AIM-quoted oil and gas company Hurricane Energy (LON: HUR) could make a $54m write-off on its activities in the Greater Warwick area (GWA) of the North Sea.
There is an obligation for the GWA joint venture, which includes a Centrica subsidiary, to start to drill a well on the P1368(S) Lincoln licence by the end of June 2022. The joint venture wants the commencement date to be later, but the authorities do not want a deferral.
The partners, including Hurricane Energy, have decided to suspend funding of this potential well, although there will be spending on the area. An option is a third party could fund the drilling, but there is no formal interest.
It is likely that the licence area will be relinquished because of the failure to drill a well.
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Net assets were $110.6m at the end of June 2021. A lot has happened since then so this figure could have changed significantly since then. Even so, a $54m write-down is going to be significant in terms of assets even though it will not affect the cash in the business.
The repurchase of convertible bonds will reduce interest and debt repayments by $29.4m a year. There will be $79.8m of convertible bonds still in issue.
Hurricane Energy is generating cash from operations. Net free cash was $127m at the end of November 2021 and since then $72.2m of convertibles have been repurchased.
The Lancaster field was producing 9,900 barrels of oil per day by the middle of December.
Last month Crystal Amber Fund (LON: CRS) increased its stake to 28.2%. At 4.2p a share, Hurricane Energy is capitalised at £83.7m.