Hard work and the mid-1999 crude oil price rebound seem to have transported Hurricane Hydrocarbons Ltd., Calgary, from virtual insolvency to profitable current operations as an important producer of oil in Kazakhstan.
Hurricane, more than 8 months behind on interest payments, is under the protection of a Canadian court through Jan. 31, 2000, under the Companies' Creditors Arrangement Act.
The company has taken challenging steps to steer its operations in the former Soviet republic through tough times. Low oil prices and other economic and administrative difficulties drove it to seek court protection from creditors in May 1999. Debt repayment is now top priority.
The Alberta Court of Queen's Bench directed Hurricane in late December to pay $10 million to creditors and noteholders from the more than $25.5 million then on hand.
Hurricane's survival tactics have included acquiring a refinery in Kazakh- stan and marketing crude oil as far away as Spain. Further performance improvements are possible, said Bernard Isautier, Hurricane chairman, president, and chief executive since mid-October.
Hurricane reported vastly improved third quarter 1999 results compared with the same period in 1998 in Kazakhstan, where it has been involved since 1991.
The company is continuing discussions with noteholders regarding a consensual reorganization plan.
South Torgay basin fields
Hurricane in late 1996 bought the state production association Yuzhneftegaz, now renamed Hurricane Kumkol Munai. Hurricane currently has interests in eight fields, all located in this basin.
Hurricane owns 100% of Kumkol South and 50% of Kumkol North within the 57,200-acre Kumkol oil field in the South Torgay basin 600 miles east of the Caspian Sea northeastern shore. Discovered in 1985, the field has produced almost 100 million bbl of oil and has 205 million bbl of proved and probable reserves remaining. Russia's Lukoil holds the other 50% of Kumkol North.
Kumkol South is Hurricane's primary producing property and accounts for approximately 70% of Hurricane's total production. The field produces 36-42° gravity sweet crude with less than 2% sulfur from Cretaceous and Upper Jurassic reservoirs at 3,300-4,600 ft. Associated gas fuels field facilities.
Hurricane holds 50-100% interests in several nearby fields and a 455,665-acre exploration license surrounding Kumkol field.
Grave economic conditions that stemmed from the oil price collapse befell the project in second half 1998. The low oil prices, ample supplies of oil from Russia, and high processing fees and pipeline tariffs to the Shymkent refinery drubbed Hurricane's cash flow.
The company's production averaged 52,967 b/d in 1998, up 16% from 1997. Hurricane's reserves at Aug. 31, 1999, were estimated by independent engineers at 441.7 million bbl of oil and 67.8 bcf of gas.
The turnaround
Third quarter comparisons show improvement in nearly every aspect of operations, and Hurricane said fourth quarter figures will show more gains.
Hurricane had net income of $19.5 million in the third quarter versus a loss of $25.6 million in third quarter 1998. Cash flow from operations was $20 million versus a $15.7 million deficit last year.
Oil production averaged 75,094 b/d in third quarter 1999, up from 55,622 b/d in third quarter 1998.
October production, 15% of the country's total, averaged 77,322 b/d, of which 25,000 b/d was exported by the Shymkent refinery. November exports were about 35,000 b/d. Hurricane first began exporting crude in late May 1999.
Oil traders said the crude, moved by rail via Russia to two Black Sea ports, has been sold mainly to Mediterranean refiners, primarily in Spain.
Hurricane is keeping more of the revenue. The exported crude's value has risen to Brent minus $8.20 in November from Brent minus $9.85 in October and Brent minus $10.45 in 1998. Realized price averaged $7.42/bbl in third quarter 1999, $4.38/bbl in second quarter, and $6.89 in third quarter 1998.
Hurricane sold all third quarter 1999 production as crude at the 150,000 b/d Shymkent refinery for immediate payment. This has saved refining, marketing, and tank car costs compared with third quarter 1998 when much production was sold as product.
Third quarter general and administrative costs were down 62% on the year to $5.5 million. Interest costs were $6.6 million, up 20%.
On Oct. 9, Hurricane, Central Asian Industrial Investments NV, and OJSC Shymkentnefteorgsyntez (ShNOS) signed an agreement whereby Hurricane acquired all shares of ShNOS, owner and operator of the refinery, pending shareholder approval. It also reached agreement in principle with Kumkol-Lukoil relating to payment terms for the prior obligations of the joint venture for leased assets.
The future
Isautier said the Hurricane-ShNOS combination would generate significant cash flow and earnings even with West Texas intermediate crude at $18/bbl because of the structural changes, higher production and exports, and cost reductions.
With the refinery purchase to be closed by Mar. 31, 2000, pro forma cash flow would exceed a pre-tax $20 million/month based on October figures from crude oil sales, $20/tonne the refinery places in a creditors' reserve, and sales of product refined from crude supplied by Hurricane and other producers.
The refinery's product slate: gasoline 22.5%, diesel 30.3%, mazut (resid/fuel oil) 38%, LPG 2.7%, plus fuel and losses.
Plans for 2000 may include extensive development drilling of Kumkol North field with Lukoil and the start of development of its 100%-owned Qyzylkiya, Maibulak, and Aryskum oil fields to the west.
Hurricane and Lukoil signed final agreements in late December governing management and operation of the 50-50 joint venture that owns and operates Kumkol North field. They changed the name to CJSC Turgai Petroleum from CJSC Kumkol-Lukoil and agreed on other decisions Hurricane described as a "solid foundation for the further development of Turgai Petroleum's reserve base in the Kumkol North field. Kumkol North was producing about 28,000 b/d of oil in late December.
Hurricane operates eight Russian drilling rigs of 6,000 ft capacity, five Russian workover rigs, and a US-built workover/completion unit.
The company is expanding its export options.
It was moving 10,000 tonnes of crude oil via rail, on a test basis, into northwestern China just before the end of 1999. Hurricane began construction of a railway terminal at Druzhba, on the border about 300 miles west of Urumqi, China, to facilitate additional exports.
China National Petroleum Corp. is reviewing its commitment to construct a $3.5-billion, 1,860-mile pipeline from Aktobe, Kazakhstan, to northwestern China's Xinjiang Uygur autonomous region.
The line would pass near Hurricane's operations.
