Relationship with Hurricane ‘deteriorated dramatically’, investor says
Activist investor Crystal Amber, which holds more than 11 per cent of Hurricane Energy, stated it would take “appropriate action” to maximise Hurricane’s potential.
Crystal Amber has been a shareholder in Hurricane since March 2013. Aside from Kerogen Capital, which until recently was represented on Hurricane’s board, the fund is Hurricane’s largest shareholder and the only disclosable institutional shareholder.
The investor stated that, over the last six months, it experienced a “dramatic deterioration” in the way that Hurricane was engaging with the fund.
“This is consistent with what the fund considers to be inadequate, confusing and poor messaging to market participants”, Crystal Amber said.
Crystal Amber proposed to Hurricane during September and October 2020 to buy in some of the Hurricane loan notes at below 50 per cent of par value. Hurricane chairman previously told the fund that he regarded such a purchase as “a commercial no brainer“. Since then, no update on bond purchases or capital allocation has been provided to the fund or the market.
After five letters to Hurricane, the chief executive of the company told Crystal Amber that the company was advised to “be engaging with the bondholders” as the repayment was more than a year away. The fund stated that there was no answer to the question as to whether consent would be required.
In early January this year, Crystal Amber shared its updated technical report with Hurricane. This also sought an explanation as to why Hurricane was not keen to tie back the existing Lincoln Crestal well which was reported to have tested at a sustained commercial rate.
Production from Lincoln could significantly increase overall output with minimal pressure drawdown at Lancaster. The fund believes that the Lancaster basement play may contain resources much larger than the pool currently being developed by the Lancaster EPS. No explanation was given. The fund even requested a call between Hurricane and its technical consultants, but no such call happened.
It is worth noting that Hurricane decided to postpone the drilling of a second production well on the Lancaster field off the UK due to the complex nature of the well.
Earlier this month, Crystal Amber requested to nominate a director to the board of Hurricane. Other than responding to note that the request had been shared with the board of Hurricane, the fund received no response to this request.
“The fund is no longer prepared to be excluded from participating in the evaluation of impending critical decisions by those who have virtually no skin in the game. The Fund always prefers to engage privately and constructively with its investee companies.
“However, the fund has found the board of Hurricane to be both indecisive and obstructive. Therefore, it now intends to take appropriate action to maximise Hurricane’s potential.
“A trading update in January 2021 highlighted how cash generation has recently improved as a result of the recovery in the oil price, with the company generating $19 million in December 2020 alone, taking cash to $106 million.
“[Crystal Amber] notes that the price of Brent crude has recently continued its strong recovery, from $38 per barrel in October 2020 to more than $60 a barrel.
“The fund believes that in 2021, this increase alone should add more than $100 million in cash to Hurricane. It should also significantly increase the value of Hurricane’s other, hitherto, untapped resources if this level is maintained”, Crystal Amber said in its statement on Thursday.