Court Refuses Hurricane Energy Reorganization Plan
U.K.-based oil and gas exploration and production company Hurricane Energy announced that a British court failed to approve the company’s reorganization plan, which could lead to the immediate liquidation of the company. Unlike other companies in the offshore sector which have been successful in court-supervised reorganizations, Hurricane Energy experienced multiple points of opposition to its reorganization.
Incorporated in September 2004 as part of a group of companies whose business was focused on extracting oil stored within fractures in the solid rock beneath the sea, known as fractured basement reservoirs, Hurricane Energy in 2017 announced a plan to develop its first wells in the Lancaster area. Production began two years later, but technical problems cast doubt on those wells with the latest plan saying they would become uneconomical in 2024. Additional exploration in the Lincoln, Halifax, and Warwick areas identified several other possible well sites but with the continued low price of oil those wells have been or will be capped.
This spring, the board proposed a restructuring of $230 million in bond debt and a long-term plan to wind-down operations tied to the end of production at their Lancaster area operations. Under the terms of the restructuring deal, the maturity of the bonds was to be extended to 2024 with a lowered principle and higher interest. The bondholders would have received new equity that would have given them 95 percent ownership of the company with current holders retaining the remainder.
"This has been a difficult period for Hurricane and its stakeholders. Following the significant downgrade to Lancaster Field reserves and future production profiles, coupled with oil price volatility, current financial projections show we will not be in a position to repay our convertible bonds at maturity from Lancaster Field cash flows,” Antony Maris, Chief Executive Officer commented at the end of April when the plan was announced.
The current shareholders at the beginning of June indicated their opposition to the reorganization plan and further their intent to vote against the current non-executive directors standing for re-election at an upcoming meeting at the beginning of July.
In its presentation to the court, Hurricane Energy said the plan provided for the best solution and estimated that it would likely generate sufficient cash flow from current operations to repay its debt in 2024. They emphasized to the court the need to approve the reorganization before the July meeting saying it was otherwise likely that the board would be voted out and the company’s current financial advisers would resign. They put the likelihood as high that the company would be forced into liquidation.
Announced that the court had not sanctioned the plan, the company said in a written statement, “The existing Hurricane board is considering all options, including an appeal. Unless the company or the Ad Hoc Committee successfully appeals the judgment, the Restructuring Plan will not be implemented. The Company's convertible bondholders have certain rights under the terms of the convertible bonds which, if enforced, could result in an acceleration of the convertible bonds and ultimately an insolvent liquidation of the company. As a result, there is a significant risk of no value being returned to shareholders.”
The court concurred recognizing scenarios of an uncontrolled liquidation or an accelerated winding down possibly to end in 2023. However, the court found that rushing to approve the plan before the upcoming was not appropriate and raised questions over the potential success of the restructuring.