Hurricane Energy plc said it planned to discuss with shareholders the funding and development of the Lancaster oil field, West of Shetland.
DEVELOPMENT COSTS
Ahead of a decision, Hurricane will focus on a new production well in 2021 in the central attic high of the Lancaster field, by re-entering and side-tracking the existing 205/21a-7z well.
This could add to the production capacity from the 205/21a-6 well by late 2021 and improve near-term cashflow generation.
The company added that development costs were currently estimated at around $60 million, and a water injection programme in the northwest of the field was estimated at $75m.
CASH POSITION
Hurricane said that the Lancaster field was generating cash, but reduced estimates of reserves and the fall in oil prices have had a negative impact on cash generation.
The company, which focuses on naturally fractured basement reservoirs, reported that at the end of November 2020 it had net free cash of $87m.
Hurricane also announced it had appointed Evercore Partners International LLP and Dentons UK and Middle East LLP as financial and legal advisors.
PRODUCTION
Since 8 October 2020, the field has been producing from the 205/21a-6 well alone, except for a short period of testing the 205/21a-7z well to help refine the simulation model for the Lancaster reservoir.
The 205/21a-6 well is producing some 12,300 bopd on artificial lift with a 23% water cut.
The company expects production for the final four months of 2020 to be 12,000 – 14,000 bopd.
In early November 2020, Hurricane limited production to 12,000 bopd for reservoir evaluation and management purposes, and will maintain production around this level for the near term.
The 17th and 18th cargoes of Lancaster crude were lifted in mid-October and mid-November.
SIGNIFICANT VALUE
Chief executive Antony Maris said the company had used a revised geological model of the Lancaster field and a rebuilt simulation model incorporating additional reservoir data to review future options.
“While several development options continue to be evaluated, a side-track of the existing 205/21a-7z well to an up-dip oil producer location could increase oil production from late 2021.
“This could be followed by a water injection well in the northwest of the Lancaster field which, with related FPSO and subsea work, could provide pressure support and sweep oil within the onlapping sandstone reservoirs towards the producing wells from late 2022.
“While there can be no certainty as to the outcome of this engagement, we continue to believe there is significant value in Lancaster and our broader West of Shetland portfolio, and we remain focused on delivering that value for the benefit of our stakeholders.”
FUTURE OPTIONS
Other technical and commercial options for funding are also being reviewed and costs are being reduced.
Hurricane added that if no agreement is reached on additional investment, further development at Lancaster might be impossible.
The field could produce from existing wells depending on oil prices, production and cost savings before being decommissioned.