West of Shetland oil firm faces fresh challenge

WEST of Shetland focused Hurricane Energy has hit a fresh complication soon after posting losses of $300 million (£230m).

The loss came after Hurricane slashed estimates of the size of the key Lancaster field following operational reverses and the plunge in oil prices triggered by the coronavirus.

Hurricane had helped generate excitement about the potential of the relatively under-explored West of Shetland area by making finds such as Lancaster.

The company said yesterday that it had decided to set aside around £17m to cover potential decommissioning costs after the cost of using a bond to guarantee that its obligations would be met increased.

It said: “Given the fall in oil prices earlier in 2020 and the recent downward revision to the Lancaster field’s reserves, the bond provider has requested that the company provide cash collateral for 100 per cent of the bond’s value.”

The company noted this would mean it would derive no benefit from the bond while still paying fees to the bond provider, adding: “The decommissioning bond has therefore been terminated by mutual agreement.”

Some $21.7m (£16.8m) will be held in trust by Hurricane to meet the cost of decommissioning production facilities used on Lancaster. It had

$106m free cash at the end of the first half, on June 30.

Hurricane told investors: “The company intends to engage with all key stakeholders regarding its forward work programme, capital allocation and financing arrangements in light of the revised reserves estimates for the Lancaster field and challenging macroeconomic backdrop.

“The company is making good progress on a proposed work programme.”

Hurricane’s founder, Robert Trice, resigned as chief executive in June. Sector veteran Antony Maris was recently appointed in his place.

The company expects production to average 12,000 to 14,000 barrels oil per day from September to December.