08:00 Thu 20 Sep 2018
Hurricane Energy PLC - Half-year Results 2018
("Hurricane", the "Company", or the "Group")
Half-year Results 2018
Dr
"During the first half of 2018, Hurricane has been focussed on the Lancaster Early Production System (EPS) development. I am delighted to report that operations have progressed to plan and within budget, allowing us to reiterate our first oil guidance of H1 2019.
The two production wells have been completed, the turret mooring system (TMS), subsea umbilical, risers and flowlines (SURF) have been installed at the field, and the upgrade and life extension of the Aoka Mizu FPSO is in its final stages in
At
As we noted in our 2017 Annual Report, the task in front of us is to de-risk and monetise the substantial contingent and prospective resources across all of our assets. The recently announced farm-in by
Following this transaction, Hurricane's outlook for 2019 now includes three GWA wells in addition to first oil in H1 from the Lancaster EPS. The next steps on the GLA remain subject to data obtained from the EPS. However, we believe that we will be able to undertake a drilling campaign on the GLA in 2020/21, ahead of planning for further development. We are entering a very exciting time for the Company and its shareholders. I look forward to first revenues and continued appraisal and development of our significant
2018 Interim results summary
Financial results
· The Group's loss after tax for the first half of 2018 was
· Operating expenses for the period were
· As at
· The net decrease in cash, cash equivalents and liquid investments in the period was
Operational and corporate developments/outlook
· Lancaster EPS first oil guidance maintained at H1 2019
· Significant Lancaster EPS development hurdles achieved, including:
o Delivery of TMS and SURF
o Completion of the two production wells
o Conclusion of the offshore installation programme which included installation of TMS and SURF
o Final stages of Aoka Mizu life extension and upgrade works reached in
·
o Agreed five-phase work programme targeting development with 500 million barrels of reserves, significantly accelerating development of the GWA
o Up to
o Hurricane fully carried on first phase of up to
· Transocean Leader rig contracted for the three 2019 GWA wells, to begin in Q1
Contacts:
|
Dr
|
+44 (0)1483 862 820 |
|
Nominated Adviser and Joint Corporate Broker
|
+44 (0)20 7710 7600 |
|
Joint Corporate Broker
|
+44 (0)20 7425 8000 |
|
Public Relations Patrick d'Ancona /
|
+44 (0)20 7390 0230 |
About Hurricane
Hurricane was established to discover, appraise and develop hydrocarbon resources associated with naturally fractured basement reservoirs. The Company's acreage is concentrated on the
The
Hurricane's other assets include
In
Inside Information
This announcement contains inside information as stipulated under the market abuse regulation (EU no. 596/2014). Upon the publication of this announcement via regulatory information service this inside information is now considered to be in the public domain.
Competent Person
The technical information in this release has been reviewed by Dr
Standard
Resource estimates contained in this announcement have been prepared in accordance with the Petroleum Resource Management System guidelines endorsed by the
Chief Executive Officer's Review
Lancaster EPS
The first half of the year was principally marked by significant construction and fabrication activities on the Aoka Mizu FPSO, and on the TMS and SURF for the Lancaster EPS development.
The offshore installation phase of the development was kicked-off with the successful installation of the Xmas trees by the Far Superior construction vessel in Q2. This was followed shortly thereafter by the completions of the
The Company had highlighted the construction and delivery of the TMS buoy as being a key gating item to delivery of first oil in H1 2019. The TMS was successfully installed in early August and the SURF installation completed in mid-September. The offshore installation programme has therefore now been completed and the system is ready for the arrival of the Aoka Mizu.
At the date of this report, the Aoka Mizu is expected to commence sea trials by the end of September with sailaway anticipated to follow shortly thereafter.
On
The GWA farm-in significantly accelerates the development of the GWA, providing a clear path to its phased development and bringing forward a potential initial stage of a full field development final investment decision (FID) by a number of years. Notwithstanding the significant cash flow that the Lancaster EPS will deliver, Hurricane would not have otherwise been able to undertake such a development on a standalone basis, without impacting its ability to continue progressing its GLA licences. The GWA farm-in provides Hurricane with a new leg to its business, with a large portion of the up-front capital expenditure funded, whilst freeing up cash flow from the Lancaster EPS for appraisal and development of the rest of its portfolio.
Hurricane and
Other corporate developments
In 2017, Hurricane's board undertook to progress its board composition and governance towards compliance with the
The board continues to review its composition, noting the recent changes to corporate governance guidelines (including a new Code) which will be in force for accounting periods commencing from
Dr
Chief Executive Officer
Financial Review
During the first half of the year, the focus has remained on the Lancaster EPS development and the initial stages of offshore installation with capital expenditure continuing in line with forecasts and budget. Expenditure on the EPS in the first six months of 2018 was
Use of funds
In H1 2018 the Group's primary use of funds were:
i) Development expenditure on the EPS of
ii) Intangible exploration expenditure of
iii) Operating cash outflow of
iv) Convertible bond coupon payments of
Income statement
The Group recorded a loss after tax for the first half of 2018 of
Whilst the movement in the foreign exchange rate between the US Dollar and Sterling resulted in the foreign exchange loss in the period, at the time of the
Due to the nature of the Group's business, it has accumulated significant tax losses since incorporation. The Group has trading losses of
The Group had pre-trading expenditure of
Cash flow
As at
Convertible bond accounting
The accounting for the convertible bond (issued in
At
The losses recognised do not have any impact on the Group's cash position, amounts payable in respect of the convertible bond, or on its tax position. On either the conversion of the bond or the repayment of the bond the recognised derivative liability will be released.
Principal risks
There are a number of potential risks and uncertainties which could have a material impact on the Group's performance over the remaining six months of 2018 and could cause actual results to differ materially from expected and historical results. The principal risks and uncertainties, along with the mitigation measures in place to reduce risks to acceptable levels, remain unchanged from those published on pages 18-21 of the 2017 Annual Report and Accounts (summarised below) except for one addition, discussed below.
Key risk factor |
Risk summary |
Substantial capital requirements |
The Group's business plan to exploit and commercialise its assets requires significant capital expenditure. Future plans may be curtailed if the Group is unable to generate sufficient funds from operational cashflow and/or raise further funds. |
Exploration, appraisal and development operational risks |
There are a range of operational risks during offshore operations whether for exploration, appraisal or development. These include, but are not limited to, failure of offshore vessels/rigs or other crucial equipment, unforeseen problems occurring during drilling or completion works, and delays to offshore operations due to unfavourable weather. |
Production operational risks |
There are many production-related operational risks. These mainly relate to, but are not limited to, the risk of unplanned downtime of production facilities. This may be the result of mechanical issues, unfavourable weather leading to delays in operations, and/or other issues. |
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, such as earlier water production than predicted, reserves/resources being less than expected, or oil having different properties than expected. |
Regulatory |
There is a risk that the Group and/or its primary contractors are in breach of their regulatory obligations with one of their principal regulators in connection with the Group's activities. This could restrict the Group and/or its primary contractors' capacity to obtain permits and to carry out the Group's activities on the |
Oil price fluctuations |
Declines in oil prices may adversely affect the cashflows generated from the EPS and may also affect market sentiment and consequently, the market price of the Company's Ordinary Shares and the ability of the Group to raise finance. |
Third party infrastructure |
Any field development, including gas export, is likely to be dependent upon the availability of third party infrastructure. If this fails, or is not available on reasonable commercial terms, it may result in delays to field development, production and cash generation. This would have a material adverse effect on the Group's business, prospects, financial condition and operations. |
Development project delivery |
Development projects are subject to various risks including availability of third party services and manufacturing slots, solvency of major contractors, correct fabrication of key components to specification, incident-free installation operations, installation windows, permits, consents and weather. Problems with any of the above can cause project delays that would impact both the timing for completion of the project, as well as the cost. |
Health, Safety and Environmental (HSE) |
In performing offshore exploration, development or production activities and onshore fabrication activities there is a risk of harm to the workforce, to the environment (e.g. from fabrication processes, hydrocarbon releases and/or oil spills, damage to seabed ecosystems or disturbance to marine mammal populations from noise pollution), to the assets during construction or in use, and to the Company's reputation as a result of some or all of the above. |
Compliance |
There is a risk of a major breach of the Group's business or ethical conduct standards due to unethical behaviour or breaches of anti-corruption laws by the Group or its contractors, resulting in investigations, fines, loss of reputation and loss of assets. |
Further information on the above principal risks and uncertainties facing the Group is included in the Strategic Report of the 2017 Annual Report and Accounts. Also included in that report is the manner in which the Group seeks to mitigate each of these principal risks.
The only addition to these risks is, following the farm-out of 50% of the
Key risk factor |
Risk detail |
How is it managed? |
Joint venture partners |
Operations in the oil and gas industry are often conducted in a joint venture environment. There is a risk that joint venture partners are not aligned in their objectives and drivers, which may lead to inefficiencies and delays. Following farm-out transactions, the Group may not always 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. |
Due diligence will be used to review and assess any third parties that the Group enters into a joint venture with in both operated and non-operated projects. The Group will have continuous and regular engagement with partners to ensure that all partners' interests are aligned, and the Group is not exposed to risks that it believes are unacceptable. |
Related party transactions
There have been no new material related party transactions in the period and there have been no material changes to the related party transactions described in Note 27 to the Consolidated Financial Statements contained in the 2017 Annual Report and Accounts.
Going concern
At the time of preparation of these Interim Financial Statements, the directors have a reasonable expectation that the Group has adequate resources to continue to operate and meet its liabilities as they fall due for the foreseeable future, a period considered to be at least twelve months from the date of signing these Financial Statements. For this reason, they continue to adopt the Going Concern Basis for preparing the Interim Financial Statements. Further details are described in Note 3 in these financial statements.
Independent Review Report
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended
This report is made solely to the Company in accordance with International Standard on Review Engagements (
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the AIM Rules of the
As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended
Statutory Auditor
Condensed Consolidated Statement of Comprehensive Income
For the 6 months ended
|
|
|
6 months ended |
|
6 months ended |
|
12 months ended |
|
Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
(Unaudited) |
|
(Audited) |
|
|
|
$'000 |
|
$'000 |
|
$'000 |
|
|
|
|
|
|
|
|
Write off / impairment of intangible exploration and evaluation assets |
|
|
- |
|
- |
|
(10,412) |
Other operating expenses |
|
|
(4,714) |
|
(5,989) |
|
(14,586) |
Operating loss |
|
|
(4,714) |
|
(5,989) |
|
(24,998) |
Interest income |
|
|
1,911 |
|
66 |
|
880 |
Foreign exchange (loss) / gain |
4 |
|
(2,056) |
|
1,734 |
|
8,020 |
Finance costs |
|
|
(57) |
|
(37) |
|
(1,322) |
Fair value (loss) / gain on derivative financial instruments |
10 |
|
(70,167) |
|
- |
|
10,416 |
Loss before tax |
|
|
(75,083) |
|
(4,226) |
|
(7,004) |
Tax |
5 |
|
- |
|
- |
|
- |
Total comprehensive loss for the period |
|
|
(75,083) |
|
(4,226) |
|
(7,004) |
|
|
|
|
|
|
|
|
Loss per share, basic and diluted |
6 |
|
(3.83 cents) |
|
(0.35 cents) |
|
(0.46 cents) |
|
|
|
|
|
|
|
|
All of the Group's operations are classed as continuing.
Condensed Consolidated Balance Sheet
As at June 2018
|
Notes |
|
30 Jun 2018 |
|
30 Jun 2017 |
|
31 Dec 2017 |
|
|
|
(Unaudited) |
|
(Unaudited) |
|
(Audited) |
|
|
|
$'000 |
|
$'000 |
|
$'000 |
Non-current assets |
|
|
|
|
|
|
|
Property, plant and equipment |
7 |
|
633,276 |
|
18 |
|
445,291 |
Intangible exploration and evaluation assets |
8 |
|
127,720 |
|
373,493 |
|
126,365 |
Other receivables |
|
|
198 |
|
170 |
|
202 |
Other non-current assets |
|
|
7,397 |
|
3,034 |
|
16,089 |
|
|
|
768,591 |
|
376,715 |
|
587,947 |
Current assets |
|
|
|
|
|
|
|
Inventory |
|
|
1,434 |
|
1,434 |
|
1,434 |
Trade and other receivables |
|
|
5,589 |
|
3,611 |
|
4,737 |
Liquid investments |
|
|
39,040 |
|
- |
|
201,973 |
Cash and cash equivalents |
|
|
163,694 |
|
29,090 |
|
141,956 |
|
|
|
209,757 |
|
34,135 |
|
350,100 |
Total assets |
|
|
978,348 |
|
410,850 |
|
938,047 |
Current liabilities |
|
|
|
|
|
|
|
Trade and other payables |
9 |
|
(51,484) |
|
(10,202) |
|
(28,833) |
Derivative financial instruments |
|
|
(27) |
|
- |
|
(11) |
|
|
|
(51,511) |
|
(10,202) |
|
(28,844) |
Non-current liabilities |
|
|
|
|
|
|
|
Convertible loan liability |
10 |
|
(194,517) |
|
- |
|
(191,102) |
Derivative financial instruments |
10 |
|
(98,772) |
|
- |
|
(28,622) |
Decommissioning provisions |
11 |
|
(23,693) |
|
(6,975) |
|
(7,023) |
Total liabilities |
|
|
(368,493) |
|
(17,177) |
|
(255,591) |
Net assets |
|
|
609,855 |
|
393,673 |
|
682,456 |
Equity |
|
|
|
|
|
|
|
Share capital |
12 |
|
2,843 |
|
1,892 |
|
2,843 |
Share premium |
|
|
813,681 |
|
524,459 |
|
813,496 |
Share option reserve |
|
|
21,840 |
|
17,932 |
|
19,477 |
Own shares held by SIP Trust |
|
|
(389) |
|
(351) |
|
(323) |
Foreign exchange reserve |
|
|
(92,659) |
|
(92,659) |
|
(92,659) |
Accumulated deficit |
|
|
(135,461) |
|
(57,600) |
|
(60,378) |
Total equity |
|
|
609,855 |
|
393,673 |
|
682,456 |
Condensed Consolidated Statement of Changes in Equity
For the 6 months ended 30 June 2018
|
Share capital |
|
Share premium |
|
Share option reserve |
|
Own shares held by SIP Trust |
|
Foreign exchange reserve |
|
Accumulated deficit |
|
Total |
|
$'000 |
|
$'000 |
|
$'000 |
|
$'000 |
|
$'000 |
|
$'000 |
|
$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2017 (Audited) |
1,860 |
|
508,510 |
|
15,648 |
|
(366) |
|
(92,659) |
|
(53,374) |
|
379,619 |
Shares allotted |
32 |
|
15,949 |
|
- |
|
- |
|
- |
|
- |
|
15,981 |
Share options charge |
- |
|
- |
|
2,284 |
|
- |
|
- |
|
- |
|
2,284 |
Own shares held by SIP Trust |
- |
|
- |
|
- |
|
15 |
|
- |
|
- |
|
15 |
Loss for the period |
- |
|
- |
|
- |
|
- |
|
- |
|
(4,226) |
|
(4,226) |
At 30 June 2017 (Unaudited) |
1,892 |
|
524,459 |
|
17,932 |
|
(351) |
|
(92,659) |
|
(57,600) |
|
393,673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares allotted |
951 |
|
303,924 |
|
- |
|
- |
|
- |
|
- |
|
304,875 |
Transaction costs |
- |
|
(14,887) |
|
- |
|
- |
|
- |
|
- |
|
(14,887) |
Share options charge |
- |
|
- |
|
1,545 |
|
- |
|
- |
|
- |
|
1,545 |
Own shares held by SIP Trust |
- |
|
- |
|
- |
|
28 |
|
- |
|
- |
|
28 |
Loss for the period |
- |
|
- |
|
- |
|
- |
|
- |
|
(2,778) |
|
(2,778) |
At 31 December 2017 (Audited) |
2,843 |
|
813,496 |
|
19,477 |
|
(323) |
|
(92,659) |
|
(60,378) |
|
682,456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares allotted |
- |
|
185 |
|
- |
|
- |
|
- |
|
- |
|
185 |
Share option charge |
- |
|
- |
|
2,363 |
|
- |
|
- |
|
- |
|
2,363 |
Own shares held by SIP Trust |
- |
|
- |
|
- |
|
(66) |
|
- |
|
- |
|
(66) |
Loss for the period |
- |
|
- |
|
- |
|
- |
|
- |
|
(75,083) |
|
(75,083) |
At 30 June 2018 (Unaudited) |
2,843 |
|
813,681 |
|
21,840 |
|
(389) |
|
(92,659) |
|
(135,461) |
|
609,855 |
The share option reserve arises as a result of the expense recognised in the income statement to account for the cost of share-based employee compensation arrangements.
Condensed Consolidated Cash Flow Statement
For the 6 months ended 30 June 2018
|
|
|
6 months ended |
|
6 months ended |
|
12 months ended |
|
Notes |
|
30 Jun 2018 |
|
30 Jun 2017 |
|
31 Dec 2017 |
|
|
|
(Unaudited) |
|
(Unaudited) |
|
(Audited) |
|
|
|
$'000 |
|
$'000 |
|
$'000 |
|
|
|
|
|
|
|
|
Net cash (outflow) / inflow from operating activities |
13 |
|
(2,733) |
|
1,124 |
|
(8,088) |
Investing activities |
|
|
|
|
|
|
|
Interest received |
|
|
1,911 |
|
51 |
|
885 |
Decrease / (increase) in liquid investments1 |
|
|
162,933 |
|
- |
|
(201,973) |
Expenditure on property, plant and equipment |
|
|
(136,382) |
|
(8) |
|
(85,062) |
Expenditure on intangible exploration and evaluation assets |
|
|
(2,043) |
|
(87,196) |
|
(180,612) |
Expenditure on inventory |
|
|
- |
|
(991) |
|
(991) |
Net cash provided by (used in) investing activities |
|
|
26,419 |
|
(88,144) |
|
(467,753) |
Financing activities |
|
|
|
|
|
|
|
Bank charges |
|
|
(8) |
|
(3) |
|
(15) |
Net proceeds from borrowing2 |
|
|
- |
|
- |
|
223,095 |
Additional borrowing transaction costs2 |
|
|
- |
|
- |
|
(303) |
Interest payments (Convertible Bonds) |
|
|
(8,625) |
|
- |
|
(4,313) |
Proceeds from issue of share capital and warrants |
|
|
49 |
|
15,931 |
|
313,895 |
Additional equity issue transaction costs |
|
|
- |
|
- |
|
(7,976) |
Net cash (used in) / provided by financing activities |
|
|
(8,584) |
|
15,928 |
|
524,383 |
Net increase / (decrease) in cash and cash equivalents |
|
|
15,102 |
|
(71,092) |
|
48,542 |
Cash and cash equivalents at the beginning of the period4 |
|
|
158,045 |
|
101,482 |
|
101,482 |
Net increase /(decrease) in cash and cash equivalents |
|
|
15,102 |
|
(71,092) |
|
48,542 |
Effects of foreign exchange rate changes |
|
|
(2,057) |
|
1,734 |
|
8,021 |
Cash and cash equivalents at the end of the period4 |
|
|
171,091 |
|
32,124 |
|
158,045 |
1 Liquid investments comprise short-term liquid investments of between 3 and 12 months maturity while cash and cash equivalents comprise cash at bank and other short term highly liquid investments of less than three months maturity. The combined cash and cash equivalents and liquid investments balance at 30 June 2018 was $210,131,000 (30 June 2017: $32,124,000; 31 December 2017: $360,018,000).
2 Total transaction costs relating to borrowings were $nil (6 months ended 30 June 2017: $nil; 12 months ended 31 December 2017: $7,208,000 of which $6,905,000 were netted off against gross proceeds of $230,000,000).
3 Total transaction costs relating to equity raises were $nil (6 months ended 30 June 2017: $715,000 all of which was netted off against gross proceeds of $15,931,000;12 months ended 31 December 2017: $14,887,000 of which $6,911,000 were netted off against gross proceeds of $320,806,000)
4 Cash and cash equivalents includes $7,397,000 (30 June 2017: $3,034,000; 31 December 2017: $16,089,000) of cash held in escrow which has been included in the balance sheet in other non-current assets, and $24,102,000 (30 June 2017: $nil; 31 December 2017: $17,327,000) of cash held in escrow which has been included in the balance sheet in cash and cash equivalents.
1. General information
This Interim Report and Financial Statements was approved by the board of directors of Hurricane and authorised for issue on 19 September 2018.
This set of Interim Financial Statements for the 6 months ended 30 June 2018 is unaudited and does not constitute statutory accounts as defined by the Companies Act. The information for the year ended 31 December 2017 contained within these Interim Financial Statements does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006. The Group Financial Statements for the year ended 31 December 2017 have been delivered to the Registrar of Companies. The auditor's report on those Financial Statements was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement made under Section 498 of the Companies Act 2006.
2. Basis of preparation
The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the
The Interim Financial Statements have been prepared under the historical cost convention, except for share based payments and certain financial instruments, which have been measured at fair value, and in accordance with the requirements of International Accounting Standard (IAS) 34 'Interim Financial Reporting' as adopted by the
2.1. International Financial Reporting Standards adopted in the period
In the current period, the following accounting standards became effective and have been adopted:
2.1.1. IFRS 9 'Financial Instruments'
IFRS 9 has superseded IAS 32 'Financial Instruments: Presentation' and IAS 39 'Financial Instruments: Recognition and Measurement' in its entirety for accounting periods commencing on or after 1 January 2018.
The core areas addressed within IFRS 9 are as follows:
· Classification and measurement of financial instruments and liabilities
· Impairment of financial assets
· Hedge accounting
There have been no material changes in relation to the classification and measurement of financial assets and liabilities, impairment of financial assets or for hedge accounting other than additional annual report disclosure requirements.
2.1.2. IFRS 15 'Revenue from contracts with customers'
IFRS 15 replaced IAS 18 'Revenue' and IAS 11 'Construction Contracts' for accounting periods commencing on or after 1 January 2018. The core principle of the standard is that an entity will recognise revenue at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring promised goods or services to a customer.
The Group performed an impact assessment during the prior year regarding the accounting requirements of IFRS 15. As the Group has not previously had any revenue there has been no impact on adoption of the standard.
2.2. New and revised standards: International Financial Reporting Standards
2.2.1. IFRS 16 'Leases'
IFRS 16 'Leases' will replace IAS 17 'Leases' for accounting periods commencing on or after 1 January 2019. For
The transition to IFRS 16 will have a material impact on the balance sheet as all operating leases will need to be recognised on the balance sheet. Furthermore, operating lease expense in the income statement will be replaced with depreciation and interest expense. The Group has performed an initial impact assessment to determine which current leases and which anticipated future leases would be affected by this transition.
The primary objectives of this assessment are to: define accounting policies in compliance with the standard; identify all existing leases within the Group; identify anticipated future leases within the Group; capture the necessary data for each lease, including discount rates; determine a transition approach; and understand and implement necessary system and operational changes.
The Group is currently in the process of developing updated accounting policies and is assessing the information requirements for each lease. The Group currently plans to adopt the cumulative catch-up transition approach. As such, the value of the asset and liability recognised will be determined by the present value of the future lease payments on the existing leases at the date of transition (1 January 2019) and prior year comparatives will not be restated. The Group currently anticipates that the impact at the point of adoption of the standard is likely to be material as it will bring a Right of Use asset and liability for the Aoka Mizu FPSO and office properties onto the balance sheet. Further quantitative information cannot be provided at this time as the Group is continuing with its detailed assessment.
3. 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 Chief Executive's Report. The financial position of the Group, its cash flows and liquidity position are set out in the Interim Financial Statements.
The Group has no source of operating revenue prior to first oil from the Lancaster EPS (currently anticipated to occur in H1 2019) and currently obtains working capital primarily through equity and debt financing. During 2017, the Group raised gross funds of $547 million (before expenses), split between $317 million from the issue of Ordinary Shares and $230 million from the issue of Convertible Bonds.
The directors have performed a robust assessment, including a review of the budget for the year ending December 2019 and longer-term strategic forecasts and plans, including consideration of the principal risks faced by the Company. In particular, the directors considered a number of sensitivities which included the impact of a delay in first oil from the Lancaster EPS, cost and schedule overruns during the installation period and, following first oil, downside sensitivities in relation to production rates, operational uptime, oil price, opex and foreign exchange rates. Following this review, the directors are satisfied that, taking into consideration reasonably possible downside sensitivities, the Group has adequate resources to continue to operate and meet its liabilities as they fall due for the foreseeable future, a period considered to be at least twelve months from the date of signing these interim financial statements. For this reason, they continue to adopt the Going Concern Basis for preparing the Interim Financial Statements.
4. Foreign exchange gains and losses
Foreign exchange losses of $2.1 million (6 months ended 30 June 2017: gain of $1.7 million; 12 months ended 31 December 2017: gain of $8.0 million) relate to fluctuations in the US Dollar to Pounds Sterling exchange rate. The Group's cash and cash equivalents are predominately held in US Dollars and Pounds Sterling.
5. Tax on loss on ordinary activities
|
6 months ended |
|
6 months ended |
|
12 months ended |
|
30 Jun 2018 |
|
30 Jun 2017 |
|
31 Dec 2017 |
|
(Unaudited) |
|
(Unaudited) |
|
(Audited) |
|
$'000 |
|
$'000 |
|
$'000 |
|
|
|
|
|
|
Current tax - current year |
- |
|
- |
|
- |
Total current tax |
- |
|
- |
|
- |
|
|
|
|
|
|
Deferred tax - current year |
- |
|
- |
|
- |
Total deferred tax |
- |
|
- |
|
- |
Tax credit per income statement |
- |
|
- |
|
- |
|
|
|
|
|
|
Loss on ordinary activities before tax |
(75,083) |
|
(4,226) |
|
(7,004) |
Loss on ordinary activities multiplied by standard rate of corporation tax in the |
(30,033) |
|
(1,690) |
|
(2,802) |
Effects of: |
|
|
|
|
|
Expenses not deductible for tax purposes |
973 |
|
940 |
|
1,576 |
Effect of changes in tax rates |
- |
|
- |
|
(2,395) |
Losses and other temporary differences not recognised |
29,060 |
|
750 |
|
3,621 |
Total tax credit for the year |
- |
|
- |
|
- |
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. $0.9 million of the research and development tax credit was received in cash during that year, relating to the 2013 claim. The remaining $5.9 million relating to the 2014 claim was received in February 2017.
5.1. Factors which may affect future tax charges
The Group has trading losses of $431.3 million at 30 June 2018 (31 December 2017: $393.6 million), which have no expiry date and would be available for offset against future trading profits. A potential Ring Fence Expenditure Supplement claim could also be made which would result in additional trading losses of $111.7 million.
The Group has pre-trading expenditure of $84.3m which is carried forward at 30 June 2018 and tax relief will be available when FDP approval is obtained on the remaining licences.
5.2. Deferred tax asset / liability
|
6 months ended |
|
6 months ended |
|
12 months ended |
|
30 Jun 2018 |
|
30 Jun 2017 |
|
31 Dec 2017 |
|
(Unaudited) |
|
(Unaudited) |
|
(Audited) |
|
$'000 |
|
$'000 |
|
$'000 |
|
|
|
|
|
|
Accelerated capital allowances |
153,149 |
|
- |
|
139,520 |
Other timing differences |
4 |
|
- |
|
4 |
Fair value movement on derivative |
- |
|
- |
|
1,771 |
Tax losses carried forward |
(153,153) |
|
- |
|
(141,295) |
Deferred tax liability |
- |
|
- |
|
- |
No asset has been recognised in these Financial Statements for a potential deferred tax asset of $29.5 million (31 December 2017: $16.1 million). The Group's practice is generally not to recognise potential deferred tax assets until such time as it has been demonstrated that the Group will generate taxable profits. No deferred tax asset has yet been recognised due to the inherent uncertainty of success at this stage. The potential deferred tax asset is calculated at a rate of 40% (30 June 2017 and 31 December 2017: 40%).
6. Loss per share
The basic and diluted loss per share has been calculated using the loss for the period and a weighted average number of Ordinary Shares in issue less treasury shares.
|
|
6 months ended |
|
6 months ended |
|
12 months ended |
|
|
30 Jun 2018 |
|
30 Jun 2017 |
|
31 Dec 2017 |
|
|
(Unaudited) |
|
(Unaudited) |
|
(Audited) |
|
|
$'000 |
|
$'000 |
|
$'000 |
|
|
|
|
|
|
|
Loss after tax |
|
(75,083) |
|
(4,226) |
|
(7,004) |
|
|
|
|
|
|
|
|
|
Number of shares |
|
Number of shares |
|
Number of shares |
Weighted average shares in issue (basic and diluted) |
|
1,958,438,402 |
|
1,207,828,832 |
|
1,583,803,716 |
|
|
|
|
|
|
|
|
|
Cents |
|
Cents |
|
Cents |
Loss per share (basic and diluted) |
|
(3.83) |
|
(0.35) |
|
(0.46) |
The effect of the warrants, options and Convertible Bonds outstanding at the end of each period was anti-dilutive as the Group incurred a loss and all the interest on the Convertible Bond was capitalised.
7. Property, plant and equipment
|
Oil and gas properties 6 months ended 30 Jun 18 (Unaudited) $'000 |
Other fixed assets 6 months ended 30 Jun 18 (Unaudited) $'000 |
Total
6 months ended 30 Jun 18 (Unaudited) $'000 |
|
Oil and gas properties 6 months ended 30 Jun 17 (Unaudited) $'000 |
Other fixed assets 6 months ended 30 Jun 17 (Unaudited) $'000 |
Total
6 months ended 30 Jun 17 (Unaudited) $'000 |
|
Oil and gas properties 12 months ended 31 Dec 17 (Audited) $'000 |
Other fixed assets 12 months ended 31 Dec 17 (Audited) $'000 |
Total
12 months ended 31 Dec 17 (Audited) $'000 |
Cost |
|
|
|
|
|
|
|
|
|
|
|
At 1 January |
445,237 |
1,053 |
446,290 |
|
- |
995 |
995 |
|
- |
995 |
995 |
Additions |
188,004 |
- |
188,004 |
|
- |
8 |
8 |
|
109,381 |
58 |
109,439 |
Transfer from intangible assets |
- |
- |
- |
|
- |
- |
- |
|
335,856 |
- |
335,856 |
At 30 June / 31 December |
633,241 |
1,053 |
634,294 |
|
- |
1,003 |
1,003 |
|
445,237 |
1,053 |
446,290 |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
|
|
|
|
|
|
At 1 January |
- |
(999) |
(999) |
|
- |
(977) |
(977) |
|
- |
(977) |
(977) |
Charge for the period |
- |
(19) |
(19) |
|
- |
(8) |
(8) |
|
- |
(22) |
(22) |
At 30 June / 31 December |
- |
(1,018) |
(1,018) |
|
- |
(985) |
(985) |
|
- |
(999) |
(999) |
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount at 30 June / 31 December |
633,241 |
35 |
633,276 |
|
- |
18 |
18 |
|
445,237 |
54 |
445,291 |
|
|
|
|
|
|
|
|
|
|
|
|
Included within additions is $12,041,000 of borrowing costs that have been capitalised in the period (30 June 2017: $nil; 31 December 2017: $10,448,000).
Also included in additions are $16,620,000 (30 June 2017: $nil; 31 December 2017: $nil) relating to the changes in decommissioning estimates on the
On 24 September 2017 approval was granted for the Lancaster EPS field development. As a result, $335,856,000 of intangible exploration and evaluation assets were reclassified as oil and gas properties within property, plant and equipment. The oil and gas property balance at 30 June 2018 solely relates to the
Depreciation of the oil and gas properties will commence once production begins and will be on a unit of production (UOP) basis.
Property, plant and equipment (other fixed assets) comprises the Group's investment in leasehold improvements, fixtures, office equipment and computer hardware.
8. Intangible exploration and evaluation assets
|
6 months ended |
|
6 months ended |
|
12 months ended |
|
30 Jun 2018 |
|
30 Jun 2017 |
|
31 Dec 2017 |
|
(Unaudited) |
|
(Unaudited) |
|
(Audited) |
|
$'000 |
|
$'000 |
|
$'000 |
|
|
|
|
|
|
At start of period |
126,365 |
|
302,539 |
|
302,539 |
Additions |
851 |
|
981 |
|
169,113 |
Effects of additions / changes to decommissioning estimates (note 11) |
504 |
|
69,973 |
|
981 |
Impairment of intangible exploration and evaluation assets |
- |
|
- |
|
(1,971) |
Write off of intangible and evaluation assets |
- |
|
- |
|
(8,441) |
Transfer to property, plant and equipment |
- |
|
- |
|
(335,856) |
At end of period |
127,720 |
|
373,493 |
|
126,365 |
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 at 30 June 2018, 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.
On 24 September 2017 approval was granted for the Lancaster EPS field development. As a result, $335,856,000 of intangible assets were reclassified as Oil and Gas properties within property, plant and equipment.
In December 2017, the directors fully impaired the intangible exploration and evaluation assets relating to Strathmore, being $1,971,000. On 8 December 2017 the Group relinquished its P1485 and P1834 licences (Typhoon and Tempest). As such, the intangible exploration and evaluation assets relating to those licences of $8,441,000 were fully written off.
9. Trade and other payables
|
|
|
30 Jun 2018 |
|
30 Jun 2017 |
|
31 Dec 2017 |
|
|
|
(Unaudited) |
|
(Unaudited) |
|
(Audited) |
|
|
|
$'000 |
|
$'000 |
|
$'000 |
|
|
|
|
|
|
|
|
Trade payables |
|
|
2,263 |
|
1,593 |
|
1,030 |
Other payables |
|
|
166 |
|
114 |
|
159 |
Accruals |
|
|
49,055 |
|
8,495 |
|
27,644 |
|
|
|
51,484 |
|
10,202 |
|
28,833 |
The accruals at 30 June 2018 includes significant expenditure in relation to the EPS that has not yet been invoiced.
10. Borrowings
In July 2017 the Group raised $230 million (gross) from the successful placement of Convertible Bonds ("the Bonds"). The Bonds were issued at par and carry a coupon of 7.5% payable quarterly in arrears. The Bonds are convertible into fully paid Ordinary Shares of the Company with the initial conversion price set at $0.52, representing a 25% premium above the placing price of the Concurrent Equity Placement, being £0.32 (converted into US dollars at USD/GBP 1.30). Unless previously converted, redeemed or purchased and cancelled, the Bonds will be redeemed at par on 24 July 2022.
The conversion feature of the Bonds is classified as an embedded derivative liability as it can be settled by the Group in cash and hence does not meet the 'fixed for fixed' criteria for a compound instrument outlined in IFRS 9 (see note 14). It has therefore been measured at fair value through profit and loss. The amount recognised at inception in respect of the host debt contract was determined by deducting the fair value of the conversion option at inception (the embedded derivative) from the fair value of the consideration received for the convertible loan notes. The debt component is then recognised at amortised cost, using the effective interest method until extinguished upon conversion or at the instrument's maturity date.
|
6 months ended |
|
6 months ended |
|
12 months ended |
|
30 Jun 2018 |
|
30 Jun 2017 |
|
31 Dec 2017 |
|
$'000 |
|
$'000 |
|
$'000 |
|
|
|
|
|
|
Proceeds of issue of convertible bonds |
- |
|
- |
|
230,000 |
Transaction costs |
- |
|
- |
|
(7,208) |
Net proceeds on issue of convertible loan notes |
- |
|
- |
|
222,792 |
|
|
|
|
|
|
Transaction costs relating to liability component |
- |
|
- |
|
5,984 |
Transaction costs relating to derivative liability |
- |
|
- |
|
1,224 |
Total transaction costs |
- |
|
- |
|
7,208 |
|
|
|
|
|
|
Liability component at start of period (net of transaction costs) |
(191,102) |
|
- |
|
- |
Liability component issued in period (net of transaction costs) |
- |
|
|
|
(184,967) |
Interest charged |
(12,041) |
|
- |
|
(10,448) |
Interest paid |
8,625 |
|
- |
|
4,313 |
Liability at end of period |
(194,518) |
|
- |
|
(191,102) |
|
|
|
|
|
|
Derivative liability at start of period |
(28,622) |
|
- |
|
- |
Derivative liability issued in the period |
- |
|
|
|
(39,049) |
Change in fair value recognised in the income statement (note 14) |
(70,150) |
|
- |
|
10,427 |
Derivative liability at end of period |
(98,772) |
|
- |
|
(28,622) |
The interest expensed in the period is calculated by applying an effective interest rate of 13.5% to the liability component for the period. The liability component is measured at amortised cost. The difference between the carrying amount of the liability component at the date of issue and the amount reported in the balance sheet at 30 June 2018 represents the interest charged at the effective interest rate less interest paid to that date. All of the interest charge has been capitalised within property, plant and equipment as it is considered to relate to the development of the Lancaster Field, a qualifying asset.
11. Decommissioning provisions
|
6 months ended |
|
6 months ended |
|
12 months ended |
|
30 Jun 2018 |
|
30 Jun 2017 |
|
31 Dec 2017 |
|
(Unaudited) |
|
(Unaudited) |
|
(Audited) |
|
$'000 |
|
$'000 |
|
$'000 |
|
|
|
|
|
|
At start of period |
7,023 |
|
5,959 |
|
5,959 |
Unwinding of discount rate |
50 |
|
35 |
|
83 |
Additions |
15,984 |
|
981 |
|
981 |
Changes to decommissioning estimate |
636 |
|
- |
|
- |
At end of period |
23,693 |
|
6,975 |
|
7,023 |
The provision for decommissioning relates to the costs required to decommission the suspended wells previously drilled on the
12. Called up share capital
|
|
6 months ended |
|
6 months ended |
|
12 months ended |
|
|
30 Jun 2018 |
|
30 Jun 2017 |
|
31 Dec 2017 |
|
|
(Unaudited) |
|
(Unaudited) |
|
(Audited) |
|
|
$'000 |
|
$'000 |
|
$'000 |
Allotted, called up and fully paid |
|
|
|
|
|
|
30 June 2018: 1,959,551,637; (30 June 2017: 1,227,988,123; 31 December 2017: 1,959,210,336) Ordinary Shares of £0.001 each |
|
2,843 |
|
1,892 |
|
2,843 |
The Company does not have an authorised share capital.
On 24 January 2018 341,301 new Ordinary Shares were issued to the
13. Reconciliation of operating loss to net cash (outflow) / inflow from operating activities
|
6 months ended |
|
6 months ended |
|
12 months ended |
|
30 Jun 2018 |
|
30 Jun 2017 |
|
31 Dec 2017 |
|
(Unaudited) |
|
(Unaudited) |
|
(Audited) |
|
$'000 |
|
$'000 |
|
$'000 |
|
|
|
|
|
|
Operating loss |
(4,714) |
|
(5,989) |
|
(24,998) |
Adjustments for: |
|
|
|
|
|
Depreciation of property, plant and equipment |
19 |
|
8 |
|
22 |
Impairment / write off of intangible exploration and evaluation assets |
- |
|
- |
|
10,412 |
Share based payment charge |
2,433 |
|
2,349 |
|
3,922 |
Operating cash outflow before working capital movements |
(2,263) |
|
(3,632) |
|
(10,642) |
|
|
|
|
|
|
Increase in receivables |
(848) |
|
(2,192) |
|
(3,370) |
Increase in payables |
378 |
|
1,088 |
|
64 |
Cash used in operating activities |
(2,733) |
|
(4,736) |
|
(13,948) |
|
|
|
|
|
|
Corporation tax received |
- |
|
5,860 |
|
5,860 |
Net cash (outflow) / inflow from operating activities |
(2,733) |
|
1,124 |
|
(8,088) |
14. Financial Instruments
The derivative financial instruments held by the Group are the embedded derivative associated with the issue of the convertible bonds, and the forward foreign exchange contracts the Group entered into during 2017.
IFRS 7 'Financial Instruments: Disclosures' requires entities to disclose the fair value of each class of financial assets and financial liabilities in a way that permits it to be compared with its carrying value. IFRS 7 also requires financial instruments to be classified into a fair value hierarchy based on the lowest level input that is significant to the fair value measurement.
The fair value hierarchy is defined in IFRS 13 'Fair Value Measurement' and has the following levels:
Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 - inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Embedded Derivative
At inception and at the Balance Sheet date, the fair value of the embedded derivative contained within the Convertible Bonds was calculated based on the conversion option contained within. In determining the fair value of the embedded derivative, the likelihood of the early redemption option being exercised and the likelihood of a change of control of the Group within the life of the bonds were considered. The likelihood of each was considered to be nil for the purposes of the valuation.
|
6 months ended |
|
6 months ended |
|
12 months ended |
|
30 June 2018 |
|
30 June 2017 |
|
31 Dec 2017 |
|
(Unaudited) |
|
(Unaudited) |
|
(Audited) |
|
$'000 |
|
$'000 |
|
$'000 |
Derivative liability at start of period |
(28,622) |
|
- |
|
- |
Derivative liability issued in the period |
- |
|
|
|
(39,049) |
Change in fair value recognised in the income statement |
(70,150) |
|
- |
|
10,427 |
Derivative liability at end of period |
(98,772) |
|
- |
|
(28,622) |
The derivatives that are a part of the Convertible Bond issue have been assessed to be a Level 3 financial liability. This is because the derivatives themselves are not traded on an active market and their fair values are determined by a valuation technique that uses one key input that is not based on observable market data, being share price volatility.
Volatility is a key input in the valuation of the Convertible Bond embedded derivative. Volatility is a measure of the variability or uncertainty in return for a given underlying derivative. It represents an estimate of how much a particular instrument, parameter or index (in this case share price) will change in value over time. The valuation technique was based on a simulation model and the volatility was calculated as a blended average of the trading history of the Group's own shares and shares in a relevant peer group, for a period of six months prior to the measurement date.
The fair value at 30 June 2018 was calculated using the Hurricane share price on that date of £0.475 (31 December 2017: £0.310) and a share price volatility assumption of 30.1% (31 December 2017: 23.6%). The effect on the fair value of the derivative liability due to changes to the share price and share price volatility have been considered below.
|
Base share price |
|
Base share price |
|
Base share price |
|
$,000 |
|
$,000 |
|
$,000 |
Fair value of derivative liability |
98,772 |
|
57,275 |
|
146,200 |
|
|
|
|
|
|
|
Base volatility |
|
Base volatility |
|
Base volatility |
|
$,000 |
|
$,000 |
|
$,000 |
Fair value of derivative liability |
98,772 |
|
90,856 |
|
106,955 |
As movements in the fair value are recognised directly in the income statement these changes would directly affect the loss after tax by the same amount.
Foreign exchange swaps
During 2017 the Group entered into several foreign exchange swaps to cover specific foreign currency payments in the Group's future. At the reporting date the Group had one remaining foreign exchange swap for the purposes of settling a known Euro payment to occur in October 2018.
These foreign exchange swaps were accounted for using the spot rate on the date the swap was entered into, and subsequently revalued at each reporting date for movements in the foreign exchange rate. Any change in the forward spot rate at period-end is accounted for by taking the fair value changes to the income statement and recognising either a derivative asset or derivative liability in the statement of financial position.
During the period, two of the foreign exchange swaps were settled.
The following table details the foreign currency swaps outstanding at 30 June 2018:
EUR |
Forward Rate (inception) |
Forward Rate (30 Jun 18) |
Foreign Currency €'000 |
Notional Value $'000 |
Trade Value $'000 |
Derivative Liability $'000 |
3 - 6 months |
0.8988 |
0.8867 |
1,700 |
1,998 |
1,971 |
(27) |
|
|
|
|
|
|
(27) |
|
6 months ended |
|
6 months ended |
|
12 months ended |
|
30 Jun 2018 |
|
30 Jun 2017 |
|
31 Dec 2017 |
|
(Unaudited) |
|
(Unaudited) |
|
(Audited) |
|
$'000 |
|
$'000 |
|
$'000 |
Derivative liability at start of period |
(11) |
|
- |
|
- |
Termination of derivative liability on FX swap |
4 |
|
- |
|
- |
Change in fair value recognised in the income statement |
(20) |
|
- |
|
(11) |
Derivative liability at end of period |
(27) |
|
- |
|
(11) |
The derivatives that are a part of the foreign exchange swaps have been assessed to be a Level 2 financial liability. This is because the foreign currency swaps themselves are not traded on an active market. However, their fair values are determined by valuation techniques that use observable market data, e.g. foreign exchange rates.
15. Capital commitments
As at 30 June 2018 the Group had capital commitments of $70.3 million (30 June 2017: $69.0 million; 31 December 2017: $199.7 million).
16. Related parties
During the 6 months ended 30 June 2018, the only related party transactions are those with the directors who are considered the Group's key management personnel.
17. Subsequent events
On 3 July 2018, the Group transferred $22.1 million to the
On 3 September 2018, the Group announced that
Glossary
2P reserves |
Proved plus probable reserves under the |
2C contingent resources |
Best case contingent resources under the |
AIM |
The AIM market of the London Stock Exchange |
Aoka Mizu |
The Aoka Mizu FPSO |
the Code |
The Financial Reporting Council's |
Company |
|
EPS |
Early production system |
FEED |
Front end engineering and design |
FID |
Final investment decision |
FPSO |
Floating production storage and offloading vessel |
GLA |
|
the Group |
|
GWA |
|
HSE |
Health, Safety and Environmental |
Hurricane |
|
IFRS |
International Financial Reporting Standards as adopted by the |
Ordinary Shares |
Ordinary shares in the Company of £0.001 each |
Premium Listing |
Listing on the premium segment of a recognised stock exchange |
SIP |
Share incentive plan |
|
|
SURF |
Subsea umbilical, risers and flowlines |
TMS |
Turret mooring system |
UKCS |
United Kingdom Continental Shelf |
UOP |
Unit of Production |
Xmas trees |
An assembly of valves, spools and fittings used at the head of an oil and gas well |
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the
The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of...
FOR OUR FULL DISCLAIMER CLICK HERE