Hurricane and Spirit update terms of JV agreement for Greater Warwick Area

Hurricane Energy and Spirit Energy, joint venture partners in the Greater Warwick Area (GWA) located in the West of Shetland region, have agreed a new cost allocation agreement as part of their 2018 farm-in deal.

As part of the farm-in announced on September 3,2018, Hurricane and Spirit (the GWA Joint Venture) agreed a phased work program 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).

This work was split across Phase 1 (Hurricane fully carried up to a gross cost of $180.6 million) and Phase 2 (Hurricane 50% carried up to a gross cost of $187.5 million), with Phase 2 to start after a final investment decision on a GWA tie-back to the Aoka Mizu FPSO.

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

As the Phase 2 final investment decision has not been taken, Phase 2 of the 2018 farm-in has not started.

All costs incurred in excess of the $180.6 million (gross) carry cap on Phase 1, in preparation for Phase 2, have therefore been funded on a 50:50 basis at a net cost to Hurricane of $8.5 million, as at February 29, 2020.

Hurricane said on Friday that the GWA Joint Venture had agreed a new cost allocation agreement to update the terms of the 2018 farm-in.

Under the amended terms, the GWA Joint Venture will 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 $20.5 million. On completion, these items will 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 can elect 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 approximately $28 million.

While Hurricane has no current plans to proceed with the WOSPS installation, in the event that a decision is taken in future to proceed, subject to the required approvals and consents, Hurricane would bear 100% of the associated costs currently estimated to be in the region of $62 million; and Hurricane would reimburse Spirit for related gas export past costs up to January 31, 2020 (excluding carry) of approximately $18 million, only where installation occurs prior to GWA Joint Venture approval of Phase 2.

If at any time Phase 2 is approved and a GWA tie-back to the Aoka Mizu FPSO proceeds, Hurricane will benefit from the original terms of the 2018 farm-in through retrospective application of the carry in the proportions originally agreed.

These cost estimates remain subject to further refinement and contract.

Dr Robert Trice, Chief Executive of Hurricane, commented: “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.

“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 2020.”