Hurricane Energy Plc (LON:HUR) shares started the week higher as the offshore oiler struck a significant partnership deal with Spirit Energy, putting in place a new well programme to deliver its first production from a second development area in the West of Shetland region.
Funded by Spirit, the company now expects to bring the Greater Warwick Area online in 2020, a year after the early production system kicks in at the Lancaster field.
Spirit is to fund some US$387mln of Hurricane’s share of costs for an exploration and appraisal well programme, plus the development and engineering costs involved in starting up production. In return, Spirit will receive a 50% stake in GWA.
In London’s early deals, Hurricane Energy shares climbed 6.46p or 13% to trade at 55.82p each.
Hurricane highlighted that the deal unlocks the GWA programme and significantly means that cash flows from the Lancaster EPS can be reinvested back in the larger Lancaster field development (rather than fund exploration and appraisal activity).
"This transaction allows us to accelerate monetisation of our GWA resource base through a work programme designed to target significant reserve growth,” said Dr Robert Trice, Hurricane chief executive.
Trice added: "As we approach first oil on Lancaster, which remains on track for 1H 2019, we have increased financial flexibility and two parallel work programmes to drive our Rona Ridge Resources towards monetisation."
GWA –unlocking Warwick and Lincoln resources
GWA essentially comprises the Warwick and Lincoln areas and is host to a major resource. It is estimated at around half a billion barrels of crude based on presently available data - a successful well in the last programme confirmed the Lincoln discovery, and, whilst Warwick wasn't tested at that time the result derisked the prospect significantly.
Spirit’s Phase 1 programme will see three new wells drilled. It aims to accelerate the appraisal of Lincoln and confirm the Warick discovery. Hurricane will be ‘carried’ in the US$180.6mln initial drilling programme.
A rig contract has already been signed, with Transocean, for drilling to start in early 2019.
In Phase 2, assuming prior wells are successful, Spirit will lead field development work aimed at connecting the GWA fields to infrastructure due to be in place at the Lancaster field which would at that point (in 2020) be online.
Spirit is expected to spend some US$187mln on this phase of work, which will include upgrades to the Aoka Mizu floating production, storage and offloading (FPSO) vessel, pipelines, and engineering.
Presently, the initial GWA development is suggested as a single well tie-back to Lancaster’s Aoka Mizu for some 10,000 barrels of oil per day.
Also, Spirit will be expected to contribute some US$150-250mln to cover Hurricane’s share of additional, contingent costs of a larger field development at the GWA.
Chris Cox, Spirit Energy chief executive, said: "Appraising the Lincoln discovery and exploring for new reserves in Warwick offers a tremendous opportunity for Spirit Energy to participate in the early phases of resource maturation in one of the last known world-class oil development opportunities in the UK, and we are looking forward to partnering with Hurricane Energy to progress these two West of Shetland licences."