By Geoffrey Smith
Investing.com -- Shares in Hurricane Energy (LON:HUR) rose 1.1% after the independent oil and gas producer reported a 50% rise in profit, but gains were limited by disappointment at the scrapping of a North Sea drilling project.
Hurricane, which focuses on the North Sea, said it won't proceed with the 'P8' well in the Lancaster area west of the Shetland Islands, after failing to get permission from the U.K. authorities to flare associated gas that it wouldn't be able to capture and monetize.
"The situation Hurricane faces is that the retrofitting of a new gas export or disposal system to the existing development is technically challenging, with a high capex requirement," Hurricane said. "The expected recovery of gas from an additional well, including the benefit of the extended life of the field, is such that the economics of the investment are significantly below the threshold considered appropriate for Hurricane to commit to such a project."
Hurricane's decision illustrates the practical difficulties of squeezing more oil and gas out of the U.K.'s largely-depleted North Sea reserves, at a time when policy is also constrained by the aim of reaching net zero carbon emissions by 2050, and by the demands of securing energy supply.
The new Business Secretary, Jacob Rees-Mogg, has reportedly told staff that Britain, which typically generates over half of its electricity from natural gas, “must get every cubic inch of gas out of the North Sea” to reduce its dependence on imported fuel. However, the Lancaster field is far away from existing North Sea pipelines, and Hurricane does not have the resources to build a new link to take any gas from the area.
P8 had been a key part of the company's growth strategy, and the news overshadowed its announcement of a 50% rise in profit in the first half to $67 million, thanks to the surge in crude prices that followed Russia's invasion of Ukraine. Operating cash flow of $110 million allowed Hurricane to repay $78 million of convertible bonds in the period, leaving it debt free and with net cash of $48 million.