> ## Content Index > Fetch the complete content index at: https://petroequitysignal.com/llms.txt > Use this file to discover other available public pages before exploring further. # Why Kerogen lost money on Hurricane while Crystal Amber made £50 million - URL: https://petroequitysignal.com/why-kerogen-lost-money-on-hurricane-while-crystal-amber-made-50-million/ - Published: 2026-10-25T19:44:23.000Z - Updated: 2026-10-29T18:39:01.000Z - Description: Kerogen paid for Hurricane Energy’s successful 2016 appraisal at the bottom of the cycle and still lost money. Crystal Amber made around £50m. A reservoir engineer’s reconstruction of how two funds in the same North Sea field ended up roughly £60m apart. - Author: Oberon Houston - Tags: Articles *Hurricane Energy's Lancaster field exposed a fundamental difference between successful appraisal and successful investment. The result? Two sophisticated shareholders ultimately finished £60 million apart.* ### The risk the appraisal could not resolve One of the most dangerous assumptions in upstream investing is that a successful well makes a successful oilfield. Hurricane Energy's Lancaster field, west of Shetland, provides a particularly instructive example. Its appraisal wells delivered impressive flow rates, the shares enjoyed a substantial rerating, and investors committed hundreds of millions of dollars to development. Yet the reservoir ultimately performed very differently from the expectations underpinning its valuation. As a reservoir engineer, I expected Hurricane's crestal appraisal wells to flow successfully. They were positioned to encounter oil-bearing fractures, and earlier drilling had already demonstrated the basement's ability to deliver oil during short-term tests at commercial rates. My concern was not whether oil would flow from the reservoir. It was how much could ultimately be recovered, how the fracture network would behave under sustained production, and how quickly water might reach the producing wells. A properly designed appraisal programme should have addressed those uncertainties and firmed up the recoverable reserves estimates, rather than simply repeating an earlier demonstration of high initial flow rates. That created an interesting investment problem. An investor could correctly identify the principal reservoir risk and still lose a considerable amount of money by shorting Hurricane ahead of an appraisal result that was likely to be positive. I recognised that danger and resisted the temptation to short Hurricane at the time — a degree of investment discipline I cannot claim to have exercised on every occasion. Conversely, buying the shares for the appraisal catalyst did not require believing that Hurricane's ambitious full-field development expectations would ultimately be achieved. The technical and financial questions were different, and confusing them could be a very expensive lesson. The subsequent experience of two of Hurricane's largest shareholders illustrates this. Kerogen Capital made a major investment in 2016 to finance the appraisal programme and subsequently committed substantial additional funds. Crystal Amber, an activist investor that had entered earlier, repeatedly changed the size and form of its exposure. Both participated in Hurricane's rise, experienced its reservoir disappointment and remained involved in the corporate aftermath. Their eventual financial outcomes were separated by approximately £60 million. ### A frontier reservoir and three investors Hurricane was founded in 2005 to pursue naturally fractured basement reservoirs west of Shetland. Its flagship Lancaster discovery had originally been drilled by Shell in 1974, but the geological and commercial uncertainties had prevented development. Unlike conventional sandstone reservoirs, where connected pore space can provide both storage and permeability, Lancaster depended heavily on an extensive fracture network to deliver commercially recoverable oil. BP was an early financial participant. Hurricane's 2013 financing, which raised approximately £31 million through convertible loan notes, equity and a warrant, included a material contribution from BP. When Hurricane listed on AIM in February 2014 at a valuation of approximately £272 million, its shares were priced at 43p. BP Oil International subsequently entered into a crude supply, purchase and marketing agreement and marketed Lancaster's first cargo in 2019\. The available disclosures do not establish BP's eventual equity exit price, so its financial return cannot be reconstructed reliably. Crystal Amber also entered before Hurricane's IPO, helping finance the 2014 Lancaster horizontal well. That well achieved impressive production test results, including approximately 9,800 barrels per day with artificial lift. Despite the operational success, Hurricane's shares suffered as the oil price collapsed during the second half of 2014\. The company had demonstrated deliverability, but its market valuation increasingly reflected the difficult environment for financing upstream development. By early 2016, Brent had briefly fallen below $30 per barrel and Hurricane's shares had traded below 10p. Drilling costs were falling, contractors had spare capacity and the company needed capital to continue appraisal. For an investor prepared to finance a defined technical programme, the conditions were substantially more attractive than they had been at the IPO. ### Kerogen buys the appraisal opportunity In April 2016, Hurricane announced a £52.1 million placing at 15p per share. Kerogen subscribed for 293.9 million shares, investing £44.1 million, approximately US$62 million, and acquiring a stake of nearly 30%. It also secured board representation and involvement in a joint technical committee. Kerogen supplied approximately 85% of the money raised, funding the Lancaster pilot well and horizontal sidetrack programme. Rather than waiting for an appraisal result and buying into a rerating, it provided the capital needed to generate that result. The programme was successful. The Lancaster pilot well supported Hurricane's interpretation of an extensive oil column, while the horizontal sidetrack demonstrated exceptional productivity, testing at more than 15,000 barrels per day with artificial lift. The results strengthened the case for an early production system and helped support the substantial increase in Hurricane's share price. Kerogen had financed an appraisal campaign at a favourable point in the industry cycle and obtained the results needed to attract further capital. So far, so good? In terms of well productivity, certainly. But the principal uncertainty over recoverable reserves remained. In naturally fractured basement, high permeability does not automatically translate into large recoverable volumes. Fractures can provide excellent conduits for oil production while contributing relatively little pore volume compared with conventional reservoirs. If those fractures also communicate efficiently with an underlying aquifer, water can move rapidly towards the wells, bypassing oil elsewhere in the reservoir. A short well test, particularly in a crestal location, is a poor substitute for sustained production data when assessing that risk. In my assessment, this was the central uncertainty at Lancaster. The appraisal established that Hurricane could drill productive wells. It did not establish that those wells could sustain the recovery required to justify the cost of a field development. That did not make the appraisal programme unsuccessful. It meant that the programme had answered one question while leaving another, financially more consequential question unresolved. ### From appraisal capital to development capital Kerogen did not stop investing after the appraisal success. In November 2016 it participated alongside Crystal Amber in a further placing at 34p, which raised approximately £74 million for additional drilling and development preparations. In July 2017 Kerogen committed around US$35 million more to Hurricane's equity fundraising at 32p, part of a financing package that included a US$230 million convertible bond to fund the Lancaster early production system. By July 2017 Kerogen held 428.5 million shares, representing 21.9% of Hurricane, and had invested roughly as much again as its original appraisal commitment. Its exposure had changed substantially. The first investment had been made ahead of a relatively well-defined drilling catalyst; the subsequent financing supported exploration, production facilities and the programme that would ultimately test Lancaster's long-term reservoir performance. Funding an early production system was a commercially understandable decision. Hurricane needed sustained production data to establish recoverable volumes, and an early production system was a way of obtaining those data while generating revenue. Yet from an investment perspective, committing additional equity after appraisal success was different from buying at 15p before that success became reflected in the share price. More capital was now exposed to the very uncertainty that the original appraisal had not resolved. Hurricane's wider ambitions encouraged investors to maintain that exposure. The company attributed substantial reserves and contingent resources to Lancaster, while the Halifax and Lincoln discoveries offered the prospect of extending the fractured-basement concept across the Rona Ridge. A 2017 competent person's report increased Hurricane's combined resource estimates to approximately 2.6 billion barrels of oil equivalent. Spirit Energy's 2018 farm-in to the Greater Warwick Area added industry support, and Hurricane's share price reached peaks above 60p. Lancaster achieved first oil in June 2019 through the *Aoka Mizu* FPSO. The early production system was intended to establish the dynamic reservoir performance needed for decisions about further development. First oil was therefore an important operational milestone, but it was not the final technical validation of the full-field concept. ### Kerogen's partial exit On 17 July 2019, approximately one month after first oil, Kerogen sold 110 million Hurricane shares at 46.5p, raising £51.15 million. The timing was significant. Six days earlier, Hurricane had held its Capital Markets Day, providing investors with a comprehensive update on Lancaster's initial production performance and the ongoing Greater Warwick Area drilling programme. Kerogen had representation on Hurricane's board through Roy Kelly, so the timing of any disposal required particular care over market disclosure and dealing restrictions. Following the public presentation was a logical opportunity to reduce its holding, with the transaction duly disclosed as a director-related dealing. Kerogen also remained a major shareholder, retaining 318.5 million shares, approximately 16% of the company. Kerogen's original 2016 subscription had cost £44.1 million, so the proceeds from selling approximately a quarter of its holding exceeded that initial investment. Its average subscription cost across the earlier fundraisings was approximately 20.6p per share, making the 46.5p sale price about 2.3 times its average entry cost. Consider what the original appraisal investment alone had achieved. Kerogen's 293.9 million shares purchased at 15p would have been worth approximately £137 million when marked at the July 2019 disposal price, more than three times their original cost. That was a substantial investment opportunity created by financing drilling at the bottom of the cycle. It was not, however, the return Kerogen ultimately realised across its entire holding. Its 2019 sale recovered cash and reduced concentration, but left most of its shares exposed to the next stage of the reservoir story. Lancaster still needed to demonstrate sustainable production and recoverable volumes, while further drilling would test the wider basement play. Those uncertainties represented both substantial potential upside and the possibility of a major reassessment of value. The eventual financial outcome can be reconstructed from Hurricane's regulatory disclosures. ![Article content](https://media.licdn.com/dms/image/v2/D4E12AQGd_KE4mLVfEQ/article-inline_image-shrink_1000_1488/B4EaF0b6MVKAAI-/0/1792954836416?e=1794441600&v=beta&t=ioOukhFZaLLzsAA0JLur34Ik00hIc0K3AqG8i7ev--E) Kerogen invested approximately £89.6 million and the identified proceeds amount to approximately £78.1 million. The calculation requires one adjustment. Kerogen exercised rights over another 6.53 million shares in May 2019, yet its disclosed holding after the July disposal was exactly 110 million shares below the holding reported in 2017\. The difference implies an additional net disposal of 6.53 million shares whose price has not been established. At an assumed disposal price of 40–50p, those shares would have generated another £2.6–3.3 million. The resulting cumulative loss would be approximately £8.3–9.0 million, or around 9–10% of invested capital. Allowing for the unreconciled transaction, a broader loss range of approximately 9–13% is defensible. These are cumulative sterling returns, not annualised internal rates of return. The result is striking. Kerogen financed an attractive appraisal opportunity and achieved an excellent return on the shares it sold. Yet the decision to commit further capital and retain most of its holding meant that those early gains did not translate into a profitable overall investment. ### Crystal Amber manages a different investment Crystal Amber's approach was quite different, although it too helped finance Hurricane's appraisal and development. Its original investment preceded the 2014 horizontal well, but the oil price collapse prevented the successful drilling results from producing a sustained share-price rerating. The fund continued accumulating shares through the period of weakness, building a position at prices substantially below Hurricane's IPO valuation. It participated in the 2016 financings but began selling shares into market demand between January and April 2017, reporting realised profits of approximately £15.7 million. Crystal Amber was simultaneously critical of aspects of Hurricane's fundraising strategy and corporate governance. It had participated in the technical opportunity, but it was also prepared to monetise the market's response to successful drilling. The fund's July 2017 financing decision is particularly revealing. It committed US$10 million to Hurricane, but only US$3 million went into ordinary shares. The remaining US$7 million was invested in the company's convertible bonds, which ranked ahead of the equity. Crystal Amber subsequently disposed of the bonds in early 2018, reporting a £0.9 million profit. This was not an investor simply abandoning Hurricane after taking a profit. Crystal Amber maintained an interest in the company's development, but altered the balance between debt and equity while continuing to realise gains from its shareholding. By June 2019, it had reported £41.8 million in banked profits from Hurricane, including £17.9 million realised during that financial year, while retaining an equity stake of just over 5%. At the time, I regarded Kerogen as the more sophisticated investor. It had identified a technical catalyst and, rather than merely buying shares in anticipation of a successful result, had financed the drilling programme itself. Crystal Amber, by contrast, had committed capital without the ability to bring about the technical events that might unlock its value. It consequently endured long periods with its investment going nowhere. With hindsight, however, I had underestimated Crystal Amber's fund-management skills, which came to the fore later in Hurricane's story. Crystal Amber proved adept at managing its exposure, realising profits when opportunities arose and subsequently using shareholder activism to extract value from a distressed investment. Kerogen was arguably better at creating the opportunity, but Crystal Amber was considerably better at turning it into realised profits. ### When production exposed the reservoir risk Lancaster's early production performance ultimately brought the unresolved technical questions to the forefront. Water appeared in the production stream, initially attributed by Hurricane to perched water: isolated volumes within the reservoir rather than direct communication with the wider aquifer. Under that interpretation, water production might eventually stabilise or decline as the localised water volumes were depleted. I was unconvinced by that explanation. The more fundamental concern was that the fracture network provided effective communication with the underlying aquifer, allowing water to reach producing wells rapidly and limiting the volume of oil that could be recovered economically. High initial flow rates did not remove that risk; indeed, the same fracture connectivity that supported strong oil deliverability could also facilitate water movement. Sustained production data eventually forced a reassessment. The 205/21a-7Z producer was shut in during May 2020 because of high water cut. In September 2020 Hurricane reported that the accumulated water production was very unlikely to have originated from perched water. Its revised interpretation placed the oil-water contact materially shallower than previously assumed and attributed the water production to the underlying aquifer. The financial consequences were severe. Hurricane reduced its estimates of recovery from the existing Lancaster wells and substantially downgraded the field's remaining contingent resources. The full-field development expectations that had supported the earlier valuation were no longer credible on the same basis. This was the information that the successful appraisal wells had not been capable of providing. The essential problem had never been whether the basement could flow oil at attractive rates. It was how much oil those rates could ultimately recover before water production and reservoir pressure behaviour undermined the development economics. For investors, the distinction was decisive. Strong appraisal results had provided opportunities for substantial gains years before sustained production revealed the limitations of the reservoir model. Kerogen still had a large equity position when that reassessment arrived. Crystal Amber had already banked substantial profits and materially reduced its exposure. ### Crystal Amber's second investment Hurricane's subsequent problems extended beyond reservoir performance. By 2021, attention had shifted to the US$230 million convertible bond maturing in July 2022\. The company proposed a restructuring that would write off US$50 million of debt and extend the balance in exchange for transferring 95% of the equity to bondholders. The proposal received unanimous support from participating bondholders but was opposed by more than 92% of voting shareholders. Crystal Amber led the shareholder resistance, and in June 2021 the High Court declined to sanction the restructuring. The ruling preserved the equity interests of existing shareholders, including Kerogen, rather than allowing the proposed dilution. Crystal Amber used the depressed share price to expand its holding dramatically. It eventually owned 575.6 million shares, representing approximately 28.9% of Hurricane, at a reported average cost of 6.7p per share. The company had become a different investment proposition. The opportunity was no longer based on proving a basin-scale fractured-basement development but on the value of the producing asset, the balance sheet, the debt obligations and the possibility of returning cash to shareholders. Higher oil prices and continued Lancaster production subsequently enabled Hurricane to repurchase and then repay its convertible bonds, eliminating the immediate financial threat and rebuilding its cash position. The reservoir had not returned to the expectations of the original development plan, but the economics of the remaining production were sufficient to create meaningful equity value. Higher oil prices proved central to the success of Crystal Amber's second investment. A field could disappoint technically and still generate cash worth considerably more than its distressed share price implied. The proposed restructuring threatened to transfer that residual equity value to bondholders; the court's rejection of the plan preserved it for shareholders, and the subsequent debt repayment allowed it to be realised. ### Prax and the final reckoning In November 2022 Hurricane launched a formal sale process after Crystal Amber indicated its desire to monetise its investment. In March 2023 the company agreed to be acquired by Prax Exploration & Production for a headline maximum consideration of 12.5p per share. Shareholders received 6.02p in cash and special dividends, together with deferred consideration units, or DCUs, offering a share of future net revenues up to a further 6.48p per share. Crystal Amber received approximately £34.7 million in cash when the transaction completed in June 2023\. It subsequently sold its remaining DCUs in May 2024, bringing total DCU proceeds to £12.5 million and total proceeds from its final Hurricane holding to £47.2 million, equivalent to approximately 8.2p per share. The fund had reported an average cost of 6.7p for that holding, implying a further profit of approximately £8.6 million. Combined with the more than £40 million it had already banked before the reservoir downgrade, Crystal Amber's reconstructed lifetime profit from Hurricane was approximately £50 million. The timing of its DCU disposal proved important. Prax's wider group encountered severe financial difficulties in 2025, and administrators were appointed to Prax Exploration & Production on 29 September. The DCU payment due the following day was not made, leaving outstanding holders with unsecured claims rather than the continuing revenue distributions envisaged in the original acquisition. Assuming Kerogen retained its DCUs throughout the preceding payment periods, it would have received approximately £7.72 million in four distributions. Any units it still held at the date of administration were exposed to the insolvency proceedings. Crystal Amber, by contrast, had already converted its remaining entitlement into cash. The reconstructed outcome is a profit of approximately £50 million for Crystal Amber against an estimated loss of £9–12 million for Kerogen. That is a difference of roughly £60 million between two sophisticated funds investing in the same company over much of the same period. ### The investment lesson Hurricane Energy is frequently remembered for the failure of its original Lancaster development expectations. The reservoir proved capable of substantial oil production, but the sustained performance did not support the scale of recoverable resources on which the broader investment case had rested. The more interesting conclusion is that the reservoir's eventual performance did not determine every investor's financial result. Kerogen identified an attractive appraisal opportunity, financed it at a favourable point in the industry cycle and achieved the drilling success needed for a substantial rerating. Its initial decision was commercially astute. The eventual loss arose because the investment expanded beyond that original opportunity, and much of the equity exposure remained when the unresolved reservoir risks became apparent. Crystal Amber operated differently. It invested before technical catalysts, took profits when market valuations improved, participated selectively in subsequent financing, used convertible debt to alter its exposure and eventually returned to Hurricane as a distressed equity investment. Its intervention in the restructuring and subsequent disposal of the Prax contingent consideration were as important to its overall financial outcome as the original drilling programme. Neither investor's decision-making can be reduced to a single moment of good or bad judgement. Both faced changing information, market valuations and financing requirements. But their contrasting returns demonstrate the value of distinguishing between an attractive asset, an attractive investment and an attractive price at a particular point in time. The Lancaster appraisal wells answered a genuine technical question and created substantial shareholder value. They did not resolve the principal uncertainty about sustained recovery. Recognising that distinction was important, but knowing when to act on it was equally consequential. Selling or shorting before an anticipated successful appraisal could be ruinous even if the longer-term reservoir concern ultimately proved correct. Holding after the market had priced in commercial success exposed an investor to the information that sustained production would eventually reveal. Hurricane's history therefore contains two related lessons. The first is technical: exceptional well deliverability cannot be treated as proof of exceptional recoverable reserves. The second is financial: understanding the risk does not automatically produce a profitable investment. The price paid, the information still to emerge, the form and size of the exposure, and the point at which capital is recovered determine whether a sound assessment becomes a successful investment. Kerogen and Crystal Amber both recognised opportunities in Hurricane. The roughly £60 million difference in their eventual outcomes demonstrates how much depended on what they chose to do after recognising them. --- ### Sources and methodology Kerogen's cash flows are reconstructed from Hurricane's regulatory announcements and holding disclosures, rather than the fund's own accounts. The November 2016 and July 2017 allocations are estimated from its disclosed shareholding. The additional net disposal of approximately 6.53 million shares in 2019 remains unreconciled, and its assumed proceeds are included only in the estimated return range. The DCU calculation assumes Kerogen retained its units and received all four completed distributions. Crystal Amber's realised profits and proceeds are taken from its published annual and interim reports. The approximately £50 million lifetime profit is a reconstruction using reported profits at different stages and the final holding's reported average cost, not a separately audited lifetime return. All returns are stated in sterling before transaction costs, fund expenses, financing costs and the time value of money. Principal sources include [Hurricane's April 2016 financing announcement](https://www.investegate.co.uk/announcement/rns/hurricane-energy--hur/-52m-placing-subscription-gm-notice-board-appt-/4281924?ref=petroequitysignal.com), [2017 results and appraisal disclosures](https://www.investegate.co.uk/index.php/announcement/rns/hurricane-energy--hur/final-results/5104549?ref=petroequitysignal.com), [September 2020 technical review](https://www.investegate.co.uk/announcement/rns/hurricane-energy--hur/half-year-results-2020-technical-update/5942117?ref=petroequitysignal.com), [Crystal Amber's 2019 results](https://www.marketscreener.com/quote/stock/CRYSTAL-AMBER-FUND-LIMITE-4008555/news/Crystal-Amber-Fund-Final-results-for-the-year-ended-30-June-2019-29200033/?ref=petroequitysignal.com), [the June 2021 restructuring judgment](https://www.bailii.org/cgi-bin/format.cgi?doc=%2Few%2Fcases%2FEWHC%2FCh%2F2021%2F1759.html), [Hurricane's March 2023 acquisition announcement](https://www.investegate.co.uk/announcement/rns/hurricane-energy--hur/recommended-acquisition-of-hurricane-energy-plc/7441626?ref=petroequitysignal.com), and Crystal Amber's subsequent published financial reports.