REG - Rockhopper Exp plc - Annual Results for the year ended 31 December 2016 <Origin Href="QuoteRef">RKH.L</Origin> - Part 3
11/04/2017 07:07
- Part 3: For the preceding part double click ID:nRSK1312Cb
measurement include estimates of
commercial reserves and production volumes, future oil and gas prices and the
level and timing of expenditures, all of which are inherently uncertain. No
impairment was recognised in the period (2015: charge of $5.6 million).
16 GOODWILL
Greater
Mediterranean Total
$'000 $'000
As at 31 December 2015 9,803 9,803
Foreign exchange movement (364) (364)
As at 31 December 2016 9,439 9,439
Goodwill relates to the corporate acquisition of Mediterranean Oil & Gas plc
("MOG") during the period ended 31 December 2014. This goodwill is fully
allocated to the Italian CGU and arises due to the difference between the fair
value of the net assets and the consideration transferred and relates more
specifically to Monte Grosso and Ombrina Mare, which have the optionality and
potential to provide value in excess of this fair value as well as the
strategic premium associated with a significant presence in a new region. The
functional currency of MOG is euros. As such the goodwill is also expressed in
the same functional currency and subject to retranslation at each reporting
period end. The reduction in the period of $364,000 (2015: $1,137,000) is
entirely due to this foreign currency difference. None of the goodwill
recognised is expected to be deductible for tax purposes.
The Group tests goodwill annually for impairment or more frequently if there
are indicators goodwill might be impaired. The recoverable amounts are
determined by reference to a value in use calculations. Future cashflows are
estimated using long term realised gas price of E0.25/sm3 and a realised oil
price of $75/bbl in 2016 real terms and were discounted using a post-tax rate
of 10%. Assumptions involved in the impairment measurement include estimates
of commercial reserves and production volumes, future oil and gas prices and
the level and timing of expenditures, all of which are inherently uncertain.
17 OTHER Receivables
31 Dec 16 31 Dec 15
$'000 $'000
Current
Receivables 12,633 1,104
Prepayments 374 391
Accrued interest 106 349
Income tax 74 77
Other 3,997 4,278
17,184 6,199
The carrying value of receivables approximates to fair value. The increase in
receivables in the year is due to the acquisition of Beach Petroleum (Egypt)
Pty Limited which came with an associated receivable due from EGPC. At 31
December 2016, the receivable balance due from EGPC was $11.4 million of which
net $4.2 million was due to Rockhopper after offsetting the amount payable to
the former parent company, Beach Energy Limited. Further details regarding
this balance are disclosed in note 29.
18 Restricted cash
31 Dec 16 31 Dec 15
$'000 $'000
Charged accounts - 874
Other amounts including in relation to exploration licence applications 495 1,318
495 2,192
19 Term Deposits
31 Dec 16 31 Dec 15
$'000 $'000
Maturing after the period end:
Within three months - 30,000
Three to six months - 10,000
Six to nine month 10,000 10,000
Nine months to one year 20,000 10,000
30,000 60,000
Term deposits are disclosed separately on the face of the balance sheet when
their term is greater than three months and they are unbreakable.
20 Other payables and accrualS
31 Dec 16 31 Dec 15
$'000 $'000
Accounts payable 687 2,377
Accruals 25,202 25,390
Other creditors 8,123 2,690
34,012 30,457
The increase in other creditors in the year is due to the acquisition of Beach
Petroleum (Egypt) Pty Limited and a payable balance due to the former parent
company Beach Energy Limited related to the associated receivable from EGPC
(see note 17). The balance outstanding as at 31 December 2016 was $7.2
million. Further details on this transaction are disclosed in note 29.
All amounts are expected to be settled within twelve months of the balance
sheet date and so the book values and fair values are considered to be the
same.
21 Tax payable
31 Dec 16 31 Dec 15
$'000 $'000
Current tax payable 9 9
Non current tax payable 39,115 47,405
39,124 47,414
On the 8 April 2015, the Group agreed binding documentation ("Tax Settlement
Deed") with the Falkland Island Government ("FIG") in relation to the tax
arising from the Group's farm out to Premier Oil plc ("Premier").
The Tax Settlement Deed confirms the quantum and deferment of the outstanding
tax liability and is made under Extra Statutory Concession 16.
As a result of the Tax Settlement Deed the outstanding tax liability was
confirmed at £64.4 million and payable on the first royalty payment date on
Sea Lion. Currently the first royalty payment date anticipated to occur within
six months of first oil production which itself is estimated to occur
approximately three and a half years after project sanction. As such the tax
liability has been reclassified as non-current and discounted at 15%. The
movement in the tax liability since the 31 December 2015 relates to an $8.3
million foreign exchange gain. Management are considering strategies to
mitigate currency risk in relation to this balance.
The tax liability may be revised downward if the Falkland Islands'
Commissioner of Taxation is satisfied that either (i) the Exploration Carry
from Premier is utilised to fund exploration activities or (ii) any element of
the Development Carry from Premier becomes "irrecoverable". The full benefit
of the $48.0 million Exploration Carry has been received from Premier during
the current campaign and a request has been made to the Falkland Islands
Commissioner of Taxation to reduce the tax liability by £4.7 million. No
adjustment in the tax liability has been made as this is still subject to
agreement with the Falkland Islands' Commissioner of Taxation.
22 Provisions
Abandonment Other
provision provisions 31 Dec 16 31 Dec 15
$'000 $'000 $'000 $'000
Brought forward 20,059 284 20,343 21,816
Amounts utilized (4,003) (242) (4,245) (45)
Amounts arising in the period - 66 66 64
Change in estimate (849) - (849) 382
Unwinding of discount 300 - 300 393
Foreign exchange (695) (6) (701) (2,267)
Carried forward at period end 14,812 102 14,914 20,343
The abandonment provision relates to the Group's licences in the Greater
Mediterranean region. The provision covers both the plug and abandonment of
wells drilled as well as any requisite site restoration. Assumptions, based on
the current economic environment, have been made which management believe are
a reasonable basis upon which to estimate the future liability. These
estimates are reviewed regularly to take into account any material changes to
the assumptions. However, actual decommissioning costs will ultimately depend
upon future market prices for the necessary decommissioning works required
which will reflect market conditions at the relevant time. Furthermore, the
timing of decommissioning is likely to depend on when the fields cease to
produce at economically viable rates. This in turn will depend upon future oil
and gas prices, which are inherently uncertain.
Other provisions include amounts due to employees for accrued holiday and
leaving indemnity for staff in Italy, that will become payable when they cease
employment.
23 deferred tax liability
31 Dec 16 31 Dec 15
$'000 $'000
At beginning of period 39,145 39,144
Movement in period - 1
At end of period 39,145 39,145
The deferred tax liability arises due to temporary differences associated with
the intangible exploration and evaluation expenditure. The majority of the
balance relates to historic expenditure on licences in the Falklands, where
the tax rate is 26%, being utilised to minimise the corporation tax due on the
consideration received as part of the farm out disposal during 2012.
Total carried forward losses and carried forward pre-trading expenditures
available for relief on commencement of trade at 31 December 2016 are
disclosed in note 12 Taxation. No deferred tax asset has been recognised in
relation to these losses due to uncertainty that future suitable taxable
profits will be available against which these losses can be utilized. The
potential deferred tax asset at the 31 December 2016 would be $59 million (31
December 2015: $49 million).
24 Share capital
31 Dec 2016 31 Dec 2015
$'000 Number $'000 Number
Called up, issued and fully paid: Ordinary shares of £0.01 each 7,194 456,659,552 4,910 296,579,834
For details of all movements during the year, see note 13.
25 reserves
Set out below is a description of each of the reserves of the Group:
Share premium Amount subscribed for share capital in excess of its nominal value.
Share based remuneration The share incentive plan reserve captures the equity related element of the expenses recognised for the issue of options, comprising the cumulative charge to the income
statement for IFRS2 charges for share based payments less amounts released to retained earnings upon the exercise of options.
Own shares held in trust Shares held in trust represent the issue value of shares held on behalf of participants in the SIP by Capita IRG Trustees Limited, the trustee of the SIP as well as
shares held by the Employee Benefit Trust which have been purchased to settle future exercises of options.
Merger reserve The difference between the nominal value and the fair value of shares issued on acquisition of subsidiaries.
Foreign currency translation reserve Exchange differences arising on consolidating the assets and liabilities of the Group's subsidiaries are classified as equity and transferred to the Group's translation
reserve.
Special reserve The reserve is non distributable and was created following cancellation of the share premium account on 4 July 2013. It can be used to reduce the amount of losses
incurred by the Parent Company or distributed or used to acquire the share capital of the Company subject to settling all contingent and actual liabilities as at 4 July
2013. Should not all of the contingent and actual liabilities be settled, prior to distribution the Parent Company must either gain permission from the actual or
contingent creditors for distribution or set aside in escrow an amount equal to the unsettled actual or contingent liability.
Retained losses Cumulative net gains and losses recognised in the financial statements.
26 Lease commitments
The future aggregate minimum lease payments under non-cancellable operating
leases in respect of land and buildings were as follows:
31 Dec 16 31 Dec 15
$'000 $'000
Total committed within 1 year 902 1,258
Total committed between 1 and 5 years 1,117 2,951
2,019 4,209
27 CAPITAL COMMITMENTS
Capital commitments represent the Group's share of expected costs in relation
to its interests in joint ventures net of any carry arrangements that are in
force.
The Group also committed to fund its share of the approved work program for
PL032 for the calendar year ending 31 December 2017 of US$8 million.
In addition, the Group has approved a capital work plan and budget commitments
of US$3 million in relation to its portfolio of assets in the Greater
Mediterranean region.
28 Related Party Transactions
The remuneration of directors, who are the key management personnel of the
Group, is set out below in aggregate.
Year ended31 Dec 16 Year ended31 Dec 15
$'000 $'000
Short term employee benefits 2,538 3,041
Pension contributions 139 150
Other long term employee benefits - 946
Share based payments 508 1,013
3,185 5,150
Other long term employee benefits relate to the gain on exercise of share
options during the previous period. Additional details are disclosed in note 7
Directors' remuneration.
The Company was notified that directors of the Company exercised options over
shares in the Company during the prior year. In addition a former director of
the Company also exercised options. The options were due to expire during that
year and were exercised during one of the few remaining open periods prior to
their expiry. The directors and former director elected to sell shares to
discharge the cost of exercise and their tax and national insurance
obligations (where applicable). These shares were purchased by the Rockhopper
Employee Benefit Trust (the "EBT") which was established in 2013 for the
purpose of holding shares to satisfy future exercises of options and vesting
of awards under the Company's Long Term Incentive Plan. The shares were
acquired by the EBT by way of an off market purchase at the closing share
price on the date prior to exercise. The remaining shares were retained.
Year ended 31 Dec 15 Number of shares subject to option Exercise price Shares sold to EBT EBT share purchase price Shares retained
Sam Moody 1,500,000 42 pence 1,236,472 63.25 pence 263,528
Pierre Jungels 1,500,000 42 pence 1,222,827 63.25 pence 277,173
Former director 525,000 42 pence 434,565 63.25 pence 90,435
29 acquisition of subsidiaries
Acquisition of Falkland Oil and Gas Limited
In January 2016 Rockhopper completed the acquisition of the entire issued
share capital of Falkland Oil and Gas Limited ("FOGL").
The boards of Rockhopper and FOGL believe that a combination of the Rockhopper
and FOGL Groups (together, the "Combined Group") represents a significant
value opportunity arising from the combination of their highly complementary
portfolios. Specifically, the Combined Group is expected to:
· be the largest North Falkland Basin licence and discovered resource
holder with a material working interest in all key licences;
· have enhanced prospects of progressing the Sea Lion project through
final investment decision;
· have greater exposure to exploration and appraisal upside potential;
and
· benefit from enhanced scale and capabilities creating value in the
current market environment.
Under the terms of the agreement announced on 24 November 2015, shareholders
of FOGL received 0.2993 shares of the Company per FOGL share.
At acquisition FOGL had a portfolio of assets and internal technical resources
and management and administrative processes. In addition it has potential
future outputs through the monetization of its 2C resources as such it is a
business and the transaction has been accounted for by the purchase method of
accounting with an effective date of 18 January 2016 being the date on which
the group gained control of FOGL. Information in respect of the assets and
liabilities acquired and the fair value allocation to the FOGL assets in
accordance with the provisions of "IFRS3 - Business Combinations" has been
determined as follows:
Recognised values on acquisition
$'000
Intangible exploration and appraisal assets 170,000
Property, plant and equipment 58
Inventories 162
Trade and other receivables 21,031
Trade and other payables (19,222)
Net identifiable assets and liabilities 172,029
Fair value in excess of consideration (111,842)
Satisfied by:
Equity instruments 159,684,668 ordinary shares 65,499
Less cash acquired (5,312)
Total consideration 60,187
The fair value of equity instruments has been determined by reference to the
closing share price on the trading day immediately prior to the completion of
the acquisition.
Inherently determining fair values, particularly of intangible exploration and
evaluation assets, is subjective. The valuation of intangible assets acquired
was based on the $ per barrel multiples applied in transactions in the market
place involving similar early stage development assets. Not all factors in any
particular transaction may be known and the market provides only a range of
possible values over a relatively small population of analogous transactions.
Analysis of $ per barrel multiples implied a wide range of reasonable possible
outcomes between $1.5 per barrel and $2.5 per barrel although actual
transactions ranged from near zero to values in well in excess of $5 per
barrel. The value above equates to just under $2 per barrel of 2C resource
acquired in the Sea Lion complex and around $1.6 per barrel if managements
view of the additional 2C resource discovered in the Emily, Isobel and Isobel
Deep J fans is included.
For reasonableness, this fair value was compared and supported by both
historic investment in the basin and the net present value of future cashflows
which requires key assumptions and estimates in relation to: commodity prices
that are based on forward curves for a number of years and the long-term
corporate economic assumptions thereafter, discount rates that are adjusted to
reflect risks specific to individual assets, the quantum of commercial
reserves and the associated production and cost profiles.
The fair value in excess of consideration arises due to the difference between
the fair value of the net assets and the consideration transferred and relates
to the fact that the financial position of FOGL had deteriorated due to cost
overruns at the Humpback exploration well as well as merger terms being agreed
prior to the Isobel Elaine well results, which as noted above added additional
2C resource and substantially de-risked the Isobel-Elaine complex. The fair
value in excess of consideration arises due to the difference between the fair
value of the net assets and the consideration transferred and relates to the
fact that the financial position of FOGL had deteriorated due to cost overruns
at the Humpback exploration well as well as merger terms being agreed prior to
the Isobel Elaine well results, which as noted above added additional 2C
resource and substantially de-risked the Isobel-Elaine complex.
Acquisition costs of $1,430,000 arose as a result of the transaction in this
and the prior period. These have been recognised as part of administrative
expenses in the statement of comprehensive income.
Since the acquisition date, FOGL has contributed $nil to group revenues and
added $873,000 to the group loss. If the acquisition had occurred on 31
December 2015, group revenues and group profit for the period would be
materially the same.
Acquisition of Beach Petroleum (Egypt) Pty Limited
In August 2016 Rockhopper completed the acquisition of the entire issued share
capital of Beach Petroleum (Egypt) Pty Limited ("Beach Egypt"). Beach Egypt
holds a 22% interest in the Abu Sennan concession and a 25% interest in the El
Qa'a Plain concession. Whilst the Company acquired had assets and outputs the
processes of Beach Egypt were all managed by the former parent company. As
such the acquisition has not been accounted for as a business combination
under IFRS 3 but an asset acquisition; the upfront consideration paid for the
asset acquisition was $11.9m excluding working capital adjustments and further
consideration of $7.4m to be paid in line with the recovery of Beach Energy's
retained interest in the gross transferred EGPC receivable. Under the
transaction terms the former parent company Beach Energy Limited retains the
economic benefit of the EGPC receivable balance as at 31 December 2015, being
US$8.6 million. Rockhopper pays the receivable due to Beach Energy Limited as
the funds are received by Rockhopper post-completion.
30 Post balance sheet events
OCean rig settlement
The Company announced on 14 September 2016, the operators of the 2015/16 North
Falkland Basin exploration campaign had entered into arbitration with Ocean
Rig in relation to the termination of Eirik Raude rig.
The Company confirmed in February 2017 that a settlement had been reached
between the operators and Ocean Rig. The financial impact of this settlement
is fully reflected in the results to 31 December 2016.
Commencement of international arbitration
On the 23 March 2017, Rockhopper announced that it has commenced international
arbitration proceedings against the Republic of Italy in relation to the
Ombrina Mare project.
Following the decision in February 2016, by the Ministry of Economic
Development not to award the Company a Production Concession covering the
Ombrina Mare field, the Company, with its legal advisers, has considered its
options with regard to obtaining damages and compensation from the Republic of
Italy for breaching the Energy Charter Treaty ("ECT").
Based on legal and expert opinions, Rockhopper has been advised that it has
strong prospects of recovering very significant monetary damages as a result
of the Republic of Italy's breaches of the ECT. Damages would be sought on the
basis of lost profits.
In addition, the Company has secured non-recourse funding for the arbitration
from a funder that specialises in financing commercial litigation and
arbitration claims. In the event of success (with an award above a nominal
threshold) Rockhopper retains a very material proportion of any award.
31 Risk management policies
Risk review
The risks and uncertainties facing the Group are set out in the risk
management report. Risks which require further quantification are set out
below.
Foreign exchange risks: The Group's functional currency is US$ and as such the
Group is exposed to foreign exchange movements on monetary assets and
liabilities denominated in other currencies, in particular the tax liability
with the Falkland Island Government which is a GB£ denominated balance. In
addition a number of the Group's subsidiaries have a functional currency other
than US$, where this is the case the Group has an exposure to foreign exchange
differences with differences being taken to reserves.
Asset balances include cash and cash equivalents, restricted cash and term
deposits of $81.5 million of which $71.4 million was held in US$
denominations. The following table summarises the split of the Group's assets
and liabilities by currency:
Currency denomination of balance $ £ E EGP £
$'000 $'000 $'000 $'000
Assets
31 December 2016 520,607 7,811 27,064 7
31 December 2015 346,295 15,546 37,752 -
Liabilities
31 December 2016 72,908 41,852 12,735 -
31 December 2015 60,585 52,262 24,512 -
The following table summarises the impact on the Group's pre-tax profit and
equity of a reasonably possible change in the US$ to GB£ exchange rate and the
US$ to euro exchange:
Pre tax profit Total equity
+10% US$ rateincrease -10% US$ ratedecrease +10% US$ rateincrease -10% US$ ratedecrease
$'000 $'000 $'000 $'000
US$ against GB£
31 December 2016 (2,519) 2,519 (2,519) 2,519
31 December 2015 (3,672) 3,672 (3,672) 3,672
US$ against euro
31 December 2016 (1,060) 1,060 (1,060) 1,060
31 December 2015 (126) 126 1,198 (1,198)
Capital risk management: the Group manages capital to ensure that it is able
to continue as a going concern whilst maximising the return to shareholders.
The capital structure consists of cash and cash equivalents and equity. The
board regularly monitors the future capital requirements of the Group,
particularly in respect of its ongoing development programme.
Credit risk; the Group recharges partners and third parties for the provision
of services and for the sale of Oil and Gas. Should the companies holding
these accounts become insolvent then these funds may be lost or delayed in
their release. The amounts classified as receivables as at the 31 December
2016 were $12,633,000 (31 December 2015: $1,104,000). Credit risk relating to
the Group's other financial assets which comprise principally cash and cash
equivalents, term deposits and restricted cash arises from the potential
default of counterparties. Investments of cash and deposits are made within
credit limits assigned to each counterparty. The risk of loss through
counterparty failure is therefore mitigated by the Group splitting its funds
across a number of banks, two of which are part owned by the British
government.
Interest rate risks; the Group has no debt and so its exposure to interest
rates is limited to finance income it receives on cash and term deposits. The
Group is not dependent on its finance income and given the current interest
rates the risk is not considered to be material.
Liquidity risks; the Group makes limited use of term deposits where the
amounts placed on deposit cannot be accessed prior to their maturity date. The
amounts applicable at the 31 December 2016 were $30,000,000 (31 December 2015:
$60,000,000).
Glossary:
2C best estimate of contingent resources
2P proven plus probable reserves
3C a high estimate category of contingent resources
AGM Annual General Meeting
Beach Energy Beach Energy Limited
Beach Egypt Beach Petroleum (Egypt) Pty Limited
Best a best estimate category of Prospective Resources also used as a generic term to describe a best, or mid estimate
Board the Board of Directors of Rockhopper Exploration plc
Boe barrels of oil equivalent
boepd barrels of oil equivalent per day
Capex capital expenditure
Company Rockhopper Exploration plc
E&P exploration and production
ERCE ERC Equipoise Limited
Farm-down to assign an interest in a licence to another party
FEED Front End Engineering and Design
FID Final Investment Decision
FIG Falkland Islands Government
FOGL Falkland Oil and Gas Limited
FPSO Floating Production, Storage and Offtake vessel
Group the Company and its subsidiaries
High high estimate category of Prospective Resources also used as a generic term to describe a high or optimistic estimate
IFRS International Financial Reporting Standard
KPI Key Performance Indicators
Low a low estimate category of Prospective Resources also used as a generic term to describe a low or conservative estimate
Mmbbls million barrels
Mmboe million barrels of oil equivalent
MMstb million stock barrels (of oil)
Mmbtu one million British Thermal Units
Mscf thousand standard cubic feet
net pay the portion of reservoir containing hydrocarbons that through the placing of cut offs for certain properties such as porosity, water saturation and volume of shale determine the productive element of the reservoir
P&A plug and abandon
Premier Premier Oil plc
PSV virtual exchange point
Scm standard cubic metre
STOIIP stock-tank oil initially in place
The information contained within this announcement is deemed by the Company to
constitute inside information as stipulated under the Market Abuse Regulations
(EU) No. 596/2014 ("MAR").
This information is provided by RNS
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