Hurricane Energy signals commitment to North Sea despite ‘unhelpful’ windfall tax

Hurricane has offered more evidence of its continued recovery from a crisis last year that saw bondholders come close to taking control of the business, which came after it slashed the size of the Lancaster field it brought into production in 2019.

The company has benefited from the surge in oil prices in recent months, and said yesterday that it had net free cash of $139 million at May 31, compared with the last reported balance of $92m on April 30.

It noted that $78.5m of convertible bonds remain outstanding, which are due to be repaid next month, and forecasts that it will be holding net free cash in excess of $75m at the end of July, assuming oil prices remain above $90 per barrel. The free cash forecast increases to above $90m if oil prices for the July cargo of Lancaster oil are above $120 per barrel.

Brent crude was trading at around $118.76 last night.

Hurricane described the introduction of the Energy Profits Levy, which has added a 25 per cent tax to the extraordinary profits being made by oil and gas companies on the back of surging prices, as “unhelpful”. However, it said it remains committed to assessing investment opportunities in the UK. It also highlighted the benefit of tax allowances that ministers have brought in alongside the windful tax to help ensure companies continue to invest in the North Sea.

Antony Maris, chief executive of Hurricane Energy, said: “Hurricane’s production continues to generate significant positive cashflow enabling us to look beyond bond repayment with a strong cash position and balance sheet. Management and the board are working hard to assess and evaluate possible organic and inorganic investment opportunities.

“Our industry works within the framework of long investment cycles and highly volatile commodity markets. Fiscal stability is key in supporting the investment decision making to meet the UK’s energy transition targets and the introduction of the EPL is unhelpful in that regard. However, as a potential investor in future UK oil and gas assets, we also stand to benefit from investment incentives/relief.

“We believe there are some exciting opportunities ahead and that the company is well placed to grow its asset base, deliver significant shareholder value and contribute to ensuring security of oil and gas supply for the UK.”

UK ministers introduced the levy amid mounting pressure to take action to ease the cost-of-living crisis, which has been driven by rising energy costs. The energy price cap for typical dual fuel customers was increased by £693 or 54% in April, and is expected to increase again in the autumn.

Oil companies such as BP and Shell have warned the windfall tax will undermine investment in the North Sea at a time when energy security is under threat because of Russia’s war in Ukraine, stating that it will lead the UK to rely more on expensive imports.

Hurricane stated that because the full details and related legislation for the Energy Profits Levy (EPL) have still to be published, it is not yet possible to determine the full impact of the additional tax. It has included an approximate liability of $5m in its forecast July net free cash balance, in terms of liability up until the end of July, but noted this could change depending on the details contained in the legislation.

The company added: “As the EPL includes an investment allowance, should the company decide to invest in further development on its existing assets or development on assets following an acquisition, such investment would partially offset the EPL charge. The full effect of such an offset will depend on the details of the EPL legislation and the size and nature of any such investment.”

Hurricane reported that the Lancaster field was producing around 8,700 barrels of oil per day from the P6 wellas of June 14.

It said the 29th cargo of Lancaster oil, totalling approximately 547,000 barrels Mbbls, was lifted on May 24.

Shares closed down 4% at 7.1p.