Although drilling did not occur in 2012, substantial technical work was undertaken during the year which has progressed the Group’s understanding of its assets. This includes a detailed plan for the early appraisal and development of the Lancaster discovery. Management were also actively pursuing opportunities to secure rigs for future drilling. This latter effort resulted in a rig contract being secured early in 2013 for drilling later in the year, together with an option for a further well to be drilled in 2014. To ensure financing was available to cover the cost of drilling, £31.4 million was raised early in 2013. At the time of writing, the Group is pursuing a listing and offering on AIM with the intention of raising additional funds, both to allow the option for drilling in 2014 to be exercised and for the cost of further work to be undertaken. The funds being raised are to support a work programme which has a single and clear objective - to prove the commercial potential for a development of the Lancaster asset, and possibly the Greater Lancaster Area that includes the Group’s adjacent Lincoln prospect.Company policy for the past few years has been to follow the QCA Corporate Governance Guidelines for Smaller Quoted Companies as far as practicable having regard to the size and stage of development of the Group, and I am pleased to say that Hurricane is therefore well prepared for life on the stock market. Committees for Remuneration, Audit and Nominations are well established. Board meetings are held at least five times per year and the committees meet as required.It is an exciting time for the Group and I look forward to a successful period ahead.John HoganChairman Chairman’s IntroductionHurricane Energy plc Annual Report and Consolidated Financial Statements 16 Months Ended 31 December 201267 Hurricane Energy plc Annual Report and Consolidated Financial Statements
16 Months Ended 31 December 2012
The Board
3
7
6
2
4
1 Dr Robert Trice Chief Executive Officer
2 Nicholas Mardon Taylor Chief Financial Officer
As Hurricane’s founder, Robert has over 25 years’ oil industry
experience. He has combined specialist technical expertise in
fractured reservoirs’ characterisation and evaluation. He has a
PhD in Geology from Birkbeck College, University of London and
gained the bulk of his geoscience experience with Enterprise
Oil and Shell. He has worked in field development, exploration,
well-site operations and geological consultancy. Robert has
held the position of Visiting Professor at Trondheim University
(Norway) and has published and presented on subjects related
to fractured reservoirs and exploration for stratigraphic traps.
It is Robert’s vision that lies behind Hurricane, providing
clear strategic direction as the company develops and he
takes the lead in all aspects of the scientific and technical
heart of the Company.
Nicholas has worked in the oil industry for over 30 years, his first
involvement in the North Sea being in the early licensing rounds.
Nicholas is a highly experienced company director having held
senior financial roles in Total and Finance Director roles with a
number of companies, including Saxon Oil, Carless and Alkane.
Nicholas ensures that we have robust accounting and finance
policies and procedures and works closely with the Executive
team on business direction and strategy.
Nicholas has been with Hurricane since its creation in 2005
when he was the Group’s first CFO. Since then he has had special
responsibility for our thorough Environmental Management
System, returning in 2012 to the finance role.
5
1
3 Keith Kirby Chief Administrative Officer
4 Neil Platt Chief Operations Officer
6 Dr David Jenkins Non Executive Director
7 John van der Welle Non Executive Director
An experienced business manager, prior to joining Hurricane
in 2011 Keith spent ten years with the Hutchison Whampoa
Group as CEO of a Group business unit and profit centre,
advising companies on strategic communications around the
world. Keith has an MBA with distinction from London
Business School where he was winner of the Alumni prize
for Academic Achievement.
Neil has more than 20 years’ experience in the oil industry and
has worked for Amoco, BG and Petrofac. He has completed
assignments both in the UK and internationally, working in a
variety of engineering, commercial and management roles
including Production Asset Manager (NSW) for BG and Vice
President for Project Delivery in Petrofac Production Solutions.
Neil joined Hurricane in 2011.
As Hurricane’s Chief Administrative Officer, Keith runs the
Group day to day and is responsible for general management,
leading certain key corporate activity, all internal and external
communications, investor relations, Group systems, facilities,
HR, Company culture, various key negotiations and other
administrative aspects of running the business. He works
closely with the CEO and the Executive team on strategy
and business planning.
As Chief Operations Officer Neil is responsible for daily
operations and asset delivery (drilling and projects).
5 John Hogan Non Executive Chairman
John has over 35 years’ experience in the oil and gas industry.
He spent almost 20 years with LASMO plc where he was
Managing Director of LASMO North Sea between 1989 and
1993 followed by seven years on the main board as Chief
Operating Officer. Since 2000 he has held a number of
Chairman and Non-Executive roles in the energy sector.
He is currently Managing Director of Argos Resources Limited
and a Non-Executive Director of Celtique Energie Limited.
John joined the Board as Chairman in 2013 and he is also
Chairman of the Nominations Committee.
David is currently an Industry Advisor to Riverstone Holdings
and a Corporate Advisor to Temasek Holdings and Cuadrilla
Resources. Presently, he is also on the Boards of President
Energy and Black Platinum Energy.
John has over 25 years’ oil industry experience, having qualified
as a Chartered Accountant with Arthur Andersen in 1981.
He is a member of the Association of Corporate Treasurers
and the Institute of Taxation.
David spent 37 years at BP, where he was Chief Geologist in
1979, General Manager Exploration in 1984 and then Chief
Executive Technology for BP Exploration for 10 years from
1987. He retired at the end of 1998 with the position of
Director Technology and Chief Technology Advisor for
the BP Group.
Following retirement from BP David held a variety of advisory
and Board positions including nine years on the Board of
BHP Billiton.
David joined the Board in 2013 and is Chairman of the
Remuneration Committee.
After 11 years at Enterprise Oil where he was Business
Development Manager and subsequently Group Treasurer,
John has been Finance Director of a number of listed
Exploration & Production (E&P) companies, including Premier Oil
in 1999-2005. He was Managing Director, Head of Oil and Gas,
at the Royal Bank of Scotland in 2007-2008, and since 2010
has worked as a consultant to, and Non-Executive Director of,
a number of listed and private E&P companies.
John joined the Board in 2013 and is Chairman of the
Audit Committee.
8
9
Hurricane Energy plc Annual Report and Consolidated Financial Statements
16 Months Ended 31 December 2012
10
11
Hurricane Energy plc Annual Report and Consolidated Financial Statements
16 Months Ended 31 December 2012
CEO’s Review
Over the past twelve to eighteen months, we have
seen increased industry interest in basement reservoirs
and new exploration activity West of Shetland.
There have been new basement discoveries in other
locations including a significant discovery in the
Norwegian sector of the North Sea.
Hurricane was unable to drill in 2012, due to a combination of
insufficient funds and an unusually tight rig market. Early in the
year it was clear that without a rig, funds would be hard to raise,
and without funds a rig would not materialise – a classic chicken
and egg conundrum.
CPR
In preparation for fundraising activity in 2013 we commissioned
an update to the Competent Person’s Report (CPR) from renowned
experts, RPS Energy Consultants Limited. A key highlight of this
updated report includes a valuation of our Lancaster discovery.
The CPR considers the valuation at a variety of discount rates
and also takes into account different assumptions about the
scale of potential field development solutions. I am pleased
to report that, at the Lancaster 2C ‘base case’, developing
207 MMboe creates a net present value of over USD$1.2
billion using a discount rate of ten percent. Realising this value
potential will require further work to de-risk the project with the
planned 2013 Lancaster well being the next step in the process.
Lancaster
of 2012, led by our COO Neil Platt, reviewing over forty field
development options which have been narrowed down to just
a handful that have been fully costed and appraised technically.
The work concluded that a standalone Floating Production
Storage and Offloading (FPSO) vessel solution provides a
material economic return in both the 2C base case, and the
smaller 1C, 62 MMboe case, reflected in the valuation in the
CPR. The work has helped de-risk the commercial potential of
Lancaster and has enabled plans for a development solution to
be initiated for the Greater Lancaster Area (GLA).
In preparation for Lancaster drilling we commissioned a new
site survey which was completed in the summer of 2012 and
confirmed the suitability of a drill site for our planned
horizontal well we will drill in summer 2013.
Whirlwind
Whirlwind is located about 10 kilometres north of Lancaster and
in a similar water depth at approximately 185m. In our 2010
operation we drilled on the structure and found indications
of oil in both a Lower Cretaceous limestone (Valhall) and
underlying fractured basement within structural closure.
Lancaster is controlled 100% by Hurricane under Licence P1368.
Our priority in the near term is to drill and test a horizontal well
with the aim of demonstrating its commercial potential.
A team from EPC Offshore Limited worked with us during most
In 2011 Hurricane re-entered the well for testing. The well
test revealed the hydrocarbon type in Whirlwind to be
ambiguous and it is not clear whether the hydrocarbons at
reservoir conditions are volatile oil or gas condensate. Despite
this ambiguity, it is clear that Whirlwind’s hydrocarbon type
Our priority in the near term is to drill a horizontal
well on our Lancaster discovery, demonstrating
the asset’s commercial potential.
is different to that of Lancaster and as a consequence the
Group’s current plan is that the Whirlwind discovery would
be developed on a standalone basis or as a future part of the
Greater Lancaster Area development (see the COO’s Review
for more on the GLA). The well has been suspended for
future operations.
Subject to additional funding, Hurricane intends to re-enter
the 2011 well to drill and test a deviated sidetrack well
targeting a faulted volume of basement to the south east
of the existing well track.
12
13
Hurricane Energy plc Annual Report and Consolidated Financial Statements
16 Months Ended 31 December 2012
CEO’s Review
Lincoln
26th Licensing Round
The Non-Executive team
Also controlled by Hurricane under Licence P1368, Lincoln lies
to the south west of Lancaster. Through Hurricane’s technical
analysis, we believe that Lincoln shares many geological
characteristics with Lancaster, including proven oil on structure
and a well defined basement fault system. As with our basement
discoveries, the Lincoln prospect benefits from data obtained
from previous drilling and seismic data obtained from previous
operators. As part of the rig contract agreed for drilling on
Lancaster in 2013, we have secured an option over the same
rig for summer 2014 and, if successfully exercised, intend
to use it for the Lincoln well.
As part of the 26th Licensing Round, Hurricane was awarded
ten offshore blocks, located on the West Shetland Platform
immediately to the southwest of the Shetland Isles and
northwest of the Orkneys. Hurricane has a 100% interest in the
Licence. In the summer of 2012 we obtained a seismic survey
of the acreage and the data is now being analysed. We are
interested in looking at this area because Orkney itself has two
‘exhumed’ oil accumulations in Devonian sandstone overlying
fractured basement, onshore at Yesnaby Point and Houton
Head. Yesnaby is also associated with traces of oil in
the underlying basement. We believe that there is potential
for analogous accumulations in the Licence area.
Strathmore
Hurricane’s focus is mainly on fractured basement reservoirs.
However, Strathmore is a traditional sandstone reservoir with a
proven oil resource and estimated recoverable oil of 32 million
barrels in the 2C Contingent Resource case. Management
believes that Strathmore could potentially tie back to a
Lancaster development.
Typhoon and Tempest
Typhoon and Tempest are controlled by Hurricane under
Licences P1485 (24th Round) and P1835 (26th Round). A
site survey was commissioned over Typhoon during summer
2011. Typhoon is primarily a basement prospect but also offers
potential in overlying Jurassic sandstones (Tempest).
The CPR has assigned unrisked P50 Prospective Resources of
149 MMboe to Typhoon and 1,266 MMboe for the P10 volume
acknowledging the material flank potential of this asset.
Typhoon/Tempest is located in deeper water than Hurricane’s
other assets at approximately 450m water depth and therefore
requires a rig or drill-ship capable of operating in these
conditions. Such vessels are limited in supply and to date
Hurricane has been unable to secure a rig contract. Licence
P1485 was due to expire in March 2013. However DECC has
granted an extension for six months to enable Hurricane to
demonstrate that a rig contract and a clear plan for drilling
can be put in place.
The Executive team
A notable change in the Executive was the reappointment of
Nicholas Mardon Taylor to the Board as Chief Financial Officer.
Nicholas has been with the Group since we started in 2005 and
stepped down from the Board in 2011. I was delighted that he was
able to come back into the role of CFO in 2012 where he has
applied his many years of financial and corporate experience
whilst continuing his role as director responsible
for environmental matters.
Keith Kirby has become Chief Administrative Officer and I
am pleased to report that the challenge of running the day
to day business is being taken by Keith, enabling me to focus
on technical work and presenting Hurricane to investors, the
industry and shareholders. Keith is also responsible for our
communications including a completely new website launched
early in 2013 that enables Hurricane to get its message out to all
our stakeholders, including potential partners, future employees,
shareholders of course and future investors. During 2012
Keith led major corporate discussions with a private equity
investor and is leading the IPO process for the Group.
In early 2013 we welcomed Neil Platt to the Board as Chief
Operations Officer. Neil has been with the Group since 2011
and has proved himself to be a valuable asset to Hurricane,
transforming Lancaster from the geologist’s description of oil
in the ground to an engineer’s perspective of a commercial
project. It is largely through Neil’s efforts and tenacity that we
have been able to secure a rig for 2013 in a market where none
were apparently available.
As we enter a new chapter in the Hurricane story, we are
fortunate to have an experienced team of non-executives,
led by our new Chairman, John Hogan. I am pleased that we
have the benefit of John’s strong oil background in which he
has worked in a number of successful British independent
oil companies experiencing not only the progress of moving
resources to reserves, but also the all important cultural and
business challenges of moving a company from private status
to one that is publicly listed.
to report that through tenacity and our industry contacts we
have been able to agree a contract for Transocean’s GSF Arctic
III unit. This is an achievement of which the Group is justly
proud. We had to establish funding for this rig and with the
help of external advisers entered a round of private fundraising
completed in March 2013, closing at £31.4 million gross funds.
We were delighted that it included a material investment by BP.
The success of the fundraising meant that we were able to sign
the contract for the rig for a summer slot in 2013.
I am pleased to report that as part of the negotiations over
the rig contract, we were also able to agree an option for
using the same rig to drill in 2014. It was clear that in order to
secure the 2014 slot, further fundraising would be necessary.
It was decided by the Board that the best way to achieve such
fundraising was by listing Hurricane shares on the AIM market
of the London Stock Exchange. At the time of writing we are
close to concluding the IPO, the outcome of which is unknown.
Looking forward to 2013 and 2014, Hurricane is well placed
to begin appraisal work on Lancaster that will, we believe,
bring it towards commercial development in coming years.
It will be necessary for us to consider creating a relationship
with a development partner and if we can deliver successful
wells this year and next, management believes we will be
in a good position to achieve this.
Dr. Robert Trice
Chief Executive Officer
Two new non-executives have also joined the Board. David
Jenkins’ reputation in the industry means that he barely needs
an introduction from me. David was Director Technology and
Chief Technology Advisor for the BP Group and I am extremely
pleased that he has joined Hurricane where he has immediately
got involved with the technical team, sharing a common belief
in the potential of basement upside.
Likewise, John van der Welle has also joined the team as a non-
executive director, with tremendous experience on the financial
side of the oil industry. With this refreshed and strengthened
non-executive team supporting the Executives, we have never
been in better shape to move forward.
Approaching IPO
In 2012 we carried out a private fundraising that concluded in
March of 2012 with £28.1 million of new funds coming in to
the Group. This was insufficient for us to make any real progress
in securing a rig. Following the fundraising we set about
looking at alternatives that included further private investment,
discussing ways forward with a number of potential industry
partners that might lead to farm-out deals for Hurricane, and also
protracted discussions with a particular private equity investor,
specialising in energy. The latter discussions continued between
March and September, taking a large amount of management
time but were terminated due to unsatisfactory progress.
The rig market through 2012 was extremely tight and many
in the industry expressed views that the lack of rigs on the UK
open market was an unprecedented situation which meant that
even if we had sufficient funds, we would not have been able to
secure a rig for 2012 operations. However, I am delighted
14
15
Hurricane Energy plc Annual Report and Consolidated Financial Statements
Hurricane Energy plc Annual Report and Consolidated Financial Statements
16 Months Ended 31 December 2012
16 Months Ended 31 December 2012
CEO’s Review
The horizontal well planned for summer 2013 on our Lancaster
discovery is designed to pass through a number of faults. This
diagram is taken from Hurricane’s Petrel® model illustrating part
of the major fault network and shows the planned well path
passing through the reservoir.
The slight protrusion illustrated on the side of the well path
indicates the point at which the well enters the reservoir.
The horizontal section is expected to be approximately
one kilometre in length.
16
17
COO’s ReviewGLA phase 1Not to scale and schematic representation onlyLancasterLincolnRiser base structureManifoldInclined wellHorizontal wellSurveillance wellProductionGas liftUmbilicalGas ExportGas export pipeline3.2 Km6.5 Km3.7 Km1.6 Km1.4 Km-1000-1500-2000-2500-3000-3500-4000-4500Depth (m)2011 OperationsAfter significant shipyard delays the WilPhoenix drilling rig became available to Hurricane for our operation on Whirlwind, that began in September 2011. This was later in the year than we would have wished and so a revised operation was devised to accommodate the onset of winter weather. The well test proved Whirlwind’s discovery status, with hydrocarbons being brought to surface. As noted in the CEO’s Review, the hydrocarbon type was ambiguous at reservoir conditions. However the Competent Person’s Report allocates significant volumes of 2C Contingent Resources of 205 MMboe for an oil case and 179 MMboe for a condensate case. Whirlwind’s proximity to Lancaster and the potential for shared development facilities further underpins the possible value of Whirlwind. Further testing through future operations is needed before the true value of this resource and the development concept can be fully established.Here you can see a three dimensional model indicating the proximity of Lancaster and Lincoln, together comprising the Greater Lancaster Area, or GLA.Greater Lancaster AreaDuring 2012 we engaged with third party companies to help Hurricane progress our development concepts for Lancaster. The results have been successful in substantiating the concepts and have also helped us prove a phased approach to deliver what has become known as the Greater Lancaster Area (GLA) development. The concept of the GLA is to bring Lancaster and Lincoln together as part of a single development. The approach has helped us put in place the resources and plans to deliver our near term milestones in 2013 and 2014, leading to first oil in Q4 2018.Considerable progress was also made during the year to enhance the strength of Hurricane’s operational and technical teams through the inclusion of a number of industry recognised and respected individual specialists and companies. With these specialist contractors on board we will be able to progress the development of the GLA, targeting internal sanction in the second half of 2015.Following the concept selection studies, a preferred approach has been identified. Subject to successful operations in 2013 and 2014 and the likely inclusion of a development partner, the Lancaster field will be developed using a number of subsea production wells drilled from several drill centres. The drill centres will be tied back to an FPSO (Floating Production Storage and Off-loading vessel). Oil produced will be processed on board the FPSO and exported by shuttle tanker. Any associated gas is expected to be exported using a pipeline. The first phase of the conceived production period would run for approximately two years, working from six Lancaster wells and one on Lincoln. This period would enable Hurricane to analyse reservoir pressures and make regular surveillance of the wells to confirm whether “unconventional” oil is also present. If it is, then the second phase will be presented to the Board for sanction and then initiated to incorporate the full field development of the GLA assets.The diagram below illustrates schematically our approach to developing Lancaster and Lincoln in the first phase of a single development of the GLA.LancasterLincolnHurricane Energy plc Annual Report and Consolidated Financial Statements 16 Months Ended 31 December 20121819 COO’s ReviewTimetableTranslating targets and key milestone events, the indicative timeline has the following key periods of activity:• Second half 2015, achieve Board sanction to submit Field Development Plan to DECC• 2015 to 2018 - Progress the appraisal, sanction and development of the Lancaster asset (Phase 1) as part of the proposed GLA• 2015 to 2017 - Re-enter, side track and test the Whirlwind appraisal well (205/21a-5) to reduce key reservoir and fluid uncertainties that will help optimise the Whirlwind resource evaluation• 2018, Q4, target for first oil from Phase one• 2018 to 2023 - Assuming success from the planned 2014 well on Lincoln, the aim will be to progress further appraisal of Lincoln leading to project sanction and the expanded development of the asset, as Phase 2 of the GLA• 2020 to 2023 - Subject to the successful delivery of Lancaster Phase 1 and after a period of sustainable production confirming the presence of resources in excess of the ‘conventional only’ case, the development would be further appraised to allow the flank and eastern areas of the field to be included in the development as part of GLA Phase 2Using this structured approach, the associated operational and capital expenditure derived from the studies have been reviewed, agreed with RPS and used in their economic model in the CPR (April 2013) along with a range of production forecasts, resulting in the valuation referred to in the CEO’s Review.In support of our step change in delivery capability a separate work-stream was established during the year enhancing our systems and processes within our existing Business Management System (see CAO’s Review). Typhoon is primarily a basement prospect but also offers potential in overlying Jurassic sandstones. Previous drilling during the 1980s by other operators leads Hurricane to believe that significant volumes of lighter oil could be present deeper within the prospect, as a flank accumulation. The CPR has assigned unrisked P50 Prospective Resources of 149 MMboe to Typhoon and 1,266 MMboe for the P10 volume acknowledging the material flank potential of this asset. Going further with Typhoon is dependent on securing a rig capable of operating in 450m of water and associated finance.The next stage of engineering work on the Lancaster development project is likely to start in late 2013 with pre-FEED (front end engineering design) depending on the outcome of the horizontal well this summer. For the integrated delivery team our focus in early 2013 is on delivering a successful Lancaster horizontal appraisal well and the preliminary planning on the Lincoln exploration well to the next stage.Neil PlattChief Operations Officer201320142015201620172018Greater LancasterArea CompletionsLancaster CrestalLancaster HorizontalInternal sanctionFirst oilLincoln CrestalTyphoon ExplorationWhirlwindLancaster HorizontalNote: timetable is subject to parameters such as successful exploration and appraisal drilling, confirmation of in place recoverable resources, ability to achieve sustainable commercial production rates, availability of resources/equipment (i.e. rig availability), financing, government approvals and securing a development partner.-1500-2000-2500-3000-3500-4000-4500-5000Depth (m)Previous well 204/28-1Previous well 204/22-1TyphoonHurricane Energy plc Annual Report and Consolidated Financial Statements 16 Months Ended 31 December 20122021 Hurricane Energy plc Annual Report and Consolidated Financial Statements
16 Months Ended 31 December 2012
22
23
Hurricane Energy plc Annual Report and Consolidated Financial Statements
16 Months Ended 31 December 2012
About Fractured Basement Reservoirs
The oil industry has recognised that oil can be found
in naturally fractured basement reservoirs for decades.
Historically such oil accumulations were often
encountered by accident by companies pursuing
different geological targets. Hurricane has utilised
current geological know how and technology to
actively pursue basement targets and has so far
made two significant discoveries on the UKCS.
Fractured basement reservoirs have been exploited in many
countries over the years including Vietnam, Yemen, Egypt,
China and the USA, but not on the UKCS. Until now. Hurricane
believes this exciting new play on the UKCS can make a material
contribution to UK production.
exploited with relatively low numbers of development wells
which when combined with the typically high early production
rates can make basement plays an attractive target for exploitation.
Basement reservoirs can exhibit the following characteristics:
Basement rocks are considered as any metamorphic or igneous
rocks (regardless of age) such as granites, basalt or gneiss
which are covered by multiple layers of sedimentary rocks such
as sandstone, mudstone and shale. Most basement rocks are
hard but brittle with very low matrix porosity and permeability.
Consequently, reservoir quality comes from secondary porosity
– that is joints, faults and fractures. It is key that the network of
fractures is both connected and extensive. Granitic lithologies
tend to offer better prospectivity due to the tendency for
greater connected fracture systems to be developed.
Fractured basement reservoirs have typically been uplifted and
juxtaposed against source rock such that hydrocarbons are able
to migrate into the basement fractures. Basement structures
and their associated fault systems are of sufficient size that
they can be mapped using 3D seismic with sufficient accuracy
that well locations can be optimised to target sweet spots in
the fracture network. The use of 3D seismic coupled with highly
deviated or horizontal wells allows for basement reservoirs to be
• Large drainage area per well
• Few wells are required for development
• High initial flow rates
• Potential upside with oil found outside structural closure
The downside to this can be:
• Possible early water encroachment
• Drainage areas and hence reserves can be difficult
to determine
• Susceptible to formation damage when drilling
• Rapid production decline before stabilisation
The oil industry fractured reservoir classification for Hurricane’s
Lancaster discovery is Type 1 where fractures provide the
essential storage capacity and permeability in the reservoir.
The matrix has little porosity or permeability.
Therefore the single most important factor to consider is fluid
pathways through the fracture network. An understanding of
fracture distribution and fracture connectivity is essential to
appreciate the flow of liquids. Hurricane plans to mitigate the
downside issues above through planning for water handling and
the tight control of production rates in order to reduce water
cut. Furthermore, Hurricane seeks to optimise well locations
through the careful analysis of 3D seismic data to identify
the zones where there is a high degree of connectivity in the
natural fracture network. Such zones are typically associated
with enhanced fluid pathways and therefore represent the most
favourable targets for achieving a commercial flow of oil.
Global decline in production from conventional sandstone
reservoirs has meant that the discovery and development of
naturally fractured reservoirs has increased in importance.
Despite the significant opportunity offered by fractured
reservoirs to future oil production, it is arguable that few of
these reservoirs have been optimally exploited due to available
technology and a limited understanding of how fracture
networks behave during commercial production.
Hurricane has the skill and knowledge required to optimally
exploit its fractured basement reservoir discoveries and to
realise what could be a national hydrocarbon strategic resource.
Petrel® modelling
We use a variety of techniques to understand what is going on
thousands of feet below the sea bed. One of the most useful
tools we have in our technical arsenal is Petrel® modelling.
This tool allows us to create three dimensional models of
the fracture system as mapped from our 3D seismic data and
corroborated by our well data. You can see an example below
illustrating a fault network and the existing well paths drilled
on the Lancaster discovery. This illustration also portrays the
planned well path of our horizontal well (205/21a-F) which
is designed to cross many faults and fractures and thereby
deliver a commercial flow of oil.
205/21a-F
205/21a-4
205/21a-4z
24
25
Hurricane Energy plc Annual Report and Consolidated Financial Statements
16 Months Ended 31 December 2012
How does oil get into the reservoir?
1. Illustrated here schematically, layers of rock build up over
many millions of years. Somewhere above the basement,
oil producing source rock was formed. West of Shetland it
is the Kimmeridge Clay, famous for the quality and volume
of oil it has produced.
4. As the oil and gas move up, they are trapped by the thick
layer of shale and clay that defines the seal which is present
above and on the flanks of the buried hill structure.
Hydrocarbons begin to accumulate in the fractures toward
the top of the basement structure. Once structural closure
is at capacity, oil at the edges of the closure ‘escapes’
making its way to the surface or into shallower traps.
Layers of muds and shales
Oil producing rock
Basement rock
2. Movement caused by tectonic forces can cause disruption
in the layers of rock, forcing the basement up resulting in it
becoming a buried hill under hundreds of metres of shale and
clay. The movement and heavy faulting has created an extensive
fracture network. It has also resulted in the oil producing layer
being at a lower level than the basement.
3. As the oil producing rock forces out hydrocarbons, they
move up the flank and through the fracture network.
5. However, one of the great attractions of fractured basement
reservoirs is that oil can be found outside of structural closure.
Oil backfills down through the highly permeable fracture
network. In the basement there is no permeability in the rock,
so the oil cannot escape but is trapped for explorers to find in
extensive vertical fractures. We call this the ‘jellyfish’ model.
6. Of particular interest are flank accumulations, that is oil that
builds up deep down the flank. These accumulations have the
potential to be very significant. An example of this phenomenon
can be seen on our Typhoon asset with a large potential
recoverable oil volume, estimated in the CPR under P10
Prospective Resources, at over a billion stock tank barrels.
26
27
Hurricane Energy plc Annual Report and Consolidated Financial Statements
16 Months Ended 31 December 2012
CAO’s Review
During 2012 we documented our comprehensive
Business Management System (BMS). This ensures that
every business process and operating standard can be
shared consistently both within Hurricane and with a
wide variety of contractors and partners we work with
regularly. The diagram below summarises the system
and illustrates the relationship between Hurricane’s
core values, our policies and workstreams supported
by a set of manuals held primarily electronically, but
with physical copies at key locations.
Values
Policies
Straightforward - Tenacious - Ingenious - Collaborative - Logical
Environmental - Health & Safety - People - Assurance - Ethics
Workstreams
Exploration
Business
Administration
Financial
Management
Asset
Management
Environmental
Management
Health & Safety
Management
With Hurricane’s core values at the top level defining the way
in which everybody in the company carries out their role in the
business, the BMS is defined by an umbrella of policies. These
are the areas felt to be the most critical to share across all activity
in the Group, particularly at the operational level. The approved
policies can be found in full on the Hurricane website. In summary
the five core policies we have established are set out below.
Ethics policy
Hurricane endeavours to act fairly and ethically wherever it
carries out business. Hurricane prides itself on its values, the
values of its employees and their collective commitment to
acting with integrity throughout our organisation.
Environmental policy
Hurricane recognises its responsibility to the environment, and
takes positive steps to address the environmental impact of its
business operations.
People policy
Our people are the heart of Hurricane and without the team
we would not be able to achieve anything. So as one of our
five overriding policies, this is of great importance to the
business and culture of Hurricane.
Health & Safety policy
Hurricane conducts its business responsibly, with respect for
the people and communities within the areas in which we work.
We safeguard our activities to ensure that we never knowingly
compromise our health and safety obligations or recognised
standards in pursuit of improving our business results.
The BMS defines all of Hurricane’s core business workstreams
of which there are six: Exploration, Business Administration,
Financial Management, Asset Management, Environmental
Management and Health & Safety Management. For each
workstream a series of manuals has been defined that describe
how we do business, covering all aspects of our activity.
The BMS is supported by a comprehensive document
management system. To make the system fully accessible and
kept up to date there are only a very limited set of printed
manuals. We have embraced ‘cloud’ technology to contain the
whole system so that it is live and accessible on any computer,
Mac or PC, but also on other portable devices such as iPads and
iPhones. We have built a database with which all Hurricane staff
and appropriate contractors can access the latest documents
from any location, including offshore. The administration of
the system ensures that the latest version of every document is
the only one live whilst earlier versions are retained in a virtual
archive system. From the database a single click takes the user
directly to the document they need which they can read
online or download for printing if necessary.
With the system architecture in place the development and
population of the manual system is well underway.
Manuals
Exploration Manual
Business Administration Manual
Financial Management Manual
Asset Management Manual
Environmental Management Manual
Health & Safety Management Manual
Value Assurance policy
Contents: Reference guidelines; Practices; Standards
Hurricane projects are managed in accordance with this policy
and the supporting Value Assurance Process to deliver results
whilst remaining in compliance with law, accepted industry
practice and appropriate regulatory standards.
28
29
Hurricane Energy plc Annual Report and Consolidated Financial Statements
16 Months Ended 31 December 2012
CAO’s Review
Corporate activity
Company profile
During 2012 we undertook a series of initiatives to progress
the Group’s assets, including discussions with a private equity
investor that specialises in the energy sector, with the objective
of bringing in a very large investment. The conversations
continued over a period of six months. Whilst at the beginning
of these discussions it seemed that we would be able to reach
an agreement to present to shareholders, gradually it became
less attractive until the point at which we decided to terminate
discussions because we did not believe existing shareholders
would get a good enough deal.
As described under the CEO’s Review our success in finding a rig
meant two funding routes emerged. Firstly the pre-IPO funding
to fund 2013 operations and of course the IPO itself aimed at
funding subsequent operations through 2014. We have worked
to a compressed timetable to progress the IPO and at the time
of writing we are in the thick of the process. I am pleased to
report that the Group and its advisers have worked efficiently
and formed a very well functioning team to deliver what is
necessary. We will know the result of the effort soon after
publication of this Annual Report.
Hurricane has deliberately kept its story relatively quiet until
quite recently. During 2012 our strategy demanded that we
begin to let potential industry partners and new investors into
what we have been creating over the past few years. With the
scale of Contingent Resources the Group has established as
recognised through the independently produced Competent
Person’s Report it is sometimes surprising to people who come
across Hurricane when they see that the Group has managed to
keep 100% control and establish such significant assets. Our
communications strategy in the second half of 2012 led us to use
a number of channels and activities to carefully raise the profile.
Hurricane made a number of industry presentations and was
featured in press articles including one about the work we
carried out during 2012 with EPC Offshore Limited, which
appeared in a special Energy supplement in Aberdeen.
Hurricane is also to be featured in the Parliamentary
Yearbook which has been appearing for almost 40
years, as an annual showcase of excellence, for
organisations that have demonstrated best practice
and have a strong message to convey. In this edition,
The Parliamentary Yearbook will be featuring a national
report focusing on Excellence in Energy and the report
will lead with ministerial contributions, relevant linked
associations and government agencies. It is being
produced to provide information for key figures within
Government, the senior civil service and all regional
authorities in the UK.
We have had some technical papers published
including one by Clare Slightam, Hurricane’s
Sub-Surface Team Leader, called Characterising
Seismic-scale Faults Pre and Post-drilling;
Lewisian Basement, West of Shetlands.
The paper was published by The Geological
Society of Great Britain and a link can be
found on our website.
In early 2013 we launched a completely refreshed
website to aid communication.
Perhaps the biggest impact we had was during the Oil Council’s
Annual Awards Dinner held in London. The dinner is part of the
World Oil Congress and Hurricane took the opportunity for our
CEO, Robert Trice, to make a speech. The audience was 900
strong from the industry plus analysts, advisers and investors
in energy. The World Congress also gave Robert an opportunity
to be interviewed on camera by Proactive Investors, a well
regarded investor news service. Robert spoke about the
strategic scale of Hurricane’s discoveries and the resulting
video is now viewable on Proactive Investors’ YouTube channel.
People and Culture
Part of our philosophy is for Hurricane to be regarded as a
good and respected employer. It’s important to any business
to attract the right people and create an environment that
encourages them to stay, make a valuable contribution and
have the opportunity to grow with the business. We wouldn’t
be anywhere without the team and we pay proper attention to
ensuring that we have the best staff and that we get the best
out of them. We maintain small staff numbers covering key
areas, working with a network of external consultants.
This enables us to work with the best specialists in particular
areas from around the world and our approach allows Hurricane
to independently verify internal work whilst exposing in-house
resources to alternate concepts and methods. This provides
valuable external insight into current specialist technology.
The Executive is supported by a core management team made
up of both technical and administrative representatives that
make regular contributions to all aspects of Company life.
Keith Kirby
Chief Administrative Officer
30
31
Hurricane Energy plc Annual Report and Consolidated Financial Statements
16 Months Ended 31 December 2012
Health and Safety Policy
Hurricane conducts its business responsibly, with
respect for the people and communities within the
areas in which we work. We safeguard our activities
to ensure that we never knowingly compromise our
health and safety obligations or recognised standards
in pursuit of improving our business results.
Our Objectives
We provide leadership which fosters a safe and healthy working
environment, enabling us to conduct business in a manner that:
We will stop work rather than conduct activities that are in
conflict with our policy.
• Engages and involves competent people in our business
These objectives form the basis from which internal targets
for achievement are monitored, reported and revised.
• Makes accountabilities and responsibilities clear
• Promotes open and honest communication
• Assesses and manages risk
• Creates a culture of continuous improvement
• Plans and prepares for the unexpected: we investigate and
learn from events where our safeguards may have failed
• Ensures our third party service providers, as a minimum,
conform to our core standards
• Monitors and manages safety performance in accordance
with our Accident and Incident Reporting process
• Complies with all our statutory requirements
32
33
Hurricane Energy plc Annual Report and Consolidated Financial Statements
16 Months Ended 31 December 2012
Environmental Policy
Hurricane is committed to minimising our impact
on the environment in which we work and
achieves this through the implementation
of its Environmental Policy.
Environmental Policy
Hurricane recognises its responsibility to the environment,
and takes positive steps to address the environmental
impact of its business operations.
We are committed to achieving continuous improvement on
our environmental performance, and regard compliance with
the relevant laws and regulations as a minimum standard.
We work with our customers, employees, contractors
and suppliers to identify and reduce the environmental
impacts of our activities.
Our objectives
• All our office based and offshore operations are
managed under our BS EN ISO 14001:2004 Standard
Certified Environmental Management System
• We involve our employees in maintaining the
Environmental Management System, provide a clear
feedback structure and establish appropriate operating
practices and training programmes
• All our employees are selected, trained and developed to
carry out their duties safely, competently and with due
care for the environment
• We implement measures to prevent pollution to the
environment, where reasonably practicable
• We continuously review all our business operations,
in order to identify and minimise our environmental impacts
• We set appropriate environmental targets, monitor
progress in achieving them and report the results to
the Board on a regular basis
• We take environmental considerations into account in
all our operations, ensure that our suppliers and contractors
are aware of our policy and encourage them to commit to
good environmental practices
These objectives are reviewed regularly and specifically
prior to any major operational activity. Their achievement is
measured and reported to the Board. They form the basis
from which internal targets for achievement are set and
those in turn are regularly monitored, reported and revised.
For further information including our work as part of the
SERPENT project and commitment to the emergency capping
device through OSPRAG, take a look at the Hurricane website,
hurricaneenergy.com.
34
35
Hurricane Energy plc Annual Report and Consolidated Financial Statements
16 Months Ended 31 December 2012
36
37
Hurricane Energy plc Annual Report and Consolidated Financial Statements
16 Months Ended 31 December 2012
CFO’s Review
Overview
Financial Review
The 16 months ended 31 December 2012 saw the Group
re-enter and test the Whirlwind prospect which was initially
drilled in 2010. This activity successfully brought oil to surface,
converting this prospect into a discovery with operations
completing early in November 2011. Although this was a successful
operation, it did experience a number of delays caused by
weather and operations continued longer than first anticipated.
The Group commenced the 16 month financial period with cash
and cash equivalents of £32.9 million and spent £33.2 million
during the period to further explore and appraise its Lancaster
and Whirlwind oil discoveries and assess the prospects of
Lincoln and the Orkney blocks. Of this amount, £25.4 million
related to the cost of the Whirlwind re-entry and testing that
completed in November 2011.
Since that time additional licence blocks, referred to as the Orkney
blocks, were awarded through the 26th Offshore Licensing
Round and a seismic survey has been carried out over the area.
In addition, work has continued on the engineering studies to
further assess the development strategy of the Lancaster discovery.
In the period, the Group changed its accounting reference date
to 31 December to bring it in line with its industry peers.
Since the balance sheet date, on 15 April 2013 the Company
changed its name to Hurricane Energy plc.
Fundraising
During the period an offer for subscription and private placing
was completed in March 2012 following the successful completion
of the Whirlwind testing. This fundraising was with new and existing
shareholders and raised a total of £28.1 million by issuing 20,777,905
new ordinary shares at a price of £1.35 each. The money raised
was used to finance the continuing engineering studies on the
Lancaster development, to provide the Group’s working capital
requirements and to contribute to the cost of 2013 drilling operations.
Following the period end, the Group completed a pre-IPO
fundraising in April 2013. The Group raised £31.4 million by issuing
a combination of convertible loan notes and issuing ordinary
shares accompanied by warrants to subscribe for further shares.
As a result of raising this finance, the Group was able to enter
into a rig contract to drill the Lancaster horizontal well in 2013
to further appraise the discovery. The rig contract for the use of
the GSF Arctic III rig was signed in April 2013.
The Group continues to pursue all fundraising avenues available
and following the period end a General Meeting was held on
15 April 2013 at which authority was provided by shareholders
for the directors to issue a further 200 million shares with
nominal value of £0.001. The authority to issue further shares,
is part of the Group’s current IPO plans to raise further funds
to progress its 2013 and 2014 work programme.
The Group’s loss for the 16 month period increased to £6.8
million compared with £4.0 million in the previous 12 months.
This increase relates to the significant step change in the
business during the period, with increases in employment
and administrative costs as the Group expands its footprint
and capabilities. The Directors believe that this step change
in structure and capability has prepared the company well for
the significant challenges ahead to meet important regulatory
requirements and future financing and operational activities.
In addition to the increase in employment costs, the share
based payment charge has increased from £0.2 million in 2011
to £0.9 million in the sixteen month period ending 31 December
2012. This is due to the issuance of further share options in
the period to existing and new directors and employees of the
Group at all levels.
At the balance sheet date the Group has no debt and is
currently financed solely through equity financing. Due to the
nature of the Group’s business, it has accumulated significant
tax losses and capital allowances since incorporation. As at 31
December 2012, the Group has pre-trading revenue expenses of
£20.2 million and £113.0 million of capital allowances available
for carry forward against future trading profits.
In addition, the total pre-trading expenditure of £133.2 million
may attract Ring Fenced Expenditure Supplement on the
commencement of trade, which would result in a further uplift
of £26.3 million of tax relief being available at that time.
Nicholas Mardon Taylor
Chief Financial Officer
38
39
Hurricane Energy plc Annual Report and Consolidated Financial Statements 16 Months Ended 31 December 20124041Directors’ ReportFinancial riskThe Group’s policies are to fund its activities from cash resources derived from shareholder subscriptions, to minimise its exposure to risks derived from financial instruments, not use complex financial instruments and to ensure that its cash resources are available to meet anticipated business needs.The most significant financial risks to which the Group is exposed are movements in foreign exchange and default from financial institutions.The Group considers that volatility in foreign exchange is a regular part of its business environment, so the Group does not systematically hedge through financial instruments to mitigate this risk. The Group will however hold foreign currencies, primarily US Dollars, where it feels such an action helps mitigate foreign exchange risk.To mitigate the risk of default from financial institutions, deposits are predominately held with institutions that have as a minimum an A rating. For further detail on the financial risks see note 20 of the financial statements.Key performance indicatorsGiven the early stage nature of the Group’s development activities, the Group’s directors are of the opinion that analysis using Key PerformanceIndicators is not necessary for an understanding of the nature of development, performance or position of the business.Going ConcernThe Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in this report. The financial position of the Group, its cash flows, and liquidity position are described in the CFO’s review and set out in the financial statements. In addition, note 20 to the financial statements includes the Group’s objectives, policies and processes for managing its capital, its financial risk management objectives; details of its financial instruments; and its exposures to credit risk and liquidity risk.The Group’s cash position at the period-end was £22.4 million and the Group had no external borrowings at this time. The Group has no source of operating revenue and currently obtains working capital through equity financing. The Group is therefore dependent on future fundraising, capital receipts or other forms of finance in order to continue in operation and the proposed work programme is dependent on this future fundraising activity. In April 2013, the Group raised a further £31.4 million by issuing a combination of convertible loan notes and issuing ordinary shares accompanied by warrants to subscribe for further shares. This has enabled the Group to enter into a rig contract to drill the Lancaster horizontal well in 2013 and the Group is fully funded for this drilling programme. Having considered reasonable possible sensitivities the directors believe that the Group will be able to operate within its existing funding and to meet all commitments as they fall due. Further details of the Group’s commitments are set out in notes 21 and 22. The directors have a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements.Disclosure of information to the auditorIn the case of each person who was a director at the time this report was approved:• so far as that director was aware there was no relevant information of which the Company’s auditor was unaware; and• that director had taken all steps that the director ought to have taken as a director to make himself or herself aware of any relevant audit information and to establish that the Company’s auditor was aware of that information.This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006.Deloitte LLP was first appointed as auditor to the Group for the year ended 31 August 2010. In accordance with the Companies Act 2006, a resolution to re-appoint Deloitte LLP will be proposed at the next Annual General Meeting.Approved by the Board of Directors and signed on its behalf:Nicholas Mardon TaylorChief Financial Officer The directors present their annual report and audited consolidated financial statements of Hurricane Energy plc (formerly Hurricane Exploration plc) (the “Company”) and its wholly-owned subsidiaries for the 16 month period ended 31 December 2012 (collectively, the “Group”). Hurricane Energy plc is a company incorporated in the United Kingdom and registered in England and Wales and is the parent company of the Group.On 15 April 2013 the Company changed its name from Hurricane Exploration plc to Hurricane Energy plc. During the period the Company’s accounting reference date was changed to 31 December. The annual report includes the Group’s results for the 16 months ended 31 December 2012 and comparatives are for the 12 months ended 31 August 2011 as previously reported. As a result of the change in accounting reference date the comparatives are not for an equivalent period. Balance sheet information is presented as at 31 December 2012 with comparatives as at 31 August 2011. Principal ActivityThe principal activity of the Group is oil and gas exploration. There have not been any significant changes in the Group’s principal activity during the period under review.The Group’s head office is in Lower Eashing, Surrey with a regional office in Aberdeen.Results for the year and dividendsThe loss of the Group for the period was £6,799k (2011: loss of £4,021k). The directors do not recommend the payment of a dividend.DirectorsThe following directors held office during the 16 month period ended 31 December 2012 and up to the date of this report.Robert Trice Nicholas Briggs (Resigned 11 May 2012) Nicholas Mardon Taylor (Reappointed 11 May 2012) Keith Kirby Sir Adrian Montague CBE (Resigned 8 March 2013)Charles Good (Resigned 12 October 2011)Bill Guest (Resigned 8 March 2013)Philip Dayer (Resigned 8 March 2013)Jon Murphy (Resigned 8 March 2013)John Hogan (Appointed 8 March 2013)David Jenkins (Appointed 8 March 2013)John van der Welle (Appointed 8 March 2013) Neil Platt (Appointed 8 March 2013)Health and SafetyThe Group has a Health and Safety Management policy to ensure that it conducts its business in a manner that protects the safety of the employees, others involved in its operations, customers and public. The Group will strive to prevent all accidents, injuries and occupational illness through the active participation of every employee.The Group is committed to continuous efforts to identify and eliminate or manage health and safety risks associated with its activities.The Group’s heath and safety policy is covered in greater detail on page 32. Supplier payment policyThe Group’s policy and practice is to agree the terms of payment with suppliers at the time of contract and to make payment in accordance with those terms subject to satisfactory performance. The Group does not follow any code or standard on payment practice. However, where payment terms have not been specifically agreed, it is the Group’s policy to settle invoices close to the end of the month following the month of invoicing. Hurricane Energy plc Annual Report and Consolidated Financial Statements
16 Months Ended 31 December 2012
Directors’ Responsibilities Statement
Corporate Governance Statement
The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to
prepare the financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.
Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the
state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, International
Accounting Standard 1 requires that directors:
• properly select and apply accounting policies;
• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
• provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the
impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and
• make an assessment of the Company’s ability to continue as a going concern.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and
disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements
comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable
steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s
website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
The UK Corporate Governance Code as issued by the Financial Reporting Council is not mandatory for unlisted or AIM companies.
However, the directors support the principles of the UK Corporate Governance Code and aim to follow this and the QCA Corporate Governance
Guidelines for Smaller Quoted Companies as far as practicable having regard to the size, nature and stage of development of the Group.
The Board
At the balance sheet date, the Board consisted of three Executive directors, one independent Non-Executive Chairman and three independent
Non-Executive directors.
Subsequently, from March 2013, the Board consisted of four Executive directors, one independent Non-Executive Chairman and two
Non-Executive directors.
The Board is responsible to the shareholders of the Company for all significant financial and operational issues which include strategy, reviewing
and approving budgets, ensuring adequate cash resources, approval of capital expenditure and acquisition and divestment opportunities.
A record is kept of proceedings and any decisions taken.
Each director retires and stands for re-election by shareholders at least every three years. All directors are subject to re-election by shareholders
at the first opportunity following their appointment.
All directors have full access to management and employees, the Company Secretary and independent professional advice in order to
execute their duties.
The board runs a fully-mandated Remuneration Committee, Nomination Committee and Audit Committee. The Remuneration Committee
and Audit Committee each consist of three independent Non-Executive directors. The Nominations Committee consists of a majority of
independent Non-Executive directors.
It is intended that the three Committees comply with the UK Corporate Governance Code and aim to follow this and the QCA Corporate
Governance Guidelines for Smaller Quoted Companies to the extent appropriate for the size, nature and unlisted status of the Group.
Internal control
The directors are responsible for the process and system of internal controls and reviewing their effectiveness. The process and system of
internal controls is designed to manage, rather than eliminate, the risk of failure to achieve business objectives and can only provide reasonable
and not absolute assurance against material misstatement or loss.
During the year the Board considered the need for an internal audit function. Given the nature and current size of the Group, it is not considered
appropriate to have a dedicated internal audit function.
Communication with shareholders
The Company provides information about the Group’s activity through its website (www.hurricaneenergy.com) and shareholders and other
interested parties may register on the website to receive news releases issued by the Group directly to their e-mail. The Group sends its annual
report and accounts to its shareholders. The Group endeavours to maintain a regular dialogue with institutions and analysts, particularly in
relation to the full year results.
The Board welcomes as many investors as possible to the Annual General Meeting and invites discussions on issues facing the Group.
As an oil and gas exploration company, Hurricane Energy is, by virtue of the nature of its business, subject to a variety of business risks. The
Group’s system of internal control plays a critical role in managing the risks towards the achievement of Hurricane Energy’s corporate vision and
objectives and is also central to safeguarding Hurricane Energy’s shareholder’s interests and the Group’s assets. An ongoing process has been
established for identifying, evaluating and managing the significant risks faced by the Group.
42
43
Hurricane Energy plc Annual Report and Consolidated Financial Statements
16 Months Ended 31 December 2012
Independent auditor’s report to the
members of Hurricane Energy plc
We have audited the financial statements of Hurricane Energy plc (formerly Hurricane Exploration plc) for the 16 month period ended 31
December 2012 which comprise the Consolidated Income Statement, the Consolidated and Company Balance Sheets, the Consolidated and
Company Cash Flow Statements, the Consolidated and Company Statements of Changes in Equity and the related notes 1 to 24 and 1 to 10.
The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions
of the Companies Act 2006.
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the
Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the financial statements
and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements
in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the
Auditing Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance
that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether
the accounting policies are appropriate to the Group’s and the Parent Company’s circumstances and have been consistently applied and
adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial
statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the
audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies
we consider the implications for our report.
Opinion on financial statements
In our opinion:
•
•
•
•
the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 December 2012
and of the Group’s loss for the period then ended;
the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as
applied in accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent
with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
•
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from
branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns; or
•
•
certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Bevan Whitehead (Senior Statutory Auditor) for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London, UK
10 May 2013
44
45
Hurricane Energy plc Annual Report and Consolidated Financial Statements 16 Months Ended 31 December 20124647 16 Months Ended 12 Months Ended Notes 31 Dec 2012 31 Aug 2011 £’000 £’000Operating expenses (7,216) (2,512)Write-off of Intangible Assets (9) (782)Operating loss 6 (7,225) (3,294)Investment revenue 4 103 112Exchange gains and losses 348 (811)Finance costs (7) (2)Loss before tax (6,781) (3,995)Tax 9 (18) (26)Loss for the period (6,799) (4,021)All of the Group’s operations are classed as continuing.There was no income or expense in the period other than that disclosed above. Accordingly a Consolidated Statement of ComprehensiveIncome is not presented.Consolidated Income Statement for the 16 Months Ended 31 December 2012Consolidated Balance Sheet as at 31 December 2012 Notes As at 31 Dec 2012 As at 31 Aug 2011 £’000 £’000 Non-current assetsIntangible assets 10 131,077 96,237Other receivables 11 130 130 131,207 96,367Current assetsTrade and other receivables 12 390 1,131Cash and cash equivalents 13 22,390 32,888Total current assets 22,780 34,019 Total assets 153,987 130,386Current liabilities Trade and other payables 14 (788) (3,238)Current tax liabilities (22) (26) (810) (3,264)Non-current liabilities Decommissioning provision 15 (4,000) (800)Total liabilities (4,810) (4,064)Net assets 149,177 126,322EquityShare capital 16 475 448Share premium 163,910 135,436Share option reserve 1,343 451Warrant reserve - 795Own shares held by Employee Benefit Trust 18 (67) (67)Accumulated deficit (16,484) (10,741)Total equity 149,177 126,322The financial statements were approved and authorised for issue by the Board of Directors on 10 May 2013 and were signed on its behalf by:Robert Trice Nicholas Mardon TaylorDirector DirectorRegistered company number 5245689 Hurricane Energy plc Annual Report and Consolidated Financial Statements
16 Months Ended 31 December 2012
Consolidated Statement of Changes in Equity
for the 16 Months Ended 31 December 2012
Consolidated Cash Flow
for the 16 Months Ended 31 December 2012
Balance at 1 September 2010
Shares allotted
Transaction costs
Share option charge
Own Shares held by EBT
Loss for the year
Share
capital
£’000
429
19
-
-
-
-
Share
premium
account
£’000
115,465
20,231
(260)
-
-
-
Balance at 31 August 2011
448
135,436
Shares allotted
Transaction costs
Share option charge
Share options exercised
Warrants exercised
Warrants lapsed
Loss for the period
21
-
-
-
6
-
-
28,058
(1,328)
(212)
30
1,926
-
-
Share
option
reserve
£’000
237
-
-
214
-
-
451
-
-
902
(10)
-
-
-
Own shares
held by EBT
Warrant
reserve
Accumulated
deficit
Total
£’000
-
-
-
-
(67)
-
(67)
-
-
-
-
-
-
-
£’000
795
-
-
-
-
-
£’000
£’000
(6,720)
110,206
-
-
-
-
(4,021)
20,250
(260)
214
(67)
(4,021)
795
(10,741)
126,322
-
-
-
-
(197)
(598)
-
-
-
448
10
-
598
(6,799)
28,079
(1,328)
1,138
30
1,735
-
(6,799)
Balance at 31 December 2012
475
163,910
1,343
(67)
-
(16,484)
149,177
The share option reserve arises as a result of the expense recognised in the income statement account for the cost of share-based employee
compensation arrangements.
The warrant reserve represents the proceeds from the issue of warrants.
48
Net cash outflow from operating activities
Investing activities
Interest received
Expenditure on intangible assets
Net cash used in investing activities
Financing activities
Interest paid
Net proceeds from issue of share capital
Notes
19
16 Months Ended
12 Months Ended
31 Dec 2012
£’000
31 Aug 2011
£’000
(6,307)
(2,338)
115
(33,181)
126
(34,335)
(33,066)
(34,209)
(7)
28,534
(2)
19,859
Net cash provided by financing activities
28,527
19,857
Net decrease in cash and cash equivalents
(10,846)
(16,690)
Cash and cash equivalents at the beginning of the period
Net decrease in cash and cash equivalents
Effects of foreign exchange rate changes
32,888
(10,846)
348
Cash and cash equivalents at the end of the period
12
22,390
50,389
(16,690)
(811)
32,888
49
Hurricane Energy plc Annual Report and Consolidated Financial Statements
16 Months Ended 31 December 2012
Notes to the Financial Statements
for the 16 Months Ended 31 December 2012
1. General information
Hurricane Energy plc (formerly Hurricane Exploration plc) is a company incorporated in the United Kingdom and registered in England and Wales
under the Companies Act 2006. The nature of the Group’s operations and its principal activity is exploration of oil and gas reserves principally in
the UK Continental Shelf. The Company’s registered address is The Wharf, Abbey Mill Business Park, Lower Eashing, Godalming, Surrey GU7 2QN.
Adoption of new and revised standards
At the date of authorisation of these financial statements, the following standards and interpretations which have not been applied in these
financial statements were in issue but not yet effective.
Amendments to IFRS 7 Financial instruments disclosures
Amendments to IFRS 1 Severe hyperinflation and removal of fixed dates for first time adopters
Amendments to IFRS 1 Government Loans
Amendments to IAS 32 Offsetting financial assets and financial liabilities
Amendments to IAS 12 Deferred Tax: Recovery of Underlying Assets
Amendments to IAS 1 (June 2011) Presentation of Items of Other Comprehensive Income
Amendments to IAS 19 Employment benefits
IFRS 9 Financial Instruments
IFRS 10 Consolidated Financial Statements
IFRS 11 Joint Arrangements
IFRS 12 Disclosure of Interests in Other Entities
IFRS 13 Fair Value Measurement
IAS 27 (2011) Separate Financial Statements
IAS 28 (2011) Investments in associates and joint ventures
IFRIC 20 Stripping costs in the production phase of a surface mine
These standards are yet to be endorsed by the European Union. The directors do not expect the adoption of the standards and interpretations
listed above to have a material impact on the financial statements of the Group in future periods.
2. Significant accounting policies
(a) Basis of accounting
The consolidated financial statements have been prepared under the historical cost convention, except for share-based payments, and in
accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union.
The financial statements have been prepared on a going concern basis as set out in the Directors’ Report. The use of this basis of accounting
takes into consideration the Group’s current and forecast financial position, additional detail of which is included in notes 21 and 22.
(b) Basis of consolidation
The consolidated financial statements consist of the financial statements of the Company and its subsidiaries drawn up to 31 December each
year (previously up to 31 August each year). The results of subsidiaries acquired or sold are consolidated for periods from or to the date on
which control passes. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to
gain benefit from its activities.
(d) Oil and gas exploration and evaluation activity
The Group follows the successful efforts method of accounting for oil and gas exploration and evaluation activities (“Intangible Assets”).
Pre-licence costs, which relate to costs incurred prior to having obtained the legal right to explore an area, are charged as operating expenses
directly to the income statement as they are incurred.
Once a licence has been awarded, all licence fees, exploration and appraisal costs relating to that licence are initially capitalised in well, field
or specific exploration cost centres as appropriate pending determination. Expenditure incurred during the various exploration and appraisal
phases is then written off unless commercial reserves have been established or the determination process has not been completed.
When commercial reserves have been found, the net capitalised costs incurred to date in respect of those reserves are transferred into a
single field cost centre and reclassified as development and production assets. Subsequent development costs in respect of the reserves are
capitalised within development and production assets.
If there are indications of impairment, an impairment test is performed comparing the carrying value with the estimated discounted future cash
flows based on management’s expectations of future oil and gas prices and future costs. Costs which are initially capitalised and subsequently
written off are classified as operating expenses.
(e) Decommissioning provisions
Provision for decommissioning is recognised in full when wells have been suspended or facilities have been installed. A corresponding amount
equivalent to the provision is also recognised as part of the cost of the asset. The amount recognised is the estimated cost of decommissioning,
discounted to its net present value, and is reassessed each year in accordance with local conditions and requirements. Changes in the estimated
timing of decommissioning or decommissioning cost estimates are dealt with prospectively by recording an adjustment to the provision, and
a corresponding adjustment to the related asset. The unwinding of the discount on the decommissioning provision is included as a finance cost.
(f) Foreign currencies
Transactions in foreign currencies are recorded at the rates of exchange ruling at the transaction dates. Monetary assets and liabilities are
translated into sterling at the exchange rate ruling at the balance sheet date, with a corresponding charge or credit to the income statement.
(g) Taxation
Current and deferred tax, including UK corporation tax and overseas corporation tax, are provided at amounts expected to be paid using the tax
rates and laws that have been enacted or substantially enacted by the balance sheet date.
Deferred tax assets and liabilities are calculated in respect of temporary differences using a balance sheet liability method. Deferred tax
assets and liabilities are recorded for all temporary differences arising between the tax basis of assets and liabilities and their carrying values
for financial reporting purposes, except in relation to goodwill or the initial recognition of an asset as a transaction other than a business
contribution. A deferred tax asset is recorded only to the extent that it is probable that taxable profit will be available against which the deferred
tax asset will be realised or if it can be offset against existing deferred tax liabilities.
Deferred tax assets and liabilities are measured at tax rates that are expected to apply to the period when the asset is realised or the liability is
settled, based on tax rates that have been enacted or substantively enacted at the balance sheet date.
On an acquisition that qualifies as a business combination, the assets and liabilities of the subsidiary are measured at their fair value as at the
date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is capitalised as goodwill.
Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired is credited to the income statement in the
period of acquisition.
(h) Share-based payments
The cost of share-based employee compensation arrangements, whereby employees receive remuneration in the form of share options, is
recognised as an employee benefit expense in the income statement. The total expense to be apportioned over the vesting period of the
benefit is determined by reference to the fair value (excluding the effect of non market-based vesting conditions) at the date of grant.
All intra-group transactions, balances, income and expenses are eliminated on consolidation.
(c) Revenue recognition
Revenue is recognised when it is probable that the economic benefits associated with a transaction will flow to the enterprise and the amount
of revenue can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and the effective
interest rate applicable.
50
51
Hurricane Energy plc Annual Report and Consolidated Financial Statements
16 Months Ended 31 December 2012
Notes to the Financial Statements
for the 16 Months Ended 31 December 2012
2. Significant accounting policies (continued)
The assumptions underlying the number of awards expected to vest are subsequently adjusted for the effects of non market-based vesting
to reflect the conditions prevailing at the balance sheet date. Fair value is measured by the use of a binomial model. The expected life used
in the model has been adjusted, based on management’s best estimate, for the effects of the non-transferability, exercise restrictions and
behavioural considerations.
5. Operating segments
The Group complies with IFRS 8 Operating Segments, which requires operating segments to be identified on the basis of internal reports about
components of the Group that are regularly reviewed by the Chief Executive to allocate resources to the segments and to assess their performance.
In the opinion of the directors, the operations of the Group comprise one class of business, being oil and gas exploration and related activities in
only one geographical area, the UK Continental Shelf.
(i) Financial instruments
Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes party to the contractual provisions
of the instrument. The Group has not entered into any derivative financial instruments during any of the years presented.
6. Operating loss
16 Months Ended
31 Dec 2012
£’000
12 Months Ended
31 Aug 2011
£’000
Cash and cash equivalents
Cash includes cash on hand and cash with banks. Cash equivalents are short-term, highly-liquid investments that are readily convertible to
known amounts of cash with three months or less remaining to maturity from the date of acquisition and that are subject to an insignificant
risk of change in value.
Investments
Fixed asset investments in subsidiaries are stated at cost in the Company only balance sheet and reviewed for impairment if there are any
indications that the carrying value may not be recoverable.
Trade payables
Trade payables are initially measured at fair value and are subsequently measured at amortised cost using the effective interest rate method.
Equity instruments
Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs. Where warrants are granted in
conjunction with other equity instruments, they are recorded at their fair value, which is measured by the use of a binomial model.
(j) Operating leases
Rentals under operating leases are charged to the income statement on a straight line basis over the lease term, even if the payments are not
made on such a basis.
3. Critical accounting judgements and key sources of estimation uncertainty
In the process of applying the Group’s accounting policies, management has made the following judgements and estimates that have the most
significant effect on the amounts recognised in the financial statements.
Recoverability of exploration and evaluation assets
Intangible assets are assessed for impairment when circumstances suggest that the carrying amount may exceed its recoverable value.
This assessment involves judgement as to (i) the likely future commerciality of the asset and when such commerciality may be determined, (ii)
future revenues and costs pertaining to the asset in question, and (iii) the discount rate to be applied to such revenues and costs for the purpose
of deriving a recoverable value.
Recoverability of carrying value of investments
Management is required to assess the carrying value of investments in subsidiaries in the Company balance sheet for impairment by reference to the
recoverable amount. This amount is highly dependent on the assessments discussed above in respect of the recoverability of intangible assets.
Decommissioning
Provisions for decommissioning are recognised in full when the related facilities are installed. A corresponding amount equivalent to the provision is
also recognised as part of the cost of the related asset. The amount recognised is the estimated cost of decommissioning, discounted to its
net present value, and is reassessed each year in accordance with local conditions and requirements. The provisions therefore reflect estimates
of the costs and timing of decommissioning, and the appropriate discount rate, which are subject to revisions as better information becomes
available. Changes in the estimated cost and timing of decommissioning are dealt with prospectively by recording an adjustment to the
provision, and a corresponding adjustment to the asset. The unwinding of the discount on the provision is included as a finance cost.
4. Revenue
The Group has no revenue in the current or comparative period other than interest income.
52
Operating loss is stated after charging:
Operating lease rentals – land and buildings
Write off of exploration and evaluation assets
Audit services
Non-audit services provided by the auditor
The following is an analysis of the gross fees paid to the Company’s auditor, Deloitte LLP,
in the 16 months ended 31 December 2012 and the 12 months ended 31 August 2011:
Audit services
Fees payable to the Company’s auditor for the audit of the
Company’s annual accounts
The audit of the Company’s subsidiaries
Total audit fees
Non audit services
Taxation services
Accounting services
Corporate Finance
Total non audit fees
205
9
36
221
28
8
36
10
-
211
221
92
782
30
15
25
5
30
10
5
-
15
As at 31 December 2012, nil (August 2011: £135k) has been accrued within prepayments in respect of ongoing Corporate Finance services performed by
the Company’s auditor. The corporate finance fees of £211k represent work completed during the period. Fees for the corporate finance services
relating to the Group’s admission to AIM have been incurred in 2013 and will therefore be reported in the Group’s next annual report and accounts.
The Group made no charitable or political donation during 2012 (2011: £Nil).
7. Directors’ emoluments
All directors:
Aggregate emoluments
Pension contributions
Highest paid director:
Aggregate emoluments
Pension contributions
16 Months Ended
31 Dec 2012
£’000
12 Months Ended
31 Aug 2011
£’000
1,982
98
2,080
524
38
562
808
35
843
304
16
320
53
Hurricane Energy plc Annual Report and Consolidated Financial Statements
16 Months Ended 31 December 2012
Notes to the Financial Statements
for the 16 Months Ended 31 December 2012
7. Directors’ emoluments (continued)
Directors’ share options
Details of directors’ share options at the beginning and end of the period are as follows:
The employment cost for the directors employed by the Group during the period was £2,831k (2011: £1,045k). These costs include social security
costs of £241k (2011: £93k) and share-based payment expense of £510k (2011: £109k). Amounts capitalised in the period represent employee time
directly related to the development of the exploration and evaluation assets of the Group and has thus been capitalised into intangible assets.
The Group does not currently operate a pension scheme but undertakes to make contributions to employees’ existing pension schemes.
As at
1 September 2011
Granted
Exercised
Lapsed
As at 31
December 2012
Exercise price
Date from which
exercisable
Expiry date
9. Tax on loss on ordinary activities
Tranche
Robert Trice
22/02/06
25/01/11
14/06/11
28/07/11
20/07/12
Keith Kirby
28/07/11
28/07/11
20/07/12
1,300,000
225,000
550,450
237,840
-
-
-
-
-
333,333
300,000
-
-
-
-
756,760
126,120
-
-
-
272,222
-
-
-
-
-
-
-
-
-
170,000
189,190
-
-
-
-
-
-
Nicholas Briggs (Resigned 11 May 2012)
06/07/09
25/01/11
28/07/11
2,000,000
170,000
189,190
-
-
-
Nicholas Mardon Taylor (Resigned as a director 28 July 2011) (Re-appointed 11 May 2012)
22/02/06
25/01/11
14/06/11
28/07/11
20/07/12
1,000,000
68,000
103,500
98,300
-
-
-
-
-
217,778
-
-
-
-
-
-
-
-
-
-
1,000,000
225,000
550,450
237,840
333,333
756,760
126,120
272,222
2,000,000
-
-
1,000,000
68,000
103,500
98,300
217,778
£0.10
£1.00
£1.11
£1.11
£nil
£1.11
£1.11
£nil
£0.30
£1.00
£1.11
£0.10
£1.00
£1.11
£1.11
£nil
01/02/10
25/01/14
14/06/14
28/07/16
31/12/14
22/02/16
31/12/20
13/06/21
27/07/21
20/07/22
28/07/14
28/07/16
31/12/14
27/07/21
27/07/21
20/07/22
24/05/12
25/01/14
28/07/16
28/06/13
31/12/20
27/07/21
01/02/10
25/01/14
14/06/14
28/06/16
31/12/14
22/02/16
31/12/20
13/06/21
27/07/21
20/07/22
The share options exercised by Robert Trice were held by Julie Trice, his spouse.
8. Employee information
The average number of persons, including directors, employed by the Group during the period was:
Operations
Staff costs for the above persons were:
Wages and salaries
Social security costs
Share-based payment expense
Pension costs
Less amounts capitalised
Staff costs recognised in the income statement
54
16 Months Ended
31 Dec 2012
Number
12 Months Ended
31 Aug 2011
Number
19
£’000
4,455
523
902
220
6,100
(1,777)
4,323
14
£’000
1,356
157
214
70
1,797
(701)
1,096
(a) UK corporation tax
Current tax – current year
Current tax – prior year
Deferred tax
16 Months Ended
31 Dec 2012
£’000
12 Months Ended
31 Aug 2011
£’000
18
-
-
18
23
3
-
26
(b) Loss on ordinary activities before tax
(6,781)
(3,995)
Loss on ordinary activities multiplied by standard rate of corporation tax
in the UK applicable to oil companies of 62% (2011: 50%)
Effects of:
Adjustment to prior years
Expenses not deductible for tax purposes
Unrecognised pre-trade revenue expenditure carried forward
Profits subject to tax at lower rate
Total tax charge for period
(c) Factors which may affect future tax charges
(4,204)
(1,998)
-
1,100
3,165
(43)
18
3
-
2,054
(33)
26
Future profits may be subject to ring fence taxation at a combined rate of 62% on taxable oil extraction profits (ring fence corporation tax at 30%
and a supplementary charge at 32% with no deduction for financing costs).
The Group has pre-trading revenue expenses of £20.2 million (2011: £15.0 million) and pre-trading capital expenditure of 113.0 million
(2011: £81.3 million) which will be available for tax relief on commencement of a petroliferous trade for UK tax purposes.
The total pre-trading expenditure of £133.2 million (referred to above) may attract Ring Fence Expenditure Supplement on the commencement
of trade, which would result in a further uplift of £26.3 million of tax relief being available at that time.
No provision has been made in these financial statements for a potential deferred tax asset of £12.5 million (2011: £9.3 million) resulting from the
effect of carried forward pre-trading revenue expenses. A deferred tax asset would only be recognised where there is reasonable certainty that the
Group will generate suitable taxable profits in the foreseeable future. The Group’s practice is generally not to recognise potential deferred tax assets
during exploration and evaluation stage activities due to the inherent uncertainty of success at this stage. The potential deferred tax
asset is calculated at a rate of 62% (2011: 62%).
55
Hurricane Energy plc Annual Report and Consolidated Financial Statements
16 Months Ended 31 December 2012
Notes to the Financial Statements
for the 16 Months Ended 31 December 2012
10. Intangible assets
14. Trade and other payables
Exploration and evaluation expenditure at start of period
Additions
Write-off
Exploration and evaluation expenditure at end of period
As at 31 Dec 2012
£’000
As at 31 Aug 2011
£’000
96,237
34,849
(9)
131,077
76,767
20,252
(782)
96,237
Trade payables
Other payables
Accruals
Exploration and evaluation expenditure comprises the book cost of licence interests and exploration and evaluation expenditure within the
Group’s licensed acreage in the West of Shetlands. In the year ended 31 August 2011, the exploration and evaluation expenditure also comprised of
amounts capitalised in respect of the Group’s onshore UK locations being explored at the time.
The amounts written off in 2011 and 2012 relate to the onshore UK licences of Perthshire and Wiltshire, which were relinquished in 2011.
In additions for the year, £3.2 million (2011: £0.4 million;) relate to the change in estimates associated with the decommissioning provisions (note 15).
The directors have fully considered and reviewed the potential value of licence interests, including carried forward exploration and evaluation
expenditure. The directors have considered the Group’s tenure to its licence interests, its plans for further exploration and evaluation activities in
relation to these and the likely opportunities for realising the value of the Group’s licences, either by farm out or by development of the assets and
have concluded that there are no indications of impairment.
11. Other non-current receivables
The other non-current receivables represent the deposit for the office lease. Further details are given in note 22.
12. Trade and other receivables
Other receivables
Prepayments and accrued income
13. Cash and cash equivalents
Unrestricted funds
Escrow funds
As at 31 Dec 2012
£’000
As at 31 Aug 2011
£’000
370
20
390
380
751
1,131
As at 31 Dec 2012
£’000
As at 31 Aug 2011
£’000
22,240
150
22,390
17,357
15,531
32,888
The Group holds the beneficial interest in the funds held in the escrow accounts. These funds can only be dispersed to the benefit of an
independent third party for work undertaken as part of the drilling operations.
As at 31 Dec 2012
£’000
As at 31 Aug 2011
£’000
633
1
154
788
1,258
90
1,890
3,238
As at 31 Dec 2012
£’000
As at 31 Aug 2011
£’000
800
3,200
4,000
400
400
800
15. Decommissioning provisions
Provisions for decommissioning and restoration of exploration and evaluation assets are:
At start of period
Additions
At end of period
The provision for decommissioning relates to the costs required to decommission the Lancaster and Whirlwind exploration assets. The additions
seen in 2012 represent an adjustment to reflect an updated estimate of the present value of decommissioning costs for these assets based on
better information regarding these discoveries. The expected decommissioning cost for both assets is based on the directors’ best estimate of
the cost of decommissioning as part of an integrated testing campaign at the end of the current licence term in 2017. If the Group were required
to undertake a specific campaign to plug and abandon the wells, the cost on a stand alone basis would be approximately £5.0 million for each
of the two wells drilled to date. No finance costs have been recorded in any period shown, as the impact would not be material.
16. Called up share capital
As at 15 November 2011, a resolution was passed to subdivide each ordinary share with a nominal value of £0.01 each into ten ordinary shares with a
nominal value of £0.001 each. The subdivision of the shares also impacts the warrants that are in place. Each existing warrant held was subdivided into
the right for each warrant holder to subscribe for 10 new ordinary £0.001 shares at an exercise price of £0.30 per share. This note reflects these changes.
Authorised
1,000,000,000 ordinary shares of 0.1p each
Allotted, called up and fully paid
474,688,050 (2011: 447,571,050) ordinary shares of 0.1p each
As at 31 Dec 2012
£’000
As at 31 Aug 2011
£’000
1,000,000
1,000,000
474,688
447,571
During the 16 months period ended 31 December 2012, the Group issued 27,117,000 ordinary 0.1p shares for a gross cash consideration of £29,844,307.
During the year ended 31 August 2011, the Group issued 18,251,340 ordinary 0.1p shares for a gross cash consideration of £20,250,138.
At 31 August 2011, 23,381,670 warrants were in issue providing the right for each warrant holder to subscribe for one new ordinary 0.1p share per
warrant held at an exercise price of £0.30 per share. During the 16 months ended 31 December 2012, 5,782,935 warrants were exercised.
The remaining 17,598,735 warrants were due to lapse in July 2012 but were extended until 31 December 2012. There were no further
exercises of these warrants and as such they all lapsed on 31 December 2012.
56
57
Hurricane Energy plc Annual Report and Consolidated Financial Statements
16 Months Ended 31 December 2012
Notes to the Financial Statements
for the 16 Months Ended 31 December 2012
17. Share options
As at 15 November 2011, a resolution was passed to subdivide each ordinary share with a nominal value of £0.01 each into ten ordinary shares with a
nominal value of £0.001 each. This note reflects these changes.
On 22 February 2006, the Group granted share options, under an Enterprise Management Incentive (EMI) scheme, over 3,600,000 ordinary 0.1p
shares to employees of the Group at an exercise price of £0.10 per share.
On 14 April 2009, the Group granted unapproved share options over 2,600,000 ordinary 0.1p shares to employees of the Group at an exercise price
of £0.30 per share. On 19 January 2010, the Group granted further unapproved share options over 1,100,000 ordinary 0.1p shares to an employee of
the Group at an exercise price of £0.60 per share.
On 25 January 2011, the Group granted approved share options over 194,000 ordinary 0.1p shares and unapproved share options over 1,283,000
ordinary 0.1p shares to employees of the Group at an exercise price of £1.00 per share. On 14 June 2011, the Group granted further approved share
options over 88,710 ordinary 0.1p shares and unapproved share options over 1,579,020 ordinary 0.1p shares to employees of the Group at an exercise
price of £1.11 per share.
On 28 July 2011, the Group granted further approved share options over 81,060 ordinary 0.1p shares and unapproved share options over 1,450,470
ordinary 0.1p shares to employees of the Group at an exercise price of £1.11 per share.
On 28 July 2011, the Group granted approved share options over 18,010 ordinary 0.1p shares and unapproved share options over 633,440 ordinary
0.1p shares to employees of the Group at an exercise price of £1.11 per share. These options have a 5 year vesting period.
On 27 February 2012, the Group granted approved share options over 22,222 ordinary 0.1p share options and unapproved share options over 111,111
ordinary 0.1p shares to employees of the Group at an exercise price of £1.35 per share.
On 20 July 2012, the Group made 1,512,074 share option awards under its Long Term Incentive Plan, which will vest subject to the employees
remaining in service until 31 December 2014 and an increase in an index based on the Group’s reserves and resources being achieved. The estimated
fair value of the awards based on a share price of £1.35 is £2.6 million. No charge has been recorded in the period to 31 December 2012 in respect of
these options.
The options normally vest 3 or 5 years after the date of the grant and are due to lapse 10 years after the date of the grant. The options vest early
upon either sale, restructuring or listing of the Company and, except for a listing, the options must be exercised at the time of the vesting event. For
options granted after January 2011, listing does not constitute an early vesting event. The date of lapse for the options issued on 14 April 2009 to
Nicholas Briggs was modified on his departure to 24 May 2013 and subsequently to 28 June 2013.
Subsequent to the balance sheet date, on 15 April 2013 all unvested share options (with the exception of those that vest on listing) were replaced by
share awards as part of the Group’s Performance Share Plan. Also, 3,300,000 share options were exercised by directors and employees post year end,
refer to note 24 for further details.
The options outstanding at 31 December 2012 had a weighted average remaining contractual life of 4.5 years (2011: 7.7 years). The aggregate of the
estimated fair value of the options granted was £97,886 (2011: £3,261,967).
58
Number of
options
2012
Weighted average
exercise price
Outstanding at start of period
Granted in the period
Forfeited in the period
Exercised in the period
11,527,710
1,649,407
(1,407,910)
(300,000)
Outstanding at the end of the period
11,469,207
Exercisable
5,900,000
£
0.60
0.11
1.03
0.10
0.49
0.19
Number of
options
7,300,000
5,327,710
(1,100,000)
-
11,527,710
3,600,000
2011
Weighted average
exercise price
£
0.25
1.08
0.60
-
0.60
0.10
The Group recognised total expenses of £902k in respect of share-based payments in the 16 month period to 31 December 2012
(12 months to 31 August 2011: £214k).
18. Own shares held by Employee Benefit Trust
The own shares reserve represents the cost of shares in Hurricane Energy plc (formerly Hurricane Exploration plc) purchased and held by the Group’s
Employee Benefit Trust to satisfy the Group’s Share Incentive Plan administered by MM&K Share Plan Trustees Limited.
The number of ordinary shares held by the Employee Benefit Trust at 31 December 2012 was 668,300 (31 August 2011: 668,300).
19. Reconciliation of operating loss to net cash outflow from operating activities
Operating loss
Non cash exploration write-offs
Non cash share-based payment charge
Decrease / (increase) in trade and other receivables
(Decrease) / increase in trade and other payables
Cash used in operating activities
Corporation tax paid
Net cash outflow from operating activities
16 Months Ended
31 Dec 2012
£’000
(7,225)
9
1,120
729
(918)
(6,285)
(22)
(6,307)
12 Months Ended
31 Aug 2011
£’000
(3,294)
782
278
(656)
589
(2,301)
(37)
(2,338)
59
Hurricane Energy plc Annual Report and Consolidated Financial Statements
16 Months Ended 31 December 2012
Notes to the Financial Statements
for the Year Ended 31 December 2012
20. Financial instruments
Financial risk management
The Group monitors and manages the financial risks relating to its operations on a continuous basis. These include foreign exchange, credit, liquidity
and interest rate risks. The Group’s financial instruments are cash and cash equivalents and trade payables.
Foreign exchange risk
The Group undertakes certain transactions denominated in foreign currencies; hence exposures to exchange rate fluctuations arise. The Group’s
cash and cash equivalents are predominately held in Pounds Sterling although the Group will hold cash balances in US Dollars to meet actual or
expected commitments in that currency. A 10% increase in the strength of the US Dollar against Sterling would cause a decrease of £0.5 million
(2011: £1.9 million) on the loss after tax of the Group. A 10% weakening in the strength of the US Dollar against Sterling would cause an increase of
£0.4 million (2011: £1.5 million) on the loss after tax of the Group.
This sensitivity analysis includes only foreign currency denominated cash and cash equivalents, and adjusts their translation at the year end for a
10% change in the foreign currency rate. Whilst the effect of any movement in exchange rates is charged or credited to the income statement, the
economic effect of holding US dollars against actual or expected commitments in US dollars is as a hedge against exchange rate movements.
Credit risk
The Group is only exposed to credit risk on its cash and cash equivalents. The risk to the Group is deemed to be limited because the cash and cash
equivalents are deposited with banks with at least A credit ratings assigned by an international credit rating agency. The carrying value of cash and
cash equivalents represents the Group’s maximum exposure to credit risk at the period end.
Liquidity risk
The Group manages its liquidity risk by maintaining adequate cash and cash equivalents to cover its liabilities as and when they fall due.
The financial liabilities of the group are currently limited to trade payables which are due to be paid within 60 days of the balance sheet date.
Interest rate risk
The Group is exposed to interest rate movements through its cash and cash equivalents which earn interest at variable interest rates. If interest
rates had been 1% higher, the Group’s loss after tax for the 16 months ended 31 December 2012 would have decreased by £0.2 million (2011: £0.3
million), assuming the cash and cash equivalents at the balance sheet date had been outstanding for the whole year. No sensitivity analysis has been
undertaken for a 1% decrease in interest rates because of the low level of prevailing interest rates during the year.
21. Capital commitments
As at 31 December 2012 there were no capital commitments (31 August 2011: £25.4 million in relation to planned drilling activities at
the Whirlwind well). Subsequent to the period end the Group entered into a rig contract to drill the Lancaster Horizontal well in 2013.
Capital commitments on this contract are £17.1 million at the date of this report.
22. Financial commitments
The Group and Company had total future commitments under non-cancellable operating leases as follows:
Within one year
In the second to fifth years inclusive
After five years
As at 31 Dec 2012
£’000
140
520
423
1,083
As at 31 Aug 2011
£’000
56
443
726
1,225
23. Related party transaction
During the 16 months ending 31 December 2012, Charles Good was a partner of Hawkwood Capital LLP and Matrix Corporate Capital LLP as well
as being a director of Hurricane Energy plc (formerly Hurricane Exploration plc) until his resignation on 12 October 2011. £807k (2011: £247k)
of corporate finance and placing fees were charged by Hawkwood Capital LLP and Matrix Corporate Capital LLP in the 16 month period to 31
December 2012.
24. Subsequent events
On 8 March 2013 the Group announced the appointment of John Hogan as Non-Executive Chairman following the resignation of Sir Adrian
Montague. The Group also announced the appointment of Non-Executive Directors David Jenkins and John van der Welle on the same day.
Bill Guest, Philip Dayer and Jon Murphy have stepped down as Non-Executive Directors. Neil Platt was also appointed to the board as
Chief Operations Officer.
In April 2013, 1,000,000 shares were issued to Nicholas Mardon Taylor, in respect of the exercise of 1,000,000 EMI options at an exercise price of
10p per share. Also in April 2013, 1,000,000 shares were issued to Robert Trice, in respect of the exercise of 1,000,000 EMI options at an exercise
price of 10p per share. The exercise date of the 2 million share options held by a former director, were extended by a month to 28 June 2013.
In April 2013, 1,300,000 shares were issued to employees, in respect of the exercise of 1,300,000 EMI options at an exercise price of 10p per share.
The Group completed a fundraising in April 2013. The Group raised £31.4 million (gross) by issuing a combination of convertible loan notes and
issuing ordinary shares accompanied by warrants to subscribe for further shares. As a result of raising this finance, the Group was able to
enter into a rig contract to drill the Lancaster horizontal well in 2013. The rig contract was signed in April 2013.
Also in April 2013, all awards under the Group’s Long Term Incentive Plan were surrendered together with all unvested share options (other than
those that vest at IPO) and replaced with awards under The Hurricane Energy 2013 Performance Share Plan. Under the Hurricane Energy 2013
Performance Share Plan the employees were granted conditional rights to receive in aggregate 47,450,000 ordinary shares at nil cost. The share
awards vest based on the Group meeting certain operational and funding milestones across the next three years.
On 15 April 2013 the Group announced that the name of the Company would change from Hurricane Exploration plc to Hurricane Energy plc.
In March 2013, DECC granted a six month extension (to 31 September 2013) for the P1485 licence to enable Hurricane to demonstrate that a rig
contract and a clear plan for drilling can be put in place.
On 15 April 2013 authority was provided by shareholders for the directors to issue a further 200 million shares with nominal value of £0.001
for the purpose of the Group’s current IPO plans.
60
61
Hurricane Energy plc Annual Report and Consolidated Financial Statements 16 Months Ended 31 December 20126263Company Statement of Changes in Equity for the 16 Months Ended 31 December 2012 Share Share Share Own shares Warrant Accumulated Total capital premium option held by EBT reserve deficit account reserve £’000 £’000 £’000 £’000 £’000 £’000 £’000 Balance at 1 September 2010 429 115,465 237 - 795 (6,701) 110,225 Shares allotted 19 20,231 - - - - 20,250Transaction costs - (260) - - - - (260)Share option charge - - 214 - - - 214Own shares held by EBT - - - (67) - - (67)Loss for the year - - - - - (4,014) (4,014)Balance at 31 August 2011 448 135,436 451 (67) 795 (10,715) 126,348Shares allotted 21 28,058 - - - 28,079Transaction costs - (1,328) - - - (1,328)Share option charge - (212) 902 - - 448 1,138Share options exercised - 30 (10) - - 10 30Warrants exercised 6 1,926 - - (197) - 1,735Warrants lapsed - - - - (598) 598 -Loss for the period - - - - - (6,789) (6,789)Balance at 31 December 2012 475 163,910 1,343 (67) - (16,448) 149,213 The share option reserve arises as a result of the expense recognised in the income statement for the cost of share-based employee compensation arrangements.The warrant reserve represents the proceeds from the issue of outstanding warrants.The loss for the 16 month period of the parent company was £6,789k (12 month period ended Aug 2011: loss of £4,014k). The Company has taken advantage of the exemption provided by Section 408 of the Companies Act 2006 not to publish its individual income statement and related notes. Notes As at 31 Dec 2012 As at 31 Aug 2011 £’000 £’000Non-current assets Intangible assets 1 57,938 40,339Investments 2 15,090 15,090Amounts due from subsidiary undertaking 56,076 40,563Other receivables 3 130 130 129,234 96,122 Current assetsTrade and other receivables 4 390 995Cash and cash equivalents 5 22,390 32,888Total current assets 22,780 33,883Total assets 152,014 130,005Current liabilitiesTrade and other payables 6 (779) (3,231)Current tax liabilities (22) (26) (801) (3,257)Non-current liabilitiesDecommissioning provision 7 (2,000) (400)Total liabilities (2,801) (3,657)Net assets 149,213 126,348EquityShare capital 8 475 448Share premium 163,910 135,436Share option reserve 1,343 451Warrant reserve - 795Own shares held by Employee Benefit Trusts (67) (67)Accumulated deficit (16,448) (10,715)Total equity 149,213 126,348The financial statements were approved and authorised for issue by the Board of Directors on 10 May 2013 and were signed on its behalf by:Robert Trice Nicholas Mardon Taylor Director DirectorCompany Balance Sheet as at 31 December 2012Registered company number 5245689 Hurricane Energy plc Annual Report and Consolidated Financial Statements
16 Months Ended 31 December 2012
Company Cash Flow Statement
for the 16 Months Ended 31 December 2012
Notes to the Financial Statements
for the 16 Months Ended 31 December 2012
Notes
16 Months Ended
31 Dec 2012
£’000
12 Months Ended
31 Aug 2011
£’000
1. Intangible assets
Net cash outflow from operating activities
9
(6,434)
(2,198)
Investing activities
Interest received
Expenditure on intangible assets
Net cash used in investing activities
Financing activities
Interest paid
Net proceeds from issue of share capital
Working capital provided to subsidiary companies
Net cash provided by financing activities
115
(17,542)
127
(24,431)
(17,427)
(24,304)
(7)
28,534
(15,512)
13,015
(2)
19,859
(10,045)
9,812
Net decrease in cash and cash equivalents
(10,846)
(16,690)
Cash and cash equivalents at the beginning of the period
Net decrease in cash and cash equivalents
Effects of foreign exchange rates
32,888
(10,846)
348
Cash and cash equivalents at the end of the period
5
22,390
50,389
(16,690)
(811)
32,888
64
Exploration and evaluation expenditure at the start of the period
Additions
Write-off
Exploration and evaluation expenditure at the end of the period
As at 31 Dec 2012
£’000
40,339
17,608
(9)
57,938
As at 31 Aug 2011
£’000
30,972
10,149
(782)
40,339
Exploration and evaluation expenditure comprises the book cost of licence interests and exploration and evaluation expenditure within the
Company’s licensed acreage in the West of Shetlands. In the year ended 31 August 2011, the exploration and evaluation expenditure also comprised
of amounts capitalised in respect of the Group’s onshore UK locations being explored at the time.
The amounts written off in 2011 and 2012 relate to the onshore UK licences of Perthshire and Wiltshire, which were relinquished in 2011.
In additions for the year, £1.6 million (2011: £0.2 million) relate to the change in estimates associated with the decommissioning provisions (note 7).
The directors have fully considered and reviewed the potential value of licence interests, including carried forward exploration and evaluation
expenditure. The directors have considered the Company’s tenure to its licence interests, its plans for further exploration and evaluation activities
in relation to these and the likely opportunities for realising the value of the Company’s licences, either by farm out or by development of the assets
and have concluded that there are no indications of impairment.
2. Investments
Investment in subsidiary
£’000
Loan to subsidiary
£’000
As at 31 December 2012 and 31 August 2011
9,751
5,339
Total
£’000
15,090
The entire share capital of Hurricane Exploration (UK) Limited was acquired in 2008. Hurricane Exploration (UK) Limited is registered in the UK
and its activity is oil and gas exploration. There are three other dormant subsidiaries; Hurricane Group Limited, Hurricane Basement Limited
(formerly Hurricane Energy Limited) and Hurricane Petroleum Limited.
3. Other non-current receivables
The other non-current receivables represent the deposit for the office lease. Further details are given in note 22 of the consolidated financial
statements.
4. Trade and other receivables
Other receivables
Prepayments and accrued income
As at 31 Dec 2012
£’000
370
20
390
As at 31 Aug 2011
£’000
550
445
995
65
Hurricane Energy plc Annual Report and Consolidated Financial Statements
16 Months Ended 31 December 2012
Notes to the Financial Statements
for the 16 Months Ended 31 December 2012
5. Cash and cash equivalents
Unrestricted funds
Escrow funds
As at 31 Dec 2012
£’000
As at 31 Aug 2011
£’000
22,240
150
22,390
17,357
15,531
32,888
The Company holds the beneficial interest in the funds held in the escrow accounts. These can only be dispersed to the benefit of an
independent third party for work undertaken as part of the drilling operations.
6. Trade and other payables
Trade payables
Other payables
Accruals
7. Decommissioning provisions
Provisions for decommissioning and restoration of exploration and evaluation assets are:
At start of period
Additions
At end of period
As at 31 Dec 2012
£’000
As at 31 Aug 2011
£’000
633
1
145
779
1,258
90
1,883
3,231
As at 31 Dec 2012
£’000
As at 31 Aug 2011
£’000
400
1,600
2,000
200
200
400
The provision for decommissioning relates to the costs required to decommission the Lancaster and Whirlwind exploration assets. The additions
seen in 2012 represent an adjustment to reflect an updated estimate of the present value of decommissioning costs for these assets based on
better information regarding these discoveries. The expected decommissioning cost for both assets is based on the directors’ best estimate of the
cost of decommissioning as part of an integrated testing campaign at the end of the current licence term in 2017. If the Company were required to
undertake a specific campaign to plug and abandon the wells, the cost on a stand alone basis would be approximately £2.5 million for each of the
two wells drilled to date. No finance costs have been recorded in any period shown, as the impact would not be material.
8. Called up share capital
Details of the Company’s share capital, share options and own shares held by the Employee Benefit Trust (EBT) are provided in notes 16, 17 and 18
of the consolidated financial statements.
9. Reconciliation of operating loss to net cash outflow from operating activities
Operating loss
Non cash exploration write-offs
Non cash share-based payment charge
Decrease / (increase) in trade and other receivables
(Decrease) / increase in trade and other payables
Cash used in operating activities
Corporation tax paid
Net cash outflow from operating activities
16 Months Ended
31 Dec 2012
£’000
12 Months Ended
31 Aug 2011
£’000
(7,214)
9
1,120
593
(920)
(6,412)
(22)
(6,434)
(3,289)
782
278
(521)
589
(2,161)
(37)
(2,198)
10 Other disclosures
Certain other disclosures in notes 20, 21, 22, 23 and 24 to the consolidated financial statements also apply to the Company in respect of its share
of the Group’s operations.
66
67
Hurricane Energy plc Annual Report and Consolidated Financial Statements
16 Months Ended 31 December 2012
68
69
The Wharf
Abbey Mill Business Park
Lower Eashing
Godalming
hurricaneenergy.com