Annual Report and Group Financial Statements 2015
1
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2015
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2015
Contents
2 Hurricane Highlights
4 Introduction
5 Chairman’s Statement
8 Group Strategic Report
22 The Board
24 Corporate Governance
28 Remuneration Report
32 Environmental Policy
34 Health and Safety Policy
36 CFO Review
38 Financial Statements
1
Hurricane Highlights
Planning to drill
Pilot and Horizontal
Wells on Lancaster
in 2016
Pilot Well will refine the
Lancaster Contingent
Resource range (currently
62 – 456 MMboe)
Raised £52.1 million
from Kerogen
Capital and existing
Shareholders
Crystal Amber and
Marlborough Fund
Nominees
Rob Arnott
appointed as
Chairman and Alistair
Stobie as CFO
Ended 2015 with
£9.9 million in cash,
subsequently supplemented
by net proceeds of the
fundraising of £49.3 million
and a £0.7 million R&D
expenditure tax relief claim
Horizontal Well will provide
a second future production
well and provide new
information to help optimally
plan the Lancaster field
development
Farm-out process is
ongoing and Hurricane
remains in active
commercial
negotiations
Entered into a
rig contract for
the Transocean
Spitsbergen, an H-6e
class semi-submersible
drilling rig
2
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Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2015 Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2015
Introduction
Hurricane was established to discover, appraise and develop
hydrocarbon resources associated with naturally fractured
basement reservoirs.
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 its discoveries and prospects.
4
Chairman’s Statement
Welcome to Hurricane Energy’s 2015 Annual Report.
Overview
The Fundraising, which was successfully completed on 10
May 2016, provides the Company with a unique opportunity
to take advantage of depressed oil field services rates and
the availability of the Transocean Spitsbergen rig (the Rig) to
drill the Lancaster 7 Wells this summer. The Lancaster 7 wells
comprise a pilot and horizontal sidetrack on the Lancaster
field as part of a continuous drilling programme. We believe
these operations will put in place the remaining well stock for
the Early Production System (EPS) phase of development of
Lancaster. To be able to progress to this point, whilst retaining
a 100% interest in the field, is a tremendous accomplishment.
We believe it is a reflection of the quality and materiality of the
Company’s assets and management team that we have been
able to attract funding to enable us to engage in near-term
drilling activity during what is recognised to be a difficult time
for the E&P industry.
Our focus throughout has been on maximising shareholder
value. In the Board’s opinion, the benefit of accelerating drilling
operations on Lancaster in 2016 and the catalytic influence
these operations should have on the Company’s options to
fund field development significantly outweighs the dilutive
impact of the Fundraising.
The Directors believe that the current low oil price
environment and depressed oilfield service supply chain,
together with the support of Kerogen and certain existing
institutional Shareholders and the availability of the Rig,
have presented the Company with an opportunity to secure
attractive rates and accelerate drilling of the Lancaster 7
Wells. The previously announced farm-out process is ongoing
and Hurricane remains in active commercial negotiations.
The Directors believe that drilling the Lancaster 7 Wells in
2016 should enhance the Company’s ability to negotiate
attractive farm-out terms as well as provide an advantageous
environment for achieving the earliest date of first oil on
Lancaster.
We initiated a farm-out process in September 2014 to
attract an industry partner with which to progress the field
development. That farm-out process has advanced throughout
2015. Notwithstanding the oil price environment and industry
sentiment, I believe the quality and materiality of Hurricane’s
assets continues to stand out and I am pleased to say that
detailed technical and commercial discussions are ongoing,
and we will only farm-out if the terms are appropriate for the
size of the opportunity.
In addition, and as is prudent in light of the current economic
environment of the oil industry, the Company has also focused
on decreasing the general and administrative (G&A) costs of
the business by reviewing its cost base and reducing costs
where appropriate, and we will only farm-out if the terms are
appropriate for the size of the opportunity.
On 31 January 2016, Chief Financial Officer Nicholas Mardon
Taylor retired. Nicholas had been with Hurricane from the start
and throughout a period in which the Company has achieved
very significant milestones which have set Hurricane on a
path towards Lancaster field development. The Company is
enormously grateful for his contributions and everyone wishes
him very well in his retirement. On 1 March 2016, Chairman
John Hogan stepped down from the Board upon completion
of a three year term of office and the Board would like to thank
him for his service with the Company.
On 1 March 2016 I was delighted to be appointed as Chairman
and, on 16 March 2016, we welcomed Alistair Stobie as Chief
Financial Officer. Alistair brings significant capital markets and
oil and gas industry experience to the Company. On 10 May
2016 we welcomed Roy Kelly, Managing Director and Head
of Technical of Kerogen Capital, as a non-executive Director
of the Company after the successful completion of the
Fundraising. I believe that both Alistair and Roy have enhanced
the quality of the Board.
Dr Robert Arnott
Chairman
23 May 2016
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Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2015
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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7
Group Strategic Report: Review of 2015
Business model
Strategy
Fundraising
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 the newly
acquired geotechnical information to refine our geological
understanding of our assets and subsequently assess the
commercial potential of any discoveries. Once the 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 it 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 our strategy to introduce a development
partner at the right time to mitigate financial and operational
development risk. 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 naturally 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. Being in a position to independently
complete the remaining well stock required for the EPS phase
of the Lancaster development increases the Company’s
options for funding the EPS. Discussions with potential partners
are ongoing at the time of this report and we will only farm-out
if the terms are appropriate for the size of the opportunity.
Introduction and summary
On 10 May 2016, the Company announced that it had raised
approximately £52.1 million (before expenses) through the
issue of 347,245,265 new Ordinary Shares to Kerogen Capital,
Crystal Amber and Marlborough Fund Nominees at a price of
15 pence per share (a premium of approximately 46% to the
closing price immediately prior to the announcement of the
Fundraising). In connection with the fundraising, the Company
also agreed to issue warrants to Crystal Amber to subscribe for
up to 23,333,333 new Ordinary Shares at a price of 20 pence per
share. The new Ordinary Shares were admitted to trading on 10
May 2016.
The net proceeds of the Fundraising will be used to fund the
drilling of a pilot and horizontal well on the Lancaster field and
for general corporate purposes.
Background to the Fundraising
In 2014, Hurricane drilled and tested a one kilometre horizontal
well on Lancaster (the 2014 Horizontal Well). The well was a
success, establishing a sustainable natural flow rate of 5,300 stb/d
and, using artificial lift provided by an Electronic Submersible
Pump (ESP), a sustainable flow rate of 9,800 stb/d was
established (both natural and artificial established oil flow rates
were constrained by the capacity of the surface test equipment).
The low drawdown rates and associated high Productivity Index
(PI) of 160 stb/d/psi provided confirmation of the commercial
potential of the Lancaster reservoir and consequently the well
was suspended to be used as a future production well.
Following the success of the 2014 Horizontal Well, Hurricane
intends to progress Lancaster by means of a phased
development. The current basis of design for the EPS phase of
development consists of two one kilometre horizontal subsea
production wells, including the existing 2014 Horizontal Well and
a new horizontal well (to be drilled this summer), tied back to a
Floating Production Storage and Offloading (FPSO) host facility.
We believe that the development of Lancaster would be further
de-risked by drilling a pilot well (also this summer) to confirm
the depth of mobile oil and the oil water contact level as well
as to evaluate a potential aquifer below the oil water contact to
determine how supportive it is of production. Acquisition of this
information will aid in optimising the EPS phase of development
as well as future phases of the Lancaster development.
The Company’s 2016 well programme, the Lancaster 7 Wells,
incorporates a pilot well and a horizontal sidetrack well on
Lancaster as part of a continuous drilling programme in the
summer of 2016. These wells are designed to refine Lancaster’s
resource range, optimally plan field development and act as a
future production well for the EPS phase of development.
The Company has contracted Transocean’s Spitsbergen, a
state-of-the-art semi-submersible drilling rig which Transocean
believes can operate year round in the West of Shetland, to
drill and test the Lancaster 7 Wells.
The Directors believe that the current low oil price
environment and depressed oilfield service supply chain,
together with the support of Kerogen and certain existing
institutional Shareholders and the availability of the Rig,
have presented the Company with an opportunity to secure
attractive rates and accelerate drilling of the Lancaster 7 Wells.
The previously announced farm-out process is ongoing and
Hurricane remains in active commercial negotiations with
several parties. The Directors believe that drilling the Lancaster
7 Wells in 2016 should enhance the Company’s ability to
negotiate attractive farm-out terms as well as provide an
advantageous environment for achieving the earliest date of
first oil on Lancaster.
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Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2015
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2015
Group Strategic Report: Review of 2015
Update on farm-out
Key Performance Indicators
Hurricane is conducting a formal farm-out process to attract
an industry partner into some or all of the Group’s assets.
The farm-out process has principally focused on financing
the Lancaster 7 Wells and the EPS phase of development of
Lancaster.
The Board believes that committing to drill the Lancaster 7
Wells whilst farm-out negotiations are ongoing will strengthen
the Company’s ability to secure attractive farm-out terms.
Notwithstanding the lower oil price environment, the Company
has progressed technical and commercial discussions in
respect of a farm-out of Lancaster and some or all of its other
licences to an advanced status. At present there can be no
certainty that these discussions will lead to an acceptable offer
to farm-in to some or all of the Company’s licences.
Furthermore, as many major oil companies continue to reduce
capital expenditure, and notwithstanding the good progress
made to date with potential farm-in partners, the feedback
received by the Company indicated that it would be unlikely
that a farminee would have been able to commit to drill the
Lancaster 7 Wells in 2016 within the required timescale. The
Company is therefore pleased to be in a position to drill the
Lancaster 7 Wells in 2016 and reduce the possibility of a delay
to the timing of first oil, which is currently anticipated to be
achieved in H1 2019.
Being in a position to independently complete the remaining
well stock required for the EPS phase of the Lancaster
development increases the Company’s options for funding the
EPS dramatically; and we will only farm-out if the terms are
appropriate for the size of the opportunity.
Licences
In March 2016 Hurricane extended the drilling commitment
on the P1485 and P1835 licences to 2018, which contain
the Typhoon and Tempest prospects. The Group intends to
reduce the acreage of both licences (subject to receipt of final
documentation and amended licence terms) to reduce the
annual cost to the business, whilst maintaining prospectivity
by giving the Group a range of options for optimum drilling
location choice.
The Group uses corporate targets and individual Key
Performance Indicators (KPIs) for the assessment of the
performance of individuals for remuneration purposes, as
further described in the Remuneration Report. 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.
Board
There have been a number of changes to the Board since the
start of 2015, which are listed below. See page 22 for profiles
of all the current Directors.
• Nicholas Mardon Taylor retired as Chief Financial Officer
•
•
on 31 January 2016.
John Hogan resigned from his position as Non-executive
Chairman on 1 March 2016.
Robert Arnott was appointed as Non-executive Chairman
on 1 March 2016.
• Alistair Stobie was appointed as Chief Financial Officer on
•
16 March 2016.
Roy Kelly was appointed as a Non-executive Director on 10
May 2016. In accordance with the terms of the Kerogen
Subscription, Roy Kelly appointed Jason Cheng or, in his
absence, Leonard Tao as his alternate Director on the
Board.
Government and regulatory authorities
The Company maintains excellent relationships with the
government departments and agencies which are responsible
for the oil and gas industry in the UK. These relationships are
essential to allowing Hurricane to develop its business.
The Group continues to maintain its ISO 14001 Environmental
Management System accreditation, essential to enable
Hurricane to carry out drilling operations.
The investment by Kerogen and
certain existing shareholders
gives Hurricane the ability to
drill, test and evaluate two
new wells on Lancaster in
2016, allowing us to move
forward with the EPS phase of
development.
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11
Group Strategic Report: Future Outlook
Lancaster
The Lancaster asset is held under Licence P1368 Central and is
in a water depth of 155m. The potential size of the Lancaster
resource means that any field development is expected to be
executed through a phased approach. As described above,
the Company views the EPS phase of development to be the
first phase of a multiphase development which is expected to
ultimately include a full field development on Lancaster and is
expected to include Lincoln.
Update on Lancaster development
Once the Lancaster 7 Wells have been drilled, the required
number of wells for the EPS phase of development of
Lancaster will be in place, thereby facilitating a final investment
decision to proceed with the phased development of
Lancaster. This view is supported by the ongoing discussions
with certain potential farminees.
The current basis of design for the EPS phase of development
of Lancaster consists of two one kilometre horizontal subsea
production wells, including the 2014 horizontal well and the
planned horizontal sidetrack well, connected by a short flowline
and control umbilical configuration, of approximately two
kilometres, to a dedicated FPSO host facility.
The drilling of the second horizontal sidetrack well will maintain
options for an early first oil date targeted for H1 2019. A final
investment decision for proceeding with the EPS phase of the
Lancaster development is targeted for the first half of 2017,
subject to the Lancaster 7 Wells being successfully drilled in
2016 and following completion of pre-FEED subsea and FPSO
engineering studies.
The Company estimates that the EPS phase of development
based on a two well tie back to an FPSO could produce
approximately 53 MMbbls (at US$60/bbl) at approximately
17,000 bbls/day (after allowing for FPSO downtime) at a
total capital cost, excluding the Lancaster 7 Wells, of up to
US$240 million (giving a Capex per barrel of approximately
US$6/bbl for the EPS phase) plus a letter of credit to cover
early termination of the FPSO contract and decommissioning
costs (anticipated to be approximately US$130 million). Opex
per barrel costs of approximately US$35/bbl include the lease
costs of the FPSO, including any capital costs incurred by the
FPSO owner specifically for the West of Shetland and the
Lancaster field.
12
The Company’s farm-out negotiations are predicated on
funding some or all of these additional costs. Notwithstanding
this, the Directors believe that there are attractive options
which the Company could pursue absent a farm-out, which
would allow it to achieve first oil in 2019.
Lincoln
Also controlled by Hurricane under Licence P1368 South, 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 obtaining the required funding.
Lincoln’s proximity to Lancaster leads us to believe that once
we can prove the resource and, subject to obtaining the
required funding, it could be developed jointly with Lancaster
as a single large development that we refer to as the Greater
Lancaster Area, or GLA.
Whirlwind
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 securing 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.
In May 2016 Hurricane extended the drilling commitment
on the P1485 and P1835 licences to 2018, which contain
the Typhoon and Tempest prospects. The Group intends to
reduce the acreage of both licences (subject to receipt of final
documentation and amended licence terms) to reduce the
annual cost to the business, whilst maintaining prospectivity
by giving the Group a range of options for optimum drilling
location choice.
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.
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Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2015 Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2015
2016 Lancaster well programme
Lancaster EPS development: Subsea infrastructure
Key objectives:
• Refine Lancaster resource range
• Provide a second future production well
• Provide new information to help optimally plan Lancaster field development
0m
1000m
2000m
3000m
Overburden (clay)
Seabed
Pilot well drilled and tested,
then permanently abandoned
by filling with cement
Horizontal sidetrack kicked off
below 20” casing shoe
(around 600m below seabed)
Horizontal
Well
Riser Base
Structure
Possible
Future Tie-in
Structure
Manifold
Victory sandstone
OWC, 1C volume case (62 MMboe)
Umbilical and Flowlines
Sea level
0m
-500m
-1000m
-1500m
Fractured basement
OWC, 2C volume case (207 MMboe)
OWC, 3C volume case (456 MMboe)
Aquifer
Schematic, not to scale
Pilot Well:
• Refine Oil Water Contact (OWC) and
resource range
• Refine Victory sandstone resource range
• Evaluate aquifer properties and potential to
provide pressure support
Horizontal Well:
• Confirm production rates
• Further quantify reservoir characteristics
through shut-in/pressure build-up tests
• Provide second production well ahead of field
development plan
-2000m
14
Two well tie-back to a leased and dedicated FPSO host facility
• 53 million barrels base case, with production plateau of 17,000 barrels a day
• Total cost to first oil, including 2016 Lancaster wells, is estimated at less than $300 million
• $35 per barrel opex
• Project finance scarcity in current environment results in capex needing to be equity financed
• 2016 drilling potentially accelerates first oil by one year: sanction 1H 2017 and first oil 1H 2019
Schematic, not to scale
15
Evaluating the basement whilst drilling
Hurricane will be deploying state of the art logging while
drilling (LWD) technology during its Pilot and Horizontal well
operations. LWD tools are routinely used in the global search
for hydrocarbons and in field appraisal. LWD measurements
help Hurricane geologists to detect fractures and to establish
reservoir properties such as rock type, reservoir porosity and
intervals of reservoir permeability. Hurricane has successfully
used LWD during its previous Lancaster operations. Some
of the key LWD measurements that will be acquired during
Hurricane’s 2016 operations are shown here.
PWD tool
Providing borehole pressure
measurements to help optimise basement
drilling
Azimuthal Density tool
Real time density measurements used
for establishing reservoir porosity and for
identifying large aperture fractures.
Azimuthal Resistivity
Real time resistivity measurements to help
identify fractures.
Neutron tool
Real time neutron measurement to establish
reservoir porosity. In combination with the
azimuthal density it provides a method of
characterising the rock type.
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Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2015 Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2015
Group Strategic Report: Risk
Internal controls and risk management
Principal risks
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.
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 are
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.
18
19
Key risk factor Risk detail
How is it managed
Key risk factor Risk detail
How is it 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.
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.
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.
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 numeric reservoir models.
Continual updating of these models enables
Hurricane to better understand the reservoirs and
build predictive cases that address the uncertainty
envelope and mitigate risk.
Third party
infrastructure
Licences
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.
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
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.
Joint venture
partners
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.
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.
The viability of the Group’s assets is 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.
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 are
made to not rely on this type of infrastructure if a
practical alternative exists.
20
This Group Strategic Report was approved by the Board of Directors and is signed on its behalf by:
Dr Robert Trice, CEO
23 May 2016
21
Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2015 The Board
Dr Robert Arnott
Non-executive Chairman
Alistair Stobie
Chief Financial Officer
Robert has spent over three decades in the oil and gas industry.
During his career, which began at Shell International, he has
held the role of Chairman at each of Petroceltic International
plc, Global Petroleum Limited and Oyster Petroleum Limited
and non-executive Directorships at Rocksource ASA and, until
recently, Core Energy AS, an oil and gas company focused on
the Norwegian continental shelf. Robert was a Director of Spring
Energy AS and is currently Chairman of Independent Oil Tools
AS, an international oil services business.
In addition, Robert spent ten years in investment banking, most
recently at Morgan Stanley, Dean Witter and Goldman Sachs
International, and is a Research Associate at the Oxford Institute
for Energy Studies.
Robert joined the Board on 1 March 2016 and is Chairman
of the nominations committee and is also a member of the
remuneration and audit committees. Robert’s key responsibility
as Chairman is the leadership of the Board, ensuring the integrity
and effectiveness of the Board/Executive relationship.
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.
Alistair has significant capital markets and oil and gas industry
experience. Alistair was previously Director of Finance at AIM-
listed Zoltav Resources and Chief Financial Officer at Oando
Exploration & Production. Prior to this, Alistair founded both
Volga Gas, where he was Chief Financial Officer and led its IPO
to raise US$135 million, and Pan-Petroleum, which acquired an
interest in the multi-billion barrel oil in place Mengo-Kundji-Bindi
licence in Congo-Brazzaville. During his career Alistair has been
actively involved in numerous corporate transactions including
fundraisings, M&A and the acquisition and disposal of licence
interests.
Alistair was appointed to the Board on 16 March 2016 and his
key responsibilities as CFO are the financial and commercial
activities of the business.
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).
Dr David Jenkins
Independent 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 board of 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.
Roy joined the Board on 10 May 2016. In accordance with the
terms of the Kerogen Subscription, Roy Kelly appointed Jason
Cheng or, in his absence, Leonard Tao as his alternate Director
on the Board.
John van der Welle
Independent Non-executive Director
Jason Cheng
Alternate Director
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.
Jason is the Managing Partner and Co-Founder of Kerogen
Capital, where he serves on its Investment Committee and is
responsible for its daily operations. Jason has over 20 years’
commercial experience across investing, operations and
investment banking. He was previously the Managing Partner
of Ancora Capital and, prior to this, he was a Managing Director
of Jade International Capital Partners Limited in Beijing where
he was involved in Sino-foreign investments and advisory
assignments. He previously worked in investment banking at
J.P. Morgan in the Energy and Natural Resources Group and,
prior to this, at Schroders in the energy and Asian M&A teams.
Jason is regulated by the FCA in the UK and the Securities and
Futures Commission in Hong Kong.
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.
Leonard Tao
Alternate Director
Leonard Tao is a Managing Director of Kerogen Capital, having
joined the firm in 2011. Prior to this he spent around 9 years in
the Energy and Natural Resources Group at J.P. Morgan, in both
Australia and Hong Kong, where he managed a wide range of
M&A and capital markets transactions in the natural resources
sector across numerous geographies, including Asia, Central
Asia, Latin America and Africa. Leonard is regulated by the
Securities and Futures Commission in Hong Kong.
Roy Kelly
Non-executive Director
Roy is Managing Director and Head of Technical of Kerogen
Capital, and was appointed as a Director of the Company on
completion of the Fundraising.
He has over 33 years of technical, commercial and managerial
experience in the upstream oil and gas industry, obtained
through both operating and service company roles on projects
throughout the world.
Previously he was Managing Director of consulting at RPS
Energy Ltd, a leading upstream technical consultancy and
reserve auditor. Prior to RPS, Roy held senior positions at
PGS Reservoir, Ranger Oil and Sovereign Exploration, and
spent around 10 years at BP where he trained as a petroleum
reservoir engineer.
22
23
Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2015 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
Corporate Governance 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 2015 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.
Board composition
The Board currently comprises three executive Directors, two
independent non-executive Directors and two non-executive
Directors (including the chairman). The independent 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 independent 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
independent non-executive Directors to be independent in
both character and judgement.
None of the Directors has any potential conflicts of interest
between their duties to the Group and their private interests
or duties owed to third parties except for Roy Kelly, or his
nominated alternate Directors; Jason Cheng and Leonard Tao,
all of whom represent Kerogen Capital, a major Shareholder in
the Company.
The Company complies with the AIM Rules for Companies,
including AIM Rule 21, 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 years. 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.
The audit committee has considered the significant issues in
relation to the preparation of the 2015 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
and judgements for items subject to estimates and the clarity
and completeness of disclosures in the Financial Statements.
Overall the audit committee focuses 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.
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).
Audit Committee
The role of the audit committee is to assist the Board in
discharging its responsibilities with regard to monitoring the
integrity of the Group’s financial reporting, to review the
Group’s internal control and risk management systems, to
monitor the effectiveness of the Group’s external and internal
audit function and to oversee the relationship with the Group’s
external auditor.
The audit committee is chaired by John van der Welle and
the other members are Dr Robert Arnott, Dr David Jenkins
and Roy Kelly (or his nominated alternate Director). 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.
24
25
Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2015 Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2015
The Environmental Management Committee
(EM Committee)
The EM Committee is chaired by Alistair Stobie 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 32.
The Technical Advisory Committee
The Company is establishing a technical advisory committee.
The Committee will be chaired by Dr David Jenkins and
its other member will be Roy Kelly. The Committee will
have no formal decision making powers but it will make
recommendations and provide assistance to the Board with
respect to technical and operating matters.
Remuneration Committee
The role of the remuneration committee is to determine
and agree with the Board the 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 Dr Robert
Arnott, John van der Welle and Roy Kelly (or his nominated
alternate Director). 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 meets at least twice a year.
The nominations committee is chaired by Dr Robert Arnott
and the other members are Dr David Jenkins, John van der
Welle and Roy Kelly (or his nominated alternate Director). The
other Directors may also attend and speak at meetings of the
nominations committee.
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.
Dr Robert Arnott
Chairman
23 May 2016
26
27
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 performance targets and individual key performance
indicators (KPIs) are met, as determined by the remuneration
committee. Challenging KPIs are established each year by
agreement between Management and the remuneration
committee.
The PSP involves the award of shares to executives and
staff and vesting is conditional on achieving a challenging
performance target that if met, will underpin the long term
success of the business. This ensures alignment with the
delivery of value to 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 2016.
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.
The Group is currently reviewing its remuneration policy and
will communicate its findings to shareholders in advance of
implementing any changes.
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 2015
Dr Robert Trice
Nicholas Mardon Taylor1
Neil Platt
John Hogan2
Dr David Jenkins3
John van der Welle4
£’000
375
275
275
150
55
55
1,185
£’000
£’000
£’000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
38
28
28
-
-
-
94
1 Retired 31 January 2016.
2 Resigned 1 March 2016.
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 No bonus was awarded in respect of services provided in 2015.
Emoluments
Cash bonus7
Deferred share bonus 7
Pension contributions
Year Ended 31 Dec 2014
Dr Robert Trice
Nicholas Mardon Taylor1
Keith Kirby3
Neil Platt
John Hogan2,4
Dr David Jenkins5
John van der Welle6
£’000
375
275
620
275
150
55
55
1,805
£’000
188
138
-
138
-
-
-
464
£’000
187
137
-
137
-
-
-
461
£’000
38
28
14
28
-
-
-
Total
£’000
413
303
303
150
55
55
1,279
Total
£’000
788
578
634
578
150
55
55
108
2,838
1 Retired 31 January 2016.
2 Resigned 1 March 2016.
3 Resigned 22 June 2014. Emoluments includes £482,500 consisting of payment in lieu of notice period, bonus entitlement and ex-gratia payments.
4 Emoluments includes £30,000 that is required to be used to acquire Ordinary Shares in the Company.
5 50% of emoluments were consulting fees paid to Chartwood Resources Ltd, a company controlled by Dr David Jenkins.
6 50% of emoluments were consulting fees paid to Northlands Advisory Services Limited, a company controlled by John van der Welle.
7 Bonus in respect of services provided in 2014 was awarded 50% in cash and 50% in deferred shares which are yet to be issued.
28
29
Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2015 Remuneration Report
Directors’ PSP share awards and share options
Details of Directors’ PSP awards and share options at the beginning and end of the previous year are as follows:
In April 2013, all awards under the Group’s Long Term Incentive Plan were surrendered together with all unvested share options
(other than those that vest at IPO) and replaced with awards under the Hurricane Energy 2013 Performance Share Plan (PSP).
A mirror image plan (the Hurricane Energy 2013 Nominal Cost Option Plan (NED Plan)) was also introduced for the purpose of
enabling conditional awards of nil cost options to the Group’s non-executive Directors. The NED Plan operates on materially the
same terms and conditions as the PSP. Further information about both plans is included within note 20 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
Nicholas Mardon Taylor1
25/01/11
17/04/13
Neil Platt
17/04/13
John Hogan2
17/04/13
Dr David Jenkins
17/04/13
John van der Welle
17/04/13
As at
1 Jan 2015
225,000
4,533,333
68,000
4,533,333
4,533,333
666,667
333,333
333,333
Total
15,226,332
1 Retired 31 January 2016.
2 Resigned 1 March 2016.
Granted
Exercised
Lapsed
As at
31 Dec 2015
Exercise price
Date from which
exercisable
Expiry date
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
225,000
4,533,333
68,000
4,533,333
4,533,333
666,667
333,333
333,333
15,226,332
£1.00
£nil
£1.00
£nil
£nil
£nil
£nil
£nil
25/01/14
n/a
31/12/20
04/02/19
25/01/14
n/a
31/12/20
04/02/19
n/a
04/02/19
n/a
04/02/19
n/a
04/02/19
n/a
04/02/19
Grant date
Dr Robert Trice
25/01/11
17/04/13
Keith Kirby3
17/04/13
As at
1 Jan 2014
225,000
4,533,333
4,533,333
Nicholas Mardon Taylor1
25/01/11
17/04/13
68,000
4,533,333
Neil Platt
17/04/13
John Hogan2
17/04/13
Dr David Jenkins
17/04/13
John van der Welle
17/04/13
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
666,667
333,333
333,333
£nil
£nil
£nil
£nil
n/a
04/02/19
n/a
04/02/19
n/a
04/02/19
n/a
04/02/19
(4,533,333)
15,226,332
1 Retired 31 January 2016.
2 Resigned 1 March 2016.
3 Resigned 22 June 2014. All PSP awards lapsed on resignation.
30
31
Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2015 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 its impact on the environment in which it
works and achieves this through the implementation
of its Environmental Policy.
32
The policy
Our objectives
Hurricane recognises its responsibility to the environment and
will take 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 identify and conform to all legal and other
compliance obligations relevant to our operations
• 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 and conduct them in the most sustainable
fashion achievable
• 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.
33
Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2015
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2015
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 and
recognised standards in pursuit of improving our business
results.
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.
Our objectives
We provide leadership which fosters a safe and healthy working
environment, enabling us to conduct business in a manner
that:
•
Seeks to prevent injury and ill health to those engaged in
delivering our business objectives and those people and
communities within the areas in which we work
•
Engages and involves competent people in our business
• Makes accountabilities and responsibilities clear
•
Promotes open and honest communication
• Assesses, manages and controls risk through a hierarchy of
control
• Creates a culture of continual improvement specific, but
not exclusive to, H&S management and performance
•
•
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.
34
35
Chief Financial Officer’s Review
Overview
In 2015 the Group continued to focus on refining the
Lancaster development concept alongside progressing the
farm-out and other funding opportunities. The Group ended
2015 with £9.9 million of cash and cash equivalents (including
£2.3 million held in escrow).
Subsequent to year-end the Company raised £52.1 million
(before expenses) through the issue of 347,245,265 new
Ordinary Shares to Kerogen Capital and other institutional
investors at a price of 15 pence per share. In connection with
the Fundraising, the Company agreed to issue warrants to
Crystal Amber to subscribe for up to 23,333,333 new Ordinary
Shares at a price of 20 pence per share. In addition the
Company received £0.7 million related to claims for Research
and Development expenditure tax relief.
Income statement
The Group’s loss after tax for 2015 is £5.5 million (2014:
£9.0 million). The significant decrease in the loss recorded for
the Group is due to the reduction in the operating costs for the
Group and no further interest charges for the convertible loan
notes which were converted in 2014.
The operating expenses for the year were £5.4 million (2014:
£8.6 million). The decrease is primarily driven by the reduction
in staff costs which is due to an overall reduction in headcount
and performance related bonus awards. The Group has also
focused on decreasing the G&A costs of the business by
reviewing its cost base and making cost reductions where
appropriate.
Due to the nature of the Group’s business, it has accumulated
significant tax losses since incorporation. At 31 December
2015, the Group has pre-trading revenue expenses of £24.8
million (2014: £23.7 million) and has incurred £158.7 million
(2014: £155.8 million) of pre-trading capital expenditure
on which tax relief should be available to carry forward
against future trading profits. In addition, the total pre-
trading expenditure of £183.5 million (2014: £179.5 million)
may attract Ring Fenced Expenditure Supplement on the
commencement of trade, which would result in a further
uplift of £77.1 million (2014: £59.3 million) of tax relief being
available at that time. None of these potential tax benefits
have been recorded in the Group financial results due to the
inherent uncertainty of realisation at this early stage of the life
cycle of the Group’s field interests.
Balance sheet
The £1.3 million reduction in the Group’s intangible exploration
and evaluation assets is due to the £2.9 million of additions in
the year being offset by a non-cash reduction in the Group’s
decommissioning provisions of £4.2 million. The majority
of the £2.9 million of additions to the Group’s intangible
exploration and evaluation assets are costs associated with
the continued work on refining the Lancaster development
concept. The additions in 2015 are a significant decrease from
the £37.2 million in 2014, when the Group was drilling and
testing the Lancaster horizontal well.
The Group’s decommissioning provisions relate to the
anticipated costs required to decommission the suspended
wells previously drilled on the Lancaster and Whirlwind assets.
The change to the decommissioning estimate in the year is
due to a revision of the Directors’ best estimate of the cost
to decommission the assets at the end of the current licence
term in 2019. The revised approach to decommissioning the
suspended wells in an integrated campaign, coupled with
the underlying reduction in the rates charged for oil field
services, has driven the reduction in the provision. Changes
in the decommissioning cost estimates are dealt with
prospectively by recording an adjustment to the provision, and
a corresponding adjustment to the related asset.
Cash flow
Net cash outflow from operating activities of £2.6 million is a
decrease from the £4.6 million recorded in 2014, as G&A cash
costs for running the business have been reduced. Expenditure
on the intangible exploration and evaluation assets in the
year was £3.0 million (2014: £36.6 million), primarily made up
of licence fees and technical work on refining the potential
Lancaster development.
The net cash provided by financing activities was minimal in
the year as the Group did not conclude any further fundraising.
The £16.8 million in 2014, was primarily the cash received from
the placing of Ordinary Shares at the time of IPO.
Financial risk
The Group’s policies are to fund its activities from cash
resources derived from Shareholder subscriptions, to minimise
its exposure to risks derived from financial instruments, not
use complex financial instruments and to ensure that its cash
resources are available to meet anticipated business needs.
The most significant financial risks to which the Group is
exposed are movements in foreign exchange and default from
financial institutions. 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 23 of the Group Financial Statements.
Alistair Stobie
Chief Financial Officer
23 May 2016
36
37
Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2015 Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2015
Financial Statements
38
39
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2015
Directors’ Report
Directors
The following Directors held office during the year ended 31 December 2015 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 (retired 31 January 2016)
Alistair Stobie (appointed 16 March 2016)
Neil Platt
John Hogan (resigned 1 March 2016)
Dr Robert Arnott (appointed 1 March 2016)
John van der Welle
Dr David Jenkins
Roy Kelly (appointed 10 May 2016)
Jason Cheng (appointed 10 May 2016)*
Leonard Tao (appointed 10 May 2016)*
* In accordance with the terms of the Kerogen Subscription, Roy Kelly appointed Jason Cheng or, in his absence, Leonard Tao as his alternate
Director on the Board.
Results for the year and dividends
The loss of the Group for the year was £5,523,000 (2014: loss of £9,006,000). The Directors do not recommend the payment of a dividend.
Financial risk management and objectives
The Group’s financial risk management and objective are detailed in note 23 of the Group Financial Statements.
Going concern
The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Group
Strategic 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 24 and 25 of the Group Financial
Statements. In addition, note 23 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 over the long term and the Group’s
work programme for developing its core assets is dependent on this future fundraising activity. The Group has no external borrowings and ended
2015 with £7.6 million of cash and cash equivalents (excluding amounts held in escrow). Subsequent to the year end the company completed a
capital raise of £52.1 million before expenses which was supplemented by a further £0.7 million in relation to a claim for Research and Development
tax relief.
The Directors have considered sensitivities to the Group’s forecasts, including the effect of the work programme for the Lancaster 7 Wells for which
the additional capital has been raised. These sensitivities indicate that the Group is fully funded for both the Lancaster 7 Wells operation and for
prospective G&A costs for at least the next twelve months based on the Group’s cash flow forecasts.
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.
Subsequent events
The key events which have occurred since the end of the Group’s financial year are detailed in note 28 of the Group 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.
40
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
• make an assessment of the Company’s ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s transactions and disclose
with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Financial Statements comply with
the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on 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 as adopted by the EU, 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
23 May 2016
Alistair Stobie
Chief Financial Officer
23 May 2016
41
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2015
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 2015 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 28 and 1 to 12. 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 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 2015
and of the Group’s loss for the year then ended;
the financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group
financial statements, Article 4 of the IAS Regulation.
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.
David Paterson ACA (Senior Statutory Auditor)
For and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London, UK
23 May 2016
42
43
43
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2015
Group Income Statement
for the Year Ended 31 December 2015
Operating expenses
Operating loss
Investment revenue
Foreign exchange gains
Finance costs
Loss before tax
Tax
Loss for the year
Notes
6
5
7
9
Year Ended
31 Dec 2015
£’000
Year Ended
31 Dec 2014
£’000
(5,448)
(5,448)
37
28
(140)
(5,523)
-
(5,523)
(8,584)
(8,584)
67
125
(633)
(9,025)
19
(9,006)
Loss per share, basic and diluted
10
(0.87) pence
(1.45) 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.
Group Balance Sheet
as at 31 December 2015
Registered company number 05245689
Non-current assets
Property, plant and equipment
Intangible exploration and evaluation assets
Other receivables
Current assets
Inventory
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Current tax liabilities
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
Notes
31 Dec 2015
£’000
11
12
13
14
15
16
17
18
19
21
27
31 Dec 2014
£’000
215
177,308
130
177,653
-
1,553
15,856
17,409
89
176,012
130
176,231
410
420
9,941
10,771
187,002
195,062
(271)
-
(271)
(3,221)
(3,492)
(1,481)
(6)
(1,487)
(7,281)
(8,768)
183,510
186,294
633
210,814
8,089
(195)
649
(36,480)
183,510
632
210,697
5,420
(194)
696
(30,957)
186,294
The Financial Statements of Hurricane Energy plc were approved by the Board of Directors and authorised for issue on 23 May 2016. They were
signed on its behalf by:
Dr Robert Trice
Chief Executive Officer
23 May 2016
Alistair Stobie
Chief Financial Officer
23 May 2016
44
45
45
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2015
Group Statement of Changes in Equity
for the Year Ended 31 December 2015
Group Cash Flow Statement
for the Year Ended 31 December 2015
Share
capital
£’000
Share
Share
Own shares held
Equity Shares
Accumulated
Total
premium
option reserve
by SIP Trust
to be issued
£’000
£’000
£’000
£’000
deficit
£’000
£’000
(136)
-
(37,643)
131,933
Investing activities
Net cash outflow from operating activities
At 1 January 2014
483
167,328
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
Total comprehensive loss for the year
42
-
99
8
-
-
-
-
18,077
(1,272)
26,564
-
-
-
-
-
At 31 December 2014
632
210,697
Shares allotted
Share option charge
Own shares held by SIP Trust
Equity shares to be issued
Total comprehensive loss for the year
1
-
-
-
-
117
-
-
-
-
1,901
-
-
-
-
3,519
-
-
-
5,420
-
2,669
-
-
-
-
-
-
-
-
(58)
-
-
(194)
-
-
(1)
-
-
-
-
-
-
-
-
696
-
696
-
-
-
(47)
-
-
-
14,278
1,414
-
-
-
(9,006)
18,119
(1,272)
40,941
1,422
3,519
(58)
696
(9,006)
(30,957)
186,294
-
-
-
-
(5,523)
118
2,669
(1)
(47)
(5,523)
At 31 December 2015
633
210,814
8,089
(195)
649
(36,480)
183,510
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 (see note 20).
Notes
22
Year Ended
31 Dec 2015
£’000
(2,558)
Interest received
Expenditure on property, plant and equipment
Expenditure on intangible exploration and evaluation assets
Expenditure on inventory
Net cash used in investing activities
Financing activities
Interest paid
Net proceeds from issue of share capital
Net cash provided by financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Net decrease in cash and cash equivalents
Effects of foreign exchange rate changes
Cash and cash equivalents at the end of the year
16
35
(3)
(3,029)
(410)
(3,407)
(1)
23
22
(5,943)
15,856
(5,943)
28
9,941
Year Ended
31 Dec 2014
£’000
(4,677)
67
(24)
(36,585)
-
(36,542)
(3)
16,786
16,783
(24,436)
40,167
(24,436)
125
15,856
46
47
47
1. General information
Hurricane Energy plc is a company incorporated and domiciled 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.
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 recognised on an accrual basis, by reference to the principal outstanding and the
effective interest rate applicable.
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:
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).
Amendments to IAS 19: Defined Benefit Plans: Employee Contributions
Annual improvements to IFRS: 2010-2012 cycle and 2011-2013 cycle
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 from Contracts with Customers
IFRS 16 Leases
Annual improvements to IFRS: 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 an 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 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 Company with the exception of IFRS 16, the impact of which has not yet been assessed.
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.
Pre licence costs, which relate to costs incurred prior to having obtained the legal right to explore an area, are charged directly to the Income
Statement within operating expenses 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 Inventory
Inventory is comprised of materials and equipment that are acquired for future use. Inventories are stated at the lower of cost and net realisable
value, cost being determined on an average cost basis.
2.8 Decommissioning provisions
Provisions for decommissioning are 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 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. 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.
2.9 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.
2.10 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.
48
49
Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2015Notes to the Group Financial Statementsfor the Year Ended 31 December 2015
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.
2.11 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.
2.12 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.
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual
arrangement.
2.12.1 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.
2.12.2 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.
2.12.3 Financial liabilities
Financial liabilities are classified as either financial liabilities at fair value through profit and loss (FVTPL) or other financial liabilities.
2.12.4 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.
2.12.5 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.
2.12.6 Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire.
2.12.7 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.
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.
2.12.8 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.
2.12.9 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.
2.12.10 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.
2.13 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.
2.14 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.
50
51
Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2015Notes to the Group Financial Statementsfor the Year Ended 31 December 2015
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.
3.2 Estimation of decommissioning costs
Provisions for decommissioning are 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 related oil and gas exploration and evaluation expenditure. The amount
recognised is the estimated cost of decommissioning, discounted to its net present value, and is reassessed each year in accordance with local
conditions and requirements.
The provision therefore reflects estimates of the decommissioning cost, timings of decommissioning and the appropriate discount rate which
are subject to revisions as better information becomes available.
Changes in the estimated timing of decommissioning or decommissioning cost estimates are dealt with prospectively by recording an
adjustment to the provision, and a corresponding adjustment to the related oil and gas exploration and evaluation expenditure. The unwinding
of the discount on the decommissioning is included as a finance cost.
Note 18 discloses the movement in the Group’s decommissioning provisions.
5. Revenue
The Group has no revenue in the current or comparative year other than interest income.
6. Operating loss
Operating loss is stated after charging:
Staff costs (note 8)
Operating lease rentals – land and buildings
Depreciation of property, plant and equipment (note 11)
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 compliance services
Corporate finance
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, overhead costs 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.
Total
The Group’s forecasts, taking into account reasonably possible changes as described above, show that the Group will be able to operate within
its existing funding and to meet all commitments as they fall due and will have adequate resources to continue in operational existence for the
foreseeable future. Full details of the assessment are provided in the going concern section of the Directors’ Report.
7. Finance costs
The Group made no charitable or political donations in either year presented.
3.4 Accounting for share-based payments
Charges relating to the Group’s share-based payment arrangements requires making a number of judgements and estimates in the calculation
of fair value of the awards made and the number and likelihood of the awards vesting. The calculation of the fair value of the awards requires
judgements related to the inputs such as share price and volatility. Estimates are also required for the number of shares vesting, based on
assumptions of how many options will be forfeited and the likelihood of vesting criteria being met.
Note 20 provides further detail on the Group’s share-based payment arrangements.
4. Operating segments
The Group complies with IFRS 8 Operating Segments, which requires operating segments to be identified on the basis of internal reports
about components of the Group that are regularly reviewed by the Chief Executive to allocate resources to the segments and to assess their
performance.
In the opinion of the Directors, the operations of the Group comprise one class of business, being oil and gas exploration and related activities
in only one geographical area, the UK Continental Shelf.
Bank charges
Interest on convertible loan notes
Unwinding of discount on decommissioning provisions (note 18)
The interest on convertible loan notes relates to the interest charged on the convertible loan notes issued in April 2013 as part of the Group’s
pre-IPO funding. On admission of the Company’s shares to AIM in February 2014 all outstanding loan notes were converted into ordinary shares
of the Company.
52
53
Year Ended
31 Dec 2015
£’000
4,443
170
82
58
Year Ended
31 Dec 2014
£’000
6,944
135
95
259
41
5
46
10
2
-
12
58
40
5
45
10
5
199
214
259
Year Ended
31 Dec 2015
Year Ended
31 Dec 2014
£’000
1
-
139
140
£’000
3
517
113
633
Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2015Notes to the Group Financial Statementsfor the Year Ended 31 December 2015
8. Staff costs
9. Tax on loss on ordinary activities
The average number of persons employed by the Group during the year was:
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
Year Ended
31 Dec 2015
Number
Year Ended
31 Dec 2014
Number
16
£’000
1,865
221
2,764
157
5,007
(564)
4,443
17
£’000
4,005
434
3,531
175
8,145
(1,201)
6,944
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 was £2,722,000 (2014: £4,827,000). These costs include emoluments of
£1,185,000 (2014: £2,730,000); social security costs of £136,000 (2014: £282,000); pension contributions of £94,000 (2014: £108,000) and a
share-based payment expense of £1,307,000 (2014: £1,707,000).
The highest paid Director received emoluments of £375,000 (2014: £750,000) and pension contributions of £38,000 (2014: £38,000). Included
in emoluments are consulting fees of £27,500 (2014: £27,500) paid to Chartwood Resources Ltd, a company controlled by Dr David Jenkins and
consulting fees of £27,500 (2014: £27,500) paid to Northlands Advisory Services Limited, a company controlled by John van der Welle.
At 31 December 2015 the Directors held 15,226,332 (2014: 15,226,332) PSP awards and share options. No PSP awards or share options were
granted or exercised during 2015 (2014: nil). No PSP awards lapsed in 2015 (2014: 4,533,333 PSP awards and share options lapsed). For further
detail on the Group’s PSP awards and share options see note 20.
Further information on the remuneration of the Directors is included in the Remuneration Report.
UK corporation tax
Current tax – current year
Current tax – prior year
Deferred tax
Loss on ordinary activities before tax
Loss on ordinary activities multiplied by standard rate of
corporation tax in the UK applicable to oil and gas companies
of 50% (2014: 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 the year
Year Ended
31 Dec 2015
£’000
-
-
-
-
(5,523)
(2,761)
-
1,506
1,256
(1)
-
Year Ended
31 Dec 2014
£’000
-
(19)
-
(19)
(9,025)
(5,596)
(19)
3,252
2,339
5
(19)
9.1 Factors which may affect future tax charges
Future profits may be subject to ring fence taxation at a combined rate of 40% on taxable oil extraction profits (ring fence corporation tax
at 30% and a supplementary charge at 10%, with no deduction for financing costs). A 10% reduction of the supplementary charge rate was
announced in the in the 2016 Budget. These rate reductions were published in the Finance Bill 2016 on 24 March 2016 (which is currently
awaiting Royal Assent) and apply to accounting periods beginning on or after 1 January 2016.
The Group has pre-trading revenue expenses of £24.8 million (2014: £23.7 million) and pre-trading capital expenditure £158.7 million (2014:
£155.8 million) which will be available for tax relief on commencement of a petroliferous trade for UK tax purposes.
The total pre-trading expenditure of £183.5 million (2014: £179.5 million) (referred to above) may attract Ring Fence Expenditure Supplement
on the commencement of trade, which would result in a further uplift of £77.1 million (2014: £59.3 million) of tax relief being available at that
time.
No provision has been made in these Financial Statements for a potential deferred tax asset of £12.4 million (2014: £14.7 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 50% (2014: 62%).
54
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Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2015Notes to the Group Financial Statementsfor the Year Ended 31 December 2015
10. Loss per share
The basic and diluted loss per share has been calculated using the loss for the year ended 31 December 2015 of £5,523,000 (2014: £9,006,000).
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 2015 this amounts to 632,151,017 Ordinary Shares (2014: 621,420,531). The loss per share for the year ended 31 December 2015
was 0.87 pence (2014: 1.45 pence).
As the Group has made losses for both periods, the share options detailed in note 20 were antidilutive and have not been included in the fully
diluted loss per share calculation.
11. Property, plant and equipment
Cost
At 1 January
Additions
At 31 December
Depreciation
At 1 January
Charge for the year
At 31 December
Carrying amount at 31 December
Year Ended
31 Dec 2015
Year Ended
31 Dec 2014
£’000
790
3
793
(575)
(129)
(704)
89
£’000
766
24
790
(436)
(139)
(575)
215
Property, plant and equipment comprises the Group’s investment in leasehold improvements, fixtures, office equipment and computer
hardware. In 2015 £47,000 (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.
12. Intangible exploration and evaluation assets
At 1 January
Additions
Effects of changes to decommissioning estimates (note 18)
At 31 December
Year Ended
31 Dec 2015
£’000
177,308
2,903
(4,199)
176,012
Year Ended
31 Dec 2014
£’000
137,681
37,223
2,404
177,308
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 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.
56
13. Other non-current receivables
The other non-current receivables of £130,000 (2014: £130,000) represents the deposit for the office lease. Further details are given in note 25.
14. Inventory
Inventory
31 Dec 2015
£’000
410
410
Inventory is comprised of materials and equipment that are to be used in future exploration and appraisal activity.
15. Trade and other receivables
Other receivables
Prepayments and accrued income
16.
Cash and cash equivalents
Unrestricted funds
Restricted funds
31 Dec 2015
£’000
141
279
420
31 Dec 2015
£’000
7,623
2,318
9,941
31 Dec 2014
£’000
-
-
31 Dec 2014
£’000
222
1,331
1,553
31 Dec 2014
£’000
13,470
2,386
15,856
At 31 December 2015 the restricted funds of £2.3 million (2014: £2.3 million) is held in escrow for future expected costs associated with the
Group’s decommissioning obligations. The amounts held in escrow can only be withdrawn on the consent of both DECC and the Company.
17. Trade and other payables
Trade payables
Other payables
Accruals
31 Dec 2015
£’000
31 Dec 2014
£’000
71
78
122
271
405
80
996
1,481
57
Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2015Notes to the Group Financial Statementsfor the Year Ended 31 December 2015
18. Decommissioning provisions
20. Share options
At 1 January
Unwinding
Change to estimate
Additions
At 31 December
Year Ended
31 Dec 2015
£’000
7,281
139
(4,199)
-
3,221
Year Ended
31 Dec 2014
£’000
4,764
113
-
2,404
7,281
The provision for decommissioning relates to the costs required to decommission the suspended wells previously drilled on the Lancaster
and Whirlwind assets. The change to the decommissioning estimate in the year is due to a revision of the Directors’ best estimate of the
cost to decommission the assets at the end of the current licence term in 2019, discounted at 1.9% (2014: 1.9%). The revised approach to
decommissioning the suspended wells in an integrated campaign coupled with an underlying reduction in the rates charged for oil field services
has driven the reduction in the provision.
The additions in 2014 represent the expected decommissioning cost for the Lancaster 205/21a-6 horizontal well which was completed in June
2014.
19. Called up share capital
Allotted, called up and fully paid
2015: 633,112,533 (2014: 632,267,788) Ordinary Shares of £0.001 each
The Company does not have an authorised share capital.
31 Dec 2015
31 Dec 2014
£’000
633
£’000
632
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.
On 23 January 2015 844,745 new Ordinary Shares were issued to the Hurricane Energy plc Share Incentive Plan (SIP) at a subscription price of
£0.14 per share.
Number of
options
34,357,832
-
(200,000)
-
34,157,832
1,074,500
Year Ended
31 Dec 2015
Weighted average
exercise price
£
0.02
-
-
-
0.02
0.61
Number of
options
38,191,165
700,000
(4,533,333)
-
34,357,832
1,074,500
Year Ended
31 Dec 2014
Weighted average
exercise price
£
0.02
-
-
-
0.02
0.61
Outstanding at 1 January
Granted
Forfeited
Exercised
Outstanding at 31 December
Exercisable at 31 December
The Group recognised total expenses of £2,764,000 in respect of share-based payments in 2015 (2014: £3,531,000). The options outstanding at
31 December 2015 had a weighted average remaining contractual life of 3.1 years (2014: 4.1 years).
20.1 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 value of these awards at grant was £0.43 per award.
No awards were granted in 2015.
20.2 Share Options
There are two tranches of share options that remain outstanding at 31 December 2015. 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 2015.
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
tranche of 474,500 share options was granted in January 2011 at an exercise price of £1.00 and lapse in December 2020.
58
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Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2015Notes to the Group Financial Statementsfor the Year Ended 31 December 2015
21. 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 2015
Year Ended
31 Dec 2014
£’000
194
95
(94)
195
£’000
136
89
(31)
194
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.
During 2015 the SIP acquired 844,745 new Ordinary Shares of £0.001 nominal value (2014: 282,729) at a subscription price of £0.14 per share
(2014: £0.31 per share), all of which were allocated to participants. At 31 December 2015 there were 1,110,604 Ordinary Shares held in the SIP
Trust (2014: 389,881), all of which were allocated to participants.
22. Reconciliation of operating loss to net cash outflow from operating activities
Operating loss
Adjustments for:
Depreciation of property, plant and equipment (note 11)
Equity shares to be issued (note 27)
Share-based payment charge (note 20)
Operating cash outflow before working capital movements
Decrease / (increase) in receivables
(Decrease) / increase in payables
Cash used in operating activities
Corporation tax paid
Net cash outflow from operating activities
Year Ended
31 Dec 2015
£’000
Year Ended
31 Dec 2014
£’000
(5,448)
82
(5)
2,764
(2,607)
1,113
(1,058)
(2,552)
(6)
(2,558)
(8,584)
95
486
3,531
(4,472)
(455)
250
(4,677)
-
(4,677)
23. Financial instruments
23.1 Financial risk management
The Group monitors and manages the financial risks relating to its operations on a continuous basis. These include foreign exchange, credit,
liquidity and interest rate risks. The Group does not enter into or trade financial instruments, including derivatives, for speculative purposes. The
Group’s significant financial instruments are cash and cash equivalents (note 16), trade payables (note 17). The Group considers the carrying
value of all its financial assets and liabilities to be materially the same as their fair value. The Group has no material financial assets that are past
due.
23.2 Capital risk management
The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern in order to provide returns for
Shareholders and benefits for other stakeholders.
Capital managed by the Group at 31 December 2015 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
2015 equity attributable to equity holders of the parent is £183.5 million (2014: £186.3 million), whilst cash and cash equivalents amount to £9.9
million, (2014: £15.9 million).
23.3 Foreign exchange risk
The Group undertakes certain transactions denominated in foreign currencies; hence exposures to exchange rate fluctuations arise. The Group’s
cash and cash equivalents are predominately held in Pounds Sterling although the Group will hold cash balances in US Dollars to meet actual or
expected commitments in that currency.
A 10% increase in the strength of the US Dollar against Sterling would cause a decrease of £0.1 million (2014: £0.7 million) on the loss after tax
of the Group for the year ended 31 December 2015. A 10% weakening in the strength of the US Dollar against Sterling, would cause an increase
of £0.1 million (2014: £0.9 million) on the loss after tax of the Group for the year ended 31 December 2015.
This sensitivity analysis includes only foreign currency denominated cash and cash equivalents, and adjusts their translation at the period end
for a 10% change in the foreign currency rate. Whilst the effect of any movement in exchange rates is charged or credited to the Income
Statement, the economic effect of holding US Dollars against actual or expected commitments in US Dollars is as an economic hedge against
exchange rate movements.
23.4 Credit risk
The Group is only exposed to credit risk on its cash and cash equivalents. The risk to the Group is deemed to be limited because the cash and
cash equivalents are deposited with banks with at least A credit ratings assigned by an international credit rating agency. The carrying value of
cash and cash equivalents represents the Group’s maximum exposure to credit risk at year end.
23.5 Liquidity risk
The Group manages its liquidity risk by maintaining adequate cash and cash equivalents to cover its liabilities as and when they fall due. The
financial liabilities of the Group are currently limited to trade payables, which are due to be paid within 60 days of the Balance Sheet date.
Consideration of the Group’s current and forecast financing position are provided in more detail in the going concern section of the Directors’
Report.
23.6 Interest rate risk
The Group is exposed to interest rate movements through its cash and cash equivalents which earn interest at variable interest rates.
If interest rates had been 1% higher, the Group’s loss after tax for the year ended 31 December 2015 would have decreased by £0.1 million
(2014: £0.2 million), assuming the cash and cash equivalents at the Balance Sheet date had been outstanding for the whole year. No sensitivity
analysis has been undertaken for a 1% decrease in interest rates because of the low level of prevailing interest rates during the year.
24. Capital commitments
As at 31 December 2015 and 2014 the Group had no capital commitments.
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Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2015Notes to the Group Financial Statementsfor the Year Ended 31 December 2015
25. 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 2015
31 Dec 2014
£’000
138
520
33
691
£’000
136
520
163
819
Operating lease payments represent rentals payable by the Group for certain of its office properties.
26. Related parties
During 2015, the only related party transactions are those with the Directors who are considered as the Group’s key management personnel. All
transactions with the Directors are detailed in note 8.
27. Equity shares to be issued
The balance of £649,000 at 31 December 2015, (2014: £696,000) 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.
28. Subsequent events
28.1 Share incentive plan
On 22 January 2016, MM&K Plan Trustees Limited, trustee of the HMRC approved Hurricane Energy plc Share Incentive Plan (SIP), awarded
1,016,976 Ordinary Shares in the Company to participants in the SIP at a price of £0.09 per share. The SIP award has been satisfied by the issue
of 1,016,976 new Ordinary Shares issued to the SIP at a subscription price of £0.09 per share.
28.2 Directorate changes
On 31 January 2016, Chief Financial Officer Nicholas Mardon Taylor retired. On 16 March 2016, Alistair Stobie was appointed as Chief Financial
Officer. On 1 March 2016, Chairman John Hogan resigned and Dr Robert Arnott was appointed as his successor. On 10 May 2016 Roy Kelly was
appointed as a non-executive Director. In accordance with the terms of the Kerogen Subscription, Roy Kelly appointed Jason Cheng or, in his
absence, Leonard Tao as his alternate director on the Board.
28.3 Fundraising
On 18 April 2016, the Group announced that it had conditionally raised approximately £52.1 million (before expenses) through the issue of
347,245,265 new Ordinary Shares to Kerogen Capital and other institutional investors at a price of 15 pence per share. In connection with the
fundraising, the Group has issued warrants to Crystal Amber to subscribe for up to 23,333,333 new Ordinary Shares at a price of 20 pence per
share.
The fundraising was approved by Shareholders at the General Meeting on 9 May 2016 and the new Ordinary Shares were admitted to trading on
10 May 2016.
28.4 R&D Tax relief
On 27 April 2016, the Group received £0.7 million in respect of an R&D tax claim for the period ended 31 December 2013.
Company Balance Sheet
as at 31 December 2015
Registered company number 05245689
Non-current assets
Property, plant and equipment
Intangible exploration and evaluation assets
Investments
Amounts due from subsidiary undertakings
Other receivables
Current assets
Inventory
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade and other payables
Current tax liabilities
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 issued
Accumulated deficit
Total equity
Notes
31 Dec 2015
£’000
31 Dec 2014
£’000
1
2
3
4
5
6
7
8
9
10
10
10
89
80,249
15,090
79,262
130
174,820
410
420
9,941
10,771
215
80,875
15,090
77,832
130
174,142
-
1,553
15,856
17,409
185,591
191,551
(271)
-
(271)
(1,610)
(1,881)
(1,481)
(6)
(1,487)
(3,641)
(5,128)
183,710
186,423
633
210,814
8,089
(195)
649
(36,280)
183,710
632
210,697
5,420
(194)
696
(30,828)
186,423
The Financial Statements of Hurricane Energy plc were approved by the Board of Directors and authorised for issue on 23 May 2016. They were
signed on its behalf by:
Dr Robert Trice
Chief Executive Officer
23 May 2016
Alistair Stobie
Chief Financial Officer
23 May 2016
62
63
Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2015Notes to the Group Financial Statementsfor the Year Ended 31 December 2015
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2015
Company Statement of Changes in Equity
for the Year Ended 31 December 2015
Company Cash Flow Statement
for the Year Ended 31 December 2015
Own shares
Equity shares
Accumulated
Total
to be issued
deficit
£’000
£’000
£’000
Net cash outflow from operating activities
Share
capital
Share
premium
£’000
£’000
483
42
-
99
8
-
-
-
-
167,328
18,077
(1,272)
26,564
-
-
-
-
-
At 1 January 2014
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
At 31 December 2014
632
210,697
Shares allotted
Share option charge
Own shares held by SIP Trust
Equity shares to be issued
Loss for the year
1
-
-
-
-
117
-
-
-
-
At 31 December 2015
633
210,814
Share
option
reserve
£’000
1,901
-
-
-
-
3,519
-
-
-
5,420
-
2,669
-
-
-
8,089
held by
SIP Trust
£’000
(136)
-
-
-
-
-
(58)
-
-
(194)
-
-
(1)
-
-
(195)
-
-
-
-
-
-
-
696
-
696
-
-
-
(47)
-
649
(37,569)
-
-
14,278
1,414
-
-
-
(8,951)
132,007
18,119
(1,272)
40,941
1,422
3,519
(58)
696
(8,951)
(30,828)
186,423
-
-
-
-
(5,452)
118
2,669
(1)
(47)
(5,452)
(36,280)
183,710
Investing activities
Interest received
Expenditure on property, plant and equipment
Expenditure on intangible exploration and evaluation assets
Expenditure on inventory
Working capital provided to subsidiary companies
Net cash used in investing activities
Financing activities
Interest paid
Net proceeds from issue of share capital
Net cash provided by financing activities
Notes
11
Year Ended
31 Dec 2015
£’000
(2,558)
35
(3)
(1,574)
(410)
(1,455)
(3,407)
(1)
23
22
Year Ended
31 Dec 2014
£’000
(4,669)
67
(24)
(18,079)
-
(18,514)
(36,550)
(3)
16,786
16,783
Net decrease in cash and cash equivalents
(5,943)
(24,436)
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 rate changes
The loss of the parent company for 2015 was £5,452,000 (2014: loss of £8,951,000). 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
7
15,856
(5,943)
28
9,941
40,167
(24,436)
125
15,856
64
65
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2015
Notes to the Company Financial Statements
for the Year Ended 31 December 2015
1. Property, plant and equipment
Cost
At 1 January
Additions
At 31 December
Depreciation
At 1 January
Charge for the year
At 31 December
Carrying amount at 31 December
Year Ended
31 Dec 2015
Year Ended
31 Dec 2014
£’000
790
3
793
(575)
(129)
(704)
89
£’000
766
24
790
(436)
(139)
(575)
215
3. Investments
Investment in subsidiaries
Loan to subsidiary
31 Dec 2015
£’000
9,751
5,339
15,090
31 Dec 2014
£’000
9,751
5,339
15,090
The entire ordinary 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 UK registered dormant subsidiaries; Hurricane Group Limited,
Hurricane Basement Limited and Hurricane Petroleum Limited. The Company holds the entire ordinary share capital of each of the dormant
subsidiaries. Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment.
4. Other non-current receivables
The other non-current receivables of £130,000 (2014: £130,000) represent the deposit for the office lease. Further details are given in note 25
of the Group Financial Statements.
Property, plant and equipment comprises the Company’s investment in leasehold improvements, fixtures, office equipment and computer
hardware. In 2015 £24,000 (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.
2. Intangible exploration and evaluation assets
At 1 January
Additions
Effects of changes to decommissioning estimates (note 9)
At 31 December
Year Ended
31 Dec 2015
£’000
80,875
1,473
(2,099)
80,249
Year Ended
31 Dec 2014
£’000
61,062
18,611
1,202
80,875
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 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.
5. Inventory
Inventory
31 Dec 2015
£’000
410
410
Inventory is comprised of materials and equipment that are to be used in future exploration and appraisal activity.
6. Trade and other receivables
Other receivables
Prepayments and accrued income
31 Dec 2015
£’000
141
279
420
66
31 Dec 2014
£’000
-
-
31 Dec 2014
£’000
222
1,331
1,553
67
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2015
Notes to the Company Financial Statements
for the Year Ended 31 December 2015
7. Cash and cash equivalents
Unrestricted funds
Restricted funds
31 Dec 2015
£’000
7,623
2,318
9,941
31 Dec 2014
£’000
13,470
2,386
15,856
At 31 December 2015 the restricted funds of £2.3 million (2014: £2.3 million) is held in escrow for future expected costs associated with the
Company’s decommissioning obligations. The amounts held in escrow can only be withdrawn on the consent of both DECC and the Company.
10. Other balance sheet disclosures
Details of the Company’s share capital, share options, own shares held by the SIP Trust, financial instruments and equity shares to be issued are
provided in notes 19, 20, 21, 23 and 27 of the Group Financial Statements.
11. Reconciliation of operating loss to net cash outflow from operating activities
Year Ended
31 Dec 2015
£’000
Year Ended
31 Dec 2014
£’000
(5,448)
82
(5)
2,764
(2,607)
1,113
(1,058)
(2,552)
(6)
(2,558)
(8,584)
95
486
3,531
(4,472)
(455)
258
(4,669)
-
(4,669)
8. Trade and other payables
Trade payables
Other payables
Accruals
9. Decommissioning provisions
At 1 January
Unwinding
Changes to estimates
Additions
At 31 December
Operating loss
Adjustments for:
Depreciation of property, plant and equipment (note 1)
Equity shares to be issued
Share-based payment charge
Operating cash outflow before working capital movements
Decrease / (increase) in receivables
(Decrease) / increase in payables
Cash used in operating activities
31 Dec 2015
31 Dec 2014
£’000
71
78
122
271
£’000
405
80
996
1,481
3,641
68
(2,099)
-
1,610
2,382
57
-
1,202
3,641
31 Dec 2015
£’000
31 Dec 2014
£’000
Corporation tax paid
Net cash outflow from operating activities
12. Other disclosures
Certain other disclosures in notes 24, 25, 26 and 28 to the Group Financial Statements also apply to the Company in respect of its share of the
Group’s operations.
The provision for decommissioning relates to the costs required to decommission the suspended wells previously drilled on the Lancaster
and Whirlwind assets. The change to the decommissioning estimate in the year is due to a revision of the Directors’ best estimate of the
cost to decommission the assets at the end of the current licence term in 2019, discounted at 1.9% (2014: 1.9%). The revised approach to
decommissioning the suspended wells in an integrated campaign coupled with an underlying reduction in the rates charged for oil field services
has driven the reduction in the provision.
The additions in year 2014 represent the expected decommissioning cost for the Lancaster 205/21a-6 horizontal well which was completed in
June 2014.
68
69
Registered Address
Hurricane Energy plc
The Wharf Abbey Mill Business Park
Lower Eashing
Godalming
Surrey GU7 2QN
T: +44 1483 862 820
F: +44 1483 862 859
E: communications@hurricaneenergy.com
www.hurricaneenergy.com
Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2015
Nominated Adviser and Broker
Cenkos Securities plc
6.7.8 Tokenhouse Yard
London EC2R 7AS
www.cenkos.com
Solicitors to Company
Dentons
One Fleet Place
London EC4M 7WS
www.dentons,com
Auditor
Deloitte LLP
2 New Street Square
London EC4A 3BZ
www.deloitte.com
Independent Competent Person
RPS Energy Limited
14 Cornhill
London EC3V 3ND
www.rpsgroup.com
Registrar and Receiving Agent
Computershare Investor Services Plc
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ
www.computershare.co.uk
70
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