Hurricane may face wind-down if no agreement for Lancaster FPSO is reached

UK oil and gas company Hurricane Energy is looking to shorten the bareboat charter term for Bluewater’s FPSO Aoka Mizu, operating on the Lancaster field off the UK, due to significant financial obligations of a full three-year option.

If Hurricane and Bluewater do not come to an agreement, Hurricane said it would have to wind down its business, cease operations at the Lancaster field, and decommission it.

Hurricane is in the process of financial restructuring originally announced on 30 April 2021 and the restructuring plan is dependent on the Bluewater FPSO continuing to be available to the company.

Hurricane said on Friday it has resolved not to exercise its option to extend the bareboat charter with Bluewater for the Aoka Mizu FPSO for a period of three years from June 2022 to June 2025.

The three-year initial term of the bareboat charter expires in June 2022, unless, by 4 June 2021, the company has exercised an option to extend for a period of three years, to June 2025.

Based on the contractual terms for the three-year extension and the current Lancaster production forecasts, the company does not believe it is in the best interest of the company and its stakeholders to exercise the option in its current form to extend the Aoka Mizu lease to June 2025, given the significant financial obligations this could entail. Accordingly, it has resolved not to do so.

The current day rate of $25,000 would increase on 5 June 2021 to $75,000 per day, which would result in an additional $1.5 million of monthly operating expenses from that date. Also from that date, the incentive tariff of the netback sales price of crude oil sales would decrease from 9 per cent to 8 per cent.

Hurricane said it remains in negotiations with Bluewater Energy Services, the owner of the Aoka Mizu FPSO, over an alternative extension to the bareboat charter for a shorter period than three years.

The company believes there is a reasonable prospect of negotiating such an extension of the existing contract on acceptable terms. However, there is no guarantee of an extension of the existing contract on acceptable terms.

In such an outcome, Hurricane may need to pursue a controlled wind-down of its business and cease operations at the Lancaster field upon the expiry of the bareboat charter in 2022, at which point the field would be decommissioned.

It is worth reminding that Hurricane Energy’s relationship with investor Crystal Amber has deteriorated in recent months. The investor stated in March 2021 that it had experienced a “dramatic deterioration” in the way that Hurricane was engaging with the fund.

The investor then in May called for a general meeting of shareholders to remove all non-executive directors of Hurricane. The investor also called for the appointment of John Wright and David Craik as additional directors, also with immediate effect.

If all of that comes to fruition, the board of Hurricane would be reduced from seven to four people and consist only of CEO Antony Maris, CFO Richard Chaffe, and the two additional directors.