Directors at Hurricane Energy are "highly confident" they will make full upfront cash payments to shareholders under the terms of a takeover offer from Prax following the lift of a key cargo of oil from its Lancaster field.

In an update yesterday to shareholders, Hurricane said a total of approximately 541,000 barrels were lifted on April 27, taking the total for 2023 to more than 1.04 million barrels. Payment for the latest lift generated net revenues of approximately $43 million, providing sufficient funds to cover a 1.87p dividend payment to shareholders that forms part of the deal with Prax.

Together with "firm proceeds" of 4.15p per share, Hurricane said it expects to pay a total of 6.02p per share within 14 days of the takeover becoming effective. Further payments contingent upon future production from Lancaster will be paid over the coming four years via the distribution of deferred consideration units to current Hurricane shareholders.

READ MORE: West of Shetland pioneer agrees to £250 million takeover offer

Hurricane, whose sole asset is the Lancaster field located approximately 60 miles to the west of Shetland, announced in March that it had agreed terms of takeover by Prax Exploration & Production. Headquartered in London, Prax is a fuel refining, storage, distribution, and sales conglomerate headed by chairman and chief executive Sanjeev Kumar Soosaipillai.

The deal could value the West of Shetland pioneer at up to nearly £250m, which would represent a premium of approximately 84 per cent to the Hurricane closing price of 6.8p on November 1 of last year, the last business day before the company launched its formal sale process.

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Hurricane has a 100% interest in Lancaster, which it discovered in 2009 and brought into production in 2019. The company’s work on Lancaster attracted interest in the industry as it involved targeting a layer of granite called the fractured basement, which other firms had ignored.

Hurricane, which has made other finds in the area, ran into difficulties after the outbreak of the pandemic sent crude prices tumbling, before slashing estimates of the size of the Lancaster discovery.

READ MORE: Shetland fields in sights of oil traders in England

It came close to being seized by bondholders in June of 2021 before experiencing a dramatic upturn in fortunes last year amid the surge in oil prices that followed Russia’s invasion of Ukraine. The company generated revenues of $311m in 2022, up from $241m the year before.

Hurricane put itself up for sale in November after rejecting an unsolicited takeover approach that it said undervalued the company.

Under the agreement with Prax, each Hurricane shareholder will receive "firm proceeds" that include a transaction dividend of 3.32p cash per share, worth £66.1m, and a further cash consideration of 0.83p per share worth a total of £16.5 million.

In addition, each Hurricane shareholder is entitled to a supplementary dividend of up to 1.87p. In order to declare the supplementary dividend in full, Hurricane needed sufficient cash resources including proceeds from the April oil lifting at Lancaster.

READ MORE: Shetland-focused Hurricane Energy benefits from oil price surge

The deferred consideration units will be distributed on the basis of one for each Hurricane share currently held, and could deliver up to 6.48p per share in cash, or £129.1m, in the coming years.

The deferred units will confer an aggregate entitlement to 17.5% of all future net revenues earned by the Hurricane Group, including both the Lancaster Field and from any acquisition made by Hurricane, from March of this year until December 31, 2026, capped at a total of £129.1m.

Shares in Hurricane Energy closed 1.3% lower yesterday at 7.5p.