Hurricane Energy Plc Annual Report 2016

FY2016 Annual Report · Hurricane Energy Plc

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Annual Report and Group Financial Statements 2016

Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2016

“...the largest undeveloped discovery on the U.K. continental shelf...”

Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2016Contents

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
33 Health and Safety Policy
34 Chief Financial Officer’s Review
38 Directors’ Report
40 Auditor’s Report
42 Financial Statements

Hurricane Highlights

Reserves and Resources (million barrels)

Portfolio of the largest currently undeveloped discoveries in the UKCS
100% owned

160

227 28

2P Reserves of 37 million barrels and 2C Resources of 691 million barrels
- Lancaster and Whirlwind (oil case)*

Lancaster field now proceeding to first phase of development - first oil
targeted for H1 2019 at approximately 17,000 barrels of oil per day

2016 Pre-tax loss of £4.7 million;
Profit after tax of £0.7 million

1C / 1P

2C / 2P

3C / 3P

412

691

829

1490

Ended 2016 with £82.2 million in cash**

Reserves are taken from the Competent Person’s Report (CPR) prepared by RPS Energy Consultants Limited in May 2017
(“2017 CPR”). The Resources are a summation of the Whirlwind (oil case) Resources in the 2013 CPR (being barrels of oil
equivalent) and the Lancaster Resources in the 2017 CPR. (The 2017 CPR only addressed the Lancaster Field). Reserves
status is subject to Hurricane achieving project sanction.

* 2P Reserves are taken from the Competent Person’s Report (CPR) prepared by RPS Energy Consultants Limited in May 2017 (“2017 CPR”). The 2C Resources are a summation
of the Whirlwind (oil case) 2C Resources in the 2013 CPR (being barrels of oil equivalent) and the Lancaster 2C Resources in the 2017 CPR. (The 2017 CPR only addressed the
Lancaster Field). Reserves status is subject to Hurricane achieving project sanction.
** Includes restricted cash of £9.9 million.

Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2016

Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2016

Introduction

Hurricane was established to discover, appraise and
develop hydrocarbon resources associated with naturally
fractured basement reservoirs.

Hurricane acreage is concentrated on the Rona Ridge,
West of Shetland. The Lancaster licence, the Company’s
most appraised asset, has combined 2P Reserves and 2C
Resources of 523 million barrels. In addition, the Company
has 205 million barrels of oil equivalent on its Whirlwind
licence (under the Whirlwind oil case).

During the 2016-2017 drilling campaign the Company
made two significant discoveries* at Halifax and Lincoln,
indicating that the Greater Lancaster Area and the
Greater Warwick Area have the potential to be two large
accumulations.

* Discovery - This classification is consistent with SPE/AAPG/WPC and SPEE guidelines for Petroleum Resource Management – Determination of Discovery Status

Chairman’s Statement

Welcome to Hurricane Energy’s 2016 Annual Report.

2016 was a good year for Hurricane. From the proceeds of
our initial £52.1 million capital raise in May, the Company
took the Transocean Spitsbergen on hire on 2 July 2016. On
24 March 2017, 265 days of continuous drilling operations
later, the rig left the Halifax Well, our fourth consecutive well
and second exploration success of the drilling campaign.

Underpinning our success was the result of the Pilot Well
drilled on Lancaster which demonstrated a deep oil column
below local structural closure. The Pilot Well was followed
up by the successful Horizontal Sidetrack Well. The flow rate
of 15,375 stb/d achieved with electrical submersible pump
support from the Horizontal Sidetrack Well demonstrated
that the Lancaster field is highly productive.

As a result of the success of the Pilot Well, the Company
applied for the Halifax Licence in an out of round application.
Thanks must go to the Regulators for awarding the licence
and approving the subsequent drilling permits in record
time.

The Company returned to the capital markets in November
2016, raising £74.4 million in a significantly oversubscribed
offering. We were once again grateful for the support of
Kerogen and Crystal Amber whose initial injection of capital
in May kick-started our drilling campaign in July. Importantly,
in an equity market which was not yet fully-open to junior
E&P companies, we were pleased that we were able to start
rebuilding our institutional shareholder base.

The November capital raise also included capital to allow us
to invest in front end engineering design (“FEED”) studies for
the Lancaster Early Production System (“EPS”). The purpose
of the EPS is to obtain reservoir performance data in order to
plan for the full field development (“FFD”) on our Rona Ridge
licences. Whilst the subsurface team were busy drilling,
the development and commercial teams spent the second
half of 2016 securing an Floating Production Storage and
Offloading Vessel (“FPSO”), the Aoka Mizu, and the support
of TechnipFMC to provide the subsea equipment and control
systems for the two horizontal wells. We remain on track to
reach final investment decision (“FID”) in mid-2017, with first
oil targeted for H1 2019. The details of the EPS are included
within the Group Strategic Review. I am delighted that with
project maturity the operating costs have reduced such

that the project remains robust under most foreseeable
oil price scenarios. The downturn in the industry and
consequent reduction in the cost base has also helped focus
service providers to support Hurricane.

The success of the Lincoln and Halifax wells highlight the
potential scale of the discovered resource. As such, the EPS is
a vital element to optimise the FFD of the Greater Lancaster
Area (“GLA”), Greater Warwick Area (“GWA”) and Whirlwind.
Further appraisal drilling will, however, be needed to
delineate the volumes in GLA, GWA and Whirlwind, thus
setting the conditions for the Company to achieve maximum
value from its assets

The funding of the EPS will be a significant moment in 2017.
In May 2017 the Company intends to initiate an interim
equity raise to provide additional funds to preserve flexibility
around both the timing and the optimal structure for the
funding required for the EPS, anticipated to occur in mid-
2017, and to ensure we are appropriately funded for the
coming twelve months. We continue to progress our debt,
equity and farm-out discussions with a view to securing the
best risk-adjusted returns to shareholders. To this end we
reopened our dataroom to a limited number of high quality
participants in early 2017. As Hurricane is an explorer and
appraiser of fractured basements, we will look to those with
the requisite skill set to take the Rona Ridge project on to FFD.

At the end of my first year as Chairman there are a number
of people and organisations to whom I would like to
extend the thanks of the Company. Transocean, Bluewater
and TechnipFMC have all worked collaboratively with the
Company to achieve the results I have set out above. Thanks
also go to the Regulators who have supported the Company
throughout its drilling and EPS planning phase. Finally, the
board and staff of Hurricane; to have safely drilled 265
days West of Shetland whilst planning for the EPS and
raising the capital to fund the above has been a remarkable
achievement.

I look forward to the Company continuing its strong
performance in 2017.

Dr Robert Arnott

Chairman

12 May 2017

Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2016

Hurricane’s Asset Locations

Foinaven
(operated by BP)

Schiehallion
(operated by BP)
e - S

F a

Typhoon

Warwick

Clair
(operated by BP)

Shetland
Islands

30 km

B asin

F a r o e-S h etla n d
n a R idge

R o

Greater
Lancaster
Area

Greater
Warwick
Area

i n

B a

t l a

Whirlwind

Rid

Rona

Halifax

Lancaster

Lincoln

Solan
(operated by Premier)

Strathmore

30 km

Shetland
Islands

Orkney
Islands

Aberdeen

Group Strategic Report: Review of 2016

Business Model

Strategy

Current Acreage

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 missed
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
has been 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
mature a discovery through to development and production.
Given the potential scale of the Company’s assets, it is our
intention to introduce a development partner at the right
time to share the financial and operational development risk
of the assets. Hurricane is focused on bringing its existing
discoveries to field development.

Our strategy is to create shareholder value through the
exploration, appraisal and development of naturally
fractured basement reservoirs. We will progress our
resources through the value chain from prospects to
discoveries and contingent resources, culminating in reserves
and ultimately production. We do this through exploration
and appraisal drilling and early stage field development.

We believe that fractured basement reservoirs can be
associated with oil outside of structural closure that is of
material commercial value.

To date we have maintained 100% ownership and Licence
and Field Operatorship of all of our discoveries. Being in a
position to independently complete 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 form a part of the
overall financing strategy going forward.

The Company’s Rona Ridge basement discoveries
(summarised on the underlying map) comprise the GLA,
the GWA, and Whirlwind. In addition to the significant oil
volumes associated with these discoveries, their geographic
proximity and shallow water setting (approximately 140 –
190 metres) reinforce the potential for these discoveries
to act as a production hub for future West of Shetland
developments. The GLA consists of the Lancaster Field and
the P2308 licence (the “Halifax Licence”). The Halifax Licence
was applied for in 2016 in an out of round application as a
direct result of the Lancaster 7 Pilot Well results. The Halifax
Licence was awarded in November 2016 and includes the
2017 Halifax discovery which, together with Lancaster,
has the potential to form part of a single and extensive
hydrocarbon accumulation. Proof of such will require
confirmation through future appraisal of the Lancaster and
Halifax licences.

The GWA comprises the Lincoln Discovery and the yet to be
drilled Warwick Prospect. The 2017 Lincoln Well (205/26b-
12) is interpreted as demonstrating the presence of an
extensive oil column. As a result, the Lincoln Discovery

and the Warwick Prospect are viewed as potentially a
single hydrocarbon accumulation. Confirmation of single
accumulation status for the GWA will require further
appraisal drilling of licences P1368 South and P2294 (GWA).
(It should be noted that in November 2015 OGA consented
to the sub-division of Hurricane’s Frontier Licence P1368 into
4 sub-areas, P1368 North, Central, South and Southwest.)

Whirlwind comprises a basement reservoir that is
significantly deeper than the GLA and GWA and is also
associated with lighter oil than the GLA/GWA. Further
appraisal drilling of licence P1368 North will be required
to establish the precise hydrocarbon type and depth of
the Whirlwind oil water contact (“OWC”). Currently the
Whirlwind Discovery is associated with a hydrocarbon
column height of 200 metres true vertical thickness (“TVT”)
and a probable light oil accumulation of 200 million stock
tank barrels (“MMstb”) (2C Resource). (The hydrocarbons
may possibly be a gas condensate, but this cannot be
determined without further testing).

Hurricane’s other assets include Typhoon and Strathmore.
Typhoon is a basement and sandstone prospect with a P50
Prospective Resource of 149 MMstb. Strathmore is a stranded
sandstone field with a 2C Resource of 32 MMstb of oil.

Greater Lancaster Area (GLA)
Greater Warwick Area (GWA)

Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2016

Group Strategic Report: Review of 2016

2016 Operations

The Lincoln Exploration Well
(205/26b-12)

Hurricane’s 2016 operations included drilling the Lancaster
205/21a-7 Pilot Well and -7Z Horizontal Sidetrack Well and
the Lincoln exploration well. In 2017, prior to the date of
this report, the Halifax Well was also drilled, logged and
tested. The results of each of these wells have individually
and collectively increased the Company’s resource base
and support and the progression of the Lancaster field
development, whilst materially increasing the Company’s
understanding of the Rona Ridge basement play.

Lancaster Pilot and Horizontal Sidetrack Wells
(205/21a-7 & 205/21a-7Z)

The Pilot Well provided new data that unequivocally
demonstrated that an extensive hydrocarbon column is
present at Lancaster. This new data reinforces Hurricane’s
geological model that producible hydrocarbons are present
at a depth significantly deeper than the Lancaster Field’s
structural closure. It is therefore probable that producible
oil volumes are likely to be present within basement
beyond the Lancaster Field’s eastern block boundary.
This conclusion, combined with the hydrocarbon column
found by the Halifax Well, provides material support to the
significant hydrocarbon potential of the Lancaster Licence.
Testing of the Pilot Well also demonstrated higher flow
rates than anticipated, thus providing further support for
the Company’s reservoir model that the basement reservoir
comprises a highly connected and permeable fracture
network.

The Horizontal Sidetrack Well was also a successful operation
providing further flow rate and pressure data that supports
the Company’s assertion that commercially producible
volumes of oil can be delivered through the planned
EPS phase of the Lancaster field development. The well
was successfully suspended so that it, and the Lancaster
6 Horizontal Well (205/21a-6), drilled in 2014, are now
awaiting completion and future production. The combined
data from the Lancaster Pilot and Horizontal Sidetrack Wells
also provided further de-risking of the Victory sandstone
reservoir (previously identified as the Rona sandstone),
which overlies and is in pressure communication with the
basement.

Lincoln well operations resulted in a significant fractured
basement discovery identified through gas chromatography,
logging-while-drilling and wireline data. No OWC was
encountered and an oil down to (“ODT”) of approximately
520 metres true vertical depth (“TVD”) below structural
closure indicates a hydrocarbon column of at least 618 metres
TVT. The Lincoln well was planned to exclude testing, and
therefore estimates of the hydrocarbon type have been
derived from isotube analysis and sidewall core hydrocarbon
extracts, indicating that Lincoln oil is similar to that of
Lancaster.

The depth of the Lincoln ODT is significantly deeper than
the OWC at Lancaster. This depth variation indicates that a
pressure barrier is present between Lancaster and Lincoln.
The barrier has been identified as the Brynhild Fault which is
a well-documented regional geological feature and has been
mapped at Lincoln from 3D seismic and gravity magnetic
data. Lincoln is therefore most likely to be a separate field
to Lancaster. The ODT at Lincoln also indicates that the yet
undrilled Warwick Prospect could form part of the same oil
accumulation as Lincoln.

The Halifax Exploration Well
(205/23-3A)

Following the end of the period, the Company drilled, logged
and tested the Halifax Well. The Halifax Well was drilled in
close proximity to the Bombardier Well (205/23-2) drilled by
Arco in 1998. Subsequent analysis of the Bombardier Well
by Hurricane indicated the presence of hydrocarbons within
basement.

The Halifax Well identified an extensive oil column
significantly below structural closure (which is at 1,040
metres true vertical depth subsea ("TVDSS")). The well
identified a very significant hydrocarbon column of 1,156
metres TVT. In the absence of data identifying pressure
barriers between Lancaster and Halifax, the Company
believes that Lancaster and Halifax are potentially a single
large accumulation. This will need to be evaluated through
further analysis and appraisal drilling.

Revised Volumetrics

The impact of the Pilot and Horizontal Sidetrack Wells on
the Lancaster field in place hydrocarbon volumes is material,
with the best-case estimates of oil in place increasing by
120% for the basement (from 1,056 MMstb in the 2013
CPR to 2,326 MMstb in the 2017 CPR). Another significant
change to the volumetric assessment is that Hurricane
believes the recent results from the Pilot Well confirms our
sub-surface model that the Lancaster Field structural closure
is no longer considered as a realistic geological mechanism
for constraining recoverable hydrocarbon resources.

The assignment of Reserves and Contingent Resources to
Lancaster is specific to the Field Development Plan (“FDP”).
The Company’s approach to the Lancaster field development
is phased so that an initial modest volume is produced
with the objective of securing key technical data that will
allow for the optimizing of a more extensive FFD, targeted
at producing a materially larger hydrocarbon volume. In
the 2017 CPR the EPS phase of development has been
assigned 2P Reserves of 37 million barrels assuming a 6 year
cut-off and 62 million barrels assuming a 10 year field life.
The assignment of 2P Reserves is subject to the Company
achieving sanction of the EPS project. FFD is expected to
include upscaled surface facilities and subsea infrastructures,
including the provision of a possible gas export pipeline,
all of which will be designed to optimise the recovery of
the barrels allocated as the 2C Contingent Resource for
Lancaster. Additional reserve potential for a Lancaster
development exists in the recoverable hydrocarbon volumes
that could be accessed to the east of the Lancaster Field
boundary in the Halifax Licence. The ultimate scale of the
Lancaster FFD will therefore require the potential of P2308
to be assessed and this will be achieved through further
appraisal drilling.

Lancaster Reserves and Resources increasing in size

2013 CPR

2017 CPR

207 MMstb, 2C

523 MMstb, 2C + 2P

Lancaster Reserves and Resources are taken from the Competent Person’s Reports (CPR) prepared by RPS Energy Consultants
in November 2013 (“2013 CPR”) and in May 2017 (“2017 CPR”). Reserve status is subject to the Company achieving sanction
of the EPS project.

Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2016

Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2016

Lancaster Early Production System

In parallel with the well operations, the development team
spent the first six months of 2016 finalising the concept
selection for the Lancaster EPS. They also put in place the
contracting strategy required to deliver first oil during H1
2019 and the Lancaster EPS objectives, which are:

•

To provide long term production data to confirm the
productivity and extent of the Lancaster reservoir to
optimise FFD planning and sanction;

• Commence development of the resources of the field in
a phased manner, to enhance the understanding of the
subsurface, ahead of FFD;

• Deliver an acceptable return on capital invested.

Having selected Bluewater to provide the FPSO Aoka
Mizu (Figure 1) and TechnipFMC as the preferred primary
contractors, work commenced in early August with the
respective FEED studies. The Bluewater FPSO FEED 1, and
subsequent FEED 2 studies, which commenced in Q4 2016,
focused on four areas:

1 Repair & life extension
2 New mooring system and turret buoy
3 Vessel & marine upgrades
4 Topsides upgrade

Meanwhile the FEED 1 & 2 studies with TechnipFMC for
the provision of the Subsea, Umbilical, Riser and Flowlines

Figure 1: Proposed FPSO Aoka Mizu Upgrade Scope

(“SURF”) and Subsea Production System (“SPS”) elements
of the project and Well Completions with Petrofac Facilities
Management Limited (“PFML”) were also kicked off in
parallel. Figure 2 provides an illustration of the simplicity of
the EPS concept, based on production from the two existing
wells, the Lancaster 6 Horizontal Well (205/21a-6) and the
Horizontal Sidetrack Well (205/21a-7Z) being completed and
tied back to the turret-moored FPSO via individual flowlines.
The design, allowing for topside metering of the individual
wells, uses dual pod electrical submersible pumps in each
well to provide artificial lift as well as providing additional
well data from downhole gauges.

The key elements of the EPS project are:

•

The re-entry and completion of the existing horizontal
wells, 205/21a-6 and 205/21a-7Z;

The procurement, fabrication, installation and
commissioning of a subsea infrastructure consisting of;
twin 6” flowlines, a power and control umbilical, risers
and subsea manifold;

The procurement, fabrication and installation of a new
turret buoy and mooring systems;

The upgrade, relocation and recommissioning of the
Aoka Mizu FPSO;

Future oil export will be by shuttle tanker, with produced
gas during the EPS phase being used on the FPSO for
either power generation and/or utilities. It is proposed
that surplus gas will be flared.

After the initial EPS period, the feasibility for tie backs and
future gas export will be assessed as part of the FFD concept
plans based on the long-term productivity testing of the
initial two EPS wells.

As at the end of 2016, the project remains on schedule with
FEED 2 studies having commenced in December 2016 in
support of first oil in H1 2019 subject to EPC progress post
FID in mid-2017. Figure 3, on the next page, illustrates the
current project plan as previously presented in the Lancaster
EPS Environmental Statement.

In summary, the plans are in place, the respective teams are
fully resourced and the project remains on track to achieve
first oil during H1 in 2019 provided we maintain our current
progress and milestones. The next most critical milestone
is project FID in mid-2017, which is subject to the required
funding being in place and the Regulators’ approval of the
Lancaster EPS FDP and the Environmental Statement.

The subdivision of these scopes of work are split amongst
the main project contracts as follows:
• Bluewater

°
°

Installation Operator
Proposed Pipeline Operator (at introduction of
Hydrocarbons)
Engineer Procure Construct (“EPC”) contract for:
- Repair & life extension
- New mooring system and turret buoy
Limited vessel & marine upgrades
-
-
Limited topsides upgrades
FPSO Facility & Pipeline Operations contracts

•

°
TechnipFMC
°

Engineer Procure Construct Install (EPCI) scope for:
Supply and installation of Subsea Production
-
System (SPS) and
Supply and installation of Subsea Umbilical
Risers and Flowline (SURF)

FPSO Turret Mooring System buoy installation

°
• PFML

° Well Operator
° Well completions

Provision via third parties of electrical
submersible pumps and variable speed drive
systems

Figure 2: EPS Concept

Proposed Upgrade Areas

Fundraising in 2016

Key Performance Indicators

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 £0.15 per share. 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 £0.20 per share.

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.

On 8 November 2016, the Company raised a further £74.4
million (before expenses) through the issue of 218,830,120
new Ordinary Shares in a significantly oversubscribed offering.
The shares were issued at a price of £0.34 per share.

The net proceeds of the Fundraisings were used to fund the
drilling of the Lancaster Pilot and Horizontal Sidetrack Wells,
the Lincoln and Halifax wells, FEED studies, certain long lead
items for the EPS and for general corporate purposes.

Government and Regulatory Authorities

The Company works closely with the government
departments and agencies which are responsible for the oil
and gas industry in the UK. These relationships are essential in
allowing Hurricane to develop its business.

The Group continues to maintain its ISO 14001 Environmental
Management System accreditation in preference to alternate
accreditation approaches. ISO 14001 or an equivalent are
essential to enable Hurricane to undertake a number of
its offshore operations where Hurricane is viewed by the
Regulators as the Operator.

2016

2017

2018

2019

Figure 3: Development Timeline

Complete FEED 1
LLI Commitment (Trees and Controls)
FEED 2
GeoTech and GeoPhys Surveys
LLI Commitment (FPSO & SURF)
ES and FDP Approval
Hurricane Final Investment Decision
FPSO Upgrade Yard Contract Award
FPSO Aoka Mizu Arrival in Upgrade Yard
Safety Case Approved
Re-enter and Complete Wells 6&7Z (Window)
Delivery of Mooring System
Boulder Clearance* (Window)
Mooring System Installation (Window)
SURF Installation (Window)
FPSO Ready for Sail Away
FPSO Arrival in Field (Window)
Buoy Hook-Up (Following FPSO Arrival)
Ready for Start-up (Following Buoy Hook-up)
First Oil

* dependent on results of geophysical survey

The plans are in place, the respective
teams are fully resourced and the project
remains on track to achieve first oil
during H1 in 2019

Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2016

Group Strategic Report: Future Outlook

Farm-out and Future Fundraising

In early 2017 Hurricane re-opened its dataroom to a limited
number of high quality participants to attract an industry
partner into some or all of the Group’s assets. The farm-out
process has principally focused on financing the EPS phase of
the development of Lancaster, along with the potential for a
wider appraisal programme.

Alongside the farm-out process, the Company continues to
develop its funding strategy to finance the EPS. The total
forecast capital cost of the EPS is approximately $467 million
(including costs already incurred to date). Therefore, the
Company has a significant funding requirement that may
include a combination of equity, debt and / or a farm-out (the
“Primary Funding”). This Primary Funding is, subject to market
conditions, anticipated to occur in mid-2017.

In order to preserve flexibility around both the timing and the
optimal structure for the Primary Funding, on 12 May 2017 the
Company intends to enter into a smaller financing arrangement
(the “Interim Funding”) with Stifel Nicolaus Europe Limited
(“Stifel”). Under this arrangement the Company intends to
issue Stifel warrants over 25,000,000 ordinary shares of 0.1
pence each. The exercise price for each of the warrants will
be 95% of the volume weighted average price of the ordinary
shares, calculated over the trading day prior to exercise. Stifel
will use reasonable endeavours to procure purchasers for the
ordinary shares granted under the warrants. The Company will
have the right to terminate the warrants at any time, otherwise
they will expire on 30 June 2017.

Subsurface

The immediate subsurface work plan is to fully evaluate and
correlate the Lancaster, Lincoln and Halifax wells. Such work
includes detailed petrophysical analysis, fracture picking,
reservoir modelling, reservoir simulation and further seismic
mapping. The work plan is intended to refine existing analytical
techniques, narrow in-house volumetric assessments and
establish potential well sites for further exploration and / or
appraisal drilling.

Output from this work will also feed into the planned 2017
second phase of a revised Competent Person’s Report (“CPR”)
which is intended to provide an update on resource estimates
for the assets not covered in the May 2017 CPR. This new CPR
is expected to be completed in late 2017.

Long term planning, excluding that necessary for the first phase
of the Lancaster field development, will be focused on well
planning for appraisal and exploration drilling. Timing of such
operations is to be confirmed and will be a function of funding
and rig operations related to the Lancaster development.
That stated, well planning will continue with the objective
of positioning the Company in an optimum position to take
advantage of the rig market. The potential new well locations
are intended to further delineate the GLA and GWA. For the
GLA, the wells will be focused on demonstrating pressure
connectivity between Halifax and Lancaster and confirming
that a common OWC is present across the GLA. Furthermore,
commercial hydrocarbon flow needs to be demonstrated on
the Halifax Licence. It is envisaged that at least two appraisal
wells, one of which should be planned as a horizontal producer,
would be sufficient to demonstrate that a single accumulation
is probable. For the GWA a two well appraisal programme
is envisaged with an OWC penetration at Warwick and a
horizontal well test on either the Lincoln or Warwick structures.
The depth to top reservoir at the GWA provides the potential
for these uncertainties to be addressed with a single well
location and a Drill Stem Test (“DST”) sidetrack, similar to the
programme on Lancaster undertaken during 2016.

Greater Lancaster Area

Lancaster
The Lancaster asset is held under Licence P1368 Central
and is in a water depth of approximately 155 metres. 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 FFD on
Lancaster and is expected to consider the inclusion of Halifax
(as part of the GLA), the GWA and Whirlwind.

Halifax
The Halifax asset is held under Licence P2308 and was awarded
to the Company in an out of round licence in November 2016.
The licence is immediately adjacent to the Lancaster licence,
located North East along the Rona Ridge. Halifax was drilled
in Q1 2017 and was an oil discovery. In the absence of data
identifying pressure barriers between Lancaster and Halifax,
the Company believes that Lancaster and Halifax are potentially
a single large accumulation . This will need to be evaluated
through further analysis and appraisal drilling.

Greater Warwick Area

Lincoln
Also controlled by Hurricane under Licence P1368 South,
the Lincoln Prospect lies to the south west of Lancaster. In
Q4 2016 the Company drilled the Lincoln Well resulting in a
significant fractured basement discovery. Hydrocarbons were
encountered in the well. Gas chromatography and logging
while drilling data indicated a very significant hydrocarbon
column of at least 660 metre TVD, comparable to that found at
Lancaster.

The ODT in the Lincoln discovery of 2,258 metre TVDSS
demonstrates that it is a separate hydrocarbon accumulation to
Lancaster, with the Lancaster field and Lincoln discovery being
separated by the Brynhild Fault Zone. The ODT at Lincoln has
provided the Company with sufficient evidence to believe that
the yet undrilled Warwick Prospect could form part of the same
oil accumulation as Lincoln. Should these interpretations be
confirmed through further drilling and testing it is anticipated
that a Lincoln/Warwick accumulation will be assigned a
separate field status to Lancaster.

Warwick
The Warwick Prospect, controlled by the Company under
the P2294 licence, sits to the west of the Lincoln Field. As
stated above, the results of the Lincoln Well suggests that the
Lincoln and Warwick prospects could be part of the same large
hydrocarbon accumulation.

The Company plans to drill Warwick at some point in the future,
subject to obtaining the necessary funding and regulatory
consents and permits.

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
will be appraised and developed on either a standalone basis or
as a future incremental hub to the GLA development. The well
is currently 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 2013 CPR has assigned unrisked P50
Prospective Resources of 149 million barrels of oil equivalent
(“MMboe”) to Typhoon and 1,266 MMboe for the P10
Prospective Resource volume acknowledging the material flank
potential of this asset.

In April 2016 the Group reduced the acreage of both licences
to reduce the annual cost to the business, whilst maintaining
prospectivity by giving the Group a range of options for
optimum drilling location choice. In May 2016 Hurricane
extended the drilling commitment on the P1485 and P1835
licences to 2018.

Both Lincoln and Warwick (the GWA) are expected to ultimately
be included in the wider FFD on the Rona Ridge

Strathmore

Whirlwind

Whirlwind is located about 10 kilometres north of Lancaster
in a water depth of approximately 185 metres. In 2010 the
Company drilled on the structure and found indications of oil
in both a Lower Cretaceous limestone (Valhall) and underlying
fractured basement within structural closure.

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.

Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2016

Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2016

Group Strategic Report: Risk

Internal Controls and Risk Management

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.

Principal Risks

All companies carry with them certain risks and Hurricane
is no exception. The future outlook for the Group and
therefore opportunities for growth in Shareholder value
should be understood in the context of the associated risks.
There 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 activities 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.

Key risk factor
Substantial
capital
requirements

Risk detail
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, problems occurring during installation and
/ or construction and unfavourable weather leading to
delays in operations.

How is it managed
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, other financial institutions and potential farm-in
partners to understand the range of options available to
the Group.

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.

Licences

Oil price
fluctuations

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.

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.

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 price sensitivity scenarios.

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 such as the impact of
a greater market shift to renewable energy sources. 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.

Key risk factor
Joint venture
partners

Third party
infrastructure

Development
project delivery

Risk detail
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.

How is it managed
Due diligence will be used to review and assess any
third parties that the Group enters into a joint venture
within 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.

Any future field development is likely to be dependent
upon the availability of third party infrastructure
which if it fails, or is not, or ceases to be, available on
reasonable commercial terms, or at all, may result
in delays to field development, production and cash
generated. This would have a material adverse effect on
the Group’s business, prospects, financial condition and
operations.

In planning the development scenarios for the Group’s
assets, the use of third party infrastructure is assessed.
Consideration is given to the extent, nature and
commercial arrangements of potential use of third
party infrastructure and attempts are made to not rely
on this type of infrastructure if a practical alternative
exists.

Development projects are subject to various risks
including availability of third party services and
manufacturing slots, labour disputes, installation
windows, permits, consents and weather. Problems
with any of the above can cause delays to the project
that impact both the timing for completion of the
project as well as the cost. This can have a material
impact on the projected cashflow from the project and
the funding required.

The Group invests significant time and resources to plan
its development projects and focuses on minimising
the various development risks. The Group uses a range
of third party experts to co-ordinate, plan and deliver
development projects. Contingency is built into all
project plans to allow for unexpected delays and cost
overruns.

This Group Strategic Report was approved by the Board of Directors and is signed on its behalf by:

Dr Robert Trice, CEO

12 May 2017

Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2016

The Board

Dr Robert Arnott
Non-executive Chairman

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, Audit and Technical Advisory 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.

Robert is Chairman of the Environmental Management
Committee and is also a member of the Technical Advisory
Committee.

Alistair Stobie
Chief Financial Officer

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 (CFO)
at Oando Exploration & Production. Prior to this, Alistair
founded both Volga Gas, where he was CFO and led its IPO
to raise US$135 million, and was CFO at 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. Alistair is a member of the
Environmental Management Committee.

Neil Platt
Chief Operations Officer

Neil has more than 25 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). Neil is a
member of the Environmental Management Committee.

Dr David Jenkins
Independent Non-executive Director

David is currently a member of the Advisory Board of
Riverstone Holdings.

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 Technical Advisory
Committee and is also a member of the Nominations and
Audit committees.

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.

Roy joined the Board on 10 May 2016, and is a member
of the Audit, Remuneration, Nominations and Technical
Advisory committees. 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.

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.

Roy Kelly
Non-executive Director

Roy is Managing Director and Head of Technical at Kerogen
Capital, and was appointed as a Director of the Company on
completion of the Fundraising in May 2016.

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.

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.

Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2016

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 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.

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 Hurricane's
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 2016 on the strategic
issues which will create Shareholder value, monitoring
performance against agreed objectives and planning future
business operations.

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.

The Audit Committee recognises that, for smaller companies,
it is cost effective to procure certain non audit services
from the external auditor but there is a need to ensure that
provision of such services does not impair, or appear to
impair, the auditor’s independence or objectivity. The Audit
Committee must be consulted before the assignment of
any non audit work can be awarded to the external auditor.
The Audit Committee was satisfied throughout the year that
Deloitte LLP’s objectivity and independence were in no way
impaired by the nature of the non audit work undertaken or
other factors including the level of non audit fees charged.

The Audit Committee has considered the significant issues
in relation to the preparation of the 2016 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 certain major
Financial Statement items that require significant judgement
and estimation. These are described in Note 3 of the Group
Financial Statements.

How the Board Operate

The Board intends to meet at least five times each year.
At these meetings, the Board reviews the Group’s long-
term strategic direction and financial plans. All necessary
information is supplied to the Directors on a timely basis to
enable them to discharge their duties effectively.

Certain matters are reserved for consideration by the Board
whilst other matters are delegated to Board committees.

The Board has established the following committees
(committee terms of reference are available on Hurricane's
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 audit 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.

Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2016

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.

The Environmental Management Committee
(“EM Committee”)

The EM Committee is chaired by Dr Robert Trice and the
other members are Alistair Stobie 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.

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.

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

12 May 2017

The Technical Advisory Committee

The Technical Advisory Committee is chaired by Dr David
Jenkins and the other members are Dr Robert Trice, Dr
Robert Arnott and Roy Kelly. The Committee has no formal
decision making powers but makes recommendations and
provides assistance to the Board with respect to technical
and operating matters.

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.

Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2016

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.
Annual bonus is payable to the extent annual corporate
performance targets and individual KPIs are met, as
determined by the Remuneration Committee. Challenging
KPIs are established each year by agreement between
Management and the Remuneration Committee.

The long term incentive plan for the Group has been
updated during the year. The Group had previously used the
Performance Share Plan (“PSP”). This involved the award
of shares to Directors and staff and vesting was conditional
on achieving a challenging performance target that if met,
would underpin the long term success of the business.
During the year the Group introduced the Value Creation
Plan (“VCP”) with an aim of more fully aligning the incentive
with the delivery of value to Shareholders. Employees and
Directors receiving awards under the VCP were required to
forfeit any PSP awards previously received. The focus of the
performance conditions under the VCP is to incentivise the
progression and development of the Lancaster EPS which
aligns with the delivery of value to Shareholders.

The Remuneration Committee has reviewed the base salary
levels for the executive Directors and determined that no
increases would be made for 2017. A cash bonus was paid
to each of the executive Directors as a result of 2016 being
an exceptional year where annual corporate targets were
either met or exceeded.

The Group contributes to personal pension schemes. Under
current legislation, from 1 January 2018 Hurricane will be
required to provide a workplace pension scheme for all
employees.

Directors’ Emoluments

The following is an analysis of the emoluments received by the Group’s Directors:

Emoluments7

Cash bonus Deferred share bonus8

Pension contributions

Year Ended 31 Dec 2016

Dr Robert Trice
Nicholas Mardon Taylor1
Alistair Stobie2
Neil Platt
John Hogan3
Robert Arnott4
Dr David Jenkins
John van der Welle5
Roy Kelly6

£’000

400
23
239
293
55
75
55
55
35
1,230

£’000

313
-
229
229
-
-
-
-
-
771

187
138
-
138
-
-
-
-
-
463

9
2
-
7
-
-
-
-
-
18

1 Retired 31 January 2016.
2 Joined 16 March 2016.
3 Resigned 1 March 2016.
4 Joined 1 March 2016.
5 50% of emoluments were consulting fees paid to Northlands Advisory Services Limited, a company controlled by John van der Welle.
6 Joined 10 May 2016. 100% of emoluments were consulting fees paid to Kerogen Capital.
7 Includes payments in lieu of pension contributions (Dr. Robert Trice: £25,000, Alistair Stobie: £20,000, Neil Platt: £18,000).
8 Deferred bonus shares issued in 2016 with respect to services provided in 2014.

Year Ended 31 Dec 2015

£’000

Emoluments

Cash bonus

Deferred share bonus

Pension contributions

Dr Robert Trice
Nicholas Mardon Taylor1
Neil Platt
John Hogan2
Dr David Jenkins3
John van der Welle4

375
275
275
150
55
55
1,185

-
-
-
-
-
-
-

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.

Total

£’000

909
163
468
667
55
75
55
55
35
2,482

Total

£’000

413
303
303
150
55
55
1,279

Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2016

Directors’ Share Awards and Share Options

In April 2013, all awards under the Group’s Long Term
Incentive Plan were surrendered together with all unvested
share options (other than those that vested at IPO) and
replaced with awards under the Hurricane Energy 2013 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.

Those employees and executive Directors who entered the
VCP were required to forfeit any PSP awards held at that
time. In February 2017, non-executive Directors who are
participants in the PSP have agreed to have the performance
conditions of their PSP awards amended to align with those
of the VCP. It should be noted that the PSP participants
have a fixed award on vesting whereas the VCP participants’
awards will be determined as described above.

Further information about both plans is included within note
20 of the Group Financial Statements.

During the period 420 VCP growth shares were granted to
executive Directors of the company, 140 to each of Dr Robert
Trice, Alistair Stobie and Neil Platt.

In November 2016 the Group introduced a VCP for
employees and executive Directors, involving the issue of
840 growth shares in Hurricane Group Limited (a Group
subsidiary). The VCP will run for 5 years until November
2021. At the end of the vesting period the value of the
growth shares will be driven by the amount by which
the price of ordinary shares in Hurricane Energy plc has
increased above £0.34 per ordinary share ("Threshold
Value"). The Threshold Value is the price of the ordinary
shares as at the date of issue of the growth shares and
will be adjusted for any capital raises that occur during the
vesting period. The growth shares have no value unless the
price of the ordinary shares exceeds a hurdle of £0.55 per
share at the vesting date (calculated as the average price for
the previous 3 months). If the hurdle is met, and a vesting
event occurs within the vesting period, the growth shares
may be exchanged for ordinary shares of an amount, in
aggregate, equivalent to up to 8.4% of the growth in the
price of the issued ordinary shares above the Threshold
Value, multiplied by the number of ordinary shares in issue
at the time. This would be broadly equivalent to 8.4% of
the growth in the market capitalisation. The proportion of
the growth shares that vest to participants and the amount
received is dependent on the Remuneration Committee
certifying, at its discretion, the Group meeting various non
market-based performance conditions consistent with
the progression and development of the Lancaster Early
Production System during the vesting period.

Details of Directors’ PSP awards and share options at the beginning and end of the year are as follows:

Grant date

Award

As at
1 Jan 2016

Granted Exercised

Lapsed /
Forfeited

As at
31 Dec 2016

Exercise
price

Date from which
exercisable

Expiry date

Dr Robert Trice
25/01/11
17/04/13
Nicholas Mardon Taylor1
25/01/11
17/04/13
Neil Platt
17/04/13
Alistair Stobie
16/03/16
John Hogan2
17/04/13
Dr David Jenkins
17/04/13
John van der Welle
17/04/13

Share option

225,000
PSP 4,533,333

Share option

68,000
PSP 4,533,333

PSP 4,533,333

-
-

PSP

- 4,533,333

PSP

666,667

PSP

333,333

PSP

333,333

-
-

-
(4,533,333)

225,000
-

(68,000)
(1,121,615)

-
3,411,718

(4,533,333)

(150,665)

516,002

333,333

£1.00
£nil

£nil

25/01/14
n/a

n/a

31/12/20
04/02/19

04/02/19

Total

15,226,332 4,533,333

- (14,940,279)

4,819,386

1 Retired 31 January 2016.
2 Resigned 1 March 2016.

Details of Directors’ PSP awards and share options at the beginning and end of the previous year are as follows:

Grant date

Award

Share option
PSP

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

PSP

Total

1 Retired 31 January 2016.
2 Resigned 1 March 2016.

As at
1 Jan 2015

225,000
4,533,333

68,000
4,533,333

4,533,333

666,667

333,333

15,226,332

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

15,226,332

£1.00
£nil

£nil

25/01/14
n/a

n/a

31/12/20
04/02/19

04/02/19

Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2016

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.

The Policy

• 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

Hurricane recognises its responsibility to the environment
and will take positive steps to address the environmental
impacts associated with all our offshore operations.

• We will identify steps to reduce disturbance to sensitive
seabed communities and preserve biodiversity as far as
possible

• 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.

We are committed to achieving continual improvement
in our environmental performance management system
to enhance environmental performance, and regard
compliance with the relevant laws and regulations and other
obligations as a minimum standard. We will consider the
context of the company and relevant interested parties to
ensure our obligations and other management issues are
identified comprehensively.

We will work with our employees, contractors and suppliers
to identify and reduce the environmental impacts of our
activities.

Our Objectives

• All of our offshore operations shall be managed under

our ISO 14001 certified Environmental Management
System

• We will identify and conform to all 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 protect the

environment, including prevention of pollution, where
reasonably practicable

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.

We are committed to achieving continual improvement to
enhance our Health and Safety performance, and regard
compliance with the relevant laws, regulations and other
obligations as a minimum standard. We will consider the
context of the company and relevant interested parties to
ensure our obligations and other management issues are
identified comprehensively.

We will work with our employees, contractors and suppliers
to identify and reduce the Health and Safety impacts of our
activities.

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

• Ensures appropriate emergency response procedures

are in place and regularly tested to minimise the impact
of any such incidents or emergencies

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.

Other Core Policies

As part of Hurricane’s comprehensive Business Management
System, we have three other core policies in addition to
the Environmental and Health and Safety Policies, covering
People, Assurance and Ethics. These can be found on
Hurricane’s website.

Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2016

Chief Financial Officer’s Review

Overview

Income Statement

Balance Sheet

Cash Flow

In 2016 the Group engaged in a significant drilling
programme starting in July 2016 and continuing through to
March 2017. The Group also made significant progress in
relation to the Lancaster development, whilst at the same
time re-engaging with various third parties concerning
possible farm-out opportunities.

In May 2016 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 £0.15 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 £0.20 per share.

In November 2016 the Company raised a further £74.4 million
(before expenses) through the issue of 218,830,120 new
ordinary shares by way of a placing and open offer at a
subscription price of £0.34 per share.

The Group ended 2016 with £82.2 million of cash and cash
equivalents (including £9.9 million held in escrow, of which
£2.3 million is classified in other non-current assets).

Subsequent to year-end the Company received £4.7 million
related to claims for Research and Development ("R&D")
expenditure tax relief. A tax credit of £5.4 million was
recorded in the income statement during the period, of
which £0.7 million was collected in 2016 and £4.7 million
was collected in 2017.

In order to preserve flexibility around both the timing and
the optimal structure for the Primary Funding for the EPS
(anticipated to occur in mid-2017), on 12 May 2017 the
Company intends to enter into the Interim Funding with
Stifel. Under this arrangement the Group intends to issue
Stifel warrants over 25,000,000 ordinary shares of 0.1 pence
each. The exercise price for each of the warrants will be 95%
of the volume weighted average price of the ordinary shares,
calculated over the trading day prior to exercise. Stifel will
use reasonable endeavours to procure purchasers for the
ordinary shares granted under the warrants. The Company
will have the right to terminate the warrants at any time,
otherwise they will expire on 30 June 2017.

The Group’s profit after tax for 2016 is £0.7 million (2015:
loss after tax £5.5 million). The move to a profit after tax
position is due to a significant R&D tax credit of £5.4 million,
combined with foreign exchange gains of £1.8 million
resulting from the purchase of $19.0 million dollars prior to
the devaluing of the Pound against the Dollar following the
Brexit referendum.

The operating expenses for the year were £6.5 million (2015:
£5.4 million). The increase is primarily driven by the Group
increasing its activities in relation to the Lancaster and
Lincoln drilling programme and the Lancaster development.

Due to the nature of the Group’s business, it has
accumulated significant tax losses since incorporation. At
31 December 2016, the Group has pre-trading revenue
expenses of £19.4 million (2015: £24.8 million) and has
incurred £208.3 million (2015: £158.7 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 £227.7 million (2015: £183.5
million) may attract Ring Fenced Expenditure Supplement on
the commencement of trade, which would result in a further
uplift of £50.1 million (2015: £77.1 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.

The £69.1 million increase in the Group’s intangible
exploration and evaluation assets is largely due to the drilling
programme that has dominated the second half of the year,
combined with the FEED work on the Lancaster EPS. The
drilling of the Lancaster Pilot Well, the second horizontal well
and the FEED EPS work added £48.9 million to the Lancaster
asset, with the Lincoln exploration well adding £17.2 million.

The additions in 2016 are a significant increase from 2015,
and were made possible due to the two separate fundraises
in the year.

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 the addition of the second Lancaster horizontal
well and a revision of the Directors’ best estimate of the cost
and timing of the decommissioning of the assets. 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.

Net cash outflow from operating activities of £4.1 million is
an increase from the £2.6 million recorded in 2015, due to
the increased level of activity in the year. Expenditure on the
intangible exploration and evaluation assets in the year was
£46.8 million (2015: £3.0 million), which included primarily
the Lancaster and Lincoln wells and FEED on the EPS.

The net cash provided by financing activities was £121.5
million as a result of the capital raises in May and November.

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

12 May 2017

Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2016

Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2016

Financial Statements

Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2016

Directors’ Report

Directors
The following Directors held office during the year ended 31 December 2016 and up to the date of this report.

Disclosure of information to the auditor
In the case of each person who was a Director at the time this report was approved:

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 profit of the Group for the year was £664,000 (2015: loss of £5,523,000). The Directors do not recommend the payment of a dividend.

Financial risk management and objectives
The Group’s financial risk management and objectives 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 the year with £82.2 million of cash and cash equivalents (including £9.9 million of restricted cash held in escrow).
These balances have allowed the Group to meet its outstanding trade and other payables of £21.3 million that existed at 31 December
2016 and the costs of the remainder of the drilling programme and to commence the purchase of long lead items and other required pre-
sanction expenditure (the “Pre-sanction Commitments”) under the Lancaster EPS development.

The total forecast capital cost of the EPS is approximately $467 million (including costs already incurred to date). Therefore, the Group has
a significant funding requirement that may include a combination of equity, debt and / or a farm-out. This Primary Funding is, subject to
market conditions, anticipated to occur in mid-2017.

In order to preserve flexibility around both the timing and the optimal structure for the Primary Funding, on 12 May 2017 the Group
intends to enter into the Interim Funding with Stifel. Under this arrangement the Group intends to issue Stifel warrants over 25,000,000
ordinary shares of 0.1 pence each. The exercise price for each of the warrants will be 95% of the volume weighted average price of the
ordinary shares, calculated over the trading day prior to exercise. Stifel will use reasonable endeavours to procure purchasers for the
ordinary shares granted under the warrants. The Company will have the right to terminate the warrants at any time, otherwise they will
expire on 30 June 2017.

Both the Interim Funding and Primary Funding are subject to market conditions outside of the Group’s control and if the Interim Funding
is unsuccessful and the Primary Funding does not take place, the Group’s projections indicate that, after meeting its existing pre-sanction
commitments, it is likely to run out of funds in the second half of 2017. This risk constitutes a material uncertainty that may cast significant
doubt upon the use of the going concern basis of accounting. However, the Directors have a reasonable expectation that both the Interim
Funding and the Primary Funding will be completed successfully. On this basis, the Group’s projections indicate that the Group will have
sufficient liquidity and will be able to meet its pre-sanction commitments, licence renewal costs and other liabilities as they fall due for a
period of at least 12 months from the date of finalising the 2016 Annual Report and Financial Statements.

Therefore, the Directors have a reasonable expectation that the Group has 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. The financial
statements do not include the adjustments that would result if the Group was unable to continue as a going concern.

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.

•

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.

Directors’ Responsibility Statement
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and
regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors 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

12 May 2017

Alistair Stobie

Chief Financial Officer

12 May 2017

Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2016

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 2016 which comprise the Group
Income Statement, the Group and Parent Company Balance Sheets, the Group and Parent Company Cash Flow Statements, the Group and
Parent 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 and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006

This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an
auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone
other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of Directors and auditor
As explained more fully in the Directors’ Responsibilities Statement, the Directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial
statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to
comply with the Auditing Practices Board’s Ethical Standards for Auditors.

Scope of the audit of the Financial Statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance
that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:
whether the accounting policies are appropriate to the Group’s and the parent company’s circumstances and have been consistently
applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall
presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify
material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect
based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any
apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on Financial Statements
In our opinion:

•

the financial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31
December 2016 and of the Group’s profit for the year then ended;

the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;

the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European
Union and as applied in accordance with the provisions of the Companies Act 2006; and

•

the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Emphasis of matter – going concern
In forming our opinion on the Group financial statements, which is not modified, we have considered the adequacy of the going concern
disclosures made in note 2.2 of the financial statements. The Group is anticipating raising significant funds in mid-2017 in order to develop
the Lancaster Early Production System (the “Primary Funding”). In order to preserve flexibility around both the timing and the optimal
structure for the Primary Funding, the Group intends to enter into a smaller financing arrangement (the “Interim Funding”) with Stifel
Nicolaus Europe Limited. Both the Interim Funding and Primary Funding are subject to market conditions outside of the Group’s control
and if the Interim Funding is unsuccessful and the Primary Funding does not take place, the Group’s projections indicate that, after meeting
its existing pre-sanction commitments, it is likely to run out of funds in the second half of 2017. These conditions, along with other matters
explained in note 2.2 of the financial statements, indicate the existence of a material uncertainty which may cast significant doubt about
the Group’s and the Company’s ability to continue as a going concern. The financial statements do not include the adjustments that would
result if the Group was unable to continue as a going concern.

Opinion on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:

•

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; and

•

the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.

In light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not
identified any material misstatements in the Strategic Report and the Directors’ Report.

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
12 May 2017

41
41

Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2016

Group Income Statement
for the Year Ended 31 December 2016

Operating expenses

Operating loss

Investment revenue
Foreign exchange gains
Finance costs

Loss before tax

Tax

Profit / (Loss) for the year

Notes

Year Ended

31 Dec 2016

£’000

Year Ended

31 Dec 2015

£’000

(6,540)

65
1,840
(66)

(4,701)

5,365

664

(5,448)

37
28
(140)

(5,523)

Earnings / (Loss) per share, basic and diluted

0.07 pence

(0.87) 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 2016
Registered company number 05245689

Non-current assets
Property, plant and equipment
Intangible exploration and evaluation assets
Other receivables
Other non-current assets*

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 2016

£’000

11
12
13
16

14
15
16

21
27

31 Dec 2015

£’000

89
176,012
130
2,318

178,549

410
420
7,623

8,453

15
245,146
130
2,330

247,621

359
5,893
79,900

86,152

333,773

187,002

(21,341)
-

(21,341)

(4,829)

(26,170)

307,603

1,203
332,313
10,135
(232)
-
(35,816)

307,603

(271)
-

(271)

(3,221)

(3,492)

183,510

633
210,814
8,089
(195)
649
(36,480)

183,510

43
43

*2015 balances have been restated (see note 2.1).

The Financial Statements of Hurricane Energy plc were approved by the Board of Directors and authorised for issue on 12 May 2017.
They were signed on its behalf by:

Dr Robert Trice
Chief Executive Officer
12 May 2017

Alistair Stobie
Chief Financial Officer
12 May 2017

Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2016

Group Statement of Changes in Equity
for the Year Ended 31 December 2016

Group Cash Flow Statement
for the Year Ended 31 December 2016

At 1 January 2015
Shares allotted
Share option charge
Own shares held by SIP Trust
Equity shares to be issued
Total comprehensive loss for the year

At 31 December 2015

Shares allotted
Transaction costs
Share option charge
Own shares held by SIP Trust
Settlement of deferred bonus (note 19)
Total comprehensive profit for the year

capital

£’000

632
1
-
-
-
-

633

570
-
-
-
-
-

Share Own shares held

Equity Shares

Accumulated

Total

premium option reserve

by SIP Trust

to be issued

£’000

210,697
117
-
-
-
-

210,814

126,497*
(4,998)
-
-
-
-

5,420
-
2,669
-
-
-

8,089

-
-
2,046
-
-
-

(194)
-
-
(1)
-
-

(195)

-
-
-
(37)
-
-

696
-
-
-
(47)
-

649

-
-
-
-
(649)
-

deficit

£’000

(30,957)
-
-
-
-
(5,523)

£’000

186,294
118
2,669
(1)
(47)
(5,523)

(36,480)

183,510

-
-
-
-
-
664

127,067
(4,998)
2,046
(37)
(649)
664

At 31 December 2016

1,203

332,313

10,135

(232)

(35,816)

307,603

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).

* Includes £463,000 in relation to the portion of the deferred bonus settled in equity (see note 19).

Net cash outflow from operating activities

Investing activities

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
Deferred bonus arrangements settled in cash
Net proceeds from issue of share capital

Net cash provided by financing activities

Net increase / (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*

Notes

Year Ended

31 Dec 2016

£’000

Year Ended

31 Dec 2015

£’000

(4,115)

(2,558)

58
(13)
(46,818)
-

(46,773)

(4)
(187)
121,529

121,338

70,450

9,941

70,450
1,839

82,230

35
(3)
(3,029)
(410)

(3,407)

(1)
-
23

(5,943)

15,856

(5,943)
28

9,941

*Cash and cash equivalents includes £2,330,000 (31 December 2015: £2,318,000) of cash held in escrow which has been included in the
balance sheet in other non-current assets.

45
45

1. General information
Hurricane Energy plc is a public company, limited by shares, 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.

1.1 New and revised standards: International Financial Reporting Standards
In the current year, the following accounting amendments, standards and interpretation became effective and have been adopted in these
Financial Statements but have not materially affected the amounts reported in these Financial Statements:

Amendments to IAS 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. Although a detailed assessment of IFRS 16 has not been completed, it
is likely to require the Group’s building lease to be recorded as a right of use asset, with a corresponding lease liability also being recorded.

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.

During the year, management have reconsidered the classification of cash balances held in escrow that relate to decommissioning. As these
balances may not be available for at least 12 months from the Balance Sheet date, these balances have been reclassified from cash and
cash equivalents within current assets to non-current assets. The comparative balances have been restated to reflect this reclassification.

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, including details of a related material uncertainty due to the requirement to raise additional funding to
meet its liabilities as they fall due in the next twelve months.

2.3 Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its
subsidiaries) made up to 31 December each year. Control is achieved when the Company:

•

has the power over the investee;

is exposed, or has rights, to variable return from its involvement with the investee; and

has the ability to use its power to affects its returns.

On an acquisition that qualifies as a business combination, the assets and liabilities of the subsidiary are measured at their fair value as
at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is capitalised as
goodwill. Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired is credited to the Income
Statement in the period of acquisition. All intra group transactions, balances, income and expenses are eliminated on consolidation.

2.4 Revenue recognition
Revenue is recognised when it is probable that the economic benefits associated with a transaction will flow to the enterprise and the
amount of revenue can be measured reliably. Interest income is recognised on an accrual basis, by reference to the principal outstanding
and the effective interest rate applicable.

2.5 Oil and gas exploration and evaluation activity
The Group follows the successful efforts method of accounting for oil and gas exploration and evaluation activities (intangible exploration
and evaluation assets).

Pre licence costs, which relate to costs incurred prior to having obtained the legal right to explore an area, are charged 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.

Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2016Notes to the Group Financial Statementsfor the Year Ended 31 December 2016

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. All entities within the Group are considered to have a British Pound Sterling functional currency.

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.

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 equity settled share-based employee compensation arrangements 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 statistical models. The expected vesting
period 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 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.

Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2016Notes to the Group Financial Statementsfor the Year Ended 31 December 2016

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, whilst at the
exploration and evaluation stage, not considered to represent 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.

3. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group’s accounting policies, which are described in note 2, the Directors are required to make judgements,
estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The
estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual
results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
period in which the estimate is revised if the revision affects only the period, or in the period of the revision and future periods if the
revision affects both current and future periods.

Critical judgements in applying the Group’s accounting policies
The following are critical judgements, apart from those involving estimations (which are dealt with separately below), that the Directors
have made in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognised
in the financial statements.

3.1 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.

The Group’s forecasts, taking into account the Interim Funding and reasonably possible changes as described above, show that the Group
will be able to operate and 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.

Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty at the Balance Sheet date that may have a
significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year, are discussed
below.

3.2 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.

3.3 Accounting for share-based payments
Charges relating to the Group’s share-based payment arrangements requires making a number of 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 estimates
related to the inputs such as share price and volatility. Estimates are also required for the number of shares vesting, based on assumptions
of how many options will be forfeited and the likelihood of vesting criteria being met.

Note 20 provides further detail on the Group’s share-based payment arrangements.

4. Operating segments
The Group complies with IFRS 8 Operating Segments, which requires operating segments to be identified on the basis of internal reports
about components of the Group that are regularly reviewed by the Chief Executive to allocate resources to the segments and to assess
their performance.

In the opinion of the Directors, the operations of the Group comprise one class of business, being oil and gas exploration and related
activities in only one geographical area, the UK Continental Shelf.

5. Revenue
The Group has no revenue in the current or comparative year other than interest income.

Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2016Notes to the Group Financial Statementsfor the Year Ended 31 December 2016

6. Operating loss

8. Staff costs

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

Total

The Group made no charitable or political donations in either year presented.

7. Finance costs

Bank charges
Unwinding of discount on decommissioning provisions (note 18)

Year Ended

31 Dec 2016

£’000

4,257
183
40
80

Year Ended

31 Dec 2015

£’000

4,443
170
82
58

54
6

15
5

41
5

10
2

Year Ended

31 Dec 2016

£’000

5
61

Year Ended

31 Dec 2015

£’000

1
139

140

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 2016

Number

Year Ended

31 Dec 2015

Number

£’000

3,398
665
2,086
77

6,226

(1,969)

4,257

£’000

1,865
221
2,764
157

5,007

(564)

4,443

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 £3,671,000 (2015: £2,722,000). These costs include emoluments of
£1,938,000 (2015: £1,185,000); social security costs of £399,000 (2015: £136,000); pension contributions of £18,000 (2015: £94,000),
share-based payment expense of £1,253,000 (2015: £1,307,000) and payments in lieu of pension contributions of £63,000 (2015: £nil).
Further details are provided in the Remuneration Report.

The highest paid Director received emoluments of £713,000 (2015: £375,000) and pension contributions of £9,000 (2015: £38,000).
Included in emoluments are consulting fees of £nil (2015: £28,000) paid to Chartwood Resources Ltd, a company controlled by Dr David
Jenkins, consulting fees of £27,000 (2015: £28,000) paid to Northlands Advisory Services Limited, a company controlled by John van der
Welle and consulting fees of £35,000 paid to Kerogen Capital II Limited.

At 31 December 2016 the Directors held 4,819,386 (2015: 15,226,332) PSP awards and share options. 4,533,333 PSP awards were granted
to Directors in the year (2015: nil). No share options were granted or exercised during 2016 (2015: nil). In 2016 13,599,999 PSP awards
were forfeited by Directors in exchange for awards under the Value Creation Plan. 1,272,280 PSP awards held by Directors lapsed in 2016
(2015: nil). 68,000 share options held by Directors lapsed in 2016 (2015: nil).

In November 2016 the Group introduced a Value Creation Plan (VCP) for employees and executive Directors and 420 VCP awards were
made to Directors prior to year-end. For further detail on the Group’s PSP awards, share options and VCP see note 20.

Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2016Notes to the Group Financial Statementsfor the Year Ended 31 December 2016

Year Ended

31 Dec 2016

£’000

Year Ended

31 Dec 2015

£’000

10. Earnings per share
The basic and diluted earnings / (loss) per share has been calculated using the profit for the year ended 31 December 2016 of £664,000
(2015: loss for the year of £5,523,000). The earnings / (loss) per share is calculated using a weighted average number of ordinary shares in
issue less treasury shares.

9. Tax on loss on ordinary activities

UK corporation tax
Current tax – current year
Total current tax

Deferred tax – current year
Adjustment in respect of previous periods
Effect of changes in tax rates
Total deferred tax
Tax credit per income statement

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 40% (2015: 50%)

Effects of:
Adjustment to prior years
Expenses not deductible for tax purposes
Effect of changes in tax rates
Research & development tax credit
Unrecognised pre-trade revenue expenditure carried forward

Total tax credit for the year

(5,365)
(5,365)

(231)
289
(58)
-
(5,365)

(4,701)

(1,880)

289
851
(58)
(5,365)
798

(5,365)

-
-

-
-
-
-
-

(5,523)

(2,761)

-
1,506
(1)
-

1,256

A 10% reduction of the supplementary charge rate was announced in the 2016 Budget, reducing the rate applying to oil and gas companies
from 50% to 40%. This rate reduction was published in the Finance Bill 2016 on 24 March 2016 and applies to accounting periods
beginning on or after 1 January 2016.

In 2016 the Company made a claim under the SME Research & Development tax relief scheme and has surrendered the resulting losses
for a payable tax credit. £0.7 million of the research and development tax credit was received in cash during the year, relating to the 2013
claim. The remaining £4.7 million relating to the 2014 claim was received in February 2017 and has been included within Trade and other
receivables at the year end (see note 15).

9.1 Factors which may affect future tax charges
The Group has pre-trading revenue expenses of £19.4 million (2015: £24.8 million), covering the period from 2010 onwards, and
pre-trading capital expenditure of £208.3 million (2015: £158.7million) which will be available for tax relief on commencement of a
petroliferous trade for UK tax purposes.

The total pre-trading expenditure of £227.7 million (2015: £183.5 million) (referred to above) may attract Ring Fence Expenditure
Supplement on the commencement of trade, which would result in a further uplift of tax relief being available at that time.

No asset has been recognised in these Financial Statements for a potential deferred tax asset of £0.3 million (2015: £12.4 million) resulting
from the effect of carried forward pre-trading revenue expenses, after offsetting £7.4 million (2015: nil) against a deferred tax liability. 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 40% (2015:
50%).

Profit / (loss) after tax

Weighted average shares in issue (basic)

Effect of dilutive potential ordinary shares:

Warrants

Weighted average shares in issue (diluted)

Earnings / (loss) per share (basic)

Earnings / (loss) per share (diluted)

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 2016

664,000

Year Ended

31 Dec 2015

(5,523,000)

Number of shares
889,529,040

Number of shares
632,151,017

15,022,831

904,551,871

632,151,017

Pence

0.07

Pence

(0.87)

Year Ended

31 Dec 2016

£’000

Year Ended

31 Dec 2015

£’000

793
13

806

(704)
(87)

(791)

790
3

793

(575)
(129)

(704)

Property, plant and equipment comprises the Group’s investment in leasehold improvements, fixtures, office equipment and computer
hardware. In 2016 £47,000 (2015: £47,000) of depreciation has been capitalised into the Group’s intangible exploration and evaluation
expenditure in accordance with the Group’s overhead allocation policy.

Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2016Notes to the Group Financial Statementsfor the Year Ended 31 December 2016

12. Intangible exploration and evaluation assets

16. Cash and cash equivalents

At 1 January
Additions
Effects of additions / changes to decommissioning estimates (note 18)

At 31 December

Year Ended

31 Dec 2016

£’000

176,012
67,587
1,547

245,146

Year Ended

31 Dec 2015

£’000

177,308
2,903
(4,199)

176,012

Unrestricted funds
Current restricted funds
Current cash and cash equivalents
Non-current restricted funds

Total cash and cash equivalents

31 Dec 2016

£’000

31 Dec 2015

£’000

72,339
7,561
79,900
2,330

82,230

7,623
-
7,623
2,318

9,941

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.

13. Other non-current receivables
The other non-current receivables of £130,000 (2015: £130,000) represents the deposit for the office lease. Further details are given in
note 25.

14. Inventory

Inventory

31 Dec 2016

£’000

31 Dec 2015

£’000

359

410

Inventory is comprised of materials and equipment that are to be used in future exploration and appraisal activity.

15. Trade and other receivables

Research & development tax credit (see note 9)
Other receivables
Prepayments and accrued income

31 Dec 2016

£’000

31 Dec 2015

£’000

4,693
812
388

5,893

-
141
279

420

No amounts were past due at either Balance Sheet date. The carrying amounts of trade and other receivables are considered to be
materially equivalent to their fair values.

At 31 December 2016 the current restricted funds of £7,561,000 (2015: nil) are held in escrow for future expected drilling costs related
to the Lincoln and Halifax exploration wells. The amounts held in escrow can only be withdrawn on the consent of both the relevant third
party and the Company.

At 31 December 2016 the non-current restricted funds of £2,330,000 (2015: £2,318,000) are 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 OGA
and the Company. These funds have been included in the Balance Sheet in other non-current assets.

17. Trade and other payables

Trade payables
Other payables
Accruals

31 Dec 2016

£’000

6,749
788
13,804

21,341

31 Dec 2015

£’000

71
78
122

271

The carrying amounts of trade and other payables are considered to be materially equivalent to their fair values. All payables are due
within 30 days at year end.

Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2016Notes to the Group Financial Statementsfor the Year Ended 31 December 2016

18. Decommissioning provisions

At 1 January
Unwinding
Additions
Changes to estimate

At 31 December

Year Ended

31 Dec 2016

£’000

3,221
61
1,373
174

4,829

Year Ended

31 Dec 2015

£’000

7,281
139
-
(4,199)

3,221

The provision for decommissioning relates to the costs required to decommission the suspended wells previously drilled on the Lancaster
and Whirlwind assets. The additions to the decommissioning estimate in the year is due to the inclusion of the Lancaster 7 well in the
provision. The changes to the estimate are due to: (a) revision of the Directors’ best estimate of the timing of the decommissioning of the
assets to 2026 (2015: 2019); and (b) the revision of the inflation rate and discount rate used in the calculation of the provision to 2.0% and
1.31% (2015: 2.5% and 1.9%) to align with current market conditions.

19. Called up share capital

Alloted, called up and fully paid

At 1 January
Issued

At 31 December

Ordinary

Shares of £0.001

31 Dec 2016

£’000

Ordinary

Shares of £0.001

31 Dec 2015

£’000

633,112,533
569,747,864

1,202,860,397

633
570

1,203

632,277,788
844,745

633,122,533

632
1

633

The Company does not have an authorised share capital.

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.

On 21 January 2016 1,016,976 new ordinary shares were issued to the Hurricane Energy plc SIP at a subscription price of £0.09 per share.

On 10 May 2016 347,245,265 new ordinary shares were issued to Kerogen Capital and other institutional investors at a subscription price
of £0.15 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 £0.20 per share. The expiry date of these warrants is 10 May 2019.

On 08 June 2016 2,655,503 new ordinary shares were issued to Directors who held office during 2014 in partial settlement of the 2014
deferred bonus, at a market price at that date of £0.17 per share, with the remainder of the deferred bonus settled via a cash payment of
£187,000.

On 8 November 2016 218,830,120 new ordinary shares were issued by way of a placing and open offering at a subscription price of £0.34
per share.

20. Equity settled compensation arrangements
The Group recognised total expenses of £2,086,000 in respect of share-based payments in 2016 (2015: £2,764,000).

20.1 PSP awards

Number of

awards

32,339,405

4,533,333
(27,942,384)
-

8,930,354

Year Ended

31 Dec 2016

Weighted average

exercise price

-
-
-

Number of

awards

33,283,332

-
(943,927)
-

32,339,405

Year Ended

31 Dec 2015

Weighted average

exercise price

-
-
-

Outstanding at 1 January

Granted
Forfeited / lapsed
Exercised

Outstanding at 31 December

Under the Hurricane Energy 2013 Performance Share Plan ("PSP") certain employees, including executive Directors, were granted
conditional rights to receive ordinary shares at nil cost. The share awards vest based on the Group meeting certain funding milestones
across the next four 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 ordinary shares at nil
cost. The share awards vest based on the same conditions as the PSP.

In November 2016 certain employees and executive Directors forfeited their PSPs as part of the terms of participating in the Value Creation
Plan ("VCP"). The transfer of employees and executive Directors to the VCP has been accounted for as a modification to the PSP. See
section 20.3 below.

20.2 Share Options
There are two tranches of share options that remain outstanding at 31 December 2016. Both tranches vested either on or before IPO. All
other share options and LTIP awards were replaced by the PSP. As at 31 December 2016 the number of options that remained outstanding
was 901,500 (2015: 1,074,500). The weighted average exercise price for these options was £0.53 (2015: £0.61). All outstanding options
are exercisable.

The options outstanding at 31 December 2016 had a weighted average remaining contractual life of 2.1 years (2015: 3.1 years).

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. 173,000 of these share options lapsed in
2016. 301,500 lapse in December 2020.

20.3 Value Creation Plan
In November 2016 the Group introduced the VCP for employees and executive Directors, involving the issue of 840 growth shares in
Hurricane Group Limited (a Group subsidiary). The VCP will run for 5 years until November 2021. At the end of the vesting period the
value of the growth shares will be driven by the amount by which the price of ordinary shares in Hurricane Energy plc has increased
above £0.34 per ordinary share (the "Threshold Value"). The Threshold Value is the price of the ordinary shares as at the date of issue
of the growth shares and will be adjusted for any capital raises that occur during the vesting period. The growth shares have no value
unless the price of the ordinary shares exceeds a hurdle of £0.55 per share at the vesting date (calculated as the average price for the

Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2016Notes to the Group Financial Statementsfor the Year Ended 31 December 2016

previous 3 months). If the hurdle is met, and a vesting event occurs within the vesting period, the growth shares may be exchanged for
ordinary shares of an amount, in aggregate, equivalent to up to 8.4% of the growth in the price of the issued ordinary shares above the
Threshold Value, multiplied by the number of ordinary shares in issue at the time. This would be broadly equivalent to 8.4% of the growth
in the market capitalisation. The proportion of the growth shares that vest to participants and the amount received is dependent on the
Remuneration Committee certifying, at its discretion, the Group meeting various non market-based performance conditions consistent
with the progression and development of the Lancaster EPS during the vesting period.

A total of 840 growth shares were issued under the VCP in November 2016. The fair value of the VCP as at the grant date was calculated
as £18.1 million, of which £6.9 million has been charged to date under the terms of the PSP awards which it replaced. The fair value was
calculated using a simulation model with the following key assumptions: (i) volatility of 68%; (ii) risk free rate of 0.62%; (iii) dividend yield
of 0%; (iv) life of 5 years; and (v) share price at grant date of £0.34. The Group has currently assumed a vesting period which runs to early
2021, based on their assessment of the various non-market based performance conditions. If the assumed vesting period was shortened
by 1 year, 2 year, or 3 years, the additional charge per year would be approximately £0.8 million, £2.4 million and £6.5 million respectively.

Those employees or Directors who entered the VCP were required to forfeit any PSPs held at that time.

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 2016

£’000

195
77
(40)

232

Year Ended

31 Dec 2015

£’000

194
95
(94)

195

The Own shares held by SIP Trust 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 SIP administered by MM&K Share Plan Trustees Limited.

During 2016 the SIP acquired 1,016,976 new ordinary shares of £0.001 nominal value (2015: 844,745) at a subscription price of £0.09 per
share (2015: £0.14 per share), all of which were allocated to participants. At 31 December 2016 there were 1,694,821 ordinary shares held
in the SIP Trust (2015: 1,110,604). With the exception of 100,000 shares (2015: nil) which were unallocated, the remainder of these shares
were all 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
Share-based payment charge (note 20)

Operating cash outflow before working capital movements

(Increase) / Decrease in receivables
Increase / (Decrease) in payables

Cash used in operating activities

Corporation tax received / (paid)

Net cash outflow from operating activities

Year Ended

31 Dec 2016

£’000

Year Ended

31 Dec 2015

£’000

(6,540)

40
-
2,086

(4,414)

(772)
399

(4,787)

672

(4,115)

(5,448)

82
(5)
2,764

(2,607)

1,113
(1,058)

(2,552)

(6)

(2,558)

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) and 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 2016 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 2016 equity attributable to equity holders of the parent is £307.6 million (2015: £183.5 million), whilst cash and cash
equivalents amount to £82.2 million, (2015: £9.9 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 £2.3 million (2015: £0.1 million) on the profit
after tax of the Group for the year ended 31 December 2016. A 10% weakening in the strength of the US Dollar against Sterling, would
cause an increase of £2.7million (2015: £0.1 million) on the profit after tax of the Group for the year ended 31 December 2016.

Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2016Notes to the Group Financial Statementsfor the Year Ended 31 December 2016

27. Equity shares to be issued
At 31 December 2015, the balance of £649,000 in Equity shares to be issued reserve, represented the value of deferred ordinary shares
that had 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. During
2016, once the Company was out of the close period, the Board reviewed the recommendations of the remuneration committee and
£463,000 of the deferred share element of the 2014 bonus was settled via equity. The remaining amount of £187,000 was settled via cash.

28. Subsequent events
28.1 Share incentive plan
On 13 January 2017, MM&K Plan Trustees Limited, trustee of the HMRC approved Hurricane Energy plc SIP, awarded 227,726 ordinary
shares in the Company to participants in the SIP at a price of £0.49 per share. The SIP award has been satisfied by the issue of 127,726 new
ordinary shares issued to the SIP at a subscription price of £0.49 per share, plus 100,000 ordinary shares already held in the Plan.

28.2 Research & Development Tax claim
On 13 February 2017, the Group received £4.7 million in respect of an R&D tax claim for the period ended 31 December 2014. This
amount was included as a receivable as at 31 December 2016 (see note 15).

28.3 Completion of the Halifax exploration well
On 27 March 2017, the Group announced that operations on the 205/23-3A well (the “Halifax Well”) were complete. The Group
confirmed that the well is an oil discovery and that initial data analysis indicates Halifax is linked to the Lancaster field forming a single large
hydrocarbon accumulation.

28.4 Fundraising
On 12 May 2017 the Group intends to enter into a financing arrangement with Stifel. Under this arrangement the Group intends to issue
Stifel warrants over 25,000,000 ordinary shares of 0.1 pence each. The exercise price for each of the warrants will be 95% of the volume
weighted average price of the ordinary shares, calculated over the trading day prior to exercise. Stifel will use reasonable endeavours to
procure purchasers for the ordinary shares granted under the warrants. The Company will have the right to terminate the warrants at any
time, otherwise they will expire on 30 June 2017.

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 an economic hedge
against exchange rate movements.

23.4 Credit risk
The Group is only exposed to significant 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 profit after tax for the year ended 31 December 2016 would have increased by £1.0
million (2015: £0.01 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 2016 the Group had capital commitments of £6.0 million (2015: £ nil).

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 2016

£’000

31 Dec 2015

£’000

132
423
-

555

138
520
33

691

Operating lease payments represent rentals payable by the Group for certain of its office properties.

26. Related parties
During 2016, the only related party transactions are those with the Directors who are considered as the Group’s key management
personnel. These transactions include £35,000 paid to Kerogen Capital (2015 : £nil), who are a related party of the Company due to the size
of their shareholding. All transactions with the Directors are detailed in note 8.

Hurricane Energy plc Annual Report and Group Financial StatementsYear Ended 31 December 2016Notes to the Group Financial Statementsfor the Year Ended 31 December 2016

Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2016

Company Balance Sheet
as at 31 December 2016
Registered company number 05245689

Non-current assets
Property, plant and equipment
Intangible exploration and evaluation assets
Investments
Amounts due from subsidiary undertakings
Other receivables
Other non-current assets*

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 2016

£’000

1
2
3

4
7

5
6
7

10
10

31 Dec 2015

£’000

89
80,249
15,090
79,262
130
2,318

177,138

410
420
7,623

8,453

15
116,827
15,090
111,209
130
2,330

245,601

359
5,878
79,900

86,137

331,738

185,591

(21,341)
-

(21,341)

(2,414)

(23,755)

307,983

1,203
332,313
10,135
(232)
-
(35,436)

307,983

(271)
-

(271)

(1,610)

(1,881)

183,710

633
210,814
8,089
(195)
649
(36,280)

183,710

Company Statement of Changes in Equity
for the Year Ended 31 December 2016

At 1 January 2015
Shares allotted
Share option charge
Own shares held by SIP Trust
Equity shares to be issued
Total comprehensive loss for the year

At 31 December 2015

Shares allotted
Transaction costs
Share option charge
Own shares held by SIP Trust
Settlement of deferred bonus
Total comprehensive profit for the year

capital

premium

£’000

632
1
-
-
-
-

633

570
-
-
-
-
-

210,697
117
-
-
-
-

210,814

126,497*
(4,998)
-
-
-
-

Own shares

Equity shares

Accumulated

Total

option

reserve

£’000

5,420
-
2,669
-
-
-

8,089

-
-
2,046
-
-
-

held by

to be issued

deficit

SIP Trust

£’000

(194)
-
-
(1)
-
-

(195)

-
-
-
(37)
-
-

£’000

696
-
-
-
(47)
-

649

-
-
-
-
(649)
-

(30,828)
-
-
-
-
(5,452)

186,423
118
2,669
(1)
(47)
(5,452)

(36,280)

183,710

-
-
-
-
-
844

127,067
(4,998)
2,046
(37)
(649)
844

At 31 December 2016

1,203

332,313

10,135

(232)

(35,436)

307,983

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.

* Includes £463,000 in relation to the portion of the deferred bonus settled in equity (see Note 19 in the Group Financial
Statements).

*2015 balances have been restated (see note 2.1 in the Group Financial Statements)

The profit of the parent company for 2016 was £844,000 (2015: loss of £5,452,000). 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.

The Financial Statements of Hurricane Energy plc were approved by the Board of Directors and authorised for issue on 12 May 2017.
They were signed on its behalf by:

Dr Robert Trice
Chief Executive Officer
12 May 2017

Alistair Stobie
Chief Financial Officer
12 May 2017

Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2016

Company Cash Flow Statement
for the Year Ended 31 December 2016

Notes to the Company Financial Statements
for the Year Ended 31 December 2016

Net cash outflow from operating activities

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
Deferred bonus arrangements settled in cash
Net proceeds from issue of share capital

Net cash provided by financing activities

Net increase / (decrease) in cash and cash equivalents

Cash and cash equivalents at the beginning of the year*

Net decrease increase in cash and cash equivalents
Effects of foreign exchange rate changes

Notes

Year Ended

31 Dec 2016

£’000

Year Ended

31 Dec 2015

£’000

(3,952)

(2,558)

58
(13)
(24,292)
-
(22,689)

(46,936)

(4)
(187)

121,529

121,338

70,450

9,941

70,450
1,839

82,230

35
(3)
(1,574)
(410)
(1,455)

(3,407)

(1)
-

(5,943)

15,856

(5,943)
28

9,941

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 2016

£’000

Year Ended

31 Dec 2015

£’000

793
13

806

(704)
(87)

(791)

790
3

793

(575)
(129)

(704)

Property, plant and equipment comprises the Company’s investment in leasehold improvements, fixtures, office equipment and computer
hardware. In 2016 £23,000 (2015: £24,000) 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

Cash and cash equivalents at the end of the year*

*Cash and cash equivalents includes £2,330,000 (2015: £2,318,000) of cash held in escrow which has been included in the balance sheet in
other non-current assets.

At 31 December

At 1 January
Additions

Effects of additions / changes to decommissioning estimates (note 9)

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.

Year Ended

31 Dec 2016

£’000

80,249
35,805

773

116,827

Year Ended

31 Dec 2015

£’000

80,875
1,473

(2,099)

80,249

Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2016

Notes to the Company Financial Statements
for the Year Ended 31 December 2016

3. Investments

Investment in subsidiaries
Loan to subsidiary

31 Dec 2016

£’000

9,751
5,339

15,090

31 Dec 2015

£’000

9,751
5,339

15,090

6. Trade and other receivables

Research & development tax credit
Other receivables
Prepayments and accrued income

31 Dec 2016

£’000

31 Dec 2015

£’000

4,693
812
373

5,878

-
141
279

420

Details of investments in which the Company holds shares are as follows:

Company

Hurricane Exploration (UK) Limited
Hurricane Group Limited
Hurricane Basement Limited
Hurricane Petroleum Limited

Country of
Registration
UK
UK
UK
UK

Company Number

Nature of business

05458508
07700755
07700492
07700415

Oil and gas exploration
Holding company
Dormant company
Dormant company

The Company holds the entire ordinary share capital of each of the subsidiaries. Investments in subsidiaries are stated at cost less, where
appropriate, provisions for impairment. The registered office for each of the subsidiaries is the same as that for Hurricane Energy plc,
being The Wharf, Abbey Mill Business Park, Lower Eashing, Godalming, Surrey GU7 2QN.

The dormant companies have taken advantage of the s394A exemption from preparing individual accounts, and the s479A exemption from
audit.

4. Other non-current receivables
The other non-current receivables of £130,000 (2015: £130,000) represent the deposit for the office lease. Further details are given in note
25 of the Group Financial Statements.

5. Inventory

Inventory

31 Dec 2016

£’000

359

31 Dec 2015

£’000

410

Inventory is comprised of materials and equipment that are to be used in future exploration and appraisal activity.

No amounts were past due at either balance sheet date. The carrying amounts of trade and other receivables are considered to be
materially equivalent to their fair values.

7. Cash and cash equivalents

Unrestricted funds
Current restricted funds
Current cash and cash equivalents
Non-current restricted funds

Total cash and cash equivalents

31 Dec 2016

£’000

31 Dec 2015

£’000

72,339
7,561
79,900
2,330

82,230

7,623
-
7,623
2,318

9,941

At 31 December 2016 the non-current restricted funds of £2,330,000 (2015: £2,318,000) are 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
OGA and the Company. These funds have been included in the balance sheet in other non-current assets.

8. Trade and other payables

Trade payables
Other payables
Accruals

31 Dec 2016

£’000

6,749
788
13,804

21,341

31 Dec 2015

£’000

71
78
122

271

The carrying amounts of trade and other payables are considered to be materially equivalent to their fair values. All payables are due
within 30 days at year end.

Hurricane Energy plc Annual Report and Group Financial Statements
Year Ended 31 December 2016

Notes to the Company Financial Statements
for the Year Ended 31 December 2016

9. Decommissioning provisions

At 1 January
Unwinding
Changes to estimates
Additions

At 31 December

31 Dec 2016

£’000

31 Dec 2015

£’000

1,610
31
686
87

2,414

3,641
68
(2,099)
-

1,610

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

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

(Increase) / decrease in receivables
Increase / (decrease) in payables

Cash used in operating activities

Corporation tax received / (paid)

Net cash outflow from operating activities

Year Ended

31 Dec 2016

£’000

Year Ended

31 Dec 2015

£’000

(6,390)

41
-
2,086

(4,263)

(758)
397

(4,624)

672

(3,952)

(5,448)

82
(5)
2,764

(2,607)

1,113
(1,058)

(2,552)

(6)

(2,558)

12. Other disclosures
Certain other disclosures in notes 24, 25, 26, 27 and 28 to the Group Financial Statements also apply to the Company in respect of its share
of the Group’s operations.

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

Nominated Adviser and Joint Broker
Cenkos Securities plc
6 7 8 Tokenhouse Yard
London EC2R 7AS
www.cenkos.com

Joint Broker
Stifel Nicolaus Europe Limited
150 Cheapside
London EC2V 6ET
www.stifel.com

Solicitors to Company
Dentons UKMEA LLP
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

PR and Communications Advisers
Vigo Communications Limited
180 Piccadilly
London W1J 9HF
www.vigocomms.com

Design by Anna Mackeewww.annamackee.com

The Wharf
Abbey Mill Business Park
Lower Eashing
Godalming
Surrey GU7 2QN
www.hurricaneenergy.com