By Geoffrey Smith
Investing.com -- Shares in Hurricane Energy (LON:HUR) spiked by over 28% on Wednesday before retracing some of their gains, after the independent oil producer agreed to put itself up for sale under pressure from its largest shareholder.
Hurricane said in a statement that it had received and rejected a bid from an unnamed buyer at 7.7 pence a share, which offered a premium of only 13% to Monday's closing price. However, it said that Crystal Amber Fund, which holds nearly 29% of the company, "has indicated to the Board its desire to monetize the value of its shareholding."
As such, it has begun a formal sale process.
The sale will complete an ambitious but ultimately unsuccessful chapter in trying to unlock new areas of the waters off the coast of Scotland for oil and gas production. Hurricane had said at the end of September that it wouldn't be able to expand production at the Lancaster field west of the Shetland Islands, because it couldn't use the natural gas that an expansion would extract as a by-product. The U.K. government had said it wouldn't allow the gas to be flared, as that would be incompatible with the country's Net Zero strategy.
Hurricane said it "is in a very strong financial and operational position," with no debt, and with all of its decommissioning liabilities fully funded. It said it is set to have $118 million of unrestricted cash on its books by the end of the year, thanks to strong operating cash flow from its current production.
However, arguably the most valuable part of the company is the tax-deductible losses that it has racked up while developing the Lancaster project. These totaled $370 million as of the end of June.
The offer rejected by the board would have valued the company at around $176 million, according to Investing.com calculations.
Hurricane's board said that if it can't find an acceptable bid, it will return $70 million to shareholders early next year through a stock buyback.