London — UK independent Hurricane Energy on Sept. 11 slashed its reserve estimates for its "fractured basement" oil projects in the West of Shetland area after poor production forced it to re-evaluate the geology.
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In a statement, Hurricane estimated remaining proved and probable -- or 2P-- reserves for the existing two wells at the Lancaster field to be just 9.4 million barrels. For the Lancaster field as a whole it slashed its 2C contingent resources estimate to 58 million from 486 million barrels.
It also slashed its 2C resource estimate for Lincoln, a similar, undeveloped project nearby, to 45 million from 565 million barrels.
Hurricane has been working alone on the Lancaster "early production system," which targets oil contained in naturally fractured basement rocks, and been working alongside Spirit Energy, majority owned by utility Centrica, on the potential Lincoln project.
Lancaster was brought on stream in May last year with the goal of demonstrating the concept and expanding the project. But output has fallen short of expectations, apparently hampered by "interference" between the two production wells, and CEO Robert Trice resigned in June, accompanied by a collapse in the company's share price. The share price took a further hammering from the latest news and in mid-morning London trading was down nearly 50% on the day at 3.16 pence (4.04 US cents).
Centrica meanwhile has been trying to sell its stake in Spirit Energy.
Hurricane said it now assumes a shallower "oil-water contact," meaning the point at which oil deposits give way to water, and held out the possibility that conventional oil-bearing sandstones may lie close to the fractured basement rocks, creating some potential upside.
"The Lancaster field is more complex than previously thought. Preliminary analysis suggests that rather than being primarily a basement reservoir, Lancaster has important oil-bearing sandstones onlapping the basement flanks, which may contain significant volumes of oil," Hurricane said.
CEO designate Antony Maris added: "We must now focus on extracting value from Lancaster and our other discoveries, while optimizing the use of our significant installed infrastructure West of Shetland."
"The technical review has identified upside within sandstone reservoirs on the flanks of the Lancaster field, with the potential for volumes of recoverable oil which are significant."
Hurricane said production in the first half of this year and to the end of August had averaged 14,600 b/d, with seven cargoes lifted in the first half, yielding $81.9 million. Its operating costs of $18.20/b had resulted in operating cash flow of $21.9 million.
"Lower oil prices and reduced production expectations will negatively impact anticipated future cash flows, despite the expected reduction and deferral of license commitment well spending," it added. "Consequently, the company intends to engage with all key stakeholders regarding its forward work program, capital allocation and financing arrangements."
The company said it had relinquished license acreage outside the "determined" area of the Lancaster field, freeing it of a further drilling obligation.
It booked a $308 million loss for the first half, reflecting a $239 million impairment of the value of Lancaster, while noting it had $106 million of cash, and net debt of $124 million.