Annual Report and Group Financial Statements 2014
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
Contents
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Hurricane Highlights
Introduction
Chairman’s Statement
Group Strategic Report
The Board
Corporate Governance
Remuneration Report
Environmental Policy
Heath and Safety Policy
CFO Review
Financial Statements
1
Highly
successful drilling
and testing operation
carried out on
the Lancaster
discovery
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
Hurricane Highlights
Completed
an IPO on 4 February
2014, admitting the
Company’s shares
to AIM
Hurricane has
discovered more oil
on the UKCS than any
other UK oil company
in the past ten years
Hurricane has
470* MMboe of 2C
Contingent Resources and
a further 442* MMboe P50
Prospective Resources
that it owns 100%
Hurricane is
the first company
to drill a 1km
horizontal well
in basement on
the UKCS
Agreed licence
extensions with
DECC
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3
* Whirlwind oil case. Hurricane’s Competent Person’s Report
(CPR) produced in 2013 recognises 2C Contingent Resources
of 444-470 MMboe and P50 Prospective Resources of a
further 432-442 MMboe.
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
Introduction
Hurricane was established to discover, appraise and develop
hydrocarbon resources associated with naturally 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 containing 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 the Group
has retained 100% ownership of the licences containing all
its discoveries and prospects.
Hurricane’s most advanced asset is the Lancaster discovery.
In 2014 a highly successful operation was carried out on
Lancaster to drill and test a 1km horizontal appraisal well.
The Lancaster drilling operation is covered in more detail in
the Group Strategic Report.
Hurricane’s headquarters is in Lower Eashing, Surrey
with a satellite office in Aberdeen.
During 2014 the Group:
• Admitted the Company’s shares to AIM on 4 February 2014
• Raised £18 million by issuing new equity at IPO
• Entered into a rig contract to drill a Lancaster appraisal well
• Successfully drilled the UK’s first ever 1km horizontal well
targeting basement
• Achieved a sustainable natural flow rate of 5,300 STB/d and a
flow rate using artificial lift of 9,800 STB/d from the Lancaster
well production test, exceeding the target of 4,000 STB/d.
The flow rates were constrained by surface equipment
• Committed a total of £36.7 million of capital expenditure on
the 2014 Lancaster drilling and testing campaign. The operation
was delivered £5.0 million under budget
• Extended the term for licences P1485 and P1835
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Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
Chairman’s Statement
Welcome to Hurricane Energy’s 2014 Annual Report.
2014 operation
The industry
Looking forward
2014 was marked by two important events for the Group.
Firstly the IPO and fund raising that was completed in
February and secondly the successful drilling and testing
of the horizontal appraisal well on the Group’s 100% owned
Lancaster oil discovery, carried out over the summer.
The IPO
On 4 February 2014 all of the Company’s issued share capital
was admitted to AIM, a market operated by the London Stock
Exchange, as part of its Initial Public Offering (IPO). At the same
time a total of 41,860,465 new Ordinary Shares were issued at
a price of 43p per share, raising £18 million (gross). Admission
of the Company’s shares to trading on AIM triggered the
conversion of all outstanding loan notes and the warrant that
had been issued in 2013 into Ordinary Shares of the Company
resulting in the issuance, at the time of IPO, of a further
106,733,642 new Ordinary Shares combined.
The funds raised both prior to, and at the time of the IPO,
added over £47 million in cash, after expenses, to the Group’s
balance sheet and enabled the Group to proceed with appraisal
drilling on its Lancaster oil discovery West of Shetland.
We announced on 28 April 2014 the spudding of the Lancaster
horizontal appraisal well 205/21a-6. This well was designed
to test for commercially sustainable oil flow rates from
the fractured basement reservoir and was seen as key to
demonstrating the viability of the Lancaster oil discovery and
the Group’s other basement assets. The drilling and testing of
this key appraisal well over the summer was a great success and
will be described in some detail in the Group Strategic Report.
The well was completed ahead of schedule and under
budget. A 1km horizontal well section was drilled through
fractured basement – a first in the North Sea - and the well
was successfully tested and flowed oil at significant rates.
A maximum sustainable flow rate of 9,800 STB/d using artificial
lift was recorded. This flow rate was constrained by the capacity
of the surface testing equipment and so higher flow rates
could be expected when long term production is established
through appropriately sized facilities. Your Board believes that
the successful results from this well are a clear demonstration
that the Group’s plans for progressing to a Lancaster field
development are technically viable.
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The fall in the oil price during the second half of 2014 was
dramatic and deep and continued into 2015. At the close
of 2014 the Brent crude oil price was $55 per barrel having
touched highs of $115 per barrel around the middle of the
year. This sharp fall in the oil price is clearly affecting the entire
industry. Despite positive drilling results in 2014 the impact
of low oil prices has affected Hurricane as much as any other
company in the sector and we have seen a decline in the share
price along with most others. Whilst this is disappointing, the
Board is firmly of the opinion that the success of the summer’s
appraisal drilling operation, together with the significant
volumes of oil resources in place, demonstrates that the
Group remains attractive in the long term.
The industry is already responding to a lower oil price
environment by cutting capital investments and also by cutting
costs. We are already seeing rig, seismic and contractor service
costs falling, with further cost reductions expected. This will
provide some mitigation against lower oil prices.
The UK Government is well aware of the pressure on the
industry. Hurricane has played an active part in the fiscal
review instigated by HM Treasury with regard to the UK’s oil
and gas fiscal regime. The Group was pleased to note that the
Chancellor eased the tax burden in the 2014 Autumn Statement
by reducing the supplementary charge (SCT) by 2%. This was
followed by an announcement in the March 2015 Budget of a
further reduction in the SCT from 30% to 20% and a reduction
in Petroleum Revenue Tax from 50% to 35%. These are much
needed changes reflecting the maturity of the UK North Sea
and lower oil prices. Further support will still be required to
revive exploration activity and to encourage new
field developments.
Hurricane welcomes the creation of the Oil and Gas Authority
and trusts that it will be influential in leading the way in further
fiscal reform of the UK’s oil and gas sector.
This year’s drilling and testing result is a major step in further
de-risking the Group’s 2C Contingent Resources (444-470
MMboe) in Lancaster and Whirlwind and its P50 Prospective
Resources (432-442 MMboe) in its prospect inventory.
This successful outcome reinforces the potential importance
of oil and gas in fractured basement reservoirs as a new and
strategic resource for the UK.
Following the successful completion of the Lancaster
horizontal appraisal well, a farm-out process of some or all
of the Group’s assets was commenced with the assistance of
Jefferies International. Having a large contingent resource in
the Lancaster oil discovery and a highly productive reservoir,
as proven by the 205/21a-6 well, means that the Lancaster
discovery can remain commercially viable in a lower oil price
environment, not least as the industry cost base continues
to fall. As a consequence of this there has been considerable
industry interest in both the Lancaster field and the Group’s
other assets. At the time of writing the Company is in
discussions with a number of potential partners.
The Company has also continued to ensure the market
recognises the scale of the opportunity Hurricane represents.
An ongoing programme of meetings with brokers, analysts
and industry commentators, alongside presentations at special
investor events has been undertaken throughout the year to tell
the Hurricane story.
The industry is facing a challenging period. Amongst the smaller
Exploration & Production companies, Hurricane is better placed
than most, having a significant resource base with large volumes
of discovered and prospective resources in one of the principal
areas of industry interest in the UKCS. With 100% ownership
in all our assets, the Group has scope to bring in partners to
progress the development of these assets whilst still retaining
material value for Shareholders.
I would like to take this opportunity to thank all the Hurricane
team for their contribution towards the successful appraisal of
the Lancaster discovery and for their continuing efforts.
John Hogan
Chairman
30 April 2015
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Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
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
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Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
Group Strategic Report
Business model
Strategy
Hurricane acquires acreage in proven petroleum systems and
uses 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. Once commercial
viability of our assets is established, we examine
development scenarios to take them into production.
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 a 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.
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 through the value chain from
prospects 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 the development of significant resources. We believe
that fractured basement reservoirs can be associated with oil
outside of structural closure that is of material commercial value.
Part of Hurricane’s strategy is to demonstrate the potential of this
oil through exploration and appraisal drilling.
To date we have maintained 100% ownership and operatorship
of all of our discoveries. A farm-out process is underway to help
move our discoveries into development. Discussions with potential
partners are ongoing at the time of this report.
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.
Hurricane Energy has discovered
more oil on the UKCS than any
other UK oil company in the
past ten years.
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Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
Group Strategic Report: Review of 2014
As we entered 2014 the Group had been able to agree a
contract for the Transocean Sedco 712 drilling rig. The IPO
plan was well advanced and the process culminated in floating
Hurricane’s shares on AIM, a market operated by the London
Stock Exchange, on 4 February 2014.
As part of the IPO Hurricane issued new shares at a price of
43p per share, 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 allowing the Group to sign the contract for the Sedco
712 and undertake the planned drilling and testing of the
Lancaster 205/21a-6 appraisal well.
The Lancaster operation
Hurricane is the first company ever to drill a 1km horizontal
well targeted at a basement reservoir on the UKCS. Although
horizontal wells have been drilled in many other regions
of the world, it took firm direction and commitment from
a multidisciplinary team to deliver a successful operation.
Meticulously planned by the Hurricane team and working closely
with our key technical advisers, the operation was designed
for early season drilling, aiming to take advantage of the
good weather period.
Hurricane’s CEO and a small Hurricane technical team spent crucial
time offshore, overseeing the operation. The Management
believes that having the right people offshore directing key
elements of the technical work creates an efficient streamlined
operation. Hurricane’s structure and approach enables work to
be done in an agile and dynamic way delivering positive results.
The Board is pleased to report that the Transocean Sedco 712
was under contract to Hurricane for 73.5 days, less than the
budgeted AFE of 75.9 days. This, coupled with other operational
efficiencies, resulted in spend of £34.4 million against a
budgeted AFE cost of £39.4 million. £2.3 million was spent
in 2014 on costs relating to the well outside of the AFE.
The first stage of the drilling operation involved building the
angle of the well until the drillbit was moving horizontally as
it entered the basement structure (see Lancaster well section
diagram on page 14). Once the granitic basement had been
encountered, drilling progressed at a rate of approximately
190 metres per day. Nine key seismically mapped faults were
targeted in the preplanning and were crossed during the drilling
operation (see Location map on page 15). At conclusion of
drilling the data acquired indicated that all the mapped target
fault zones were present and that the entire encountered
section was both fractured and oil bearing. Evidence of
fractures and oil bearing rock were established from drilling
data including high resolution gas chromatography and
image logs acquired through logging while drilling (LWD).
On 9 June 2014 Hurricane announced that the drilling phase
of the reservoir section had been successfully completed as
planned and that the well testing phase was to commence.
The testing programme was designed to establish whether
commercial hydrocarbon flow rates could be delivered from
a 1km horizontal well drilled through faulted and fractured
basement rock (granite) under both natural flow and artificial lift
conditions. Artificial lift was achieved through the installation
of a down-hole electrical submersible pump (ESP), the inclusion
of which was to investigate potential flow rates that could be
expected under production conditions. The type of oil was
confirmed as 38° API, the same as established in previous
operations on the Lancaster discovery.
On 26 June 2014 Hurricane announced the preliminary results
from the testing phase of the operation. The natural flow
rate was established at 5,300 stock tank barrels of oil per day
(STB/d). Using artificial lift provided by the ESP a sustainable
flow rate of 9,800 STB/d was established. Both the natural
and artificial established oil flow rates were constrained
by the capacity of the surface test equipment. A well
productivity index of 160 STB/d/psi was achieved demonstrating
a very good quality reservoir pressure capable of delivering
sustained commercial flow under production conditions.
The well flowed for a total of 78 hours and was shut in for a
maximum of 74 hours. Shut-in periods are an important part
of the testing programme to allow assessment of the pressure
response of the reservoir after the initial flow, providing
reservoir understanding as well as input for future development
planning. Shut-in periods indicated a rapid pressure response,
no observable pressure decline and a large connected volume,
another positive outcome of the operation.
The post-well analysis carried out through the summer was
also encouraging. The work provided more data indicating that
under production conditions and a moderate 120psi drawdown
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the basement reservoir could deliver 20,000 STB/d from a
single well. This was significantly better than initial
expectations of well productivity.
Other information gleaned from the testing and post-well
analysis supports the interpretation from previous drilling on
the Lancaster structure that the intervening fractured basement
rock, as well as the seismic scale fault zones, contributed to
flow. It also corroborates the pre-drill geological model and
provided new analysis demonstrating a highly permeable,
well connected fracture network.
Additional potential upside was encountered from an interval
of previously undrilled Jurassic-Cretaceous sandstone.
The sandstone is oil bearing, and has an average porosity
of 17%. Further subsurface work is required to quantify the
materiality of this sandstone reservoir.
The success of the Lancaster operation brings the discovery
closer to development and consequently the well has been
suspended. Hurricane plans to incorporate this well
into a future development of Lancaster.
Farm-out process
Jefferies International is assisting Hurricane in conducting a
formal farm-out process to attract an industry partner into
some or all of the Group’s assets. Since the Lancaster operation
a comprehensive data room has been made available to
interested parties. An announcement will be made in due
course as appropriate.
Licence extensions
In order to protect the Group’s assets, Management held
discussions with the Department of Energy & Climate Change
(DECC) regarding extending the expiry dates on certain licences
held by the Group. Hurricane was granted an extension to
licences P1485 and P1835 which contain the Group’s Typhoon
and Tempest prospects.
Licence P1485, the licence covering Typhoon, has been
extended by DECC to 31 December 2016. The Group will need
to demonstrate it has committed to a rig contract prior to 30
June 2016. Should Hurricane be unable to meet this
requirement, licence P1485 and licence P1835 will automatically
expire unless a further extension is granted by DECC.
Licence P1835: before 9 January 2017, 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
committed well drilled in respect of licence P1485. By 10
January 2017, the Group is obliged to relinquish at least 50 per
cent 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.
Board
Keith Kirby resigned from the Board on 22 June 2014. See page
24 for profiles of the Directors.
Government and regulatory authorities
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 been actively involved with HM Treasury over
the Government’s fiscal review of the UK’s oil and gas industry,
highlighting the need for reform to stimulate growth in the sector.
The Group successfully completed an official audit for renewal
of our ISO 14001 Environmental Management System
accreditation, essential to enable Hurricane to carry out
drilling operations.
“I consider this year’s operational result to be a major step in
further de-risking the Company’s 2C Contingent and
P50 Prospective Resources and very important as we seek
to enhance Shareholder value. This successful outcome
reinforces the potential importance of basement
resources as a strategic resource for the UK.”
Dr Robert Trice, CEO
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Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
Lancaster well section
Metres
Horizontal well 205/21a-6
Location map
Overburden
Basement
The figure above shows the 1C, 2C and
3C ‘oil down to’ cases as described in the
CPR, demonstrating the potential height
of the oil column compared with well
known landmarks. The 205/21a-6 well
penetrated the basement structure well
above the shallowest ‘oil down to’ (the
1C case) and was drilled horizontally for
approximately 1km.
205/21a-4
205/21a-6
205/21a-4z
Lancaster horizontal well shown in
relation to seismically mapped faults and
other wells on the Lancaster field.
The horizontal well targeted seismically
mapped faults as the primary drilling
target as previous drilling results indicated
that seismically mapped faults are
associated with the best quality reservoir.
Top hole location
Top of basement entry point
0
0.5
1
1.5
2km
N
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Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
As well as penetrating the seismically mapped faults, the
horizontal well cuts across numerous fractures which are
detected by logging while drilling (LWD) measurements.
LWD tools are located behind the drill bit and form part of
the drill string. Examples of LWD measurements include the
density resistivity and caliper tools. Hurricane’s geoscientists
use this information along with seismic data to construct
fracture models and establish how much oil is present within
the Lancaster field.
The Lancaster well was drilled horizontally
using a geo steering device, enabling
Hurricane to drill across numerous
faults and fractures.
An estimate of porosity in fractures
is established using a density tool
shown here reading a large
open fracture.
Oil bearing fractures are detected by a
combination of mud logging data and
resistivity imaging tools, as shown in this
picture. The illustration indicates the tool’s
response opposite a large open fracture.
Another key tool is the acoustic caliper
which not only helps detect fractures
but measures the size and shape of the
borehole, which are key measurements in
calibrating all of the LWD tools.
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Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
Group Strategic Report: Future outlook
This has been a very important and productive period
for Hurricane and the Group is now considering the
positive outcome of 2014’s operation with a view to
bringing Lancaster to field development.
Lancaster
Lincoln
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. We plan to drill on Lincoln in
the future, subject to funding.
Lincoln’s proximity to Lancaster leads us 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 held under Licence P1368 and is in a
water depth of 155m. The key corporate objective for 2014
was to drill a successful horizontal well on Lancaster which
could demonstrate that the reservoir can produce a
commercially sustainable flow of 4,000 barrels of oil per day.
As covered earlier in this report the operation was a great
success, exceeding the target flow rate.
The potential size of the Lancaster resource means that any
field development is expected to be executed through a
phased approach. Development scenarios under review for
the Lancaster asset include the Phase 1 Full Field Development
as outlined in the Group’s Competent Person’s Report (CPR)
or an Early Production System (EPS) using either a standalone
vessel or existing infrastructure. The EPS is an incremental plan
towards the Full Field Development, but benefits from the
potential of accelerating oil production at a minimum cost.
Given the positive results of the Lancaster well in 2014 and
the associated de-risking of key elements related to field
development, Management is working to establish a preferred
way forward to field development prior to commissioning
a revised CPR.
The Group has 100% control of over 400 MMboe of 2C
Contingent Resources. The Group also benefits from a Lancaster
well stock that includes two wells which are suspended in
preparation for use as production wells. Jefferies International is
assisting Hurricane in conducting a formal farm-out process to
attract an industry partner into some or all of the Group’s assets.
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 MMboe in the 2C Contingent Resource case. We believe
that Strathmore could potentially tie back to a future
Lancaster development.
Whirlwind is located about 10km 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 from that of Lancaster and as a
consequence the 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 and P1835. A site survey was commissioned
over Typhoon during summer 2011. Typhoon is primarily a
basement prospect but also offers potential in overlying Jurassic
sandstones (Tempest). The CPR has assigned unrisked P50
Prospective Resources of 149 MMboe to Typhoon and 1,266
MMboe for the P10 volume acknowledging the material flank
potential of this asset.
Typhoon and Tempest are 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 which is subject to funding.
As noted earlier in this report, Hurricane was granted
an extension to licences P1485 and P1835 through to
31 December 2016 and 9 January 2017 respectively.
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Hurricane Energy plc Annual Report and Group Financial Statements
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
Year Ended 31 December 2014
Group Strategic Report: Risk
Internal controls and risk management
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. There is a wide
variety of risks associated with the oil and gas industry which may
impact Hurricane’s business. According to the risk, Hurricane may
elect to take or tolerate risk, treat risk with controls and mitigating
actions, transfer the risk to third parties or terminate risk by ceasing
particular activates or operations. Listed in the following table are
some of the principal risks facing the Group and the actions taken
to minimise the likelihood and mitigate the impact.
The Directors are responsible for the Group’s system of internal
control and for reviewing its effectiveness. The Group’s system
of internal control is designed to manage rather than eliminate
the risk of failure to achieve the Group’s business objectives and
therefore provides reasonable, rather than absolute, assurance
against material misstatement or loss. The Group operates
a series of controls to meet its needs. The Board considers
that there is no necessity at the present time to establish an
independent internal audit function given the current size and
complexity of the business.
Existing processes and practices are monitored and reviewed
to ensure that risks are effectively managed around a sound
internal control structure. A fundamental element of the
internal control structure involves the identification and
documentation of significant risks, the likelihood of those risks
occurring, their potential impact and the plans for managing
and mitigating each of those risks. These assessments are
monitored and reviewed by the Board.
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Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
Key risk factor
Risk detail
How it is managed
Key risk factor
Risk detail
How it is managed
Substantial
capital
requirements
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 raise further funds.
Operational
risks
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.
Geological and
reservoir risk
The geology of the Group’s licence areas and
the behaviour of the associated reservoirs rely
on various assumptions and interpretation
techniques. There is a risk that the reservoirs do
not behave as expected.
The ability of the Group to develop and
exploit oil and gas resources depends on
the Group’s continued compliance with the
obligations of its current licences. The Group
depends on its licences whose grant and
renewal is subject to the discretion of the
relevant governmental authorities.
Licences
22
The Group continually monitors its funding
requirements to progress its asset portfolio. The Group
actively engages with many providers of finance
including current and potential Shareholders, brokers,
banks and other financial institutions to understand
the range of options available to the Group.
Jefferies International is assisting Hurricane in
conducting a formal farm-out process to attract an
industry partner into some or all of the Group’s assets.
The Group invests significant time and resources to
plan all of its operations and focuses on minimising
the various operational risks. The Group uses a range
of third party experts to co-ordinate, plan and deliver
drilling and development projects. Contingency is built
into all project plans to allow for unexpected delays
and cost overruns.
All appraisal programmes are designed to de-risk
the assets in the most cost effective manner while
gaining the maximum understanding of the geology
and reservoir as possible.
Hurricane uses data obtained from drilling and
well testing to populate extensive reservoir models
which have been structurally defined from seismic
data. Continual updating of these models enable
Hurricane to better understand the reservoirs and
build predictive cases that address the uncertainty
envelope and mitigate risk.
The Group monitors its tenure and obligations
of the licences that it holds. The Group maintains
active engagement with the relevant governmental
authorities and seeks extensions and amendments
to its obligations as required.
Oil price
fluctuations
Joint venture
partners
Both oil and gas prices can be volatile and subject
to fluctuation in response to relatively minor
changes in the supply of, and demand for, oil and
gas, market uncertainty and a variety of additional
factors that are beyond the control of the Group.
It is impossible to predict accurately future oil
and gas price movements. Accordingly, oil and
gas prices may not remain at their current levels.
Although the Group is not yet an active producer
of oil and gas, declines in oil and gas prices may
adversely affect market sentiment and as a
consequence the market price of the Ordinary
Shares and furthermore affect the Group’s cash
flow, liquidity and profitability, and limit the
amount of oil and gas that the Group could
potentially market in the future.
Operations in the oil and gas industry are often
conducted in a joint venture environment.
There is a risk that joint venture partners are
not aligned in their objectives and drivers,
which may lead to inefficiencies and delays.
After a farm-out, the Group may not act as
operator on certain 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
a third party operator.
The viability of the Group’s assets are assessed on a
regular basis. Economic models of development cases
are stress tested using varying oil price forecasts.
Investment will only be made if the development case
is robust to downside sensitivity price scenarios.
Due diligence will be used to review and assess any
third parties that the Group enters into a joint venture
with in both operated and non-operated projects.
The Group will have continuous and regular
engagement with partners to ensure that all
partners interests are aligned and the Group is not
exposed to risks that it believes are unacceptable.
Third party
infrastructure
Any future field development is likely to be
dependent upon the availability of third party
infrastructure which if it fails, or is not, or ceases
to be, available on reasonable commercial terms, or
at all, may result in delays to field development,
production and cash generated. This would have a
material adverse effect on the Group’s business,
prospects, financial condition and operations.
In planning the development scenarios for the
Group’s assets, the use of third party infrastructure is
assessed. Consideration is given to the extent, nature
and commercial arrangements of potential use of
third party infrastructure and attempts to not rely on
this type of infrastructure if a practical
alternative exists.
Dr Robert Trice, CEO
30 April 2015
23
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
The Board
John Hogan Non-executive Chairman
Nicholas Mardon Taylor Chief Financial Officer
Dr David Jenkins Non-executive Director
John van der Welle 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.
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 1999-2005. He was Managing
Director, Head of Oil and Gas, at the Royal Bank of Scotland
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.
John has over 40 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 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. John’s key responsibility
as Chairman is the leadership of the Board, ensuring the
integrity and effectiveness of the Board/Executive relationship.
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. Nicholas’ key responsibilities as
CFO are the financial and commercial activities of the business.
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. As CEO, Robert
is responsible for the operational management of the business,
developing strategy in consultation with the Board
and then executing it.
Neil Platt Chief Operations Officer
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 COO, Neil is responsible for daily
operations and asset delivery (drilling and projects).
24
25
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
Corporate Governance
The Board recognises its responsibility to serve the interests of
Shareholders in managing the Group by applying high standards
of corporate governance commensurate with its size, stage of
growth and the nature of its activities.
The Group is a member of the Quoted Companies Alliance
(QCA), the membership organisation which represents the
interests of small and mid-size quoted companies. The QCA
publishes and maintains the Corporate Governance Code
for Small and Mid-Size Quoted Companies (the QCA Code),
which seeks to help companies apply key principles from the
UK Code and other themes of governance best practice to
their particular needs and circumstances in a manner which is
proportionate for growing enterprises. The QCA Code sets out
twelve broad principles of behaviour and a set of minimum
disclosures intended to reflect governance best practice and
ensure that this is reported to Shareholders.
The Board considers the principles and recommendations
contained in the QCA Code in the context of its business and
implements these in a manner which is appropriate for the size
and current stage of development of the Group, reflective of
the expectations of Hurricane’s Shareholders.
The role of the Board
The Board sets the Group’s strategic objectives and ensures
that they are properly pursued and that major business risks
are actively monitored and managed. This goes beyond
regulatory compliance and puts the interests of the Hurricane
Shareholders at the centre of the Board’s decision making.
The Board is responsible for overall Group strategy, including
exploration, appraisal and development activity; acquisition and
divestment policy; approval of major capital expenditure, the
overall Group capital structure and consideration of significant
financing matters. The Board continued to focus its efforts in
2014 on the strategic issues which will create Shareholder value,
monitoring performance against agreed objectives and planning
future business operations.
The Board will continue to assess its governance arrangements
in conjunction with the performance of its operations and the
assessment of the effectiveness of its Board.
and judgements for items subject to estimates and the clarity
and completeness of discloses in the Financial Statements.
Overall the audit committee focus on whether, taken as a
whole, the Annual Report and Group Financial Statements are
fair, balanced and understandable and provides the information
necessary for Shareholders to assess the Group’s performance,
business model and strategy.
The Committee considered in particular the following major
Financial Statement items that require significant judgement
and estimation:
Recoverability of intangible exploration and evaluation assets
The audit committee satisfied itself by reference to the
Group’s business plan and discussions with Management that,
in respect of all intangible exploration and evaluation assets,
either commercially viable resources have been discovered or
substantive expenditure on further exploration and evaluation
activities in the specific area is budgeted or planned.
Presumption of going concern
Having considered the Group’s funding position, cashflow
forecasts and the reasonable possible sensitivities provided
by Management, the audit committee has a reasonable
expectation that the Group has adequate resources to
continue in operational existence for the foreseeable future.
Thus the going concern basis of accounting has been used
in the preparation of the Financial Statements.
Board composition
Audit Committee
The Board currently comprises three executive Directors
and three non-executive Directors. The non-executive
Directors bring independent judgement on the issues of
Hurricane’s strategy and resource. The non-executive Directors
constructively challenge the performance of the executive
Directors and monitor the performance in the delivery of the
Group’s key objectives and targets.
Hurricane requires the Group’s non-executive Directors to be
free from any relationship or circumstance that could materially
interfere with the exercise of their independent judgement.
The Board considers each of the non-executive Directors to be
independent in both character and judgement.
None of the Directors have any potential conflicts of interest
between their duties to the Group and their private interests
or duties owed to third parties.
The Company complies with Rule 21 of the AIM Rules for Companies
regarding dealings in the Company’s shares and has adopted a
code on dealing in securities to ensure compliance by Directors.
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.
How the Board operates
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 has established the following committees
(committee terms of reference are available on the
Hurricane website).
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 is chaired by John van der Welle and
the other members are John Hogan and Dr David Jenkins. The
audit committee meets at least three times a year with further
meetings as required. The other Directors and representatives
from the finance function may also attend and speak at
meetings of the audit committee.
The audit committee makes recommendations to the Board
regarding the appointment, reappointment and removal of
external auditors. At the Annual General Meeting (AGM) the
Shareholders are requested to authorise the Directors to
appoint and agree the remuneration of the external auditors.
Deloitte LLP was first appointed as external auditor to the
Group for the year ended 31 August 2010 and the audit has
not been put to tender since that date. In accordance with the
Companies Act 2006, a resolution to re-appoint Deloitte LLP will
be proposed at the next AGM.
The audit committee recognises that, for smaller companies, it
is cost effective to procure certain non audit services from the
external auditor but there is a need to ensure that provision of
such services does not impair, or appear to impair, the auditor’s
independence or objectivity. The audit committee must be
consulted before the assignment of any non audit work can
be awarded to the external auditor. The audit committee was
satisfied throughout the year that Deloitte LLP’s objectivity and
independence were in no way impaired by the nature of the
non audit work undertaken or other factors including the level
of non audit fees charged.
The audit committee has considered the significant issues in
relation to the preparation of the 2014 Annual Report and
Group Financial Statements. The areas of focus for the audit
committee included consistency of application of accounting
policies; compliance with financial reporting standards, AIM
and legal requirements; the appropriateness of assumptions
26
27
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
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 their own terms
and conditions of remuneration. Non-executive Directors’ fees
are 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 other Directors may also attend and
speak at meetings of the remuneration committee.
Nominations Committee
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 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
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’s operations, and meets 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 34.
Communication with Shareholders
Communication with current and potential Shareholders is a
key focus point for Hurricane. Information about the Group’s
activities is provided in the Annual Report and Financial
Statements, the Interim Report and Financial Statements,
press releases and via the Regulatory News Service (RNS).
There is regular dialogue with Shareholders and potential
Shareholders. These meetings include formal roadshows
and presentations, analyst briefings and media interviews.
The Chairman, CEO and CFO, who are the Directors primarily
responsible for dealing with Shareholders, ensure that other
members of the Board receive full reports of these discussions
as well as analysts’ and brokers’ briefings. Hurricane’s website
also provides detailed information on the Group’s activities.
John Hogan
Chairman
30 April 2015
28
29
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
Remuneration Report
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.
Given the outstanding result from the Lancaster operation, the
remuneration committee recommended that a 100% bonus to
the executive Directors for the 2014 performance period be
made. It was recommended that the bonus be awarded by a
cash payment equivalent to 50% of base salary and a grant of
deferred shares to the value of 50% of base salary. However,
due to the Company being in a close period at the time of the
cash bonus, the Company was unable to grant the deferred
share element of the bonus. Once the Company is out of the
close period, the Board will review the recommendations of
the remuneration committee in relation to the deferred share
element of the 2014 bonus.
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 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 focus
of the performance condition is to incentivise the progression
and development of Lancaster which aligns with the delivery of
value to Shareholders.
The committee has reviewed the base salary levels for the
executive Directors and determined that no increases would
be made for 2015.
The Group contributes to personal pension schemes. Under
current legislation, from 2017 Hurricane 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.
Directors’ emoluments
The following is an analysis of the emoluments received by the Group’s Directors:
Emoluments
Cash bonus5
Deferred share bonus5
Pension contributions
Year Ended 31 Dec 2014
£’000
£’000
Dr Robert Trice
Nicholas Mardon Taylor
Keith Kirby1
Neil Platt
John Hogan2
Dr David Jenkins3
John van der Welle4
375
275
620
275
150
55
55
188
138
-
138
-
-
-
1,805
464
£’000
187
137
-
137
-
-
-
461
1 Resigned 22 June 2014. Emoluments includes £482,500 consisting of payment in lieu of notice period, bonus entitlement and ex-gratia payments.
2 Emoluments includes £30,000 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 Dr David Jenkins.
4 50% of emoluments were consulting fees paid to Northlands Advisory Services Limited, a company controlled by John van der Welle.
5 Bonus in respect of services provided in 2014 was awarded 50% in cash and 50% in deferred shares which are yet to be issued.
108
2,838
Year Ended 31 Dec 2013
£’000
£’000
£’000
£’000
Emoluments
Cash bonus6
Deferred share bonus6
Pension contributions
Dr Robert Trice
Nicholas Mardon Taylor
Keith Kirby
Neil Platt1
John Hogan1,2
Dr David Jenkins1,3
John van der Welle1,4
Other Directors5
375
275
275
229
123
45
45
85
120
78
98
131
-
-
-
-
1,452
427
-
-
-
-
-
-
-
-
-
117
1,996
£’000
38
28
14
28
-
-
-
38
28
28
23
-
-
-
-
Total
£’000
788
578
634
578
150
55
55
Total
£’000
533
381
401
383
123
45
45
85
1 Appointed 8 March 2013.
2 Emoluments includes £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 Dr 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 were no longer employed by the Group.
6 Cash bonus payment made in March 2013 in respect of services provided in 2012. No bonus was awarded for service in 2013.
30
31
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
Remuneration Report
Directors’ PSP share awards and 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 19 of the Group Financial Statements.
Details of Directors’ PSP awards and share options at the beginning and end of the year are as follows:
Grant date
Dr Robert Trice
25/01/11
17/04/13
Keith Kirby1
17/04/13
Nicholas Mardon Taylor
25/01/11
17/04/13
Neil Platt
17/04/13
John Hogan
17/04/13
Dr David Jenkins
17/04/13
John van der Welle
17/04/13
As at
1 Jan 2014
225,000
4,533,333
4,533,333
68,000
4,533,333
4,533,333
666,667
333,333
333,333
Total
19,759,665
Granted
Exercised
Lapsed
As at
31 Dec 2014
Exercise price
Date from which
exercisable
Expiry date
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
225,000
4,533,333
£1.00
£nil
25/01/14
n/a
31/12/20
04/02/19
(4,533,333)
-
£nil
n/a
04/02/19
-
-
-
-
-
-
68,000
4,533,333
£1.00
£nil
25/01/14
n/a
31/12/20
04/02/19
4,533,333
£nil
n/a
04/02/19
666,667
£nil
n/a
04/02/19
333,333
£nil
n/a
04/02/19
333,333
£nil
n/a
04/02/19
-
(4,533,333) 15,226,332
1 Resigned 22 June 2014. All PSP awards lapsed on resignation.
Details of Directors’ PSP awards and share options and at the beginning and end of the previous year are as follows:
Granted
Exercised
Lapsed
As at
31 Dec 2013
Exercise price
Date from which
exercisable
Expiry date
Grant date
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
Nicholas Mardon Taylor
22/02/06
25/01/11
14/06/11
28/07/11
20/07/12
17/04/13
Neil Platt1
28/07/11
20/07/12
17/04/13
John Hogan1
17/04/13
Dr David Jenkins1
17/04/13
John van der Welle1
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)
-
-
-
-
-
-
-
(550,450)
(237,840)
(333,333)
(2,266,667)
-
225,000
-
-
-
4,533,333
756,760
126,120
272,222
-
-
-
-
6,800,000
-
-
-
-
(756,760)
(126,120)
(272,222)
(2,266,667)
-
-
-
4,533,333
1,000,000
68,000
103,500
98,300
217,778
-
-
-
-
-
-
6,800,000
(1,000,000)
-
-
-
-
-
-
-
(103,500)
(98,300)
(217,778)
(2,266,667)
-
68,000
-
-
-
4,533,333
(612,610)
(129,630)
(2,266,667)
-
-
4,533,333
612,610
129,630
-
-
-
6,800,000
-
1,000,000
-
-
500,000
500,000
-
-
-
-
-
-
£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
(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
Total
5,731,543 29,200,000 (2,000,000)
(13,171,878) 19,759,665
1 Appointed 8 March 2013.
32
33
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
Environmental Policy
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. 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
Our objectives
Hurricane recognises its responsibility to the environment and
takes positive steps to address the environmental impacts
associated with our offshore operations.
• All of our offshore operations shall be managed under
our ISO 14001:2004 certified Environmental
Management System
We are committed to achieving continual improvement in our
environmental performance, and regard compliance with the
relevant laws and regulations as a minimum standard.
We work with our employees, contractors and suppliers to
identify and reduce the environmental impacts of our activities.
• We will involve our employees in maintaining the
Environmental Management System, provide a clear
feedback structure, establish appropriate operating
practices and implement training programmes
• All our employees will be selected, trained and developed
to carry out their duties safely, competently and with
due care for the environment
• We will implement measures to prevent pollution to
the environment, where reasonably practicable
• We will continually review all our business operations,
in order to identify and minimise our environmental impacts
• We will consider the sustainability of required resources
during the planning and execution of our
offshore operations
• We will set appropriate environmental objectives, monitor
progress in achieving these and report the results to the
Board on a regular basis
• We will 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 commitments will be reviewed regularly and specifically
prior to major operational activities. As a measure of
Hurricane’s environmental performance, the fulfilment of these
commitments will be monitored continually and communicated
to both the Board and employees.
For further information including our work as part of the
SERPENT project and commitment to the emergency capping
device through OSPRAG, please refer to Hurricane’s website.
34
35
Other core policies
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
Hurricane’s website.
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
Health and Safety Policy
Hurricane conducts its business responsibly, with respect for
the people and communities within the areas in which we work.
We safeguard our activities to ensure that we never knowingly
compromise our health and safety obligations or recognised
standards in pursuit of improving our business results.
Our objectives
We provide leadership which fosters a safe and healthy working
environment, enabling us to conduct business in a manner that:
• 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 continual 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 Incident Reporting Procedure
• 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.
36
37
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
Chief Financial Officer’s Review
Overview
Lancaster drilling and testing
In 2014 the Group completed its IPO, raising enough funds to
successfully deliver the Lancaster 205/21a-6 horizontal appraisal
well. The Group commenced 2014 with £40.2 million of cash
and cash equivalents and added a further £16.8 million of
funding through the IPO. This allowed the Group to fully
fund the 2014 operation.
In the first half of the year the Group successfully drilled and
tested the Lancaster 205/21a-6 horizontal appraisal well. The
Transocean Sedco 712 was under contract to Hurricane for 73.5
days, less than the budgeted AFE of 75.9 days. This, coupled
with other operational efficiencies, resulted in the well being
delivered at a cost of £36.7 million, £5.0 million under budget.
At the end of the drilling and testing campaign, the well was
suspended in preparation for use as a potential production
well in a future development. The Group’s decommissioning
provisions were increased by £2.4 million to take into account
the expected future costs to plug and abandon the well.
After the suspension of the well, the Group placed £2.3 million
into escrow to cover the expected future costs associated
with Group’s decommissioning obligations.
Fundraising
On 4 February 2014, all of the Company’s issued share capital
was 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 43p
per share, raising £18.0 million (gross before expenses).
Admission of the Company’s shares to trading on AIM
(Admission) 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 new Ordinary Shares being issued to
loan note holders.
Also on Admission the warrant attached to the shares issued
as part of the Group’s pre-IPO fundraising in April 2013 was
exercised. This resulted in the issue of Ordinary Shares at a price
that 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 and resulted in a further 7,663,453 new
Ordinary Shares being issued.
Therefore as a result of the IPO, all outstanding loan notes were
converted and the warrant exercised, thereby extinguishing all
liabilities to the holders. The convertible loan note liability and
derivative liabilities were both derecognised from the Group’s
balance sheet. Further details on accounting for the Group’s
pre-IPO funding are included in note 22 of the Group
Financial Statements.
38
was £3.5 million (2013: £0.8 million), which is representative
of the PSP being in place for a full year. Further details on
accounting for the Group’s share based payment arrangements
are included in note 19 of the Group Financial Statements.
Due to the nature of the Group’s business, it has accumulated
significant tax attributes since incorporation. At 31 December
2014, the Group has pre trading revenue expenses of £23.7
million (2013: £23.1 million) and has incurred £155.8 million
(2013: £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 £179.5 million
(2013: £142.5 million) may attract Ring Fenced Expenditure
Supplement on the commencement of trade, which would
result in a further uplift of £59.3 million (2013: £42.6 million)
of tax relief being available at that time.
Cash flow
Net cash outflow from operating activities of £4.6 million
remained at a similar level to 2013 of £4.4 million, as G&A cash
costs for running the business remained stable. Expenditure
on the intangible exploration and evaluation assets in the year
was £36.6 million (2013: £7.0 million) primarily on the planning,
management and operation of the Lancaster operation.
The net cash provided by financing activities was £16.8
million, which is primarily the cash received from the placing
of Ordinary Shares at the time of IPO. In 2013, the cash from
financing activities of £30.2 million consisted mostly of the pre-
IPO funding from the convertible loan notes and shares issued
with a warrant. Both the convertible loan notes and the warrant
were extinguished at IPO with the issues of further Ordinary
Shares, with no effect on the Group’s cash flow for 2014.
Income statement
Balance sheet
Financial risk
The Group’s loss after tax for 2014 is £9.0 million (2013: £21.4
million). The significant decrease in the loss recorded for the
Group is due to the reduction in the interest costs associated
with the convertible loan notes and no further losses on the
Group’s derivative financial instruments in 2014. The convertible
loan notes were converted on IPO of the Company in early
February 2014 and therefore only incurred £0.5 million of
interest (2013: £5.6 million). The Group’s derivative financial
instruments were associated with the convertible loan notes
and the warrant issued in the pre-IPO funding round in April
2013. During 2013, changes in the assumptions underlying
their fair value caused a loss in the income statement of £8.8
million. However in 2014 no changes were recorded to the fair
value of these derivatives until they were extinguished on IPO at
which point the amounts recognised on the balance sheet were
removed and taken directly to equity. In both 2014 and 2013,
the losses associated with the Group’s financing arrangements
were non cash losses and have not affected the Group’s funding
position. Further details on accounting for the Group’s pre-IPO
funding are included in note 22 of the Group Financial Statements.
The operating expenses for the year were £8.6 million (2013:
£5.3 million). The increase is primarily driven by the rise in the
share based payment expense for 2014. The current version of
the Group’s Performance Share Plan (PSP) was introduced in
November 2013 and as such the associated accounting charge
was minimal for 2013. In 2014, the share based payment expense
The majority of the £37.2 million of additions to the Group’s
intangible exploration and evaluation assets are costs
associated with the Lancaster drilling and testing campaign,
which includes both the AFE costs and capitalised G&A costs.
The additions in 2014 are a significant increase from the
£6.4 million in 2013, when the Group focused its efforts on
fundraising, the IPO and planning for the Lancaster operation.
The Group ended the period with £13.5 million of cash and
cash equivalents (excluding amounts held in escrow), available
to meet its outstanding trade and other payables of £1.5
million at 31 December 2014 and prospective general and
administration (G&A) costs for at least the next twelve months
based on the Group’s cash flow forecasts. The liabilities
associated with the Group’s convertible loan notes and
derivative liabilities (together £41.8 million at 31 December
2013) were extinguished at IPO. The Group is now fully funded
for all remaining liabilities associated with the 2014 Lancaster
appraisal campaign. However further funding will be required for
future exploration and appraisal activities on the Group’s licences.
The main movement in the Group’s equity relates to the IPO of
the Company. As noted above, the Group raised further funds
through the issue of new Ordinary Shares at the time of IPO.
The conversion of the convertible loan notes and the exercise
of the warrant were settled in further issues of Ordinary Shares.
The associated liabilities (including the derivative liability) were
derecognised via the Group’s equity reserve.
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. The Group considers that volatility in
foreign exchange is a regular part of its business environment,
so the Group does not systematically hedge through financial
instruments to mitigate this risk. The Group will however hold
foreign currencies, primarily US Dollars, where it feels such an
action helps mitigate foreign exchange risk.
To mitigate the risk of default from financial institutions, deposits
are predominately held with institutions that have, as a minimum,
an A rating. For further detail on the financial risks see note 22
of the Group Financial Statements.
Nicholas Mardon Taylor
Chief Financial Officer
30 April 2015
39
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
Financial Statements
40
41
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
Directors’ Report
Directors
The following Directors held office during the year ended 31 December 2014 and up to the date of this report.
Directors’ Responsibility Statement
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations.
Dr Robert Trice
Nicholas Mardon Taylor
Neil Platt
Keith Kirby (resigned 22 June 2014)
John Hogan
John van der Welle
Dr David Jenkins
Results for the year and dividends
The loss of the Group for the year was £9,006,000 (2013: loss of £21,353,000). The Directors do not recommend the payment of a dividend.
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 Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company
and of the profit or loss of the Company for that period. In preparing these Financial Statements, International Accounting Standard 1 requires
that Directors:
• properly select and apply accounting policies;
• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
• provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the
impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and
Financial risk management and objectives
The Group’s financial risk management and objective are detailed in note 22 of the Group Financial Statements.
• make an assessment of the Company’s ability to continue as a going concern.
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 Chief Financial Officer’s review and set out
in the Group Financial Statements. Further details of the Group’s commitments are set out in notes 23 and 24 of the Group Financial
Statements. In addition, note 22 to the Group 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 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 in order to continue in operation and the Group’s work programme is
dependent on this future fundraising activity. The Group ended the year with £13.5 million of cash and cash equivalents (excluding amounts held
in escrow) available to meet its outstanding trade and other payables of £1.5 million at 31 December 2014, and prospective general and administration
(G&A) costs for at least the next twelve months based on the Group’s cash flow forecasts. The Directors have considered sensitivities to the
Group’s forecasts, including the effect of identified uncertain expenditures which could crystallise in the next twelve months, and are satisfied
that these could be accommodated through the curtailment of discretionary G&A if necessary. The Group has no external borrowings.
Therefore, 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. 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.
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.
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 Hurricane’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.
This Directors Report and Responsibility statement was approved by the Board of Directors and is signed on its behalf by:
Dr Robert Trice
Chief Executive Officer
30 April 2015
Nicholas Mardon Taylor
Chief Financial Officer
30 April 2015
42
43
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
Independent auditor’s report to the
members of Hurricane Energy plc
We have audited the Financial Statements of Hurricane Energy plc for the year ended 31 December 2014 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. The financial reporting framework that has been applied in their preparation is
applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company
Financial Statements, as applied in accordance with the provisions of the Companies Act 2006.
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the
Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement, the Directors are responsible for the preparation of the Financial
Statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Financial
Statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply
with the Auditing Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the Financial Statements
An audit involves obtaining evidence about the amounts and disclosures in the Financial Statements sufficient to give reasonable assurance that
the Financial Statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the
accounting policies are appropriate to the Group’s and the Parent Company’s circumstances and have been consistently applied and adequately
disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the Financial Statements.
In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited
Financial Statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies
we consider the implications for our report.
Opinion on Financial Statements
In our opinion:
•
the Financial Statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2014
and of the Group’s loss for the year 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 Strategic Report and 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 ACA (Senior Statutory Auditor) for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London, UK
30 April 2015
44
45
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
Group Income Statement
for the Year Ended 31 December 2014
Group Balance Sheet
as at 31 December 2014
Operating expenses
Intangible exploration and evaluation costs written off
Operating loss
Investment revenue
Foreign exchange gains/(losses)
Finance costs
Fair value loss on derivative financial instruments
Loss before tax
Tax
Loss for the year
Notes
Year Ended
31 Dec 2014
£’000
Year Ended
31 Dec 2013
£’000
12
6
5
7
22.9
9
(8,584)
-
(8,584)
67
125
(633)
-
(9,025)
19
(9,006)
(5,333)
(534)
(5,867)
125
(1,101)
(5,695)
(8,792)
(21,330)
(23)
(21,353)
Loss per share, basic and diluted
10
(1.45) pence (4.45) 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.
Notes
31 Dec 2014
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
Equity shares to be issued
Accumulated deficit
Total equity
11
12
13
14
15
16
22.7
22.9
17
18
20
26
£’000
215
177,308
130
177,653
1,553
15,856
17,409
31 Dec 2013
£’000
330
137,681
130
138,141
1,098
40,167
41,265
195,062
179,406
(1,481)
(6)
-
-
(1,487)
(7,281)
(8,768)
(847)
(25)
(26,145)
(15,692)
(42,709)
(4,764)
(47,473)
186,294
131,933
632
210,697
5,420
(194)
696
(30,957)
483
167,328
1,901
(136)
-
(37,643)
186,294
131,933
46
Registered company number 05245689
47
The Financial Statements of Hurricane Energy plc were approved by the Board of Directors and authorised for issue on 30 April 2015.
They were signed on its behalf by:
Dr Robert Trice
Chief Executive Officer
30 April 2015
Nicholas Mardon Taylor
Chief Financial Officer
30 April 2015
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
Group Statement of Changes in Equity
for the Year Ended 31 December 2014
Group Cash Flow Statement
for the Year Ended 31 December 2014
Share
capital
£’000
Share
premium
£’000
Share
option reserve
£’000
Own shares held
by SIP Trust
£’000
Equity Shares
to be issued
£’000
Accumulated
deficit
£’000
Total
£’000
At 1 January 2013
475
163,910
1,343
Shares allotted
Transaction costs
Share option charge
Share options exercised
Own shares held by SIP Trust
Loss for the year
8
-
-
-
-
-
3,514
(165)
-
-
69
-
-
-
752
(194)
-
-
(67)
-
-
-
-
(69)
-
At 31 December 2013
483
167,328
1,901
(136)
Shares allotted
Transaction costs
Conversion of convertible loan
Exercise of warrant
Share option charge
Own shares held by SIP Trust
Equity shares to be issued
Loss for the year
42
-
99
8
-
-
-
-
18,077
(1,272)
26,564
-
-
-
-
-
-
-
-
-
3,519
-
-
-
-
-
-
-
-
(58)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
696
-
(16,484)
149,177
-
-
-
194
-
(21,353)
3,522
(165)
752
-
-
(21,353)
(37,643)
131,933
-
-
14,278
1,414
-
-
-
(9,006)
18,119
(1,272)
40,941
1,422
3,519
(58)
696
(9,006)
At 31 December 2014
632
210,697
5,420
(194)
696
(30,957)
186,294
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.
48
Net cash outflow from operating activities
21
(4,677)
(4,424)
Notes
Year Ended
31 Dec 2014
£’000
Year Ended
31 Dec 2013
£’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
67
(24)
(36,585)
(36,542)
(3)
16,786
-
-
125
(25)
(7,044)
(6,944)
(3)
4,065
26,713
(529)
Net cash provided by financing activities
16,783
30,246
Net (decrease) / increase in cash and cash equivalents
(24,436)
18,878
Cash and cash equivalents at the beginning of the year
Net (decrease) / increase in cash and cash equivalents
Effects of foreign exchange rate changes
40,167
(24,436)
125
Cash and cash equivalents at the end of the year
15
15,856
22,390
18,878
(1,101)
40,167
49
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
Notes to the Group Financial Statements
for the Year Ended 31 December 2014
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.
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 IFRS 10, IFRS 12 and IAS 27: Investment entitles
Amendments to IAS 36: Recoverable Amount Disclosures for Non-Financial Assets
Amendments to IAS 39: Novation of Derivatives and Continuation of Hedge Accounting
Amendments to IAS 32: Offsetting Financial Assets and Financial Liabilities
IFRIC 21 Levies
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
IFRS 14 Regulatory Deferral Accounts
IFRS 15 Revenue for Contracts with Customers
Annual improvements to IFRS: 2010-2012 cycle, 2011-2013 cycle and 2012-2014 cycle
Amendments to IFRS 10, IFRS 12 and IAS 28: Investment Entities: Applying the Consolidation Exemption
Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between and Investor and its Associate or Joint Venture
Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations
Amendments to IAS 1: Disclosure initiative
Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation
Amendments to IAS 16 and IAS 41: Agriculture: Bearer Plants
Amendments to IAS 19: Defined Benefit Plans: Employee Contributions
Amendments to IAS 27: Equity Method in Separate Financial Statements
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 or Company.
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.
50
51
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
Notes to the Group Financial Statements
for the Year Ended 31 December 2014
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. Cash held in escrow is for future expected costs associated with the Group’s decommissioning obligations or is held
only to be dispersed to the benefit of independent third parties for work undertaken as part of the Group’s drilling operations.
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.
52
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 Financial Statements.
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 12 discloses the carrying values and any impairments of the Group’s intangible exploration and evaluation assets.
53
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
Notes to the Group Financial Statements
for the Year Ended 31 December 2014
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 17 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 2014 Annual Report and Group
Financial Statements. Full details of the assessment are provided in the going concern section of the Directors’ 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 22.9 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 19 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.
54
5. Revenue
The Group has no revenue in the current or comparative years other than interest income.
6. Operating loss
Operating loss is stated after charging:
Staff cost (note 8)
Operating lease rentals – land and buildings
Depreciation of property, plant and equipment (note 11)
Intangible exploration and evaluation costs written off (note 12)
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
Other services pursuant to legislation – interim review
Taxation services
Corporate finance
Total
Year Ended
31 Dec 2014
£’000
6,944
135
95
-
259
40
5
45
10
5
199
214
259
Year Ended
31 Dec 2013
£’000
3,319
191
182
534
305
45
5
50
-
5
250
255
305
Fees as reported for corporate finance services in 2014 and 2013 are significantly higher than would be expected under the normal course of business as
they relate to the Group’s admission to AIM. Since the Group’s successful admission to AIM, the level of non audit fees relating to corporate finance have
reduced significantly. The Group made no charitable or political donation during 2014 (2013: £Nil).
7. Finance costs
Bank charges
Interest on convertible loan notes (note 22.7)
Unwinding of discount on decommissioning provisions (note 17)
Year Ended Year Ended
31 Dec 2013
£’000
31 Dec 2014
£’000
3
517
113
633
3
5,625
67
5,695
55
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
Notes to the Group Financial Statements
for the Year Ended 31 December 2014
8. Staff costs
9. Tax on loss on ordinary activities
The average number of persons, including Directors, employed by the Group during the year was:
Year Ended
31 Dec 2014
Number
Year Ended
31 Dec 2013
Number
UK corporation tax
Current tax – current year
Current tax – prior year
Deferred tax
Year Ended Year Ended
31 Dec 2013
£’000
31 Dec 2014
£’000
-
(19)
-
(19)
25
(2)
-
23
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
17
£’000
4,005
434
3,531
175
8,145
(1,201)
6,944
18
£’000
2,759
410
752
181
4,102
(783)
3,319
The Group does not currently operate a pension scheme but undertakes to make contributions to employees existing pension schemes.
The employment cost for the Directors employed by the Group during 2014 was £4,827,000 (2013: £2,665,000). These costs include emoluments of
£2,730,000 (2013: £1,879,000), which include £482,500 consisting of payment in lieu of notice period, bonus entitlement and ex-gratia payments for one
Director who resigned during 2014 (2013: £nil); social security costs of £282,000 (2013: £237,000); pension contributions of £108,000 (2013: £117,000) and
a share based payment expense of £1,707,000 (2013: £478,000).
Loss on ordinary activities before tax
(9,025)
(21,330)
Loss on ordinary activities multiplied by standard rate of corporation tax
in the UK applicable to oil and gas companies of 62% (2013: 62%)
Effects of:
Adjustment to prior years
Expenses not deductible for tax purposes
Unrecognised pre-trade revenue expenditure carried forward
Losses / (profits) subject to tax at lower rate
Total tax charge for year
(5,596)
(13,225)
(19)
3,252
2,339
(2)
847
12,456
5 (53)
(19)
23
9.1 Factors which may affect future tax charges
Future profits may be subject to ring fence taxation at a combined rate of 50% on taxable oil extraction profits (ring fence corporation tax at 30%
and a supplementary charge at 20%, with no deduction for financing costs). A 2% reduction of the supplementary charge rate was announced in the
Autumn Statement and a further 10% reduction was announced in Budget 2015. These rate reductions were substantively enacted on 26 March 2015
and apply to accounting periods beginning on or after 1 January 2015.
The highest paid Director received emoluments of £750,000 (2013: £495,000) and pension contributions of £38,000 (2013: £38,000). Included in
emoluments are consulting fees of £27,500 (2013: £22,500) paid to Chartwood Resources Ltd, a company controlled by Dr David Jenkins and consulting
fees of £27,500 (2013: £22,500) paid to Northlands Advisory Services Limited, a company controlled by John van der Welle.
The Group has pre-trading revenue expenses of £23.7 million (2013: £23.1 million) and pre-trading capital expenditure £155.8 million
(2013: £119.4 million) which will be available for tax relief on commencement of a petroliferous trade for UK tax purposes.
At 31 December 2014 the Directors held 15,226,332 (2013: 19,759,665) PSP awards and shares options. No PSP awards or share options were granted
or exercised during 2014 (2013: 29,200,000 granted, 2,000,000 exercised). 4,533,333 PSP awards lapsed in 2014 (2013: 13,171,878 PSP awards and share
options lapsed). For further detail on the Groups PSP awards and share options see note 19.
Further information on the remuneration of the Directors is included in the Remuneration Report.
56
The total pre-trading expenditure of £179.5 million (2013: £142.5 million) (referred to above) may attract Ring Fence Expenditure Supplement on the
commencement of trade, which would result in a further uplift of £59.3 million (2013: £42.6 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 £14.7 million (2013: £14.3 million) resulting from the
effect of carried forward pre-trading revenue expenses. A deferred tax asset would only be recognised where there is reasonable certainty that
the Group will generate suitable taxable profits in the foreseeable future. The Group’s practice is generally not to recognise potential deferred tax
assets during exploration and evaluation stage activities due to the inherent uncertainty of success at this stage. The potential deferred tax asset is
calculated at a rate of 62% (2013: 62%).
10. Loss per share
The basic and diluted loss per share has been calculated using the loss for the year ended 31 December 2014 of £9,006,000 (2013: £21,353,000).
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 2014 this amounts to 621,420,531 Ordinary Shares (2013: 480,246,410). The loss per share for the year ended 31 December 2014
was 1.45 pence (2013: 4.45 pence).
As the Group has made losses for both periods, convertible loan notes, warrants and share options detailed in notes 19 and 22 were anti dilutive
and have not been included in the fully diluted loss per share calculation.
57
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
Notes to the Group Financial Statements
for the Year Ended 31 December 2014
11. Property, plant and equipment
Cost
At 1 January
Adjustment
Additions
At 31 December
Depreciation
At 1 January
Adjustment
Charge for the year
At 31 December
Carrying amount at 31 December
Year Ended
31 Dec 2014
£’000
Year Ended
31 Dec 2013
£’000
766
-
24
790
(436)
-
(139)
(575)
215
-
741
25
766
-
(254)
(182)
(436)
330
14. Trade and other receivables
Other receivables
Prepayments and accrued income
15. Cash and cash equivalents
Unrestricted funds
Escrow funds
31 Dec 2014
£’000
31 Dec 2013
£’000
222
1,331
1,553
1,073
25
1,098
31 Dec 2014
£’000
31 Dec 2013
£’000
13,470
2,386
15,856
37,293
2,874
40,167
Property, plant and equipment comprises the Group’s investment in leasehold improvements, fixtures, office equipment and computer hardware.
In 2014 £44,000 of depreciation has been capitalised into the Group’s intangible exploration and evaluation expenditure in accordance with the
Group’s overhead allocation policy. In 2013 an immaterial adjustment was made to capture the cumulative costs and depreciation of the Group’s
property, plant and equipment previously expensed. In previous periods these costs had been expensed on acquisition due to their immaterial nature.
At 31 December 2014 £2.3 million (2013: £nil) is held in escrow for future expected costs associated with Group’s decommissioning obligations a
further £0.1 million (2013: £2.9 million) is held only to be dispersed to the benefit of an independent third party for work undertaken as part of
the Lancaster drilling operations.
12. Intangible exploration and evaluation assets
At 1 January
Additions
Effect of changes to decommissioning estimates (note 17)
Amounts written off
At 31 December
Year Ended
31 Dec 2014
£’000
137,681
37,223
2,404
-
177,308
Year Ended
31 Dec 2013
£’000
131,077
6,441
697
(534)
137,681
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.
The amounts written off in 2013 relate to the exploration expenditure on licence P1884 which was relinquished in October 2013.
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.
The Directors have concluded that no impairment is necessary at this time.
13. Other non-current receivables
The other non-current receivables of £130,000 (2013: £130,000) represents the deposit for the office lease. Further details are given in note 24.
16. Trade and other payables
Trade payables
Other payables
Accruals
17. Decommissioning provisions
At 1 January
Unwinding
Additions
At 31 December
31 Dec 2014
£’000
31 Dec 2013
£’000
405
80
996
1,481
Year Ended
31 Dec 2014
£’000
4,764
113
2,404
7,281
197
125
525
847
Year Ended
31 Dec 2013
£’000
4,000
67
697
4,764
The provision for decommissioning relates to the costs required to decommission the Lancaster and Whirlwind exploration assets. The additions
in the year represent the expected decommissioning cost for the Lancaster 205/21a-6 horizontal well which was completed in June 2014.
Additions in 2013 represent adjustments to reflect an updated estimate of the present value of decommissioning costs for the Group’s previously
drilled wells. 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% (2013: 1.9%).
58
59
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
Notes to the Group Financial Statements
for the Year Ended 31 December 2014
18. Called up share capital
Allotted, called up and fully paid
2014: 632,267,788 (2013: 483,288,049) Ordinary Shares of £0.001 each
The Company does not have an authorised share capital.
31 Dec 2014
£’000
632
31 Dec 2013
£’000
483
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 Ordinary 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.
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.
On 25 February 2014 282,729 new Ordinary Shares issued were issued to the Hurricane Energy plc Share Incentive Plan (SIP) at a subscription price
of £0.31 per share.
During 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.
19. Share options
Outstanding at 1 January
Granted
Forfeited
Exercised
Outstanding at 31 December
Exercisable at 31 December
Year Ended
31 Dec 2014
Weighted average
exercise price
Number of
options
38,191,165
700,000
(4,533,333)
-
34,357,832
1,074,500
£
0.02
-
-
-
0.02
0.61
Number of
options
11,283,022
48,450,000
(16,241,857)
(5,300,000)
38,191,165
600,000
Year Ended
31 Dec 2013
Weighted average
exercise price
£
0.50
-
0.25
0.18
0.02
0.30
The Group recognised total expenses of £3,531,000 in respect of share based payments in 2014 (2013: £752,000). The options outstanding at
31 December 2014 had a weighted average remaining contractual life of 4.1 years (2013: 5.1 years).
19.1 PSP awards
In April 2013, all awards under the Group’s Long Term Incentive Plan (LTIP) were surrendered together with all unvested share options (other
than those that vested 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.
In September 2014 700,000 PSP awards were granted to certain employees under the same performance conditions as the November 2013 awards.
The fair vale of these awards at grant was £0.43 per award.
19.2 Share Options
There are two trances of share options that remain outstanding at 31 December 2014. Both tranches vested either on or before IPO. All other share
options and LTIP awards were replaced by the PSP. All outstanding options are exercisable at 31 December 2014.
The first tranche of 600,000 share options were granted in April 2009 with an exercise price of £0.30 and lapse in June 2019. The second trance
of 474,500 share options were granted in January 2011 at an exercise price of £1.00 and lapse in December 2020.
20. Own shares held by SIP Trust
At 1 January
Acquired in the period
Shares disposed of to employees
At 31 December
Year Ended
31 Dec 2014
£’000
Year Ended
31 Dec 2013
£’000
136
89
(31)
194
67
97
(28)
136
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.
At 31 December 2014 there were 389,881 Ordinary Shares held in the SIP Trust, all of which were allocated to participants. At 31 December 2013
93,050 Ordinary Shares in the SIP Trust were allocated to participants and the balance of 43,848 Ordinary Shares were available to meet
future awards.
60
61
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
Notes to the Group Financial Statements
for the Year Ended 31 December 2014
21. Reconciliation of operating loss to net cash outflow from operating activities
Operating loss
Adjustments for:
Depreciation of property, plant and equipment (note 11)
Non cash property, plant and equipment movements
Intangible exploration and evaluation costs written off (note 12)
Equity shares to be issued (note 26)
Share based payment charge (note 19)
Year Ended Year Ended
31 Dec 2014
31 Dec 2013
£’000
£’000
(8,584)
(5,867)
95
-
-
486
3,531
182
(360)
534
-
752
Operating cash outflow before working capital movements
(4,472)
(4,759)
(Increase) / decrease in receivables
Increase in payables
Cash used in operating activities
Corporation tax paid
Net cash outflow from operating activities
(455)
250
(4,677)
-
(4,677)
55
299
(4,405)
(19)
(4,424)
22. Financial instruments
22.1 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 were
settled in 2014. The Group’s significant financial instruments are cash and cash equivalents (note 15), trade payables (note 16), convertible loan
notes and its associated derivative (note 22.7) and the warrant (note 22.8). 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.
22.2 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 2014 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
2014 equity attributable to equity holders of the parent is £186.1 million (2013: £131.9 million), whilst cash and cash equivalents amount to
£15.9 million, (2013: £40.2 million).
22.3 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 £0.7 million (2013: £2.1 million) on the loss after tax of
the Group for the year ended 31 December 2014. A 10% weakening in the strength of the US Dollar against Sterling, would cause an increase
of £0.9 million (2013: £1.7 million) on the loss after tax of the Group for the year ended 31 December 2014.
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.
22.4 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.
22.5 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.
Consideration of the Group’s current and forecast financing position are provided in more detail in the going concern section of the
Directors’ Report.
22.6 Interest rate risk
The Group is exposed to interest rate movements through its cash and cash equivalents which earn interest at variable interest rates.
If interest rates had been 1% higher, the Group’s loss after tax for the year ended 31 December 2014 would have decreased by £0.2 million
(2013: £0.4 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.
62
63
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
Notes to the Group Financial Statements
for the Year Ended 31 December 2014
22.7 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 accrued
interest at a rate of 5% per annum for the first seven months and at a rate of 15% thereafter.
The admission of the Company’s shares to trading on AIM (Admission) 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 conversion feature of the convertible loan notes was 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 was then recognised at
amortised cost, using the effective interest rate method until extinguished upon conversion or at the instrument’s maturity date.
On 4 February 2014, Admission occurred. On this date the loan notes converted which extinguished the loan note liability and associated
derivative liability with the balance being recognised within Retained earnings.
Net proceeds on issue of convertible loan notes
Liability component at 1 January / date of issue
Interest charged
Conversion of loan notes
Year Ended
31 Dec 2014
£’000
-
26,145
517
(26,662)
Year Ended
31 Dec 2013
£’000
26,713
20,520
5,625
-
Liability at 31 December
-
26,145
Derivative liability at date of issue
Change in fair value recognised in the income statement
Derecognition on conversion of loan notes
Derivative liability at 31 December
14,278
-
(14,278)
-
6,193
8,085
-
14,278
The interest expense was 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%.
22.8 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. 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.
On Admission the warrant was exercised. 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.
The warrant has been recognised as a derivative financial liability and measured at fair value through profit and loss. The value attributed to the
equity shares issued in April 2013 was 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.
On 4 February 2014, Admission occurred. On this date the warrant was exercised and the associated derivative liability was extinguished.
Net proceeds on issue of shares and warrant
Equity component
Derivative liability at 1 January / date of issue
Change in fair value recognised in the income statement
Derecognition on exercise of warrant
Derivative liability at 31 December
Year Ended
31 Dec 2014
£’000
Year Ended
31 Dec 2013
£’000
-
-
1,414
-
(1,414)
-
3,135
2,428
707
707
-
1,414
22.9 Valuation of derivative financial instruments
The only derivative financial instruments held by the Group were associated with the issue of the convertible loan notes and the warrant in April
2013 described previously and their aggregate fair values are summarised in the table below:
Derivative liability at 1 January / date of issue
Change in fair value recognised in the income statement
Derecognition on conversion of loan notes / exercise of warrant
Derivative liability at 31 December
Year Ended Year Ended
31 Dec 2014
31 Dec 2013
£’000
£’000
15,692
-
(15,692)
-
6,900
8,792
-
15,692
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, 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 occurring. The change in the fair value in 2013 relates
to the changes in the assumptions related to the date and likelihood of Admission occurring between inception and derecognition. 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 were 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.
64
65
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
Notes to the Group Financial Statements
for the Year Ended 31 December 2014
Company Balance Sheet
as at 31 December 2014
23. Capital commitments
As at 31 December 2014 and 2013 the Group had no capital commitments.
Notes
31 Dec 2014
£’000
31 Dec 2013
£’000
24. Financial commitments
The Group had outstanding commitments for future minimum lease payments under non cancellable operating leases, which fall due as follows:
Within one year
In the second to fifth years inclusive
After five years
31 Dec 2014
£’000
31 Dec 2013
£’000
136
520
163
819
160
520
293
973
Operating lease payments represent rentals payable by the Group for certain of its office properties.
25. Related parties
During 2014, 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.
26. Equity shares to be issued
The balance of £696,000 at 31 December 2014 in equity shares to be issued reserve, represents the value of deferred Ordinary Shares that have
been assigned for future awards to employees in respect of the 2014 bonus scheme. The Company was in a close period at the time when the
awards were intended to be made. As such the Company was unable to grant the deferred shares to employees. Once the Company is out of
the close period, the Board will review the recommendations of the remuneration committee in relation to the deferred share element of the
2014 bonus.
27. Subsequent events
27.1 Share incentive plan
On 23 January 2015, MM&K Plan Trustees Limited, trustee of the HMRC approved Hurricane Energy plc Share Incentive Plan (SIP), awarded 844,745
Ordinary Shares in the Company to participants in the SIP at a price of £0.14 per share. The SIP award has been satisfied by the issue of 844,745 new
Ordinary Shares issued to the SIP at a subscription price of £0.14 per share.
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
Equity shares to be isued
Accumulated deficit
Total equity
1
2
3
4
5
6
7
9
9
8
9
9
9
215
80,875
15,090
77,832
130
330
61,062
15,090
59,213
130
174,142
135,825
1,553
15,856
17,409
191,551
(1,481)
(6)
-
-
(1,487)
(3,641)
1,098
40,167
41,265
177,090
(839)
(25)
(26,145)
(15,692)
(42,701)
(2,382)
(5,128)
(45,083)
186,423
132,007
632
210,697
5,420
(194)
696
(30,828)
483
167,328
1,901
(136)
-
(37,569)
186,423
132,007
66
Registered company number 05245689
67
The Financial Statements of Hurricane Energy plc were approved by the Board of Directors and authorised for issue on 30 April 2015.
They were signed on its behalf by:
Dr Robert Trice
Chief Executive Officer
30 April 2015
Nicholas Mardon Taylor
Chief Financial Officer
30 April 2015
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
Company Statement of Changes in Equity
for the Year Ended 31 December 2014
Company Cash Flow Statement
for the Year Ended 31 December 2014
Share
premium
£’000
Share
option
reserve
£’000
Own shares
held by
SIP Trust
£’000
Equity shares
to be issued
Accumulated
deficit
Total
£’000
£’000
£’000
At 1 January 2013
Shares allotted
Transaction costs
Share option charge
Share options exercised
Own shares held by SIP Trust
Loss for the year
Share
capital
£’000
475
8
-
-
-
-
-
163,910
1,343
3,514
(165)
-
-
69
-
-
-
752
(194)
-
-
(67)
-
-
-
-
(69)
-
At 31 December 2013
483
167,328
1,901
(136)
Shares allotted
Transaction costs
Conversion of convertible loan
Exercise of warrant
Share option charge
Own shares held by SIP Trust
Equity shares to be issued
Loss for the year
42
-
99
8
-
-
-
-
18,077
(1,272)
26,564
-
-
-
-
-
-
-
-
-
3,519
-
-
-
-
-
-
-
-
(58)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
696
-
-
-
-
194
-
(21,315)
3,522
(165)
752
-
-
(21,315)
(37,569)
132,007
-
-
14,278
1,414
-
-
-
(8,951)
18,119
(1,272)
40,941
1,422
3,519
(58)
696
(8,951)
(16,448)
149,213
Net cash outflow from operating activities
Investing activities
Interest received
Expenditure on property, plant and equipment
Expenditure on intangible exploration and evaluation assets
Working capital provided to subsidiary companies
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
Net cash provided by financing activities
At 31 December 2014
632
210,697
5,420
(194)
696
(30,828)
186,423
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.
Cash and cash equivalents at the beginning of the year
Net (decrease) / increase in cash and cash equivalents
Effects of foreign exchange rates
40,167
(24,436)
125
The loss of the parent company for 2014 was £8,951,000 (2013: loss of £21,315,000). The Company has taken advantage of the exemption
provided by Section 408 of the Companies Act 2006 not to publish its individual Income Statement and related notes.
Cash and cash equivalents at the end of the year
6
15,856
Net (decrease) / increase in cash and cash equivalents
(24,436)
1 Working capital provided to subsidiary companies has been reclassified from financing activities to investing activities in the current year.
68
69
Notes
10
Year Ended
31 Dec 2014
£’000
(4,669)
67
(24)
(18,079)
(18,514)
(36,550)
(3)
16,786
-
-
16,783
Year Ended
31 Dec 2013
Restated1
£’000
(4,419)
125
(25)
(3,847)
(3,202)
(6,949)
(3)
4,065
26,713
(529)
30,246
18,878
22,390
18,878
(1,101)
40,167
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
Notes to the Company Financial Statements
for the Year Ended 31 December 2014
1. Property, plant and equipment
Cost
At 1 January
Adjustment
Additions
At 31 December
Depreciation
At 1 January
Adjustment
Charge for the year
At 31 December
Carrying amount at 31 December
Property, plant and equipment comprises the Company’s investment in leasehold improvements, fixtures, office equipment and computer hardware.
In 2014 £22,000 of depreciation has been capitalised into the Company’s intangible exploration and evaluation expenditure in accordance with
the Company’s overhead allocation policy. In 2013 an immaterial adjustment was made to capture the cumulative costs and depreciation of the
Company’s property, plant and equipment previously expensed. In previous periods these costs had been expensed on acquisition due
to their immaterial nature.
Year Ended
31 Dec 2014
£’000
Year Ended
31 Dec 2013
£’000
2. Intangible exploration and evaluation assets
At 1 January
Additions
Effect of changes to decommissioning estimates (note 8)
Amounts written off
At 31 December
766
-
24
790
(436)
-
(139)
(575)
215
-
741
25
766
-
(254)
(182)
(436)
330
Year Ended
31 Dec 2014
£’000
61,062
18,611
1,202
-
80,875
Year Ended
31 Dec 2013
£’000
57,938
3,309
349
(534)
61,062
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 2013 relate to the exploration expenditure on licence P1884 which was relinquished in October 2013.
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. The Directors have concluded that no impairment is necessary at this time.
3. Investments
Investment in subsidiaries
Loan to subsidiary
31 Dec 2014
£’000
9,751
5,339
15,090
31 Dec 2013
£’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 (2013: £130,000) represent the deposit for the office lease. Further details are given in
note 24 of the Group Financial Statements.
70
71
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
Notes to the Company Financial Statements
for the Year Ended 31 December 2014
5. Trade and other receivables
Other receivables
Prepayments and accrued income
6. Cash and cash equivalents
Unrestricted funds
Escrow funds
31 Dec 2014
£’000
31 Dec 2013
£’000
222
1,331
1,553
1,073
25
1,098
31 Dec 2014
£’000
31 Dec 2013
£’000
13,470
2,386
15,856
37,293
2,874
40,167
At 31 December 2014 £2.3 million (2013: £nil) is held in escrow for future expected costs associated with Company’s decommissioning obligations
a further £0.1 million (2013: £2.9 million) is held only to be dispersed to the benefit of an independent third party for work undertaken as part of
the Lancaster drilling operations.
9. Other balance sheet disclosures
Details of the Company’s share capital, share options, own shares held by the SIP Trust, equity shares to be issued and financial instruments are
provided in notes 18, 19, 20, 22 and 26 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)
Equity shares to be issued
Share based payment charge
Year Ended
31 Dec 2014
£’000
Year Ended
31 Dec 2013
£’000
(8,584)
(5,863)
95
-
-
486
3,531
182
(360)
534
-
752
Operating cash out flow before working capital movements
(4,472)
(4,755)
7. Trade and other payables
Trade payables
Other payables
Accruals
31 Dec 2014
£’000
31 Dec 2013
£’000
(Increase) / decrease in receivables
Increase in payables
405
80
996
1,481
197
125
517
839
Cash used in operating activities
Corporate tax paid
Net cash outflow from operating activities
(455)
258
(4,669)
-
(4,669)
55
300
(4,400)
(19)
(4,419)
8. Decommissioning provisions
31 Dec 2014
£’000
31 Dec 2013
£’000
11 Other disclosures
At 1 January
Unwinding
Additions
At 31 December
2,382
57
1,202
3,641
2,000
33
349
2,382
The provision for decommissioning relates to the costs required to decommission the Lancaster and Whirlwind exploration assets. The additions
in the year represent the expected decommissioning cost for the Lancaster 205/21a-6 horizontal well which was completed in June 2014. Additions
in 2013 represent adjustments to reflect an updated estimate of the present value of decommissioning costs for the Company’s previously drilled
wells. 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% (2013: 1.9%).
Certain other disclosures in notes 23, 24, 25 and 27 to the Group Financial Statements also apply to the Company in respect of its share of
the Group’s operations.
72
73
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
74
75
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2014
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
Chartered Accountants and Statutory Auditors
2 New Street Square
London, United Kingdom
EC4A 3BZ
T: +44 20 7963 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
Registered address
Hurricane Energy plc
The Wharf
Abbey Mill Business Park
Lower Eashing
Surrey
GU7 4QN
T: +44 1483 862 820
F: +44 1483 862 859
E: communications@hurricaneenergy.com
76
77
The Wharf
Abbey Mill Business Park
Lower Eashing
Godalming
Surrey GU7 2QN
hurricaneenergy.com
HUR-COR-FIN-ANN-0004-0