Oil explorer Hurricane Energy – which has discovered more oil on the UKCS than any other UK oil company in the past 10 years – has weathered the crude oil price storm and has reported ‘considerable industry interest’ in farming-out its Lancaster oil well, west of Shetland.
Commenting as the company reported its latest annual results, Dr Robert Trice, Chief Executive, said: “The drilling and testing of the Lancaster appraisal well – a key milestone in demonstrating the commercial viability of the oil discovery – was a great success. This was a major step forward in further de-risking Hurricane’s substantial oil resources.
“Having a large contingent resource in the Lancaster oil discovery and a proven highly productive reservoir means that the field is commercially viable in a lower oil price environment, not least as the industry cost base continues to fall.
“Commercial discussions with a number of potential partners are ongoing and I look forward to updating shareholders when appropriate.”
In a busy year for Hurricane – which added a further £17 million (net) in cash to its balance sheet from its IPO in February 2014 – the company reported an annual loss of £9 million in the year-ending December 2014 (compared to £21.4 million in the previous period). With a head office in Surrey, Hurricane also has a N. Sea operations depot in Aberdeen.
However – and very much on the upside – it brought its highly-successful horizontal appraisal well drilling and testing operations on the Lancaster field in £5 million under-budget.
A 1km horizontal well section was drilled through fractured basement – a first in the North Sea – and the well was successfully tested and flowed oil at significant rates.
This achieved a sustainable natural flow rate of 5,300 STB/d and a flow rate using artificial lift of 9,800 STB/d from the Lancaster well production test, exceeding the target of 4,000 STB/d.
While the oil and gas industry is facing a challenging period, amongst the smaller exploration and production companies, Hurricane is now better placed than most, having a significant resource base with large volumes of discovered and prospective resources in one of the principal areas of industry interest in the UKCS, and with 100% ownership of all its assets.
Chairman John Hogan said: “We believe that the successful results from this well are a clear demonstration that Hurricane Energy’s plans for progressing to a Lancaster field development are technically viable.
“Despite positive drilling results in 2014, the impact of low oil prices has affected Hurricane as much as any other company in the sector and we have seen a decline in the share price along with most others.
“Whilst this is disappointing, we consider that the success of the Lancaster appraisal drilling operation, together with the significant volumes of oil resources in place, demonstrates that the Group remains attractive in the long term.
“The fall in the oil price during the second half of 2014 was dramatic and deep and continued into 2015. At the close of 2014, the Brent crude oil price was $55-barrel having touched highs of $115- barrel around the middle of the year. This sharp fall in the oil price is clearly affecting the entire industry.
“The industry is already responding to a lower oil price environment by cutting capital investments and also by cutting costs. We are already seeing rig, seismic and contractor service costs falling, with further cost reductions expected. This will provide some mitigation against lower oil prices.
“The UK Government is well aware of the pressure on the industry. Hurricane has played an active part in the fiscal review instigated by HM Treasury with regard to the UK’s oil and gas fiscal regime. The Group was pleased to note that the Chancellor eased the tax burden in the 2014 Autumn Statement by reducing the supplementary charge (SCT) by 2%.
This was followed by an announcement in the March 2015 Budget of a further reduction in the SCT from 30% to 20% and a reduction in Petroleum Revenue Tax from 50% to 35%.
“These are much needed changes reflecting the maturity of the UK North Sea and lower oil prices. Further support will still be required to revive exploration activity and to encourage new field developments.”