Annual Report and Group Financial Statements 2013
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2013
Contents
Introduction
4-5
8
Chairman’s Statement
8-14 Group Strategic Report
16-17 The Board
18-19 Corporate Governance
20
21
22
23
24
27
Remuneration Report
Environmental Policy
Health and Safety Policy
AGM
CFO Review
Financial Statements
1
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2013
Highlights
Refreshed
Competent
Person’s Report
including incremental
subsurface and
engineering studies
Completed an IPO
on 4 February 2014,
admitting the Company’s
shares to AIM
Secured Transocean
Sedco 712 drilling rig
for 2014 operations
Pre-IPO and
IPO fundraising
added over £47
million (net) to the
balance sheet
2
New highly
experienced Non-
Executive Director team
joined the Board
Hurricane has
470* MMboe of 2C
Contingent Resources and
a further 442* MMboe P50
Prospective Resources that
it owns 100%
3000
2500
2000
1500
1000
500
Mmboe
In Hurricane’s Competent Person’s Report
(CPR) it recognises 2C Contingent Resources
of 444-470 MMboe and P50 Prospective
Resources of a further 432-442 MMboe.
Agreed licence
extensions with
DECC
Prospective Resources
Contingent Resources
2008
93
93
188
1C+P90
442
470
984
2C+P50
3C+P10
Hurricane’s assets:
Contingent and Prospective Resources
Source: CPR November 2013 (*Whirlwind oil case)
3
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2013
Introduction
Hurricane was established 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, West of Shetland on which the Group has made
two basement reservoir discoveries, each approximately
200 MMboe 2C Contingent Resources. The Group also
has approximately 440 MMboe of P50 Prospective
Resources in its portfolio of exploration opportunities.
To date we have 100% ownership of the licences over
all our discoveries and prospects.
Hurricane’s most advanced asset is Lancaster. Currently,
our focus is to drill and test a horizontal well on Lancaster
to demonstrate commercial flow rates of oil and this
operation commenced in April 2014.
Hurricane’s headquarters is in Lower Eashing, Surrey
with an office in Aberdeen.
During 2013 the Group:
In early 2014, the Group:
• Completed a pre-IPO fundraising of £31.4 million (gross,
• Secured a rig to drill a Lancaster appraisal well in 2014
through the issue of convertible loan notes and new equity
together with a warrant to subscribe for equity)
• Admitted the Company’s shares to trading on AIM
• Changed the Company name to Hurricane Energy plc
• Raised £18 million by issuing new equity at IPO
• Entered into a rig contract to drill a Lancaster appraisal well in
• Commenced operations on the horizontal well on Lancaster
2013 but subsequently accepted its cancellation
• Relinquished offshore frontier licence P1884
• Extended the third term of frontier licence P1368
• Extended the term for licence P1485
4
4
5
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2013
Hurricane’s Asset Locations
Faroe-Shetland Basin
Rona Ridge
Schiehallion Field
Whirlwind
Lancaster
Foinaven Field
Typhoon
Lincoln
Strathmore
Clair Field
Shetland
Hurricane assets
Hurricane licence areas
Basement high
Other fields
Major basins
0
20
50km
6
7
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2013
Chairman’s Statement
Welcome to Hurricane Energy’s 2013 Annual Report.
I was pleased to join the Board on 8 March 2013 and I now
have the benefit of being Chairman for more than a year at the
time of writing this statement. 2013 began promisingly with
your management having signed up a rig for summer appraisal
drilling on its Lancaster oil discovery when many commentators
believed there were no rigs to be had; preparations for a
summer flotation of the Company’s shares via an Initial Public
Offering (IPO) on the AIM market (AIM) of the London Stock
Exchange were well advanced; and a pre-IPO fundraising of
£31 million had been completed through the issue of one year
convertible loan notes and new equity accompanied by
a warrant to subscribe for further equity, with a view to
additional funds being raised upon listing.
However, this bright start was overshadowed by events later
in the year that were outside management’s control, resulting
in 2013 becoming a difficult and disappointing year for all.
The availability of the rig was seriously delayed by problems
elsewhere and when the rig was finally available late in the
summer there was insufficient time remaining to complete the
Group’s drilling and testing programme before winter weather
conditions would have closed down operations. The Group
therefore reluctantly agreed to accept cancellation of the rig
contract and consequently defer drilling to 2014. This decision
created uncertainty over the timing of future activity which, in
turn, caused the IPO to have to be postponed.
In the second half of 2013 management began the task
of securing a new rig contract for 2014 appraisal drilling
on Lancaster and to refresh the IPO plans around a revised
schedule. It was also considered prudent to extend the term of
the pre-IPO convertible loan notes and a one year extension to
March 2015 was successfully agreed with note holders. It was
frustrating for all involved to have worked so hard and come
so close to a successful outcome on many fronts in 2013, only
to lose hard won time and to have to start again. I would like
to acknowledge the hard work that the Hurricane team and
advisors have put in during the year to get the Group’s plans
back on track.
The first step was to secure a new rig and Transocean’s Sedco
712 was contracted for drilling in 2014.
While these efforts continued, the financial background in the
capital markets progressively deteriorated during 2013 and into
2014 with, it seemed, the small to mid-cap resources sector
8
particularly out of favour. To give some perspective, in 2013
there were just seven IPOs on AIM in our sector raising a total
of £111 million between them. In fact total money raised on
AIM in the sector in 2013 was less than a quarter of that raised
in 2010. Against this challenging background the Company
was successful in floating its shares on AIM on 4 February
2014, raising an additional £18 million before expenses. With
these funds and the pre-IPO cash raised previously, the Group
added more than £47 million cash to the balance sheet, after
expenses, through the fundraising effort.
The share price performance in the period since flotation has
been disappointing and we believe that we can respond to
this over time by delivering a successful appraisal well result
at Lancaster to underscore the value of the Group. In the
meantime, management has been working hard to ensure
the market recognises the scale of the opportunity that
Hurricane represents. An extensive and ongoing programme
of meetings with brokers, analysts and industry commentators
and presentations at special investor events is underway to tell
the Hurricane story. I am satisfied that management is being
proactive in engaging with the investment community in an
undoubtedly difficult market.
The Group is now at a key point in its activities. We announced
on 28 April 2014 the spudding of the Lancaster appraisal well,
designed to test for commercially sustainable oil flow rates
from the fractured basement reservoir. Success in this well will
not only demonstrate the significant commercial potential of
the Lancaster discovery, it will also have a significant impact on
how the industry values other fractured basement opportunities
in the UK. Through the heightened awareness created by
Hurricane of fractured basement plays, the UK government
has for the first time put fractured basement on the map
as a material component of the UK’s remaining prospective
resources. The government sponsored Pilot study describes
fractured basement reservoirs as the most extensive under-
explored play remaining on the UKCS. Your Group’s licence
holdings and unique expertise in fractured basement reservoirs
in the UK leave it well placed to build further on success.
I look forward to meeting Shareholders at the Annual
General Meeting on 23 June 2014.
John Hogan
Chairman
9
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2013
Group Strategic Report
Business model
Review of 2013
We acquire acreage in proven petroleum systems and use
pre-existing well and seismic data to assess the potential of
basement reservoirs which have been bypassed by the oil
industry’s earlier exploration campaigns. By using pre-existing
data we are able to plan exploration and appraisal wells with
a high level of confidence. Once a well is drilled we use newly
acquired geotechnical information to refine our geological
understanding of our assets and subsequently assess the
commercial potential of any discoveries.
At the start of the year a complex three way negotiation was
completed between ATP, Transocean and Hurricane agreeing a
contract for Transocean’s GSF Arctic III drilling rig that was to
drill a well on Lancaster later in 2013. The process took several
months and was successfully completed in the face of an all
but impossible rig market when many industry commentators
observed ‘there are no rigs’. The contract was constructed in a
way to protect Hurricane in the event that the operator using
the rig before Hurricane was delayed.
Oil exploration, appraisal and development is by its nature
capital intensive and typically takes several years to get a
discovery through to development and production. Early
capital is provided either through equity investment or
through a farm-out of licence assets in exchange for financial
contribution to wells and, or, a level of financial carry on
field development. It has always been part of our strategy to
introduce a development partner at the right time to enable
field development and also to bring expertise and manpower in
skill sets that Hurricane does not intend to develop in-house for
the development and production phase. Hurricane is focused
on bringing its existing discoveries to field development and will
continue to acquire new acreage as it is able to do so, subject
to financial capability.
Strategy
Our strategy is to create shareholder value through the exploration,
appraisal and development of fractured basement reservoirs
and in the process, to move our resources up through the value
chain from prospects, through to discoveries and contingent
resources, culminating in reserves and ultimately production.
We use our business model to create opportunities that we
believe will lead to development of significant resources. We
believe that fractured basement reservoirs can be associated
with stratigraphically trapped oil that is of material commercial
value. Part of Hurricane’s strategy is to demonstrate this
potential through exploration and appraisal drilling.
Up to now we have maintained 100% ownership and
operatorship of all of our discoveries and we will engage
with a partner at the right time to help move our fields
into development.
At the time of the 2013 AGM held on 10 June the management
still fully expected to be able to take the rig within the window
the Group had committed to. However, as events unfolded, it
was clear by mid-July that the previous operator was delayed.
Soon after, the Board took the decision to accept cancellation
of the rig contract. Had Hurricane opted to take the rig
following completion of the previous operator’s activities it
was clear that we would have been unable to complete the well
in the time remaining before the rig was required to leave the
area due to the onset of winter conditions. In this situation we
would have had to temporarily suspend the well, re-entering in
2014. That would have created substantial incremental costs
associated with additional mobilisations and demobilisations.
Whilst this resulted in no drilling in 2013, management’s
foresight to reserve the right to limit the date at which
Hurricane would have to take the rig meant that Shareholders’
funds were protected from an incomplete operation hampered
by the onset of winter weather.
Early in 2013 plans were at an advanced stage to float Hurricane
on AIM. A pre-IPO fundraising was completed in March 2013
through the issue of one year convertible loan notes, new equity
and a warrant, convertible at IPO. The Group added £30 million
to the balance sheet through this activity, after expenses.
A wide round of presentations was undertaken with institutional
investors and on 15 April 2013 a General Meeting authorised
the issue of new shares, as well as a change of company name
to Hurricane Energy plc in preparation for an expected IPO.
The investment story set out the planned drilling to take place
in summer of 2013. As a result of the subsequent decision
to exit the rig contract, the IPO timetable had to be revisited
since clearly the basis on which the IPO had been planned had
changed. Consequently the IPO expected in summer 2013
was postponed.
As a result of these events the Group set about identifying a
rig for 2014 and created a fresh IPO timetable which the
Group and its advisers worked through during the rest of the
year. We successfully negotiated an extended maturity period
for the convertible loan notes which protected the Group
from facing repayment pressure in March 2014 if the IPO
had not come to a conclusion.
The management was able to identify a number of rig
opportunities and ultimately was able to agree a contract
for the Transocean Sedco 712.
Licence P1835 - before 10 January 2015, the Group has a
contingent commitment to drill one well to 1,800m or the top
basement (whichever is shallower). This well need not be drilled
(and the licence expires) if the Secretary of State confirms that
it would not be appropriate to do so in the circumstances, in
particular in light of the evaluation of the results of the firm
well drilled in respect of licence P1485. By 10 January 2015,
the Group is obliged to relinquish at least 50 percent of the
initial licensed area. There is no requirement to relinquish
during the second term but the Group must give notice to
the Secretary of State of the area it wishes to retain.
With the rig and a new plan in place, extensive meetings with
investors were held in the lead up to IPO. Despite very difficult
market conditions, the IPO was completed on 4 February 2014
at a price of 43p per share and adding a further £17 million
to the balance sheet, after expenses. The pre-IPO and IPO
fundraisings together added over £47 million to the balance
sheet after expenses, thereby positioning the Group
to undertake the planned drilling on Lancaster.
Farm-out process
A formal farm-out process is underway. Early in 2014 the Board
appointed Jefferies, a highly regarded specialist in the sector, to
manage and advise. The process is ongoing and the Board will
report on the outcome in due course.
Despite the uncertainty that arose during 2013 we are pleased
to report that we retained all key staff.
Government and regulatory authorities
Well planning was carried out and all preparations made to
accept the rig right at the beginning of the agreed period
during which it may be offered to Hurricane.
Licence extensions
Negotiations to extend licences on Typhoon and Lancaster
were successfully concluded, protecting the Group’s assets.
Licence P1368 - the licence covering Lancaster, Lincoln and
Whirlwind has been extended by DECC for an additional two
years to 21 December 2019. The extension has been granted on
the condition that an early production scheme is approved for
Lancaster by the end of December 2017. Following December
2017, Licence P1368 will apply to the area covered by the early
production scheme and Lincoln, provided a well is drilled on
Lincoln by the end of December 2017.
Licence P1485 - the licence covering Typhoon has been
extended by DECC to 31 December 2014 by when the Group
will need to demonstrate it has a rig contract in place to drill on
the structure at some future date. Should Hurricane be unable
to meet this requirement, the licence will automatically be
terminated unless a further extension is granted by DECC.
Hurricane was one of many companies interviewed as part of
the Wood Review: UKCS Maximising Recovery Review, focusing
on stronger and better stewardship rather than more regulation
of the sector, published in February 2014.
Hurricane has also actively lobbied HM Treasury over
government taxation proposals that may affect the industry and
we are pleased that the government’s 2014 Budget appeared to
take some of our representations into account.
The Group successfully completed an official audit for
renewal of our ISO 14001 Environmental Management
System accreditation, essential to enable us to carry out
drilling operations.
Board
In early March 2013 three new non-executive directors, John
Hogan, Dr David Jenkins and John van der Welle were appointed
to the Board. All three are highly experienced in the industry.
Also in March, Neil Platt was appointed to the Board as Chief
Operations Officer. See page 16 for profiles of the Directors.
10
11
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2013
Group Strategic Report: Future outlook
Currently all Hurricane’s assets are owned 100% by the
Group. We will continue the farm-out process through
2014 with a view to bringing in a suitable partner at
the right time. The Board will report on progress
in due course.
Lancaster
Lincoln
2014 is set to be a pivotal year for the Group. Securing the
Sedco 712 drilling rig was a significant step. The operation has
been meticulously planned with a high level of engagement
with DECC and other agencies in preparation for taking the
Sedco 712 rig on the ‘early curve’, which indeed happened.
On 16 April 2014 the Group announced that it had begun the
rig mobilisation process. On 28 April 2014 the Group
announced that the well had been spudded and the
drilling began in earnest.
Also controlled by Hurricane under Licence P1368, the
Lincoln prospect 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. Subject to future funding we
plan to drill on Lincoln after 2015.
Lincoln’s proximity to Lancaster leads the management to believe
that once we can prove the resource and subject to funding,
it could be developed jointly with Lancaster as a single large
development that we refer to as the Greater Lancaster Area, or GLA.
The Lancaster asset is in a water depth of 155m. The horizontal
section of the well is designed to pass through a number of
faults within the basement and to test for commercial oil flow
rates. The operation is planned to take 75 days and results from
the well are expected, after third party analysis, in summer
2014. If the reservoir behaves as we expect and the drilling
operation is successful the well will be suspended ready for
tie-back to a host production facility as part of the Phase 1
development plan for Lancaster.
Subject to further funding, which could include a farm-out,
the Board intends that a further two wells will be drilled on
Lancaster in 2015 leading to a field development plan and
first oil targeted in 2018.
The key corporate objective for 2014 is to drill a successful
horizontal well on Lancaster that can demonstrate that the
reservoir can produce a commercially sustainable flow of
4,000 barrels of oil per day.
Whirlwind
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.
Whirlwind is located about 10 kilometres north of Lancaster
and in a water depth of approximately 185m. In 2010 we
drilled on the structure and found indications of oil in both a
Lower Cretaceous limestone (Valhall) and underlying fractured
basement within structural closure.
In 2011 Hurricane re-entered the well for testing. The well
test results were 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 is different to that of Lancaster and as a
consequence the Group’s current plan is that the Whirlwind
discovery would be appraised and developed on a standalone
basis or as a future addition to the Greater Lancaster Area
development. The well has been suspended for
future operations.
Subject to future funding, Hurricane intends to re-enter the
2011 well to drill and test a deviated sidetrack well targeting a
faulted section of basement to the south east of the existing
well track.
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 Competent Person’s Report 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 490m 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. However
DECC has granted an extension to enable Hurricane to
demonstrate that a rig contract and a clear plan for drilling can
be put in place.
As noted earlier in this report, Licence P1485 expires on
31 December 2014 and Licence P1835 expires on 10 January
2015 if not extended.
12
13
Group Strategic Report: Principal risks
All companies carry with them certain risks and Hurricane
is no exception. The future outlook for the Group and
therefore opportunities for growth in shareholder
value should be understood in the context of the
associated risks. Below, we have set out some of
the principal risks facing the Group.
Substantial capital requirements
Third party operators
The Group’s business plan to exploit and commercialise its
assets will require significant capital expenditure. Future plans
may be curtailed if the Group is unable to either raise further
funds through equity and or debt markets, or successfully
conclude an asset farm-out.
Operational risks
After a farm-out, operating agreements with third party
operators typically provide for a right of consultation or consent
in relation to significant matters and generally impose standards
and requirements in relation to the operator’s activities.
However, in the event that the Group does not act as operator
in respect of certain of its licence interests, the Group will
generally have limited control over the day-to-day management
of operations of those assets and will therefore be dependent
upon the third party operator.
There are many operational risks. These include, but are not
limited to, failure of the rig or other crucial equipment and
unfavourable weather leading to delays in operations.
Third party infrastructure
Geological and reservoir risk
Although we extensively model our reservoirs and have a high
expectation of how they will behave, there is a risk that they
do not behave as expected. The reservoirs may produce a
high proportion of water resulting in significant financial and
technical costs.
Licences
If the Group had an arrangement with a third party over shared
infrastructure which failed in some way, this could materially
impact upon the Group’s business, finances and prospects.
Other risks
There is a wide variety of risks associated with the industry
including for example oil price fluctuations affecting the ability
to recover hydrocarbon resources economically, industrial
hazards including oil spills, changes in the fiscal regime,
regulation, macroeconomics and so on.
Licences may expire, or the management may be unable to
agree extensions to licences.
Group Strategic Report
Dr Robert Trice
CEO
14
15
Hurricane Energy plc Annual Report and Group Financial Statements Year Ended 31 December 2013
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2013
The Board
John Hogan Non Executive Chairman
Nicholas Mardon Taylor Chief Financial Officer
Neil Platt Chief Operations Officer
John van der Welle Non Executive Director
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 1989–1993
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. John is currently
Managing Director of Argos Resources Limited, non-executive
Chairman of Celtique Energie Limited and a non-executive
Director of Chrysaor Holdings Limited.
John joined the Board on 8 March 2013 and is Chairman of
the nominations committee and is also a member of the
remuneration and audit committees.
Dr Robert Trice Chief Executive Officer
Robert co-founded the Company in late 2004 and has 30 years’
oil industry experience, having specialist technical experience of
fractured reservoirs’ characterisation and evaluation. Robert has
a PhD in Geology from Birkbeck College, University of London
and gained the majority of his geoscience experience with
Enterprise Oil and Shell, having worked in field development,
exploration, wellsite operations and geological consultancy.
In addition, 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. Robert is a Fellow of the Geological Society
and a member of the Petroleum Exploration Society of Great
Britain and the Society of Petroleum Engineers. Robert has been
a Director of Hurricane since 29 December 2004.
Nicholas has worked in the oil industry for over 35 years, his
first involvement in the North Sea being in the early licensing
rounds. He has been with Hurricane since 2005 when he was
the Group’s first CFO and was subsequently responsible for
the Group’s Environmental Management System. He was
re-appointed as CFO in May 2012. Nicholas is a Chartered
Accountant and has held senior finance roles with Total
operating in the UKCS and was Finance Director of Carless
operating in the UK and US. Nicholas has served as a Director
of the Company from 10 May 2005 until 28 July 2011 and now
again since 11 May 2012.
Nicholas has extensive experience with start-up companies,
including Saxon Oil and was a founder director of Alkane,
a methane extraction company.
Keith Kirby Chief Administrative Officer
An experienced business manager, prior to joining Hurricane in
2011 Keith spent 10 years with the Hutchison Whampoa Group
as CEO of a Group business unit and profit centre, providing
management consultancy and advising on marketing and
strategic communications to companies around the World.
He has previously advised Kuwait Petroleum International
in Europe and Emarat in the UAE. Keith has an MBA with
distinction from London Business School where he was winner
of the Alumni prize for Academic Achievement. As Hurricane’s
Chief Administrative Officer, Keith is responsible for general
management, communications, investor relations, company
systems, facilities, HR and the other administrative aspects
of running the business, including leadership of certain key
corporate activity. Keith has been a Director of the Company
since 28 July 2011.
John has 30 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. John is currently a non-executive Director
of Lekoil Limited, and Chairman of Global Petroleum Limited.
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 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 on 8 March 2013 and is Chairman of the
audit committee and is also a member of the remuneration and
nomination committees.
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 and was appointed to the Board
on 8 March 2013. As Chief Operations Officer Neil is responsible
for daily operations and asset delivery (drilling and projects).
Dr David Jenkins Non Executive Director
David is currently an Industry Advisor to Riverstone Holdings
and a Corporate Advisor to Temasek Holdings and Cuadrilla
Resources. He is also on the boards of President Energy and
Black Platinum Energy.
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 Chief
Technology Advisor for BP Group. Following retirement from BP
he held a variety of advisory and board positions including nine
years on the Board of BHP Billiton.
David joined the Board on 8 March 2013 and is Chairman of
the remuneration committee and is also a member of the
nominations and audit committees.
16
17
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2013
Corporate Governance
The Board recognises its responsibility for the proper
management of the Group and is committed to maintaining
a high standard of corporate governance commensurate
with the size and nature of the Company and the interests of
its Shareholders. The Corporate Governance Code does not
apply to companies quoted on AIM and there is no formal
alternative for AIM companies. The Quoted Companies Alliance
(QCA) has published a set of corporate governance guidelines
for AIM companies, which include a code of best practice
comprising principles intended as a minimum standard, and
recommendations for reporting corporate governance matters.
The Directors comply with the QCA Corporate Governance
Guidelines for Smaller Quoted Companies so far as it is
practicable having regard to the size and current stage of
development of the Group. The Board currently comprises four
executive Directors and three non-executive Directors, including
the Chairman John Hogan, Dr David Jenkins and John van der
Welle (these being the three non-executive Directors) who are,
in the opinion of the Board, independent in character
and judgment.
The composition of the Board will be reviewed regularly
and strengthened as appropriate in response to the Group’s
changing requirements. Appropriate training and an induction
programme will be undertaken in respect of all Directors
on appointment and subsequently as necessary, taking into
account existing qualifications and experience. One third of all
Directors are subject to election by Shareholders each year.
The Board intends to meet at least five times each year,
including an annual strategy day. At these meetings, the Board
reviews the Group’s long-term strategic direction and financial
plans. All necessary information is supplied to the Directors on a
timely basis to enable them to discharge their duties effectively.
Certain matters are reserved for consideration by the Board
whilst other matters are delegated to Board committees. The
Board is responsible for leading and controlling the Company
and, in particular, for formulating, reviewing and approving the
Group’s strategy and budget.
The Board has established the following committees (committee
terms of reference are available on the Group website).
The Board’s decision making process is not dominated by any
one individual or group of individuals. None of the Directors
have any potential conflicts of interest between their duties
to the Group and their private interests and/or duties owed
to third parties.
Audit Committee
Nominations Committee
The role of the audit committee is to assist the Board in
discharging its responsibilities with regard to monitoring the
integrity of the Group’s financial reporting, to review the
Group’s internal control and risk management systems, to
monitor the effectiveness of the Group’s external and internal
audit function and to oversee the relationship with the Group’s
external auditor. The audit committee focuses particularly on
compliance with legal requirements, accounting standards and
the AIM Rules and ensures that an effective system of internal
financial control is maintained.
The nominations committee assists the Board in discharging
its responsibilities relating to the composition of the Board.
The nominations committee is responsible for evaluating the
balance of skills, knowledge and experience on the Board, and
the size, structure and composition of the Board (including
identifying and nominating candidates to fill Board vacancies
with the approval of the Board). The nominations committee
is also responsible for retirements and appointments of
additional and replacement directors and will make appropriate
recommendations to the Board on such matters.
The audit committee is chaired by John van der Welle and the
other members are John Hogan and Dr David Jenkins. The audit
committee will meet at least three times a year with further
meetings as required. The Chief Executive Officer, the Chief
Financial Officer, other Directors and representatives from the
finance function may also attend and speak at meetings of the
audit committee. No members of the audit committee have
links with the Group’s external auditor.
Remuneration Committee
The role of the remuneration committee is to determine
and agree with the Board the broad policy for executive and
senior employee remuneration, as well as for setting the
specific remuneration packages (including pension rights
and any compensation payments of all executive Directors
and the Chairman) and recommending and monitoring the
remuneration of the senior employees. In accordance with the
remuneration committee’s terms of reference, no Director shall
participate in discussions relating to or vote on his own terms
and conditions of remuneration. Non-executive Directors’ fees
will be determined by the Board as are the Chairman’s fees.
The remuneration committee meets at least twice a year and
as otherwise required. The remuneration committee is chaired
by Dr David Jenkins and the other members are John Hogan
and John van der Welle. The Chief Executive Officer, the Chief
Administrative Officer and other Directors may also attend and
speak at meetings of the remuneration committee.
The nominations committee will meet at least twice a year. The
nominations committee is chaired by John Hogan and the other
members are Dr David Jenkins and John van der Welle. The
Chief Executive Officer, the Chief Administrative Officer and
other Directors may also attend and speak at meetings of the
nominations committee.
The Environmental Management Committee
(“EM Committee”)
The EM Committee is chaired by Nicholas Mardon Taylor and
the other members are Dr Robert Trice and Neil Platt. The EM
Committee is responsible for formulating and recommending to
the Board a policy on environmental issues related to the Group
operations, and will meet at least twice a year. In particular,
the EM Committee focuses on compliance with applicable
standards to ensure that an effective system of environmental
standards, procedures and practices are in place at each of the
Group’s operations and its responsibilities include evaluating
the effectiveness of the Group’s environmental policy. The
Group intends to engage specialists with appropriate technical
expertise to be members of, or advise, the EM Committee. The
EM Committee is also responsible for reviewing management’s
investigation of incidents or accidents that occur to assess
whether policy improvements are required. While the EM
Committee is expected to make recommendations, the ultimate
responsibility for establishing the Group’s environmental policy
remains with the Board.
The Group’s environmental policy is on page 21.
18
19
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2013
Remuneration Report
Environmental Policy
The Group contributes to personal pension schemes. Under
current legislation, from 2015 we will be required to provide a
workplace pension scheme for all employees.
During the year the committee took independent advice from
two remuneration specialists, MM&K and Kepler Associates.
In the light of this advice the committee considers that the
current remuneration policy is in line with industry practice, is
competitive and appropriate for the current strategic priorities
of the business.
As a company trading on AIM, Hurricane is not required to
produce a formal remuneration report. However the
Directors believe that in the interest of transparency a brief
commentary should be included. It is designed to provide
Shareholders with information that demonstrates the link
between the Group’s strategy, performance and senior
executive remuneration policy.
Linking overall reward to company performance is fundamental
to the remit of the remuneration committee, and the
committee provides an independent oversight of remuneration
policy. The Group’s remuneration strategy is designed to attract
and retain a strong team which is focused on delivering its
strategic priorities and which is aligned with
shareholder interests.
The Group follows standard industry practice with respect to
executive remuneration, with a competitive salary and benefits,
complemented by an at risk component comprising an annual
bonus and a long term incentive share plan, the Performance
Share Plan (PSP). Annual bonus is payable to the extent annual
corporate and individual key performance indicators (KPIs)
are met, as determined by the remuneration committee.
Challenging KPIs are established each year by agreement
between management and the remuneration committee.
The PSP involves the award of shares to executives and
staff and vesting is conditional on achieving a challenging
performance target, that if met, will underpin the long term
success of the business. This ensures alignment with the delivery
of value to the Shareholders. For the initial awards made prior to
the Group’s IPO, to vest, the Group must have in place a solution
to finance the full-field development of Lancaster or the Greater
Lancaster Area, no later than the fifth anniversary of the 4
February 2014 date of Admission to AIM.
The committee has reviewed the base salary levels for Executive
Directors and determined that no increases would be made
for 2014. Furthermore, the committee and Executive Directors
agreed that no bonuses would be paid to the Executive
Directors in respect of 2013.
The operations of the Group are subject to a variety of laws
and regulations governing the discharge of materials into the
environment or otherwise relating to environment protection.
Failure to comply with these laws and regulations can result
in the imposition of substantial fines and penalties as well as
potential orders suspending or terminating rights to operate.
Hurricane is committed to minimising our impact on the
environment in which we work and achieves this through the
implementation of its Environmental Policy.
The 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.
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 work with our customers, employees, contractors and
suppliers to identify and reduce the environmental impacts of
our activities.
• 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, please refer to the Hurricane website,
hurricaneenergy.com.
20
21
Health and Safety Policy
Annual General Meeting
Other core policies
The 2014 AGM will be held on Monday 23 June 2014 at 11am at:
As part of Hurricane’s comprehensive Business Management
System, we have three other core policies in addition to
the Environmental and Health and Safety Policies, covering
People, Assurance and Ethics. These can be found on the
Company website.
Deloitte LLP
2 New Street Square
London
EC4A 3BZ
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:
• Engages and involves competent people in our business
• 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
We will stop work rather than conduct activities that are in
conflict with our policy.
These objectives form the basis from which internal targets
for achievement are monitored, reported and revised.
22
23
Hurricane Energy plc Annual Report and Group Financial Statements Year Ended 31 December 2013
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2013
Chief Financial Officer’s Review
Overview
The year ended 31 December 2013 saw the Group prepare
and plan the Lancaster horizontal well to further appraise the
Lancaster structure. In parallel, the Group focused its efforts to
fund the appraisal drilling by raising £31.4 million (gross) in a
pre-IPO round of fundraising and to continue with the planned
IPO. In February 2014 the Company was successfully floated
on AIM and raised a further £18.0 million (gross).
Fundraising
subscribed on exercise of the warrant, which equated to a
discount of 30% to the placing price. This resulted in 7,663,453
new Ordinary Shares being issued to the warrant holder.
Immediately prior to the IPO in February 2014, the Group
entered into an assignment agreement with Transocean Drilling
UK Limited and Talisman Sinopec Energy UK Limited for the
provision of the Sedco 712 semi submersible drilling rig for the
drilling and testing of the Lancaster basement oil discovery.
This committed the Group to $26.6 million of capital
expenditure to lease the drilling rig for the operations.
The Group completed a fundraising in April 2013 in anticipation
of an IPO in mid 2013. The Group raised £31.4 million (gross)
by issuing a combination of convertible loan notes and issuing
Ordinary Shares accompanied by a warrant 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. The rig contract for the use of the GSF Arctic III rig was
signed in April 2013. However, due to the delays incurred by
the previous operator of the rig, the Group decided to accept
cancellation of the rig contract in order to avoid our programme
running into winter weather. This cancellation triggered a
review of the IPO timetable to bring it in line with the revised
rig schedule being negotiated. To help facilitate the revised IPO
schedule, in November 2013, the convertible loan notes and
warrant were successfully renegotiated in order to extend the
maturity date to 24 months from issue.
On 4 February 2014 all of the Company’s authorised shares
were admitted to AIM, a market operated by the London
Stock Exchange as part of its IPO. At the same time a total
of 41,860,465 new Ordinary Shares were issued at a
price of £0.43 per share, raising £18.0 million (gross).
The listing of the Company’s shares on AIM triggered the
conversion of all outstanding loan notes into Ordinary Shares
of the Company to give the holders a conversion price at a
30% discount to the placing price. This resulted in 99,070,189
Ordinary Shares being issued to loan note holders.
The Admission of the Company’s shares to trading on AIM also
triggered the exercise of the warrant attached to the shares
issued in April 2013. This resulted in the issue of Ordinary Shares
at a price which gave the holder an average subscription price,
across the Ordinary Shares already subscribed for and those
Financial Review
The Group commenced 2013 with cash and cash equivalents
of £22.4 million and spent £7.0 million during the period to
further appraise Lancaster by planning the upcoming Lancaster
horizontal well and assessing possible development scenarios
for the Lancaster structure and the wider GLA. After further
assessment of the Orkney prospect, situated within licence
P1844, the decision was made not to continue to explore the
area. The licence was relinquished in October 2013, resulting
in £0.5 million being written off.
The Group’s loss for the year increased to £21.3 million
compared with £6.8 million in the previous 16 months. Although
this appears to be a significant increase, it is primarily due to the
effect of the Group’s financing arrangements that were entered
into in April 2013 as described below as well as the write off of
exploration expenditure associated with licence P1844 and the
effects of foreign exchange rate movements.
The losses associated with the Group’s financing arrangements
were non cash losses and have not affected the Group’s funding
position. This includes both the £5.7 million of effective interest
on the convertible loan notes and the £8.8 million fair value
movement of the derivatives associated with the conversion
option of the loan notes and the warrant. The admission of
the Company to AIM in 2014 triggered the conversion
of all outstanding loan notes into Ordinary Shares of the
Company, which extinguished all liabilities to the holders.
The warrant was also exercised. The convertible loan note
liability and derivative liabilities were both derecognised from
the Group’s Balance Sheet. Further details on accounting for
the Groups pre IPO funding is included in note 23 of the
Group Financial Statements.
Due to the nature of the Group’s business, it has accumulated
significant tax attributes since incorporation. As at 31 December
2013, the Group has pre-trading revenue expenses of £23.1
million and has incurred £119.4 million of capital expenditure
on which tax relief should be available to carry forward against
future trading profits.
In addition, the total pre-trading expenditure of £142.5 million
may attract Ring Fenced Expenditure Supplement on the
commencement of trade, which would result in a further uplift
of £42.6 million of tax relief being available at that time.
Although 2013 was a challenging year without any drilling
activity, it enabled the Group to strengthen its financial position
by way of the pre-IPO funding round. This, together with the
very limited financial impact of cancelling the rig contract for
the GSF Arctic III, meant that the Group ended 2013 in a
strong position to complete the IPO early in 2014.
The Group looks forward to progressing as an AIM traded
Group through 2014 and is fully funded for the forthcoming
drilling campaign.
Nicholas Mardon Taylor
Chief Financial Officer
24
25
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2013
Financial Statements
26
27
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2013
Directors’ Report
The Directors present their Annual Report and audited Group Financial Statements of Hurricane Energy plc (formerly Hurricane Exploration plc)
(the Company) and its wholly-owned subsidiaries for the year ended 31 December 2013 (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 previous accounting period
the Company’s accounting reference date was changed to 31 December. The Annual Report includes the Group’s results for the 12 months
ended 31 December 2013 and comparatives are for the 16 months ended 31 December 2012 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 2013
with comparatives as at 31 December 2012.
Supplier payment policy
The 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.
Financial risk
The 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.
Principal Activity
The 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 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.
The Group’s head office is in Lower Eashing, Surrey with a regional office in Aberdeen.
Results for the year and dividends
The loss of the Group for the period was £21,353,000 (2012: loss of £6,799,000). The Directors do not recommend the payment of a dividend.
Directors
The following Directors held office during the year ended 31 December 2013 and up to the date of this report.
Dr Robert Trice
Nicholas Mardon Taylor
Keith Kirby
Neil Platt (Appointed 8 March 2013)
John Hogan (Appointed 8 March 2013)
Dr David Jenkins (Appointed 8 March 2013)
John van der Welle (Appointed 8 March 2013)
Sir Adrian Montague CBE (Resigned 8 March 2013)
Bill Guest (Resigned 8 March 2013)
Philip Dayer (Resigned 8 March 2013)
Jon Murphy (Resigned 8 March 2013)
Health and Safety
The 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 22.
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 23 of the Group Financial Statements.
The Group’s Financial Statements for the year reflect the accounting policies for the Group’s financing arrangements, however, these arrangements
were settled on IPO.
Key performance indicators
The Group uses Key Performance Indicators (KPIs) for the assessment of the performance of individuals for remuneration purposes.
However, given the early stage nature of the Group’s development activities, the Group’s Directors are of the opinion that analysis using
KPIs is not necessary for an understanding of the nature of development, performance or position of the business.
Going Concern
The 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 23 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 year end was £40.2 million, and had £26.1 million of borrowings in the form of convertible loan notes. The
Group has no source of operating revenue and currently obtains working capital primarily through equity financing. The Group is therefore
dependent on future fundraising, capital receipts or other forms of finance including a possible farm out in order to continue in operation
and the proposed work programme is dependent on this future fundraising activity.
On 4 February 2014 the Company was admitted on to AIM, a market operated by the London Stock Exchange. As part of the IPO the Group
raised a further £18.0 million by issuing Ordinary Shares. The listing on AIM also triggered the conversion of all outstanding loan notes into
Ordinary Shares of the Company, which extinguished all liabilities to the holders. This has enabled the Group to enter into a rig contract to drill
the Lancaster horizontal well in Q2 2014 and the Group is fully funded for this drilling programme, and to sustain the Group’s overhead for a
period thereafter.
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 24 and 25. 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 Financial Statements.
28
29
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2013
Directors’ Report
Directors’ Responsibilities Statement
Disclosure of information to the auditor
In 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 Group’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 Group’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:
Dr Robert Trice
Chief Executive Officer
13 May 2014
Nicholas Mardon Taylor
Chief Financial Officer
13 May 2014
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 are required to prepare the
Group Financial Statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU) and
have also chosen to prepare the parent company Financial Statements under IFRSs as adopted by the EU. Under company law the Directors
must not approve the accounts 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 Group’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.
Responsibility statement
We confirm that to the best of our knowledge:
•
•
•
the Financial Statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;
the strategic report includes a fair review of the development and performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they
face; and
the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary
for Shareholders to assess the Company’s performance, business model and strategy.
Dr Robert Trice
Chief Executive Officer
13 May 2014
Nicholas Mardon Taylor
Chief Financial Officer
13 May 2014
30
31
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2013
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 year ended 31 December 2013
which comprise the Group Income Statement, the Group and Company Balance Sheets, the Group and Company Cash Flow Statements, the
Group and Company Statements of Changes in Equity and the related notes 1 to 27 and 1 to 11.
Opinion on Financial Statements
In our opinion:
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.
•
•
•
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 2013
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 FCA (Senior Statutory Auditor) for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London, UK
13 May 2014
32
33
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2013
Group Income Statement
for the Year Ended 31 December 2013
Group Balance Sheet
as at 31 December 2013
Operating expenses
Intangible exploration and evaluation costs written off
Operating loss
Investment revenue
Foreign exchange (losses)/gains
Finance costs
Fair value loss on derivative financial instruments
Loss before tax
Tax
Loss for the period
Notes
12 Months Ended
16 Months Ended
31 Dec 2013
£’000
31 Dec 2012
£’000
13
6
5
7
23.9
10
(5,333)
(534)
(5,867)
125
(1,101)
(5,695)
(8,792)
(21,330)
(23)
(21,353)
(7,216)
(9)
(7,225)
103
348
(7)
-
(6,781)
(18)
(6,799)
Loss per share, basic and diluted
11
(4.45) pence
(1.47) pence
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 Comprehensive
Income is not presented.
Non-current assets
Property, plant and equipment
Intangible exploration and evaluation assets
Other receivables
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Current tax liabilities
Borrowings
Derivative financial instruments
Non-current liabilities
Decommissioning provisions
Total liabilities
Net assets
Equity
Share capital
Share premium
Share option reserve
Own shares held by SIP Trust
Accumulated deficit
Total equity
Notes
As at 31 Dec 2013
As at 31 Dec 2012
12
13
14
15
16
17
23.7
23.9
£’000
330
137,681
130
138,141
1,098
40,167
41,265
179,406
(847)
(25)
(26,145)
(15,692)
(42,709)
18
(4,764)
(47,473)
£’000
-
131,077
130
131,207
390
22,390
22,780
153,987
(788)
(22)
-
-
(810)
(4,000)
(4,810)
19
21
131,933
149,177
483
167,328
1,901
(136)
(37,643)
475
163,910
1,343
(67)
(16,484)
131,933
149,177
The Financial Statements of Hurricane Energy plc were approved by the Board of Directors and authorised for issue on 13 May 2014.
They were signed on its behalf by:
Dr Robert Trice
Chief Executive Officer
13 May 2014
Nicholas Mardon Taylor
Chief Financial Officer
13 May 2014
34
Registered company number 5245689
35
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2013
Group Statement of Changes in Equity
for the Year Ended 31 December 2013
Group Cash Flow Statement
for the Year Ended 31 December 2013
Balance at 1 September 2011
Shares allotted
Transaction costs
Share option charge
Share options exercised
Warrants exercised
Warrants lapsed
Loss for the period
Share
capital
£’000
488
21
-
-
-
6
-
-
Share
premium
account
£’000
135,436
28,058
(1,328)
(212)
30
1,926
-
-
Share
option
reserve
£’000
451
-
-
902
(10)
-
-
-
Own shares
held by
SIP Trust
£’000
(67)
-
-
-
-
-
-
-
Balance at 31 December 2012
475
163,910
1,343
(67)
Shares allotted
Transaction costs
Share option charge
Share options exercised
Own shares held by SIP Trust
Loss for the period
8
-
-
-
-
-
3,514
(165)
-
-
69
-
-
-
752
(194)
-
-
-
-
-
-
(69)
-
Balance at 31 December 2013
483
167,328
1,901
(136)
Warrant
reserve
Accumulated
deficit
Total
£’000
795
-
-
-
-
(197)
(598)
-
-
-
-
-
-
-
-
-
£’000
£’000
(10,741)
(126,322)
-
-
448
10
-
598
(6,799)
28,079
(1,328)
1,138
30
1,735
-
(6,799)
(16,484)
149,177
-
-
-
194
-
(21,353)
3,522
(165)
752
-
-
(21,353)
(37,643)
131,933
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.
Net cash outflow from operating activities
22
(4,424)
(6,307)
Notes
12 Months Ended
31 Dec 2013
£’000
16 Months Ended
31 Dec 2012
£’000
Investing activities
Interest received
Expenditure on property, plant and equipment
Expenditure on intangible exploration and evaluation assets
Net cash used in investing activities
Financing activities
Interest paid
Net proceeds from issue of share capital and warrants
Net proceeds from issue of convertible loan notes
Expenses related to corporate finance activities
125
(25)
(7,044)
115
-
(33,181)
(6,944)
(33,066)
(3)
4,065
26,713
(529)
(7)
28,534
-
-
Net cash provided by financing activities
30,246
28,527
Net increase / (decrease) in cash and cash equivalents
18,878
(10,846)
Cash and cash equivalents at the beginning of the period
Net increase / (decrease) in cash and cash equivalents
Effects of foreign exchange rate changes
22,390
18,878
(1,101)
32,888
(10,846)
348
Cash and cash equivalents at the end of the period
16
40,167
22,390
36
37
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2013
Notes to the Group Financial Statements
for the Year Ended 31 December 2013
1. General information
Hurricane Energy 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 on the UK Continental Shelf.
On 15 April 2013 the Group announced that the name of the Company would change from Hurricane Exploration plc to Hurricane Energy plc.
1.1 New and revised standards International Financial Reporting Standards
In the current year, the following accounting amendments, standards and interpretation became effective and have been adopted in these
Financial Statements but have not materially affected the amounts reported in these Financial Statements:
Amendments to IAS 1 Presentation of Financial Statements: Presentation of Items of Other Comprehensive Income
IFRS 13 Fair Value Measurement
IAS 19 (reissued) Employee Benefits
IFRIC 20 Stripping costs in the Production Phase of a Surface Mine
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 (and in some cases had not been adopted by the EU):
IFRS 9 Financial Instruments (effective for periods beginning on or after 1 January 2015)
IFRS 10 Consolidated Financial Statements (effective for periods beginning on or after 1 January 2014)
IFRS 11 Joint Arrangements (effective for periods beginning on or after 1 January 2014)
IFRS 12 Disclosure of Interest in Other Entities (effective for periods beginning on or after 1 January 2014)
IFRS 14 Regulatory Deferral Accounts (effective for periods beginning on or after 1 January 2016)
IAS 27 (reissued) Separate Financial Statements (effective for periods beginning on or after 1 January 2014)
IAS 28 (reissued) Investments in Associates and Joint Ventures (effective for periods beginning on or after 1 January 2014)
IFRIC 21 Levies (effective for periods beginning on or after 1 January 2014)
The Directors anticipate that the adoption of these standards and Interpretations in future periods will have no material impact on the Financial
Statements of the Group.
2. Significant accounting policies
2.1 Basis of accounting
The Financial Statements have been prepared under the historical cost convention, except for share based payments, in accordance with
International Financial Reporting Standards as adopted by the European Union (IFRS), and in accordance with the requirements of the AIM Rules.
2.2 Going concern
The Financial Statements have been prepared in accordance with the going concern basis of accounting. The use of this basis of accounting
takes into consideration the Group’s current and forecast financing position, additional details of which are provided in the going concern
section of the Directors’ Report.
2.3 Basis of consolidation
The Group Financial Statements consist of the Financial Statements of the Company and its subsidiaries drawn up to 31 December 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.
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.
All intra-group transactions, balances, income and expenses are eliminated on consolidation.
2.4 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.
2.5 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 exploration
and evaluation assets)
Pre-licence costs, which relate to costs incurred prior to having obtained the legal right to explore an area, are charged to 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.
2.6 Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and any provision for impairment. Depreciation is charged so as
to write off the cost, less estimated residual value, of assets on a straight-line basis over their useful lives of between two and five years.
2.7 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.
2.8 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.
2.9 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 substantively 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
combination. 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.
38
39
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2013
Notes to the Group Financial Statements
for the Year Ended 31 December 2013
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.
2.10 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.
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.
2.11 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.
2.11.1 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.
2.11.2 Financial liabilities and equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the
contractual arrangement.
2.11.3 Financial liabilities
Financial liabilities are classified as either financial liabilities at fair value through profit and loss (FVTPL) or other financial liabilities.
2.11.4 Financial liabilities at FVTPL
Financial liabilities are classified at FVTPL when the financial liability is either held for trading or it is designated at FVTPL.
A financial liability is classified as held for trading if it has been incurred principally for the purpose of repurchasing it in the near term.
Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. The net
gain or loss recognised in profit or loss incorporates any interest paid on the financial liability.
2.11.5 Other financial liabilities
Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are
subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over
the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life
of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
2.11.6 Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire.
2.11.7 Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.
Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs.
40
Where warrants are granted in conjunction with other equity instruments, which themselves meet the definition of equity, they are
recorded at their fair value, which is measured by the use of an appropriate valuation model. Warrants which do not meet the definition of
equity are classified as derivative financial instruments.
2.11.8 Compound instruments
The component parts of compound instruments issued by the Group are classified separately as financial liabilities and equity in accordance
with the substance of the contractual arrangement.
If the conversion feature meets the definition of equity, the fair value of the liability component is estimated at the date of issue using the
prevailing market interest rate for a similar non-convertible instrument. This amount is recorded as a liability on an amortised cost basis using
the effective interest method until extinguished upon conversion or at the instrument’s maturity date. The equity component is determined
by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognised and
included in equity, net of income tax effects, and is not subsequently remeasured.
If the conversion feature of a convertible bond issued does not meet the definition of an equity instrument, it is classified as an embedded
derivative and measured accordingly. The debt component of the instrument is determined by deducting the fair value of the conversion
option at inception from the fair value of the consideration received for the instrument as a whole. This amount (the debt component)
is recorded as a liability on an amortised cost basis using the effective interest rate method until extinguished upon conversion or at the
instrument’s maturity date.
2.11.9 Embedded derivatives
Derivatives embedded in financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics
are not closely related to those of the host contracts and the host contracts are not measured at FVTPL.
2.11.10 Derivative financial instruments
Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair
value at each Balance Sheet date. The resulting gain or loss is recognised in the Income Statement immediately.
2.12 Borrowing costs
Borrowing costs directly relating to the construction or production of a qualifying capital project under construction are capitalised and added
to the project cost during construction until such time as the assets are substantially ready for their intended use, i.e. when they are capable of
commercial production. Where the funds used to finance a project form part of general borrowings, the amount capitalised is calculated using a
weighted average of rates applicable to relevant general borrowings of the Group during the period. All other borrowing costs are recognised in
the Income Statement in the period in which they are incurred. The Group’s capital projects are not qualifying assets to which interest costs are
capitalised. No interest was capitalised in the current year.
2.13 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 that have the most significant effect
on the amounts recognised in the historical financial information.
3.1 Recoverability of intangible exploration and evaluation assets
Intangible exploration and evaluation 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 having regard to licence terms and
the Group’s plans for further exploration and evaluation activities, (ii) future revenues and costs pertaining to the asset in question to the extent
there is sufficient information to estimate these, and (iii) the discount rate to be applied to such revenues and costs for the purpose of deriving a
recoverable value.
Note 13 discloses the carrying values and any impairments of the Group’s intangible exploration and evaluation assets.
41
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2013
Notes to the Group Financial Statements
for the Year Ended 31 December 2013
3.2 Estimation of decommissioning costs
Provision for decommissioning is 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 oil and gas exploration and evaluation expenditure. 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 provision therefore reflects estimates of the decommissioning cost, timings of decommissioning and the appropriate discount rate which
are subject to revisions as better information becomes available.
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 oil and gas exploration and evaluation expenditure. The unwinding
of the discount on the decommissioning is included as a finance cost.
Note 18 discloses the movement in the Group’s decommissioning provisions.
3.3 Presumption of going concern
The Group closely monitors and manages its liquidity risk, through review of cash flow forecasts. In calculating cash flow forecasts, management
make a number of judgements and estimates, including forecast capital expenditure and foreign exchange rates. The cash flow forecasts
are regularly produced and sensitivities run for different scenarios. In addition to the Group’s operating cash flows, portfolio management
opportunities are reviewed potentially to enhance the financial capacity and flexibility of the Group.
The Group’s forecasts, taking into account reasonably possible changes as described above, show that the Group will be able to operate within
its current funding position and have financial headroom for the 12 months from the date of approval of the 2013 Annual Report.
3.4 Determining the fair value of derivative financial instruments
Estimating the fair value of the derivative financial instruments that are recognised at fair value through profit and loss requires judgement from
management over the expected timing and likelihood of settlement and the amount of interest payable in the underlying contracts. There
are inherent uncertainties in the estimation timing and likelihood of settlement of the derivatives as they rely upon future events which are
uncertain at the reporting date.
Note 23.9 provides further detail on the Group’s derivative financial instruments, all of which were settled in 2014.
3.5 Accounting for share based payments
Charges relating to the Group’s share based payment arrangements requires making a number of judgements and estimates in the calculation
of fair value of the awards made and the number and likelihood of the awards vesting. The calculation of the fair value of the awards requires
judgements related to the inputs such as share price and volatility. Estimates are also required for the number of shares vesting, based on
assumptions of how many options will be forfeited and the likelihood of vesting criteria being met.
Note 20 provides further detail on the Group’s share based payment arrangements.
4. 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.
5. Revenue
The Group has no revenue in the current or comparative periods other than interest income.
42
6. Operating loss
Operating loss is stated after charging:
Staff cost (note 9)
Operating lease rentals – land and buildings
Depreciation of property, plant and equipment (note 12)
Intangible exploration and evaluation costs written off (note 13)
Auditor’s remuneration (see below)
The following is an analysis of the gross fees paid to the Group’s auditor, Deloitte LLP.
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
Non audit services
Taxation services
Corporate finance
Total
12 Months Ended
31 Dec 2013
£’000
16 Months Ended
31 Dec 2012
£’000
3,319
191
182
534
305
45
5
50
5
250
255
305
4,323
205
-
9
257
28
8
36
10
211
221
257
Fees as reported for corporate finance services for the periods ending 31 December 2013 and 2012 are significantly higher than would be expected under
the normal course of business as they relate to the Group’s admission to AIM. Furthermore, the non-audit fees reported in the Group’s next Annual
Report, year ending 31 December 2014, will include the final corporate finance fees in respect of admission to AIM. After 2014, due to the Group’s
successful admission to AIM, the level of non-audit fees relating to corporate finance are expected to reduce significantly.
The Group made no charitable or political donation during 2013 (2012: £Nil).
7. Finance costs
Bank charges
Interest on convertible loan notes (note 23.7)
Unwinding of discount on decommissioning provisions (note 18)
12 Months Ended
31 Dec 2013
£’000
16 Months Ended
31 Dec 2012
£’000
3
5,625
67
5,695
7
-
-
7
43
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2013
Notes to the Group Financial Statements
for the Year Ended 31 December 2013
8. Directors’ emoluments
8.1 Directors’ emoluments
The following is an analysis of the emoluments received by the Group’s Directors:
Emoluments
Bonus for 20126
Pension contributions
12 Months Ended 31 Dec 2013
Dr Robert Trice
Nicholas Mardon Taylor
Keith Kirby
Neil Platt1
John Hogan1,2
David Jenkins1,3
John van der Welle1,4
Other Directors5
£’000
375
275
275
229
123
45
45
85
1,452
£’000
120
78
98
131
-
-
-
-
427
£’000
38
28
28
23
-
-
-
-
16 Months Ended 31 Dec 2012
Dr Robert Trice
Nicholas Mardon Taylor1
Keith Kirby
Other Directors2
Total
£’000
533
381
401
383
123
45
45
85
Emoluments
Bonus for 20115
Pension contributions
£’000
383
127
327
793
1,583
£’000
141
-
69
138
395
£’000
38
13
33
16
100
Total
£’000
562
140
429
947
2,078
117
1,996
1 Reappointed 12 May 2012.
2 Other Directors emoluments include payments made to previous Directors who are no longer employed by the Group.
3 Bonus payment made in May 2012, in respect of services provide in 2011.
1 Appointed 8 March 2013.
2 Emoluments includes a £25,000 that is required to be used to acquire Ordinary Shares in the Company.
3 50% of emoluments were consulting fees paid to Chartwood Resources Ltd, a company controlled by David Jenkins.
4 50% of emoluments were consulting fees paid to Northlands Advisory Services Limited, a company controlled by John van der Welle.
5 Other Directors emoluments include payments made to previous Directors who are no longer employed by the Group.
6 Bonus payment made in March 2013, in respect of services provide in 2012.
44
45
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2013
Notes to the Group Financial Statements
for the Year Ended 31 December 2013
8.2 Directors’ share options
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 (PSP). A mirror image plan
(the Hurricane Energy 2013 Nominal Cost Option Plan (NED Plan)) was also introduced for the purpose of enabling conditional awards of nil
cost options to the Group’s Non-Executive Directors. The NED Plan operates on materially the same terms and conditions as the PSP.
Further information about both plans is included within note 20.
Details of directors’ share options at the beginning and end of the period are as follows:
Granted
Exercised
Lapsed
As at
31 Dec 2013
Exercise price
Date from which
exercisable
Expiry date
Tranche
Dr Robert Trice
22/02/06
25/01/11
14/06/11
28/07/11
20/07/12
17/04/13
Keith Kirby
28/07/11
28/07/11
20/07/12
17/04/13
As at
1 Jan 2013
1,000,000
225,000
550,450
237,840
333,333
-
-
-
-
-
-
6,800,000
(1,000,000)
-
-
-
-
-
-
(225,000)
(550,450)
(237,840)
(333,333)
(2,266,667)
-
-
-
-
-
4,533,333
756,760
126,120
272,222
-
-
-
-
6,800,000
-
-
-
-
(756,760)
(126,120)
(272,222)
(2,266,667)
-
-
-
4,533,333
Nicholas Mardon Taylor
22/02/06
25/01/11
14/06/11
28/07/11
20/07/12
17/04/13
1,000,000
68,000
103,500
98,300
217,778
-
-
-
-
-
-
6,800,000
(1,000,000)
-
-
-
-
-
-
(68,000)
(103,500)
(98,300)
(217,778)
(2,266,667)
-
-
-
-
-
4,533,333
£0.10
£1.00
£1.11
£1.11
£nil
£nil
£1.11
£1.11
£nil
£nil
£0.10
£1.00
£1.11
£1.11
£nil
£nil
£1.11
£nil
£nil
01/02/10
25/01/14
14/06/14
28/07/16
31/12/14
n/a
22/02/16
31/12/20
13/06/21
27/07/21
20/07/22
04/02/19
28/07/14
28/07/16
31/12/14
n/a
27/07/21
27/07/21
20/07/22
04/02/19
01/02/10
25/01/14
14/06/14
28/06/16
31/12/14
n/a
22/02/16
31/12/20
13/06/21
27/07/21
20/07/22
04/02/19
28/07/14
31/12/14
n/a
27/07/21
20/07/22
04/02/19
Neil Platt (Appointed 8 March 2013)
28/07/11
20/07/12
17/04/13
612,610
129,630
-
-
-
6,800,000
John Hogan (Appointed 8 March 2013)
17/04/13
-
1,000,000
Dr David Jenkins (Appointed 8 March 2013)
17/04/13
-
500,000
John van der Welle (Appointed 8 March 2013)
-
17/04/13
500,000
-
-
-
-
-
-
(612,610)
(129,630)
(2,266,667)
-
-
4,533,333
(333,333)
666,667
£nil
n/a
04/02/19
(166,667)
333,333
£nil
n/a
04/02/19
(166,667)
333,333
£nil
n/a
04/02/19
As at
1 September 2011
Granted
Exercised
Lapsed
As at 31
December 2012
Exercise price
Date from which
exercisable
Expiry date
Tranche
Dr 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
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 (Reappointed 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
-
(170,000)
(189,190)
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
-
-
-
-
-
-
-
-
-
-
-
Total
6,825,160
823,333
(300,000)
(359,190)
6,989,303
The share options exercised by Dr Robert Trice in 2012 were held by Julie Trice, his spouse.
Total
5,731,543 29,200,000
(2,000,000)
(13,464,878)
19,466,665
46
47
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2013
Notes to the Group Financial Statements
for the Year Ended 31 December 2013
9. Staff costs
10. Tax on loss on ordinary activities
The average number of persons, including Directors, employed by the Group during the period was:
12 Months Ended
31 Dec 2013
Number
16 Months Ended
31 Dec 2012
Number
UK corporation tax
Current tax – current year
Current tax – prior year
Deferred tax
Operations
Staff costs for the above persons were:
Wages and salaries
Social security costs
Share-based payment expense
Pension costs
Total employment costs
Less amounts capitalised
Staff costs recognised in the income statement
18
£’000
2,759
410
752
181
4,102
(783)
3,319
19
£’000
4,455
523
902
220
6,100
(1,777)
4,323
The employment cost for the Directors employed by the Group during the year ended 31 December 2013 was £2,665,000 (16 month period ending
31 December 2012 was £3,076,000). These costs include social security costs of £237,000; (16 month period ending 31 December 2012: £241,000)
and a share based payment expense of £478,000; (16 month period ending 31 December 2012: £510,000).
The Group does not currently operate a pension scheme but undertakes to make contributions to employees existing pension schemes.
12 Months Ended
31 Dec 2013
£’000
16 Months Ended
31 Dec 2012
£’000
25
(2)
-
23
18
-
-
18
Loss on ordinary activities before tax
(21,330)
(6,781)
Loss on ordinary activities multiplied by standard rate of corporation tax
in the UK applicable to oil and gas companies of 62% (2012: 62%)
(13,225)
(4,204)
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
(2)
847
12,456
(53)
23
-
1,100
3,165
(43)
18
10.1 Factors which may affect future tax charges
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 £23.1 million (2012 £20.2 million) and pre-trading capital expenditure £119.4 million (2012: £113.0
million) which will be available for tax relief on commencement of a petroliferous trade for UK tax purposes.
The total pre-trading expenditure of £142.5 million (2012: £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 £42.6 million (2012: £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 £14.3 million (2011: £12.5 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% (2012: 62%).
11. Loss per share
The basic and diluted loss per share has been calculated using the loss for the year ended 31 December 2013 of £21,353,000 (16 month period ended
31 December 2013: £6,799,000). The loss per share is calculated using a weighted average number of Ordinary Shares in issue less treasury shares.
For the year ended 31 December 2013 this amounts to 480,246,410 (16 month period ended 31 December 2012: 462,838,701). The loss per share for
the year ended 31 December 2013 was 4.45 pence (16 month period ended 31 December 2012: 1.47 pence).
As the Group has made losses for both periods, convertible loan notes, warrants and share options detailed in notes 20 and 23 were anti-dilutive
and have not been included in the fully diluted loss per share calculation.
48
49
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2013
Notes to the Group Financial Statements
for the Year Ended 31 December 2013
12. Property, plant and equipment
Cost
At start of period
Adjustment
Additions
At 31 December
Depreciation
At start of period
Adjustment
Charge for the period
At 31 December
Carrying amount at 31 December
12 Months Ended
31 Dec 2013
£’000
16 Months Ended
31 Dec 2012
£’000
14. Other non-current receivables
The other non-current receivables of £130,000 (2012: £130,000) represents the deposit for the office lease. Further details are given in note 25.
-
741
25
766
-
(254)
(182)
(436)
330
-
-
-
-
-
-
-
-
-
15. Trade and other receivables
Other receivables
Prepayments and accrued income
16. Cash and cash equivalents
Unrestricted funds
Escrow funds
31 Dec 2013
£’000
31 Dec 2012
£’000
1,073
25
1,098
370
20
390
31 Dec 2013
£’000
31 Dec 2012
£’000
37,293
2,874
40,167
22,240
150
22,390
Property, plant and equipment comprises the Group’s investment in leasehold improvements, fixtures, office equipment and computer hardware.
In previous periods these costs had been expensed on acquisition due to their immaterial nature. In the current period an immaterial adjustment
has been made to capture the costs and depreciation of the Group’s property, plant and equipment previously expensed.
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 Lancaster drilling operations.
13. Intangible exploration and evaluation assets
At start of period
Additions
Effect of changes to decommissioning estimates (note 18)
Amounts written off
12 Months Ended
31 Dec 2013
£’000
16 Months Ended
31 Dec 2012
£’000
131,077
6,441
697
(534)
96,237
31,649
3,200
(9)
17. Trade and other payables
Trade payables
Other payables
Accruals
31 Dec 2013
£’000
31 Dec 2012
£’000
197
125
525
847
633
1
154
788
At 31 December
137,681
131,077
As at 31 December 2013 no trade payables or accruals were secured through charges on funds held within the escrow (2012: £29,000).
Intangible 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.
18. Decommissioning provisions
The amounts written off in the year ended 31 December 2013 relates to the exploration expenditure on licence P1844 which was relinquished in
October 2013. The amounts written off in the 16 months ended 31 December 2012 relates to the onshore UK licences of PEDL 160 and PEDL 229,
which were relinquished in 2011.
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.
Provisions for decommissioning and restoration of the Group’s exploration assets are:
At start of period
Unwinding
Additions
At 31 December
31 Dec 2013
£’000
31 Dec 2012
£’000
4,000
67
697
4,764
800
-
3,200
4,000
The provision for decommissioning relates to the costs required to decommission the Lancaster and Whirlwind exploration assets. The additions
in both periods 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 at the end of the current licence term in 2019, discounted at 1.9%.
50
51
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2013
Notes to the Group Financial Statements
for the Year Ended 31 December 2013
19. Called up share capital
Allotted, called up and fully paid
2013: 483,288,050 (2012: 474,688,050) Ordinary Shares of £0.001 each
The Company does not have an authorised share capital.
During the year ended 31 December 2013, 5,300,000 share options were exercised for a gross cash consideration of £930,000. This resulted in the issue
of 5,300,000 Ordinary Shares.
In April 2013, 3,299,999 Ordinary Shares and a warrant were issued for a gross cash consideration of £3.3 million.
On 15 April 2013 authority was provided by Shareholders for the Directors to issue a further 200 million Ordinary Shares for the purpose of the
Group’s IPO plans and other working capital requirements
During the 16 month period ended 31 December 2012, the Group issued 27,117,000 Ordinary Shares for a gross cash consideration of £29.8 million.
During the 16 months ended 31 December 2012, 5,782,935 of these 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.
20. Share options
On the 15 November 2011, a resolution was passed to subdivide each Ordinary Share with a nominal value of £0.01 each into ten £0.001 Ordinary
Shares. This note reflects these changes.
On 22 February 2006, the Group granted share options, under an Enterprise Management Incentive scheme, over 3,600,000 Ordinary 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 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 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 Shares and unapproved share options over 1,283,000 Ordinary
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 Shares and unapproved share options over 1,579,020 Ordinary 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 Shares and unapproved share options over 1,450,470
Ordinary 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 Shares and unapproved share options over 633,440 Ordinary Shares
to employees of the Group at an exercise price of £1.11 per share. These options have a 5 year vesting period.
31 Dec 2013
£’000
483
31 Dec 2012
£’000
475
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 Group 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.
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 respect of these
options in either period presented.
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 (PSP). Under the PSP certain employees,
including Executive Directors, were granted conditional rights to receive in aggregate 45,450,000 Ordinary Shares at nil cost. The share awards vest
based on the Group meeting certain operational and funding milestones across the next three years.
A mirror image plan (the Hurricane Energy 2013 Nominal Cost Option Plan (NED Plan)) was also introduced for the purpose of enabling conditional
awards of nil cost options to the Group’s Non-Executive Directors. The NED Plan operates on materially the same terms and conditions as the PSP.
Under the NED Plan the Non-Executive Directors, were granted conditional rights to receive in aggregate 2,000,000 Ordinary Shares at nil cost. The
share awards vest based on the same conditions as the PSP.
In November 2013, a total of 10,666,668 conditional awards under the PSP were surrendered. The remaining 34,783,332 conditional awards
under the PSP had their performance conditions modified so that the share awards vest based on the Group meeting certain funding milestones
across the next five years. A further 1,000,000 conditional rights to receive Ordinary Shares at nil cost were granted under the updated PSP. Also,
a total of 666,667 conditional awards under the NED Plan were surrendered. The remaining 1,333,333 conditional awards under the NED Plan had
their performance conditions modified in line with those modified in the PSP. The changes to the PSP and NED Plan have been accounted for as
modifications to the original schemes. No charges have been recorded in the period for either scheme.
The options outstanding at 31 December 2013 had a weighted average remaining contractual life of 5.2 years (2012: 4.9 years).
The estimated fair value of the options granted was £nil (2012: £97,886).
Number of
options
31 Dec 2013
Weighted average
exercise price
Number of
options
31 Dec 2012
Weighted average
exercise price
Outstanding at start of period
Granted in the period
Forfeited in the period
Exercised in the period
11,469,207
48,450,000
(17,502,542)
(5,300,000)
Outstanding at the end of the period
37,116,665
£
0.49
-
0.27
0.18
-
-
11,527,710
1,649,407
(1,407,910)
(300,000)
11,469,207
5,900,000
£
0.60
0.11
1.03
0.10
0.49
0.19
53
On 27 February 2012, the Group granted approved share options over 22,222 Ordinary Shares and unapproved share options over 111,111 Ordinary
Shares to employees of the Group at an exercise price of £1.35 per share.
Exercisable
-
52
The Group recognised total expenses of £752,000 in respect of share based payments in the year ended 31 December 2013
(16 month period ended 31 December 2012: £902,000).
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2013
Notes to the Group Financial Statements
for the Year Ended 31 December 2013
21. Own shares held by SIP Trust
At start of period
Acquired in the period
Shares disposed of to employees
At 31 December
12 Months Ended
31 Dec 2013
£’000
16 Months Ended
31 Dec 2012
£’000
67
97
(28)
136
67
-
-
67
The own shares reserve represents the cost of Ordinary Shares in Hurricane Energy plc purchased and held by the Group’s SIP Trust to satisfy the
Group’s Share Incentive Plan administered by MM&K Share Plan Trustees Limited.
As at 31 December 2013 and 2012 there were 136,898 Ordinary Shares held in the SIP Trust of which 93,050 are allocated to participants. The
balance of 43,848 Ordinary Shares are available to meet future awards.
22. Reconciliation of operating loss to net cash outflow from operating activities
Operating loss
Adjustments for:
Depreciation of property, plant and equipment (note 12)
Non cash property, plant and equipment movements
Intangible exploration and evaluation costs written off (note 13)
Share based payment charge (note 20)
12 Months Ended
31 Dec 2013
£’000
(5,867)
182
(360)
534
752
16 Months Ended
31 Dec 2012
£’000
(7,225)
-
-
9
1,120
Operating cash out flow before working capital movements
(4,759)
(6,096)
Decrease in receivables
Increase / (decrease) in payables
Cash used in operating activities
Corporation tax paid
Net cash outflow from operating activities
55
299
(4,405)
(19)
(4,424)
729
(918)
(6,285)
(22)
(6,307)
23. Financial instruments
23.1 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 does not enter into or trade financial instruments, including derivatives, for speculative purposes. Derivatives on
the Group’s balance sheet at 31 December 2013, relate to certain features of the Group’s financing arrangements all of which have been settled in
2014. The Group’s significant financial instruments are cash and cash equivalents (note 16), trade payables (note 17), convertible loan notes and its
associated derivative (note 23.7), and the warrant (note 23.8). The Group considers the carrying value of all its financial assets and liabilities to be
materially the same as their fair value. The Group has no material financial assets that are past due.
23.2 Capital risk management
The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern in order to provide returns for
Shareholders and benefits for other stakeholders.
Capital managed by the Group at 31 December 2013 consists of cash and cash equivalents and equity attributable to equity holders of the parent.
The capital structure is reviewed by management through regular internal and financial reporting and forecasting. As at 31 December 2013 equity
attributable to equity holders of the parent is £131.9 million (2012: £149.2 million), whilst cash and cash equivalents amount to £40.2 million,
(2012: £22.4 million).
23.3 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 £2.1 million (16 month period to 31 December 2012: £0.5
million) on the loss after tax of the Group for the year ended 31 December 2013. A 10% weakening in the strength of the US Dollar against Sterling,
would cause an increase of £1.7 million (16 month period to 31 December 2012: £0.4 million) on the loss after tax of the Group for the year
ended 31 December 2013.
This sensitivity analysis includes only foreign currency denominated cash and cash equivalents, and adjusts their translation at the period 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 an economic hedge against exchange rate movements.
23.4 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 year end.
23.5 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, and the convertible
loan notes, which have since been converted. (see note 23.7).
23.6 Interest rate risk
The Group is exposed to interest rate movements through its cash and cash equivalents which earn interest at variable interest rates. The interest
rates on the convertible loan notes are fixed, as described in note 23.7.
If interest rates had been 1% higher, the Group’s loss after tax for the year ended 31 December 2013 would have decreased by £0.4 million (16 months
ended 31 December 2012: £0.2 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.
54
55
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2013
Notes to the Group Financial Statements
for the Year Ended 31 December 2013
23.7 Convertible loan notes
In April 2013 the Group raised £28.1 million (gross) by issuing convertible loan notes at an issue price of £1.00 per note, with a maturity date of 1 year
from issue. The maturity date of the loan notes was extended by a further year in October 2013.
The convertible loan notes were to be converted into Ordinary Shares on or immediately prior to admission of the Company’s shares on AIM, which
occurred on admission post year end. The conversion was at a 30% discount to the placing price (in the case of admission), subject to a minimum
conversion price of £0.30 per share.
The convertible loan notes accrue interest at a rate of 5% per annum for the first seven months and at a rate of 15% thereafter. If conversion of the
loan notes had not occurred, then amounts outstanding under the convertible loan notes (including all accrued interest) would be repayable in cash.
The conversion feature of the convertible loan notes has been classified as an embedded derivative liability and measured at fair value through
profit and loss. The amount recognised on inception in respect of the host debt contract was determined by deducting the fair value of the
conversion option at inception from the fair value of the consideration received for the convertible loan notes. The debt component is then
recognised at amortised cost, using the effective interest method until extinguished upon conversion or at the instrument’s maturity date.
equity shares issued has been determined by deducting the fair value of the warrant from the fair value of the consideration received for the
share and warrant issue as a whole.
Net proceeds on issue of shares and warrant
Equity component
Derivative liability at date of issue
Change in fair value recognised in the income statement
Derivative liability at 31 December
12 Months Ended
31 Dec 2013
£’000
16 Months Ended
31 Dec 2012
£’000
3,135
2,428
707
707
1,414
-
-
-
-
-
Net proceeds on issue of convertible loan notes
Liability component at date of issue
Interest charged
Liability at 31 December
Derivative liability at date of issue
Change in fair value recognised in the income statement
Derivative liability at 31 December
12 Months Ended
31 Dec 2013
£’000
16 Months Ended
31 Dec 2012
£’000
26,713
20,520
5,625
26,145
6,193
8,085
14,278
-
-
-
-
-
-
-
On 4 February 2014 the warrant holder exercised warrant as the Company was admitted to AIM. See note 26.2 for further detail.
23.9 Derivative financial instruments
The only derivative financial instruments held by the Group are associated with the issue of the convertible loan notes and the warrant in April 2013.
At inception and at the Balance Sheet date, the fair value of the derivatives was calculated based on the 30% discount to the placing price that
the holders of the loan notes and the warrant would receive on admission of the Company, including the amount of accrued interest the holders
would be entitled to (only relevant for the derivatives associated with the loan notes) and an assessment of the date and likelihood of admission of the
Company which at inception was considered 50% likely.
Derivative liability at date of issue
Change in fair value recognised in the income statement
Derivative liability at 31 December
12 Months Ended
31 Dec 2013
£’000
16 Months Ended
31 Dec 2012
£’000
6,900
8,792
15,692
-
-
-
The interest expensed of the year is calculated by applying an effective interest rate of 41% to the liability component to October 2013. After the
extension of the repayment date, the interest was calculated by applying an effective interest rate of 23.7%.
On 4 February 2014 the Company was admitted to AIM which triggered the conversion of the loan notes. See note 27.2 for further detail.
23.8 Warrant
In April 2013 the Group raised £3.3 million (gross) by issuing Ordinary Shares together with a warrant to subscribe for additional Ordinary Shares.
The holder of the warrant could elect to subscribe for Ordinary Shares on admission of the Company’s shares on AIM, which occurred post year end
on admission. The warrant was exercisable on admission and lapsed if not exercised. On initial issue of the warrant, if admission did not occur, the
warrant would lapse 12 months after issue, however this was extended to 24 months after initial issue in November 2013.
The warrant gave the holder the right to subscribe for Ordinary Shares at a price which gave the holder an average subscription price, across the
Ordinary Shares already subscribed for and those subscribed on exercise of the warrant, which equates to a discount of 30% to the placing price,
subject to a minimum overall subscription price of £0.30 per share.
The warrant has been recognised as a derivative financial liability and measured at fair value through profit and loss. The value attributed to the
The change in the fair value in the period from inception relates to the changes in the assumptions related to the date and likelihood of admission
of the Company at the Balance Sheet date. On 4 February 2014, the Company was admitted to AIM, on which date the warrant was exercised and
the loan notes converted, as such the derivatives associated with both financial instruments were extinguished. The Group’s financial instruments
measured at fair value are grouped into Levels 1 to 3 based on the degree to which the fair value is observable:
Level 1: fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: fair value measurements are those derived from inputs other than quoted prices included within Level 1 which are observable for the asset
or liability, either directly or indirectly; and
Level 3: fair value measurements are those derived from valuation techniques which include inputs for the asset or liability that are not based on
observable market data.
Both of the Group’s derivatives are Level 3. There were no transfers between fair value levels during the year. For financial instruments which are
recognised on a recurring basis, the Group determines whether transfers have occurred between levels by reassessing categorisation (based on
the lowest-level input which is significant to the fair value measurement as a whole) at the end of each reporting period.
56
57
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2013
Notes to the Group Financial Statements
for the Year Ended 31 December 2013
24. Capital commitments
As at 31 December 2013 and 2012 there were no capital commitments. In January 2014, capital commitments of $26.6 million were made in relation
to drilling the LDC5 a on the Lancaster exploration, see note 27.1 for further detail.
27.3 Share incentive plan
On 25 February 2014, MM&K Plan Trustees Limited, trustee of the HMRC approved Hurricane Energy plc Share Incentive Plan (SIP), awarded 326,577
Ordinary Shares in the Company to participants in the SIP at a price of £0.31 per share.
25. Financial commitments
The Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows:
The SIP award has been satisfied in part by Ordinary Shares already held by the SIP and the issue of 282,729 new Ordinary Shares issued to the SIP
at a subscription price of £0.31 per share.
Under the SIP, the following Directors purchased or were awarded the following number of new Ordinary Shares:
Within one year
In the second to fifth years inclusive
After five years
12 Months Ended
31 Dec 2013
£’000
16 Months Ended
31 Dec 2012
£’000
160
520
293
973
140
520
423
1,083
Dr Robert Trice
Nicholas Mardon Taylor
Keith Kirby
Neil Platt
Number of
Partnership shares
Number of
Free shares
Number of
Matching shares
4,838
4,838
4,838
4,838
9,676
9,676
9,676
9,676
9,677
9,677
9,677
9,677
19,352
38,704
38,708
26. Related parties
During the year ended 31 December 2013, the only related party transactions are those with the Directors who are considered as the Group’s key
management personnel. All transactions with the Directors are detailed in note 8.
27.4 Other
On 24 February 2014 the Board approved the purchase of 102,903 new Ordinary Shares by the Chairman, John Hogan, at a subscription price of
£0.31 per share.
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 until his resignation on 12 October 2011. £807,000 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.
27. Subsequent events
27.1 Signing of rig contract and proposed drilling of the Lancaster well
On 22 January 2014, the Group entered into an assignment agreement with Transocean Drilling UK Limited and Talisman Sinopec Energy UK Limited
for the provision of the Sedco 712 semi submersible drilling rig for the drilling and testing of the Lancaster basement oil discovery. This committed
the Group to $26.6 million of capital expenditure to lease the drilling rig for the operations.
Well management company SPD Limited has been contracted to provide well construction and project management services during the drilling campaign.
27.2 Listing on AIM
On 4 February 2014 all of the Company’s authorised shares were admitted to the AIM market of the London Stock Exchange as part of its IPO. At the
same time a total of 41,860,465 new Ordinary Shares were issued at a price of £0.43 per share, raising £18.0 million (gross).
The listing of the Company’s shares on AIM triggered the conversion of all outstanding loan notes into Ordinary Shares of the Company to give the
holders a conversion price at a 30% discount to the placing price. This resulted in 99,070,189 Ordinary Shares being issued to loan note holders.
The listing of the Company’s shares on AIM also triggered the exercise of the warrant attached to the shares issued in April 2013. This resulted in the
issue of Ordinary Shares at a price which gave the holder an average subscription price, across the Ordinary Shares already subscribed for and those
subscribed on exercise of the warrant, which equated to a discount of 30% to the placing price. This resulted in 7,663,453 new Ordinary Shares being
issued at £0.001 per share to the warrant holder.
58
59
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2013
Company Balance Sheet
as at 31 December 2013
Company Statement of Changes in Equity
for the Year Ended 31 December 2013
Non-current assets
Property, plant and equipment
Intangible exploration and evaluation assets
Investments
Amounts due from subsidiary undertakings
Other receivables
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade and other payables
Current tax liabilities
Borrowings
Derivative financial instruments
Non-current liabilities
Decommissioning provision
Total liabilities
Net assets
Equity
Share capital
Share premium
Share option reserve
Own shares held by SIP Trust
Accumulated deficit
Total equity
Notes
As at 31 Dec 2013
£’000
As at 31 Dec 2012
£’000
1
2
3
4
5
6
7
9
9
8
9
9
330
61,062
15,090
59,213
130
-
57,938
15,090
56,076
130
135,825
129,234
1,098
40,167
41,265
177,090
(839)
(25)
(26,145)
(15,692)
(42,701)
(2,382)
(45,083)
390
22,390
22,780
152,014
(779)
(22)
-
-
(801)
(2,000)
(2,801)
132,007
149,213
483
167,328
1,901
(136)
(37,569)
475
163,910
1,343
(67)
(16,448)
132,007
149,213
Share
capital
£’000
Share
premium
account
£’000
Balance at 1 September 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
451
-
-
902
(10)
-
-
-
Balance at 31 December 2012
475
163,910
1,343
Shares allotted
Transaction costs
Share option charge
Share options exercised
Own shares held by SIP Trust
Loss for the period
8
-
-
-
-
-
3,514
(165)
-
-
69
-
-
-
752
(194)
-
-
Own shares
held by
SIP Trust
£’000
(67)
-
-
-
-
-
-
-
(67)
-
-
-
-
(69)
-
Balance at 31 December 2013
483
167,328
1,901
(136)
Warrant
reserve
Accumulated
deficit
Total
£’000
795
-
-
-
-
(197)
(598)
-
-
-
-
-
-
-
-
-
£’000
£’000
(10,715)
126,348
-
-
448
10
-
598
(6,789)
28,079
(1,328)
1,138
30
1,735
-
(6,789)
(16,448)
149,213
-
-
-
194
-
(21,315)
3,522
(165)
752
-
-
(21,315)
(37,569)
(131,007)
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 year ended 31 December 2013 of the parent company was £21,315,000 (16 month period ended 31 December 2012: loss
of £6,789,000). The Company has taken advantage of he exemption provided by Section 408 of the Companies Act 2006 not to publish its
individual Income Statement and related notes.
The Financial Statements of Hurricane Energy plc were approved by the Board of Directors and authorised for issue on 13 May 2014.
They were signed on its behalf by:
Dr Robert Trice
Chief Executive Officer
13 May 2014
Nicholas Mardon Taylor
Chief Financial Officer
13 May 2014
60
Registered company number 5245689
61
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2013
Company Cash Flow Statement
for the Year Ended 31 December 2013
Notes to the Company Financial Statements
for the Year Ended 31 December 2013
Notes
12 Months Ended
31 Dec 2013
£’000
16 Months Ended
31 Dec 2012
£’000
1. Property, plant and equipment
Net cash outflow from operating activities
10
(4,419)
(6,434)
Investing activities
Interest received
Expenditure on property, plant and equipment
Expenditure on intangible exploration and evaluation assets
Net cash used in investing activities
Financing activities
Interest paid
Net proceeds from issue of share capital and warrants
Net proceeds from issue of convertible loan notes
Working capital provided to subsidiary companies
Expenses related to corporate finance activities
Net cash provided by financing activities
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Net increase / (decrease) in cash and cash equivalents
Effects of foreign exchange rates
125
(25)
(3,847)
(3,747)
(3)
4,065
26,713
(3,202)
(529)
27,044
18,878
22,390
18,878
(1,101)
115
-
(17,542)
(17,427)
(7)
28,534
-
(15,512)
-
13,015
(10,846)
32,888
(10,846)
348
Cash and cash equivalents at the end of the period
6
40,167
22,390
Cost
At the start of the period
Adjustment
Additions
At 31 December
Depreciation
At the start of the period
Adjustment
Charge for the period
At 31 December
Carrying amount at 31 December
12 Months Ended
31 Dec 2013
£’000
16 Months Ended
31 Dec 2012
£’000
-
741
25
766
-
(254)
(182)
(436)
330
-
-
-
-
-
-
-
-
-
Property, plant and equipment comprises the Group’s investment in leasehold improvements, fixtures, office equipment and computer hardware.
In previous periods these costs had been expensed on acquisition due to their immaterial nature. In the current period an adjustment has been
made to capture the costs and depreciation of the Group’s property, plant and equipment previously expensed
2. Intangible exploration and evaluation assets
At the start of the period
Additions
Effect of changes to decommissioning estimates (note 8)
Amounts written off
At 31 December
12 Months Ended
31 Dec 2013
£’000
57,938
3,309
349
(534)
61,062
16 Months Ended
31 Dec 2012
£’000
40,339
16,008
1,600
(9)
57,938
Intangible 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.
The amounts written off in the year ended 31 December 2013 relates to the exploration expenditure on licence P1844 which was relinquished in
October 2013. The amounts written off in the 16 months ended 31 December 2012 relates to the onshore UK licences of PEDL 160 and PEDL 229,
which were relinquished in 2011.
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.
62
63
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2013
Notes to the Company Financial Statements
for the Year Ended 31 December 2013
3. Investments
Investment in subsidiaries
Loan to subsidiary
31 Dec 2013
£’000
9,751
5,339
15,090
31 Dec 2012
£’000
9,751
5,339
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 principal activity is oil and gas exploration. There are three other dormant subsidiaries; Hurricane Group Limited, Hurricane Basement Limited
and Hurricane Petroleum Limited.
4. Other non-current receivables
The other non-current receivables of £130,000 (2012: £130,000) represent the deposit for the office lease. Further details are given in
note 25 of the Group Financial Statements.
5. Trade and other receivables
Other receivables
Prepayments and accrued income
6. Cash and cash equivalents
Unrestricted funds
Escrow funds
31 Dec 2013
£’000
31 Dec 2012
£’000
1,073
25
1,098
370
20
390
31 Dec 2013
£’000
31 Dec 2012
£’000
37,293
2,874
40,167
22,240
150
22,390
The Company 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.
7. Trade and other payables
Trade payables
Other payables
Accruals
64
31 Dec 2013
£’000
31 Dec 2012
£’000
197
125
517
839
633
1
145
779
8. Decommissioning provisions
Provisions for decommissioning and restoration of the Group’s exploration assets are:
At start of period
Unwinding
Additions
At 31 December
31 Dec 2013
£’000
31 Dec 2012
£’000
2,000
33
349
2,382
400
-
1,600
2,000
The provision for decommissioning relates to the costs required to decommission the Lancaster and Whirlwind exploration assets. The additions
in both periods 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 at the end of the current licence term in 2019, discounted at 1.9%.
9. Other balance sheet disclosures
Details of the Company’s share capital, share options, own shares held by the SIP Trust and financial instruments are provided in notes 19, 20, 21
and 23 of the Group Financial Statements.
10. Reconciliation of operating loss to net cash outflow from operating activities
Operating loss
Adjustments for:
Depreciation of property, plant and equipment (note 1)
Non cash property, plant and equipment movements
Intangible exploration and evaluation costs written off (note 2)
Share based payment charge
12 Months Ended
31 Dec 2013
£’000
16 Months Ended
31 Dec 2012
£’000
(5,863)
(7,214)
182
(360)
534
752
-
-
9
1,120
Operating cash out flow before working capital movements
(4,755)
(6,085)
Decrease in receivables
Increase / (decrease) in payables
Cash used in operating activities
Corporate tax paid
Net cash outflow from operating activities
55
300
(4,400)
(19)
(4,419)
11 Other disclosures
Certain other disclosures in notes 24, 25, 26 and 27 to the Group Financial Statements also apply to the Company in respect of its share
of the Group’s operations
593
(920)
(6,412)
(22)
(6,434)
65
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2013
66
67
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2013
Nominated Adviser and Broker
Solicitors to Company
Auditor
Independent Competent Person
Registrar and Receiving Agent
Cenkos Securities plc
6.7.8 Tokenhouse Yard
London
EC2R 7AS
T: +44 20 7397 8900
F: +44 20 7397 8901
E: info@cenkos.com
Dentons
One Fleet Place
London
EC4M 7WS
T: +44 20 7242 1212
F: +44 20 7246 7777
Deloitte LLP
2 New Street Square
London
EC4A 3BZ
T: +44 20 7936 3000
F: +44 20 7583 1198
RPS Energy Limited
14 Cornhill
London
EC3V 3ND
T: +44 20 7280 3200
F: +44 20 7283 9248
Computershare Investor Services Plc
The Pavilions
Bridgwater Road
Bristol
BS99 6ZZ
T: +44 870 7071733
E: web.queries@computershare.co.uk
68
69
The Wharf
Abbey Mill Business Park
Lower Eashing
Godalming
hurricaneenergy.com
HUR-COR-FIN-ANN-0003-0