Hurricane Energy PLC lifts lid on debt deal that will significantly dilute value
It follows major downgrades to the Lancaster field which have meant production will not be sufficient to repay bonds from cash flow.
Hurricane Energy PLC (LON:HUR) has announced a financial restructuring that features a debt-for-equity switch that will massively dilute the value of existing shareholdings.
A deal struck with a 69% majority of the group’s convertible bond holders will see some US$50mln of the total US$230mln debt swapped for new shares in the company.
These refinancing shares will equate to 95% of the group’s fully diluted pro forma equity immediately following the restructuring.
The bondholders – and subsequently the majority owners of the company – agree to amend the terms for the remaining US$180mln of outstanding bonds to extend the maturity date out to December 2024.
“Following the significant downgrade to Lancaster Field reserves and future production profiles, coupled with oil price volatility, current financial projections show we will not be in a position to repay our convertible bonds at maturity from Lancaster Field cash flows,” said chief executive Antony Maris.
“Significant time and effort has been focused on all available technical, financial and commercial options and, after careful consideration, we believe that implementation of the proposed Restructuring will deliver the best possible outcome.
“We acknowledge that this proposed course of action entails significant dilution for our existing shareholders, but it marks an important and necessary step in the Company’s efforts to secure a viable capital structure.”
Going forward the remaining outstanding debt would bear interest at a rate of 9.4% per year plus an additional payment-in-kind interest rate of 5%. The arrangement will also see existing conversion rights removed from the bonds to be replaced by new maturity conversion option exercisable by the company after December 2024.
Separately, Hurricane provided a production update for the Lancaster field which showed an average rate of 10,100 barrels of oil per day (bopd) in April, which is lower than normal. It coincided with periodic well testing operations which involved production in various different configurations and at various rates.
Hurricane noted that the field is currently producing at a rate of 11,600 bopd, from the P6 well alone with an associated water cut of 29%.
Looking ahead, the company intends to pursue a revised business strategy that contemplates an extended production scenario where the Lancaster 205/21a-6 well will continue to flow until its economic limit is reached.
Also, if the plan is greenlit by bondholders, it will seek opportunities to make new investments in the field, including a possible new production well drilled in the summer 2022 weather window.
The company gave notice that its full-year results for 2020 will be released on May 25.
In London, Hurricane shares dropped 4.37% to change hands at 0.81p in Monday’s early deals.
At the current price the company has a market value of £16.3mln.
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