Hurricane - Decision time

All,

Time is not a luxury creditors have at the moment. Even without an injunction, we still think bondholders should not tender at this time. The Company remains insolvent and we are firmly of the view that a revised Scheme of Arrangement to cram down the shareholders would be successful, maximising recoveries.

Way forward for Bondholders:

Bondholders will have to ask themselves if they wish to have management in control of this situation, or whether they seek an injunction on this tender, and revisit a potential Scheme of Arrangement craming down on shareholders. The Company have acknowledged they are insolvent, (Illustrative Outcome statement) and Bondholders can ask the propping question "is this tender a dissipation of assets?". Even post a tender, with the Company capturing c. $40m of value (the discount and coupon savings), the Company will remain insolvent. An adjusted illustrative Outcome Statement would show potential recovery at 87%.

Aggressive Move:

Hurricane management have taken a very aggressive step this morning by launching a Dutch Auction for 50% of the outstanding bonds. Bondholders have limited time to act in response given the offer expires on Friday at 4pm. Our understanding is that management have not discussed this option with bondholder representatives and have launched the reverse Dutch Auction tender at 68-72% for 50% of the bonds. Maximum spend is $115m x 72% = $82.8m. The tender, if successful, would enable the Company to capture the discount (difference between par and the tender price) and reduce their coupon liabilities, c. $40m.

Company remains insolvent:

As part of the announcement this morning, Hurricane updated the Illustrative Outcome statement, which highlights potential recovery, post orderly wind-down in April 2023, of c.75%. At maturity date, July 22, the Company would potentially have c. $180m cash, net of decommissioning costs, which is insufficient to meet the outstanding bonds. It should be acknowledged the Company does not consider the wind up of the Company to be the most likely scenario, management does acknowledge it to be a comparable benchmark for the Company’s current estimates of potential recovery by creditors.

Other points to note:

Away from the process risk for bondholders, there remains operational risk attached to Hurricane. The Company outlined an increase of $10m from current $40m of cash classified as restricted, due to increased costs and market conditions. Additionally, the Company disclosed continued production figures of 11,100 boepd from Lancaster, slightly down from earlier this month. There was no update on the Electrical Submersion Pump which has has previously tripped in early June.

Happy to discuss.

Tomás
E: tmannion@sarria.co.uk
T: +44 20 3744 7009

M:+44 7786 705 806
www.sarria.co.uk