Hurricane amends Greater Warwick partnership with Spirit Energy

The AIM-traded firm said that, as part of the farm-in announced on 3 September 2018, Hurricane and Spirit agreed a phased work programme, including a planned tie-back of a GWA well to the Aoka Mizu FPSO, together with host modifications to the vessel and a gas export tie-in to the West of Shetland Pipeline System (WOSPS).

It said that work was split across phase one, which Hurricane fully carried up to a gross cost of $180.6m, and phase two, which Hurricane 50% carried up to a gross cost of $187.5m, with the second phase set to begin after a final investment decision on a GWA tie-back to the Aoka Mizu FPSO.

Hurricane and Spirit were continuing their planning and negotiations, prior to confirming the future work programme and associated capital expenditure for the GWA.

As the Phase 2 final investment decision had not been taken, Hurricane said the second phase of the 2018 farm-in had not commenced.

All costs incurred in excess of the $180.6m gross carry cap on the first phase, in preparation for the second, had thus been funded on a 50-50 basis at a net cost to Hurricane of $8.5m, as at 29 February.

The GWA joint venture had now agreed a new cost allocation agreement to update the terms of the 2018 farm-in, the company announced.

Under the amended terms, the GWA joint venture would build-out the equipment and materials required to tie-back a single well from the GWA to the Aoka Mizu FPSO on a 50-50 basis, with an additional net cost to Hurricane of $20.5m.

On completion, those items would be held in storage until the GWA joint venture sanctions the tie-back of a well to the Aoka Mizu FPSO, with the required regulatory consents to do so.

Hurricane said it could choose to continue to build out long-lead items related to the tie-in of the Aoka Mizu FPSO to WOSPS on a sole basis, at a cost of around $28m.

While the company said it did not currently have plans to proceed with the WOSPS installation, in the event that a decision was taken to proceed in the future, subject to the required approvals and consents, it would bear 100% of the associated costs, currently estimated to be in the region of $62m.

It would also reimburse Spirit for related gas export past costs up to 31 January 2020, excluding carry, of around $18m, only where installation occurred prior to GWA joint venture approval of the second phase.

If at any time, phase two is approved and a GWA tie-back to the Aoka Mizu FPSO proceeded, Hurricane said it would benefit from the original terms of the 2018 farm-in through retrospective application of the carry in the proportions originally agreed.

The board said the cost estimates remained subject to further refinement and contract.

“These amendments to our arrangements with Spirit give us greater optionality relating to gas export, whilst preserving the carry value of the Spirit farm-in in the event that the GWA joint venture partners proceed with a GWA tie-back in the future,” said chief executive officer Dr Robert Trice.

“In addition, the Lancaster EPS is currently producing at 20,000 barrels of oil per day and I look forward to providing an update at the capital markets day on 25 March.”

At 1527 GMT, shares in Hurricane Energy were down 1.07% at 14.74p.