REG - Rockhopper Exp plc - Final Results
30/05/2023 07:15
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RNS Number : 8808A Rockhopper Exploration plc 30 May 2023
30 May 2023
Rockhopper Exploration plc
("Rockhopper", the "Group" or the "Company")
Full-Year Results for the Year Ended 31 December 2022
Rockhopper Exploration plc (AIM: RKH), the oil and gas exploration and
production company with key interests in the North Falkland Basin, is pleased
to announce its audited results for the year ended 31 December 2022.
2022 HIGHLIGHTS
SEA LION AND NORTH FALKLAND BASIN
· Completion of transaction to bring Navitas Petroleum LP ("Navitas")
into the North Falkland Basin licences (the "Transaction")
· Licence interests fully aligned
o Navitas 65% and Operator
o Rockhopper 35%
· Rockhopper benefits from two loans from Navitas
o Pre-Final Investment Decision ("FID") loan: covers all Rockhopper's Phase
1 Sea Lion project costs pre-FID via 8% loan
o Post FID loan: covers two-thirds of Rockhopper's Phase 1 Sea Lion project
costs from FID to the earlier of 12 months post-first oil or project
completion (for any costs not met by third party debt financing) via 0% loan
o Loans repaid from 85% of Rockhopper's working interest share of Sea Lion
Phase 1 project cash flows
· Sea Lion project re-defined
o Total barrels developed: 269mmbbls
o Phased drilling
§ First campaign: 18 wells (11 pre first oil)
§ Further campaign: 5 wells
o Production plateau: 80,000 bbls/d
o Redeployed FPSO
o Gross JV NPV10 US$4.3 billion
o Pre first oil capex US$1.3billion
OMBRINA MARE
· Successful arbitration outcome announced in August 2022
· Awarded compensation c.€190 million plus interest (the "Award")
· Rockhopper sent letter to Italy in September 2022 requesting payment
of €247 million
· Italy seeking to annul; Rockhopper contesting annulment; confident in
merits of legal case
· Interest accruing at c.€1.25 million per month
· Rockhopper and Italy directed to find an outcome that allows
Rockhopper to enforce whilst protecting Italy from risk of non-recoupment
should it succeed in annulment
CORPORATE AND FINANCIAL
· Capital raise of US$10.4 million pre-expenses in placing and open
offer which completed in July 2022
· Warrants outstanding at 9p per share
· Administrative expenses remain low
Keith Lough, Chairman of Rockhopper, commented:
"As John Summers and I approach our final AGM, we are pleased for shareholders
that the Company is in such a strong position. The combination of a new,
committed and capable partner in Navitas, a reworked hugely attractive Sea
Lion development and the outcome of the Ombrina Mare arbitration sets our
company up for what we believe is an exciting moment in our development. We
are delighted with the hugely significant progress achieved in the last year
and are convinced that we are closer than ever to unlocking the value of Sea
Lion for all stakeholders."
Enquiries:
Rockhopper Exploration plc
Sam Moody - Chief Executive Officer
Tel. +44 (0) 20 7390 0234 (via Vigo Consulting)
Canaccord Genuity Limited (NOMAD and Joint Broker)
Henry Fitzgerald-O'Connor/James Asensio/Gordon Hamilton
Tel. +44 (0) 20 7523 8000
Peel Hunt LLP (Joint Broker)
Richard Crichton/Georgia Langoulant
Tel. +44 (0) 20 7418 8900
Vigo Consulting
Patrick d'Ancona/Ben Simons/Fiona Hetherington
Tel. +44 (0) 20 7390 0234
Note regarding financial information disclosure
The financial information set out below does not constitute the Group's
statutory accounts for the year ended 31 December 2022, but is derived from
those accounts. References within the document may refer to information in
the statutory accounts and these will be sent to shareholders and published on
the Company's website imminently.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER'S REVIEW
INTRODUCTION
2022 and the first months of 2023 saw the most material and positive
developments at Rockhopper for some time. A combination of conflict in Europe
with the terrible events in Ukraine, structural long-term underinvestment in
global oil and gas projects, and a post-pandemic recovery in demand saw oil
prices remain above US$70 for the year. Against this background, we made real
progress, completing the Navitas transaction, extending our licences by two
years, strengthening our balance sheet and benefiting from a unanimous Award
in our favour from the ICSID Tribunal with compensation of approximately
€190 million plus interest. Taken together, these developments put us in our
strongest position for many years.
We continue to believe that oil and gas, responsibly produced, will play a
hugely important role in the security of global energy supply for many decades
to come as the energy transition continues. Indeed, the IEA forecasts global
oil demand will grow to over 104 million barrels per day by 2026. Countries
such as the United Kingdom continue to import energy from parts of the world
with lower environmental standards than are applied in the Falklands, meaning
that switching the source of that supply to Sea Lion would result in a
reduction in that country's overall greenhouse gas emissions.
Sea Lion has the potential to play an important role not only in securing the
financial future and thereby political independence of the Falklands against
continued Argentine economic aggression, but also providing the UK with a
secure and responsibly produced source of energy.
NAVITAS TRANSACTION COMPLETES; LICENCES EXTENDED
Having announced the exit of Harbour Energy ("Harbour") exit and the formation
of the new Rockhopper-Navitas JV in April 2022, we completed what was a
complex transaction with numerous moving parts in September of that year. We
are delighted to welcome Navitas to the North Falkland Basin.
The transaction sees full alignment of all our North Falkland Basin (NFB)
acreage with Navitas taking a 65% interest and becoming Operator of licences
PL003, PL004, PL005, PL032, and PL033, which we consider to be the most
prospective areas in the basin. Importantly, this removes the risk of future
unitisation negotiations within the partnership as the Sea Lion development
straddles a block boundary.
As a result of the transaction, Rockhopper benefits from two attractive loans
from Navitas. The first loan, which we are currently drawing on, covers all of
our net Sea Lion Phase 1 working interest costs (other than licence fees and
taxes) at an interest rate of 8% and is available from transaction completion
to FID. The second 0% interest loan covers two-thirds of our net working
interest Sea Lion Phase 1 costs (other than licence fees and taxes) for
project costs not covered by third party debt financing. Both loans are repaid
from 85% of Rockhopper's net Sea Lion Phase 1 cash flows.
As part of closing the transaction, the new JV agreed to buy out the remaining
unsatisfied exploration well commitment on licences PL032 and PL033 for US$1.8
million, with Rockhopper paying its 35% net working interest amount directly,
due to it being effectively a licence fee-related cost. We also extended our
South Falkland Basin ("SFB") licences by two years, which we hold 100% as
Operator, where all exploration commitments have already been satisfied.
Whilst our focus is very much on getting Sea Lion up and running, we continue
to work up prospectivity in the SFB where we have what we believe to be a
direct analogue feature to the large Darwin discovery held by Borders &
Southern Petroleum in adjacent acreage. Between what has been discovered and
appraised and what can be inferred, the Company believes the Falkland basins
represent a long-term, world-class resource, and the key to unlocking it is
getting to FID on Sea Lion.
SEA LION PROJECT RE-DEFINED
In March 2023, only six months after the transaction completed, R announced a
material and hugely impressive improvement in the project costs and economics.
Building on previous work carried out by both Rockhopper and Premier Oil
("Premier"), the development team at Navitas re-defined the Sea Lion project
such that, when compared to the previous project, production rates are
maintained, total oil produced increases, pre-first-oil costs are down by some
half a billion dollars and life-of-field cash costs have been reduced to less
than US$30 per barrel. All of this has been achieved in an industry
environment of rising costs. We are, perhaps not surprisingly, hugely
impressed and absolutely delighted at these developments which materially
improve the economics and therefore the ability to finance the project.
The new project develops 269 million barrels of oil via a leased, re-deployed
FPSO with 23 wells in total spread over two separate drilling campaigns. The
first campaign has 18 wells, of which 11 are drilled pre-first-oil with a
second campaign of a further five wells to be drilled around 42 months
post-first oil.
Navitas continues to refine these development plans and work on the financing
with a view to reaching FID during 2024.
Navitas appointed Netherland Sewell & Associates ("NSAI") to review the
quantities of oil and gas in the basin and produce a net present value
calculation based on the new development plan. Whilst Rockhopper is not an
addressee of the report, we endorse its conclusions. That report, which is
available in Navitas' annual report which can be found on its web site,
contains the following estimates of contingent resources in the Rockhopper
Navitas JV acreage(1):
1C (mmbbls) 2C (mmbbls) 3C (mmbbls)
Development pending 204 269 368
Development unclarified 247 443 761
Total 451 712 1,129
The NSAI report contains net to Navitas economics. Using the outputs from the
report, we have calculated the NPV10 at Brent US$77 flat (the oil price used
in the report) gross to the JV on a post-Falkland Island Government ("FIG")
royalty, pre-tax basis, to be US$4.3 billion for the first 269 million barrels
development alone (2C).
1 The last independent resource report commissioned directly by Rockhopper
was the ERCE 2016 Report which had an estimated 2C value of 517 MMbbls. The
Navitas commissioned NSAI Independent Report used an updated approach and
assumptions to the ERCE 2016 report.
Rockhopper is not an addressee and has not been party to the production of the
NSAI Independent Report. The NSAI Independent Report has been produced to PRMS
standards. Rockhopper's technical team which includes Lucy Williams (BSc
Geology, MSc Petroleum Geology, Chartered Geologist) had limited opportunity
to review the NSAI Independent Report before its publication but endorses the
work conducted and conclusions drawn.
OMBRINA MARE
Having started our Arbitration against the Republic of Italy in 2017 we were
delighted when, in August 2022, we received a unanimous decision in our favour
from the ICSID Tribunal. The Tribunal awarded us compensation of approximately
€190 million plus interest at EURIBOR + 4% backdated to January 2016 with a
four month pause in that interest from the date of the Award.
In September 2022, having made the appropriate interest calculations, we wrote
to Italy requesting payment of €247 million. Italy has not yet responded to
that letter.
On 28 October 2022, Italy submitted an application to the ICSID seeking to
annul the Award under Article 52 of the ICSID Convention. Italy also requested
a provisional stay of the enforcement of the Award pursuant to Article 52(5)
of the ICSID Convention. A hearing on whether or not to continue the stay took
place on 6 March 2023 and on 24 March 2023 the Committee issued orders with
regard to the provisional stay. Those orders were, as follows:
1: that Italy and Rockhopper shall confer - in good faith and using their best
efforts to cooperate and find an effective arrangement - for the mitigation of
the risk of non-recoupment using a first-class international bank outside the
European Union (or as Italy and Rockhopper otherwise agree) to be put into
place in anticipation of the termination of the provisional stay of
enforcement of the Award. This is to mitigate the perceived risk that, in the
event the Award is annulled, Italy may not be able to recover Italian assets
seized or frozen by Rockhopper (before the ad hoc Committee issues its
decision on annulment) in court enforcement proceedings.
2: that Rockhopper shall, within 30 days of the date of the decision, apprise
the Committee of arrangements agreed with Italy for the mitigation of the risk
of non-recoupment or that negotiations have failed and, in the latter event,
propose concrete arrangements in accordance with the decision for the
mitigation of the risk of non-recoupment. Italy may then briefly comment on
Rockhopper's proposal within 10 days, constructively highlighting any areas of
disagreement between the Parties.
Italy has refused to comply with the Panels instructions. Rockhopper intends
to continue to work in good faith to resolve the issues raised regarding
non-recoupment and has submitted to the Panel its proposal to mitigate this
risk. The provisional stay remains in force during this time, pending further
orders from the Committee.
The decision to lift the provisional stay of enforcement is unrelated to the
merits of Italy's annulment request. A final hearing in relation to Italy's
request to annul the Award is scheduled to take place in Q1 2024. Guidance
given by Rockhopper in the Company's 31 October 2022 announcement that the
entire annulment process is likely to take 18-24 months from that date remains
in place. Rockhopper is currently paying its own legal costs as the previous
funding budget put in place to cover the original Arbitration has been
discharged.
Whilst proceedings at ICSID are confidential between the parties, ICSID does
publish the grounds on which it is possible to seek annulment and statistics
on the success of such applications.
The funding budget covering the costs of the Arbitration was fully discharged
at the point that we received the Award and that agreement does not cover any
costs past that point in time. Rockhopper has paid all legal fees
(approximately US$500,000) associated with contesting the provisional stay and
is investigating options for covering the balance of costs required to contest
the annulment application itself and pursue any potential enforcement actions.
Remaining costs to contest annulment are likely to be in the region of £1m to
£1.5m. Costs to undertake enforcement are more difficult to quantify given
the potential requirement to enforce simultaneously in multiple legal
jurisdictions. Previous guidance on timing given at the time Italy made
their annulment application remains unchanged.
Whilst there can be no guarantees, given the published statistics on annulment
and the strength of our legal case, we remain confident in the likelihood of
prevailing and recovering material compensation from Italy in the fullness of
time.
CORPORATE MATTERS
Having significantly cut costs, moved offices, and reduced our headcount in
2020 we maintain a keen focus on keeping our General and Administrative
("G&A") costs lean. Whilst managing costs, we have also proactively sought
to retain our small team of people who understand the assets in great detail,
and who have preserved material exposure to development success for our
shareholders, through often very challenging circumstances.
That said, with no material production revenue coming into the business, we
undertook our first capital raise for over a decade in 2022. By combining a
placing with an open offer we were able to offer all our shareholders the
chance to participate in the raise on the same terms as larger institutional
investors. By issuing 121,834,936 shares at 7pence per share we raised
approximately US$10.4 million before expenses, also issuing one warrant for
every two shares taken up with those warrants giving holders the right to buy
shares at 9pence. Should the bulk of those warrants be taken up this would
provide important additional working capital for the Company.
ENVIRONMENTAL, SOCIAL, AND GOVERNANCE
ESG and Corporate Responsibility more generally continue to be a focus for
Rockhopper. As an oil and gas exploration and production business our role is
to ensure that we carry out our operations in a responsible manner. We have
visited the Falklands twice during 2023 and pride ourselves on being a
long-term partner to the people of the Islands. Once FID on Sea Lion has been
achieved, we commit to defining measures to report transparently and mitigate
our emissions as far as is practicable.
In recent years, we have retained a small and stable board to support the CEO
and his team as we progressed important initiatives such as the ICSID tribunal
and transaction with Navitas. Now is therefore an appropriate time for change
as we move into a new phase for the Company, having passed through important
milestones on both those fronts.
In light of this we plan to phase in a new board led by a new chair. Their
focus will be on recovering our tribunal Award and working with the Falkland
Islands and UK governments, as well as Navitas, to move towards approval of
the Sea Lion development. Work to identify a new chair is underway and we hope
to have made the appointment by Q4 of this year. In addition Non-Executive
Director, John Summers will also be standing down by Q4 2023 and a replacement
is also being sought.
We would like to thank the whole team for their continuing efforts during
challenging times. Given our recent progress, we are absolutely convinced that
an exciting period lies ahead of the Company.
FINANCIAL REVIEW
OVERVIEW
From a finance perspective, the most significant events in 2022 were:
· Detailed transaction terms agreed with Harbour and Navitas in
relation to the Sea Lion project and the Transaction completed in September
2022
· Successful fundraising through Placing and Subscription raising net
proceeds of US$6.3 million in June 2022
· Additional US$2.8 million net proceeds raised through Open Offer in
July 2022
· Successful ICSID arbitration awardin respect of Ombrina Mare.
o Compensation of €190 million plus interest at EURIBOR + 4%, compounded
annually from 29 January 2016 until time of payment
o The Republic of Italy applied to have the Award annulled in October 2022
With the Transaction completing the arrangements with Navitas ensure that
Rockhopper is funded going forward for all pre-sanction costs related to the
Sea Lion Phase 1 development (other than licence fees and taxes). This,
combined with the fundraising, materially strengthens the Group's financial
position in the short and medium term and significantly enhances the prospects
for a successful project financing for Sea Lion.
The Award was made in September 2022 and Italy applied to have the Award
annulled in October 2022. The Arbitration itself is discussed in detail in the
Chairman and Chief Executive Officer's Review, but from a financial
perspective has no impact on the results for the period to 31 December 2022 as
the Award is still considered a contingent asset and as such not recognised in
the financial statements. Assuming full recovery of the Award, after payments
due to the arbitration funder and success fees due to the Group's legal
representation, the Group expects to retain approximately 80% pre-tax. Further
analysis has begun to establish the tax treatment on any payments received.
RESULTS FOR THE YEAR
For the year ended 31 December 2022, the Group reported revenues of US$0.7
million (2021: US$0.8 million) and profit after tax of US$35.5 million (2021:
loss after tax US$7.8 million). The significant profit after tax was driven by
a current year tax income of US$38.8 million (2021: US$0.2 million) This is
discussed in more detail below.
REVENUE AND COST OF SALES
The Group's revenues of US$0.7 million (2021: US$0.8 million) during the year
relate entirely to the sale of natural gas in the Greater Mediterranean
(specifically Italy) region. The reduction in revenues from the comparable
period reflects the reduction in production offset by increased realised gas
prices. Gas was sold at a price linked to the Italian "PSV" (Virtual Exchange
Point) gas marker price.
Cash operating costs, excluding movements on provisions and depreciation
charges, amounted to US$0.9 million (2021: US$1.1 million). The reduction in
operating costs reflects the reduced production during the year.
Following cessation of production in Italy no revenues are expected going
forward.
OPERATING COSTS
Exploration and evaluation expenses are not material in the year. The
impairment in the current year mainly due to the write off of costs relating
to areas of the North Falkland Basin which will not be developed as part of
the Sea Lion Phase 1 project. The reversal of impairment in the prior year
relates to impairments against amounts over accrued in 2020.
The Group continues to manage corporate costs and has achieved significant
reductions in recurring G&A costs over the last five years. In light of
the sharp reduction in oil prices experienced in the first half of 2020,
initiatives to further reduce corporate costs commenced in May 2020.
Administrative expenses have increased during the year to US$3.6 million
(2021: US$3.3million). It should be noted that these costs include initial
legal fees in relation to contesting the Annulment of the Award. Having
anticipated Italy might attempt to annul the Award, Rockhopper had a
non-binding offer in place to fund both fighting the annulment and enforcing
the Award. The Group has instead chosen to use existing resources to fund all
legal costs arising from contesting the request by Italy for annulment whilst
it explores all acceptable funding possibilities.
The foreign exchange gain in the year is US$6.6 million (2021: US$0.8
million). As with last year, this is mainly movements in relation to the tax
arising from the Group's farm-out to Premier in 2012, a GBP denominated
balance. Finance expense in the year of US$4.2 million (2021: US$3.5million)
also mainly relate to adjustments in relation to this tax balance. This
balance is discussed further below.
CASH MOVEMENTS AND CAPITAL EXPENDITURE
At 31 December 2022, the Group had cash and term deposits of US$9.8 million
(31 December 2021: US$4.8 million).
Cash and term deposit movements during the period:
US$m
Opening cash balance (31 December 2021) 4.8
Revenues 0.7
Cost of sales (0.9)
Falkland Islands (1.8)
Administrative expenses (3.4)
Net proceeds of fundraising 9.1
Miscellaneous 1.3
Closing cash balance (31 December 2022) 9.8
Miscellaneous includes foreign exchange and movements in working capital
during the period.
The additions to intangible exploration and evaluation assets during the year
of $2.7 million relate principally to the Sea Lion development. Management
considered whether there were any indicators of impairment to the carrying
value of the intangible and concluded there were none. This is discussed in
more detail in note 14 to the financial statements.
FUNDRAISING
During the year Rockhopper raised US$9.1 million, post expenses, by way of a
Placing and Subscription in June 2022 and an Open Offer in July 2022. In each
case at an issue price of 7 pence per Unit (the "Issue Price"). Each Unit
offered comprises one New Ordinary Share and, for every two New Ordinary
Shares subscribed for, one Warrant.
Each Warrant gives the holder the right to subscribe for one new Ordinary
Share at a price of 9 pence per Ordinary Share (the "Strike Price") at any
time from the issue of the Warrants up to (and including) 5.00 p.m. on 31
December 2023 (the "Warrant Exercise Period").
The Placing utilised a cashbox structure and therefore the premium on the
ordinary shares and associated costs have in accordance with section 621 of
the Companies Act 2006 been recognised within the merger reserve.
The functional currency of Rockhopper is US$. Given the warrant exercise price
is determined in GBP, a foreign currency, the Warrants issued under the
Subscription do not meet the fixed amount of cash criteria to be treated as
equity and therefore have been treated as a derivative financial liability.
These were initially valued at US$1.3 million on grant and subsequently
revalued to US$1.7 million as at the year end, with the difference being
treated as a finance expense.
Accounting standards allows warrants to be treated as equity instruments where
the Company offers them pro rata to all of its existing owners equally.
Therefore, warrants issued as part of the Open Offer have been treated as
equity.
The Placing and Subscription raised net US$6.3 million after associated costs
of US$0.8 million. The Open Offer raised net US$2.8 million after associated
costs of US$0.4 million.
MERGERS, ACQUISITIONS AND DISPOSALS
The Sea Lion development remains central to the Group's plans and we are
excited at the prospect of bringing in a new industry partner, Navitas,
especially given their experience in financing projects of a similar scale to
Sea Lion.
From a financial perspective Navitas will provide loan funding to the Group to
cover the majority of its share of Sea Lion phase one related costs from
Transaction completion up to FID through a loan from Navitas with interest
charged at 8% per annum (the "Pre-FID Loan"). Subject to a positive FID,
Navitas will provide an interest free loan to fund two-thirds of the Group's
share of Sea Lion phase one development costs (for any costs not met by third
party debt financing).
Certain costs, such as licence costs, are excluded in both instances. Funds
drawn under the loans will be repaid from 85% of Rockhopper's working interest
share of free cash flow
TAXATION
On the 8 April 2015, the Group agreed binding documentation ("Tax Settlement
Deed") with the FIG in relation to the tax arising from the Group's farm out
to Premier.
The Tax Settlement Deed confirms the quantum and deferment of the outstanding
tax liability and is made under Extra Statutory Concession 16.
The Tax Settlement Deed also states that the Group is entitled to make
adjustments to the outstanding tax liability if and to the extent that the
Commissioner is satisfied that any part of the Development Carry becomes
irrecoverable. Under the Transaction the balance of Development Carry has
become irrecoverable and in the Group's judgment no further amounts are due on
the Group's 2012 farm-out to Premier.
Given the highly material nature of this judgment professional advice has been
sought to confirm that it is probable that if challenged it would be concluded
that the Group is entitled to adjust the outstanding tax liability for the
irrecoverable Development Carry. As such the Group has derecognised the tax
liability to measure it at the most likely amount that the liability will be
settled for of US$nil. We are currently engaged with FIG formalising the tax
implications of the termination of the 2012 Premier Oil farm down which
resulted in irrecoverable carry of approximately US$ 670 million.
Should it be proven that there is no entitlement to adjustment under the Tax
Settlement Deed then the outstanding tax liability would be £59.6 million and
still payable on the earlier of: (i) the first royalty payment date on Sea
Lion; (ii) the date of which Rockhopper disposes of all or a substantial part
of the Group's remaining licence interests in the North Falkland Basin; or
(iii) a change of control of Rockhopper Exploration plc.
In this unlikely instance Management believes the most likely timing of
payment is in line with the first royalty payment. Based on previous
correspondence with FIG, Management does not believe that the Transactions
completion constitutes a substantial disposal and therefore would not have
accelerated the liability should it be shown to be still payable.
The derecognition of the tax liability has led to a tax income of US$38.8
million.
LIQUIDITY, COUNTERPARTY RISK AND GOING CONCERN
The Group monitors its cash position, cash forecasts and liquidity on a
regular basis and takes a conservative approach to cash management. At 31
December 2022, the Group had cash and cash equivalents and term deposits of
US$9.8 million and $7.3 million as at 30 April 2023.
Historically, the Group's largest annual expenditure has related to
pre-sanction costs associated with the Sea Lion development. Following
completion of Navitas coming into the North Falkland Basin (the "Transaction")
the Group benefits from loan funding for its share of all Sea Lion
pre-sanction costs (other than licence fees and taxes).
Normal working capital requirements and projected recurring expenditure is
expected to be around US$4.0 million per year and in addition there are costs
associated with maintaining the various licence and concessions in the Group's
Italian portfolio.
In addition to the above requirements the third-party funding agreement in
place to cover costs in relation to its ICSID arbitration with the Republic of
Italy does not cover any costs arising past the date of the Award (23 August
2022). A separate success fee of approximately £3 million is due to the
Company's legal representatives on establishing liability and an award
requiring Italy to pay at least €25 million in damages. This amount is
also not covered by the funding agreement.
Having anticipated Italy might attempt to annul the Award, Rockhopper had a
non-binding offer in place to fund both fighting the annulment and enforcing
the Award. The Group has instead chosen to use existing resources to fund all
legal costs arising from contesting the request by Italy for annulment whilst
it explores all funding possibilities.
At the year end the Group had 56.5 million unexercised 9 pence warrants in
issue with an expiry date of 31 December 2023. Assuming the share price is in
excess of 9 pence, which it is at time of writing, the Group expects the
majority of these warrants to be exercised providing additional funds of up to
£5million.
However, in the downside circumstances where these outstanding warrants are
not fully exercised the Group would have to raise additional funds to meet
both legal costs in relation to the arbitration and normal working capital
requirements as we work towards project sanction of Sea Lion.
Under the base case forecast, the Group will have sufficient financial
headroom to meet forecast cash requirements for the 12 months from the date of
approval of these consolidated financial statements. However, in the downside
scenarios, in the absence of any mitigating actions, the Group may have
insufficient funds to meet its forecast cash requirements. Potential
mitigating actions, some of which are outside the Group's control, could
include collection/monetisation of arbitration award proceeds, deferral of
expenditure or raising additional equity.
Accordingly, after making enquiries and considering the risks described above,
the Directors have reviewed the Group's overall position and are of the
opinion that the Group is able to operate as a going concern for at least the
next twelve months from the date of approval of these financial statements and
believe the use of the going concern basis is appropriate.
Nonetheless, for the avoidance of doubt, in the downside scenarios in which
the remaining warrants are not exercised and additional funding is not raised
and in the absence of potential mitigating actions indicates the existence of
a material uncertainty that may cast significant doubt upon the Group's
ability to continue as a going concern and the Group may therefore be unable
to realise its assets and discharge its liabilities in the ordinary course of
business. The Consolidated and Parent Company financial statements do not
include adjustments that would result if the Group was unable to continue as a
going concern.
PRINCIPAL RISK AND UNCERTAINTIES
A detailed review of the potential risks and uncertainties which could impact
the Group are outlined elsewhere in this Strategic Report. The Group
identified its key risks at the end of 2022 as being:
1 oil price volatility;
2 access to capital;
3 joint venture partner alignment; and
4 failure of joint venture partners to secure the
requisite funding to allow a Sea Lion Final Investment Decision.
CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2022
Year ended 31 December Year ended 31 December
2022 2021
$'000 $'000
Notes
Revenue 3 652 839
Other cost of sales (1,965) (1,141)
Depreciation and impairment of oil and gas assets - (667)
Total cost of sales 4 (1,965) (1,808)
Gross loss (1,313) (969)
Other exploration and evaluation expenses (24) (398)
Write off/write back of exploration costs (307) 273
Total exploration and evaluation expenses 5 (331) (125)
Administrative expenses 6 (3,625) (3,263)
Charge for share based payments 9 (393) (824)
Foreign exchange movement 10 6,596 789
Results from operating activities 934 (4,392)
Finance income 11 23 4
Finance expense 11 (4,175) (3,522)
Loss before tax (3,218) (7,910)
Tax income 12 38,763 151
Profit/(loss) for the year attributable to the equity shareholders of the 35,545 (7,759)
parent company
Profit/(loss) per share attributable to the equity shareholders of the parent
company: cents
Basic 13 6.77 (1.70)
Diluted 13 6.68 (1.70)
All operating income and operating gains and losses relate to continuing
activities.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2022
Year ended Year ended
31 December 31 December
2022 2021
$'000 $'000
Profit/(loss) for the year 35,545 (7,759)
Items that may be reclassified to profit or loss
Exchange differences on translation of foreign operations 1,683 889
Total comprehensive profit/(loss) for the year 37,228 (6,870)
The notes on pages 51 to 71 form an integral part of these consolidated
financial statements.
CONSOLIDATED BALANCE SHEET
as at 31 December 2022
31 December 31 December
2022 2021
Notes $'000 $'000
Non current assets
Exploration and evaluation assets 14 251,970 249,583
Property, plant and equipment 15 68 201
Finance lease receivable 444 730
Current assets
Other receivables 16 1,406 2,074
Finance lease receivable 259 288
Restricted cash 519 579
Term deposits 17 8,736 -
Cash and cash equivalents 1,059 4,822
Total assets 264,461 258,277
Current liabilities
Other payables 18 3,383 2,000
Derivative financial liabilities 19 1,744 -
Lease liability 209 286
Non-current liabilities
Lease liability 344 842
Tax payable 20 - 43,204
Provisions 21 19,177 18,287
Deferred tax liability 22 39,137 39,137
Total liabilities 63,994 103,756
Equity
Share capital 23 8,771 7,218
Share premium 24 6,518 3,622
Share based remuneration 24 1,492 4,327
Own shares held in trust 24 (1,494) (3,342)
Merger reserve 24 78,208 74,332
Foreign currency translation reserve 24 (7,999) (9,682)
Special reserve 24 175,281 175,281
Retained losses 24 (60,310) (97,235)
Attributable to the equity shareholders of the company 200,467 154,521
Total liabilities and equity 264,461 258,277
These financial statements on pages 47 to 71 were approved by the directors
and authorised for issue on 26 May 2023 and are signed on their behalf by:
Samuel Moody
Chief Executive Officer
Rockhopper Exploration plc Registered Company Number: 05250250
The notes on pages 51 to 71 form an integral part of these consolidated
financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2022
Foreign currency translation
Share capital Share premium Share based remuneration Merger reserve reserve Special reserve Retained losses Total equity
Shares held
in trust
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
Balance at 31 December 2020 7,218 3,622 5,973 (3,342) 74,332 (10,571) 188,028 (104,693) 160,567
Loss for the year - - - - - - - (7,759) ( 7,759)
Other comprehensive profit for the year - - - - - 889 - - 889
Total comprehensive loss for the year - - - - - 889 - (7,759) (6,870)
Share based payments (see note 9) - - 824 - - - - - 824
Other transfers - - (2,470) - - - (12,747) 15,217 -
Balance at 31 December 2021 7,218 3,622 4,327 (3,342) 74,332 (9,682) 175,281 (97,235) 154,521
Profit for the year - - - - - - - 35,545 35,545
Other comprehensive profit for the year - - - - - 1,683 - - 1,683
Total comprehensive profit for the year - - - - - 1,683 - 35,545 37,228
Share based payments (see note 9) - - 393 - - - - - 393
Share issues (net of expenses) 1,553 2,896 - - 3,876 - - - 8,325
Other transfers - - (3,228) 1,848 - - - 1,380 -
Balance at 31 December 2022 8,771 6,518 1,492 (1,494) 78,208 (7,999) 175,281 (60,310) 200,467
See note 24 for a description of each of the reserves of the Group
Other transfers relate to amounts transferred from the Share based
remuneration reserve to either Retained losses for options that have either
not vested or expired or Shares held in trust where they have been used to
satisfy exercised options.
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 December 2022
Year ended Year ended 31 December
31 December 2021
2022 $'000
Notes $'000
Cash flows from operating activities
Loss before tax (3,218) (7,910)
Adjustments to reconcile net losses to cash:
Depreciation 15 122 1,082
Share based payment charge 9 393 824
Written off/(back) exploration costs 14 307 (273)
Profit/(loss) on disposal of property, plant and equipment 8 (156)
Finance expense 4,167 3,601
Foreign exchange (7,764) (640)
Operating cash flows before movements in working capital (5,985) (3,472)
Changes in:
Inventories - 287
Other receivables 1,564 176
Payables 837 420
Movement on provisions 1,030 6
Cash utilised by operating activities (2,554) (2,583)
Cash flows from investing activities
Capitalised expenditure on exploration and evaluation assets (1,797) (3,248)
Purchase of property, plant and equipment - (228)
Disposal of assets held for sale - -
Investing cash flows before movements in capital balances (1,797) (3,476)
Changes in:
Restricted cash - (100)
Term deposits (8,697) -
Cash flow from investing activities (10,494) (3,576)
Cash flows from financing activities
Issue of ordinary shares 9,038 -
Expenses associated with issue of ordinary shares (1,194) -
Issue of warrants classified as derivative financial liabilities 1,250 -
Exercise of warrants and share options 481 -
Lease liability payments (257) (587)
Cash flow from financing activities 9,318 (587)
Currency translation differences relating to cash and cash equivalents (33) (112)
Net cash flow (3,730) (6,746)
Cash and cash equivalents brought forward 4,822 11,680
Cash and cash equivalents carried forward 1,059 4,822
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2022
1. Accounting policies
1.1 Group and its operations
Rockhopper Exploration plc, the 'Company', a public limited company quoted on
AIM, incorporated and domiciled in the United Kingdom ('UK'), together with
its subsidiaries, collectively 'the 'Group' holds certain exploration licences
for the exploration and exploitation of oil and gas in the Falkland Islands.
In addition, it has operations in the Greater Mediterranean based in Italy.
The registered office of the Company is Warner House, 123 Castle Street,
Salisbury, Wiltshire, SP1 3TB.
1.2 Statement of compliance
The consolidated financial statements of the Group have been prepared on a
going concern basis in accordance with UK adopted International Accounting
Standards in conformity with the requirements of the Companies Act 2006. The
consolidated financial statements were approved for issue by the board of
directors on 26 May 2023 and are subject to approval at the Annual General
Meeting of shareholders on 29 June 2023.
1.3 Basis of preparation
The results upon which these financial statements have been based were
prepared using the accounting policies set out below. These policies have been
consistently applied unless otherwise stated.
These consolidated financial statements have been prepared under the
historical cost convention with the exception of Share Based Payments which
are at fair value.
Items included in the results of each of the Group's entities are measured in
the currency of the primary economic environment in which that entity operates
(the "functional currency"). The consolidated financial statements are
presented in US Dollars ($), which is Rockhopper Exploration plc's functional
currency.
All values are rounded to the nearest thousand dollars ($'000) or thousand
pounds (£'000), except when otherwise indicated.
1.4 Change in accounting policy
Changes in accounting standards
In the current year the following new and revised Standards and
Interpretations have been adopted. None of these have a material impact on the
Group's annual results.
Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37);
Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS
16); Annual Improvements to IFRS Standards 2018-2020 (Amendments to IFRS 1,
IFRS 9, IFRS 16 and IAS 41); and References to Conceptual Framework
(Amendments to IFRS 3).
New accounting pronouncements
At 31 December 2022, the following Standards, Amendments and Interpretations
were in issue but not yet effective:
The following amendments are effective for the period beginning 1 January
2023:
· Disclosure of Accounting Policies (Amendments to IAS 1
and IFRS Practice Statement 2);
· Definition of Accounting Estimates (Amendments to IAS 8);
and
· Deferred Tax Related to Assets and Liabilities arising
from a Single Transaction (Amendments to IAS 12).
The following amendments are effective for the period beginning 1 January
2024:
· IFRS 16 Leases (Amendment - Liability in a Sale and
Leaseback)
· IAS 1 Presentation of Financial Statements (Amendment -
Classification of Liabilities as Current or Non-current)
· IAS 1 Presentation of Financial Statements (Amendment -
Non-current Liabilities with Covenants)
The Directors do not expect that the adoption of the above Standards,
Amendments and Interpretations will have a material impact on the Financial
Statements of the Group in future periods.
1.5 Going concern
The Group monitors its cash position, cash forecasts and liquidity on a
regular basis and takes a conservative approach to cash management. At 31
December 2022, the Group had cash and cash equivalents and term deposits of
US$9.8 million.
Historically, the Group's largest annual expenditure has related to
pre-sanction costs associated with the Sea Lion development. Following
completion of Navitas coming into the North Falkland Basin (the "Transaction")
the Group benefits from loan funding for its share of all Sea Lion
pre-sanction costs (other than licence fees and taxes).
Normal working capital requirements and projected recurring expenditure is
expected to be around US$4.0 million per year and in addition there are costs
associated with maintaining the various licence and concessions in the Group's
Italian portfolio.
In addition to the above requirements the third-party funding agreement in
place to cover costs in relation to its ICSID arbitration with the Republic of
Italy does not cover any costs arising past the date of the Award (23 August
2022). A separate success fee of approximately £3 million is due to the
Company's legal representatives on establishing liability and an award
requiring Italy to pay at least €25 million in damages. This amount is
also not covered by the funding agreement.
Having anticipated Italy might attempt to annul the Award, Rockhopper had a
non-binding offer in place to fund both fighting the annulment and enforcing
the Award. The Group has instead chosen to use existing resources to fund all
legal costs arising from contesting the request by Italy for annulment whilst
it explores all funding possibilities.
At the year end the Group had 56.5 million unexercised 9 pence warrants in
issue with an expiry date of 31 December 2023. Assuming the share price is in
excess of 9 pence, which it is at time of writing, the Group expects the
majority of these warrants to be exercised providing additional funds of up to
£5million.
However, in the downside circumstances where these outstanding warrants are
not fully exercised the Group would have to raise additional funds to meet
both legal costs in relation to the arbitration and normal working capital
requirements as we work towards project sanction of Sea Lion.
Under the base case forecast, the Group will have sufficient financial
headroom to meet forecast cash requirements for the 12 months from the date of
approval of these consolidated financial statements. However, in the downside
scenarios, in the absence of any mitigating actions, the Group may have
insufficient funds to meet its forecast cash requirements. Potential
mitigating actions, some of which are outside the Group's control, could
include collection/monetisation of arbitration award proceeds, deferral of
expenditure or raising additional equity.
Accordingly, after making enquiries and considering the risks described above,
the Directors have reviewed the Group's overall position and are of the
opinion that the Group is able to operate as a going concern for at least the
next twelve months from the date of approval of these financial statements and
believe the use of the going concern basis is appropriate.
Nonetheless, for the avoidance of doubt, in the downside scenarios in which
the remaining warrants are not exercised and additional funding is not raised
and in the absence of potential mitigating actions indicates the existence of
a material uncertainty that may cast significant doubt upon the Group's
ability to continue as a going concern and the Group may therefore be unable
to realise its assets and discharge its liabilities in the ordinary course of
business. The Consolidated and Parent Company financial statements do not
include adjustments that would result if the Group was unable to continue as a
going concern.
1.6 Significant accounting policies
(A) Basis of accounting
The Group has identified the accounting policies that are most significant to
its business operations and the understanding of its results. These accounting
policies are those which involve the most complex or subjective decisions or
assessments, and relate to the capitalisation of exploration expenditure. The
determination of this is fundamental to the financial results and position and
requires management to make
a complex judgement based on information and data that may change in future
periods.
Since these policies involve the use of assumptions and subjective judgements
as to future events and are subject to change, the use of different
assumptions or data could produce materially different results. The
measurement basis that has been applied in preparing the results is historical
cost.
The significant accounting policies adopted in the preparation of the results
are set out below.
(B) Basis of consolidation
The Group financial statements consolidate the financial statements of the
Company and its subsidiary undertakings drawn up to 31 December 2022.
Subsidiaries are those entities over which the Group has control. Control is
achieved where the Group has the power over the subsidiary, is exposed, or has
rights to variable returns from the subsidiary and has the ability to use its
power to affect its returns. All subsidiaries are
100 per cent owned by the Group and there are no non-controlling interests.
The results of subsidiaries acquired or disposed of during the year are
included in the income statement from the effective date of acquisition or up
to the effective date of disposal, as appropriate. Where necessary,
adjustments are made to the financial statements of subsidiaries acquired to
bring the accounting policies used into line with those used by other members
of the Group.
All intercompany balances have been eliminated on consolidation.
(C) Segmental reporting
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision maker as required by IFRS8
Operating Segments. The chief operating decision maker, who is responsible for
allocating resources and assessing performance of the operating segments, has
been identified as the board of directors.
The Group's operations are made up of three segments, the oil and gas
exploration and production activities in the geographical regions of the
Falkland Islands and the Greater Mediterranean region as well as its corporate
activities centered in the UK.
(D) Oil and gas assets
The Group applies the successful efforts method of accounting for exploration
and evaluation ("E&E") costs, having regard to the requirements of IFRS6 -
'Exploration for and evaluation of mineral resources'.
Exploration and evaluation ("E&E") expenditure Expensed exploration &
evaluation costs
Expenditure on costs incurred prior to obtaining the legal rights to explore
an area, geological and geophysical costs are expensed immediately to the
income statement.
Capitalised intangible exploration and evaluation assets
All directly attributable E&E costs are initially capitalised in well,
field, prospect, or other specific, cost pools as appropriate, pending
determination.
Treatment of intangible E&E assets at conclusion of appraisal activities
Intangible E&E assets related to each cost pool are carried forward until
the existence, or otherwise, of commercial reserves have been determined,
subject to certain limitations including review for indicators of impairment.
If commercial reserves have been discovered, the carrying value, after any
impairment loss, of the relevant E&E assets, are then reclassified as
development and production assets within property plant and equipment.
However, if commercial reserves have not been found, the capitalised costs are
charged to expense.
Development and production assets
Development and production assets, classified within property, plant and
equipment, are accumulated generally on a field-by-field basis and represent
the costs of developing the commercial reserves discovered and bringing them
into production, together with the E&E expenditures incurred in finding
commercial reserves transferred from intangible E&E assets.
Depreciation of producing assets
The net book values of producing assets are depreciated generally on a
field-by-field basis using the unit-of-production method by reference to the
ratio of production in the year and the related commercial reserves of the
field, taking into account the future development expenditure necessary to
bring those reserves into production.
Disposals
Net cash proceeds from any disposal of an intangible E&E asset are
initially credited against the previously capitalised costs. Any surplus
proceeds are credited to the income statement.
Decommissioning
Provision for decommissioning is recognised in full when the related
facilities are installed. The amount recognised is the present value of the
estimated future expenditure. A corresponding amount equivalent to the
provision is also recognised as part of the cost of the related oil and gas
property. This is subsequently depreciated as part of the capital costs of the
production facilities. Any change in the present value of the estimated
expenditure is dealt with prospectively as an adjustment to the provision and
the oil and gas property. The unwinding of the discount is included in finance
cost.
(E) Leases
The Group as lessee
The Group assesses whether a contract is, or contains, a lease, at inception
of the contract. The Group recognises a right-of-use asset and
a corresponding lease liability with respect to all lease arrangements in
which it is the lessee, except for short-term leases and leases of low value
assets.
The lease liability is initially measured at the present value of the lease
payments that are not paid at the commencement date, discounted by using the
rate implicit in the lease. Lease payments included in the measurement of the
lease liability comprise fixed lease payments. The lease liability is
presented as a separate line in the consolidated statement of financial
position. The lease liability is subsequently measured by increasing the
carrying amount to reflect interest on the lease liability (using the
effective interest method) and by reducing the carrying amount to reflect the
lease payments made.
The Group has not had to remeasure the lease liability (and makes a
corresponding adjustment to the related right-of-use asset).
The right-of-use assets comprise the initial measurement of the corresponding
lease liability, lease payments made at or before the commencement day, less
any lease incentives received and any initial direct costs. They are
subsequently measured at cost less accumulated depreciation and impairment.
Right-of-use assets are depreciated over the shorter period of lease term and
useful life of the right-of-use asset. The depreciation starts at the
commencement date of the lease. The right-of-use assets are presented as a
separate line in the notes to the financial statements.
Payment associated with short term leases and leases of low value assets are
recognised on a straight-line basis as an expense in profit or loss. Short
term leases are leases with a lease term of 12 months or less. Low-value
assets comprise IT-equipment and small items of office furniture.
The Group as lessor
The Group enters into lease agreements as a lessor with respect to some
sublets on its rented offices. Leases for which the Group is a lessor are
classified as a finance lease as the terms of the lease transfer substantially
all the risks and rewards of ownership to the lessee. Finance lease income is
allocated to accounting periods so as to reflect a constant periodic rate of
return on the Group's net investment outstanding in respect of the leases.
(F) Capital commitments
Capital commitments include all projects for which specific board approval has
been obtained up to the reporting date. Projects still under investigation for
which specific board approvals have not yet been obtained are excluded.
(G) Foreign currency translation
Functional and presentation currency:
Items included in the results of each of the Group's entities are measured
using the currency of the primary economic environment in which the entity
operates, the functional currency. The consolidated financial statements are
presented in US$ as this best reflects the economic environment of the oil
exploration sector in which the Group operates. The Group maintains the
financial statements of the parent and subsidiary undertakings in their
functional currency. Where applicable, the Group translates subsidiary
financial statements into the presentation currency, US$, using the closing
rate method for assets and liabilities which are translated at the rate of
exchange prevailing at the balance sheet date and rates at the date of
transactions for income statement accounts. Differences are taken through the
Statement of Comprehensive Income to reserves.
Transactions and balances:
Foreign currency transactions are translated into the functional currency
using the exchange rates prevailing at the dates of the transactions. Foreign
exchange gains and losses resulting from the settlement of such transactions
and from the translation at year end exchange rates of monetary assets and
liabilities denominated in foreign currencies are expensed in the income
statement, except when deferred in equity as qualifying cash flow hedges and
qualifying net investment hedges.
The year end rates of exchange were:
31 December 2022 31 December 2021
£ : US$ 1.21 1.35
€ : US 1.07 1.13
(H) Revenue and income
(i) Revenue from contracts with customers
Revenue arising from the sale of goods is recognised when a performance
obligation is satisfied by transferring control over a product or service to a
customer, which is typically at the point that title passes, and the revenue
can be reliably measured. Revenue is measured at the fair value of the
consideration received or receivable and represents amounts receivable for
goods provided in the normal course of business, net of discounts, customs
duties and sales taxes.
(ii) Investment income
Investment income consists of interest receivable for the period. Interest
income is recognised as it accrues, taking into account the effective yield on
the investment.
(I) Non-derivative financial instruments
Financial assets and financial liabilities are recognised on the Group's
balance sheet when the Group has become a party to the contractual provisions
of the instrument.
(i) Other receivables
Other receivables are initially measured at fair value. They are subsequently
measured at amortised cost using the effective interest method, less loss
allowance. A provision for impairment is made where there is objective
evidence that amounts will not be recovered in accordance with original terms
of the agreement. The Group recognises an allowance for expected credit losses
for all debt instruments not held at fair value through profit or loss.
Expected credit losses are based on the difference between the contractual
cash flows due in accordance with the contract and all the cash flows that the
Group expects to receive, discounted at an approximation of the original
effective interest rate.
(ii) Restricted cash
Restricted cash is disclosed separately on the face of the balance sheet and
denoted as restricted when it is not under the exclusive control of the Group.
All amounts relate to balances held as security in relation to property
leases.
(iii) Term deposits
Term deposits are disclosed separately on the face of the balance sheet when
their term is equal or greater than one month and they are unbreakable.
(iv) Cash and cash equivalents
They are stated at carrying value which is deemed to be fair value. Cash and
cash equivalents comprise instant access bank balances as well as a small
amount of cash in hand.
(v) Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into. An equity instrument
is any contract that evidences a residual interest in the assets of the Group
after deducting all of its liabilities.
(vi) Account and other payables
Account payables are initially recognised at fair value and subsequently at
amortised cost using the effective interest method.
(vii) Derivative financial liabilities
Derivative financial liabilities are initially recognised and carried at fair
value with changes in fair value recognised in the consolidated statement of
comprehensive income.
(viii) Equity instruments
Equity instruments issued by the Company are recorded at the proceeds
received, net of direct issue costs.
(J) Income taxes and deferred taxation
The current tax amount is based on the taxable profits or losses of the year,
after any adjustments in respect of prior years. Tax, including tax relief for
losses if applicable, is allocated over profits before tax and amounts charged
or credited to reserves as appropriate.
Deferred taxation is recognised in respect of all taxable temporary
differences that have originated but not reversed at the balance sheet date
where a transaction or events have occurred at that date that will result in
an obligation to pay more, or a right to pay less or to receive more, tax,
with the exception that deferred tax assets are recognised only to the extent
that the directors consider that it is probable that there will be suitable
taxable profits from which the future reversal of the underlying temporary
differences can be deducted.
Deferred tax is measured on an undiscounted basis at the tax rates that are
expected to apply in the periods in which temporary differences reverse, based
on tax rates and laws enacted or substantively enacted at the balance sheet
date.
(K) Share based remuneration
The Group issues equity settled share based payments to certain employees.
Equity settled share based payments are measured at fair value (excluding the
effect of non market based vesting conditions) at the date of grant. The fair
value determined at the grant date of the equity settled share based payments
is expensed on a straight line basis over the vesting period, based on the
Group's estimate of shares that will eventually vest and adjusted for non
market based vesting conditions.
Fair value is measured by use of either Binomial or Monte-Carlo simulation.
The main assumptions are disclosed in note 9.
Cash settled share based payment transactions result in a liability. Services
received and liability incurred are measured initially at fair value of the
liability at grant date, and the liability is remeasured each reporting period
until settlement. The liability is recognised on a straight line basis over
the period that services are rendered.
2. Use of estimates, assumptions and judgements
The Group makes estimates, assumptions and judgements that affect the reported
amounts of assets and liabilities. Estimates, assumptions and judgements are
continually evaluated and based on historical experience and other factors,
including expectations of future events that are believed to be reasonable
under the circumstances.
The key assumptions concerning the future, and other key sources of estimation
uncertainty at the balance sheet date, that have a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities within
the next financial year, are discussed in the relevant note as is sensitivity
analysis as required. The key areas identified and the relevant note are as
follows:
· Going concern (note 1.5) - judgements
· Carrying value of intangible exploration and
evaluation assets (note 14) - judgements
· Tax payable (note 20) - judgements
· Decommissioning costs (note 21) - judgements
and estimates
3. Revenue and segmental information
The Group's operations are located and managed in three geographically
distinct business units; namely the Falkland Islands, the Greater
Mediterranean, and Corporate (or UK). Some of the business units currently do
not generate any revenue or have any material operating income. The business
is only engaged in one business of upstream oil and gas exploration and
production.
Falkland Greater Corporate Total
Islands Mediterranean
Year ended 31 December 2022 $'000 $'000 $'000 $'000
Revenue - 652 - 652
Cost of sales - (1,965) - (1,965)
Gross profit - (1,313) - (1,313)
Exploration and evaluation reverse/(expense) (307) (1) (23) (331)
Administrative expenses - (1,109) (2,516) (3,625)
Charge for share based payments - - (393) (393)
Foreign exchange gain 7,756 - (1,160) 6,596
Results from operating activities and other income 7,449 (2,423) (4,092) 934
Finance income - - 23 23
Finance expense (3,394) (272) (509) (4,175)
Loss before tax 4,055 (2,695) (4,578) (3,218)
Tax 38,763 - - 38,763
Loss for year 42,818 (2,695) (4,578) 35,545
Reporting segments assets 251,589 1,785 11,087 264,461
Reporting segments liabilities 43,995 16,287 3,712 63,994
Depreciation and impairments 307 50 72 429
Falkland Greater Corporate Total
Islands Mediterranean
Year ended 31 December 2021 $'000 $'000 $'000 $'000
Revenue - 839 - 839
Cost of sales - (1,808) - (1,808)
Gross profit - (969) - (969)
Exploration and evaluation reverse/(expense) 608 (589) (144) (125)
Restructuring costs - - - -
Recurring administrative costs - (823) (2,440) (3,263)
Total administrative expenses - (823) (2,440) (3,263)
Charge for share based payments - - (824) (824)
Foreign exchange gain 680 - 109 789
Results from operating activities and other income 1,288 (2,381) (3,299) (4,392)
Finance income - 1 3 4
Finance expense (3,180) (285) (57) (3,522)
Loss before tax (1,892) (2,665) (3,353) (7,910)
Tax - 151 - 151
Loss for year (1,892) (2,514) (3,353) (7,759)
Reporting segments assets 249,211 2,440 6,626 258,277
Reporting segments liabilities 86,341 15,337 2,078 103,756
Depreciation and impairments (608) 1,117 300 809
All of the Group's worldwide sales revenues of oil and gas US$652 thousand
(2021: US$839 thousand) arose from contracts to customers. Total revenue
relates to revenue from one customer (2021: one customer).
4. Cost of sales
Year ended Year ended
31 December 31 December
2022 2021
$'000 $'000
Other cost of sales 927 1,141
Increase in decommissioning provisions (see note 21) 1,038 -
Depreciation of oil and gas assets (see note 15) - 667
1,965 1,808
5. Exploration and evaluation expenses
Year ended Year ended
31 December 31 December
2022 2021
$'000 $'000
Allocated from administrative expenses (see note 6) 22 143
Exploration costs written off/(back) (see note 14) 307 (273)
Other exploration and evaluation expenses 2 255
331 125
6. Administrative expenses
Year ended 31 December Year ended 31 December
2022 2021
$'000 $'000
Directors' remuneration excluding benefits (see note 7) 1,066 1,114
Other employees' salaries 1,175 930
National insurance costs 383 453
Pension costs 91 89
Employee benefit costs 53 45
Total staff costs 2,768 2,631
Amounts reallocated (648) (751)
Total staff costs charged to administrative expenses 2,120 1,880
Auditors' remuneration (see note 8) 156 161
Other professional fees 674 554
Other 857 867
Depreciation 117 149
Amounts reallocated (299) (348)
3,625 3,263
The average number of full time equivalent staff employed during the year was
8 (2021: 9). As at the year end the Group employed (including part time) 11
staff, 7 of which were in the UK and 4 in Italy.
Amounts reallocated relate to the costs of staff and associated overhead in
relation to non administrative tasks. These costs are allocated to exploration
and evaluation expenses or capitalised as part of the intangible exploration
and evaluation assets as appropriate.
7. Directors' remuneration
Year ended Year ended
31 December 31 December
2022 2021
$'000 $'000
Executive salaries (1) 746 725
Company pension contributions to money purchase schemes & pension cash 62 117
allowance
Benefits 7 8
Non-executive fees 258 272
1,073 1,122
The total remuneration of the highest paid director in GBP was:
Year ended Year ended
31 December 31 December
2022 2021
£'000 £'000
Annual salary (1) 513 283
Money purchase pension schemes 47 47
Benefits 4 4
564 334
1: In prior years directors agreed to the deferment of salary and bonuses
contingent on the outcome of certain future events. These events occurred
during the year and so these amounts have been included in the current year.
Full details are provided in the directors' remuneration report.
Interest in outstanding share options, LTIPs and SARs, by director, are also
separately disclosed in the directors' remuneration report.
8. Auditors' remuneration
Year ended 31 December Year ended 31 December
2022 2021
$'000 $'000
Fees payable to the Company's auditors for the audit of the Company's annual 130 135
financial statements
Fees payable to the Company's auditors and its associates for other services:
Audit of the accounts of subsidiaries 26 26
Assurance related non-audit services 8 8
164 169
9. Share based payments
The charge for share based payments relate to options granted to employees of
the Group.
Year ended 31 December Year ended 31 December
2022 2021
$'000 $'000
Charge for option scheme 156 257
Charge for the long term incentive plan options 237 567
393 824
The models and key assumptions used to value each of the grants and hence
calculate the above charges are set out below:
Option scheme
A one-off equity option package was implemented during the prior year (the
"Option Scheme") to replace the existing long term incentive plan. In place of
the LTIP scheme, executive directors and senior staff received options to
subscribe for Ordinary Shares, exercisable at a price of 6.25 pence per new
Ordinary Share (the "Market Price Options). The Market Price Options will vest
in equal tranches after three, four and five years' further continuous
employment.
Executive directors and staff in lieu of their contractual notice periods also
received options to subscribe for an aggregate new ordinary shares in the
capital of the Company ("Ordinary Shares"), exercisable at a price of 1 pence
per new Ordinary Share (the "1p Options").
The options have been valued using a binomial model the key inputs of which
are summarised below:
Grant date: 19 May 2020 19 May 2020 19 May 2020 19 May 2020
Vesting date 19 May 2021 19 May 2023 19 May 2024 19 May 2025
Closing share price (pence) 6.25 6.25 6.25 6.25
Number granted 6,357,616 7,949,997 7,950,000 7,950,003
Weighted average volatility 50.0% 50.0% 50.0% 50.0%
Weighted average risk free rate 0.07% 0.10% 0.12% 0.14%
Exercise price (pence) 1.00 6.25 6.25 6.25
Dividend yield 0% 0% 0% 0%
Weighted average volatility has been selected with reference to historic
volatility but taking into account exceptionally high volatility in the year
preceding the grant of the options.
The following movements occurred during the year:
At 31 December At 31 December
Issue date Vesting date Expiry date 2021 Lapsed 2022
19 May 2020 19 Nov 2020 18 Nov 2030 1,986,972 - 1,986,972
19 May 2020 19 May 2021 18 Nov 2030 6,357,616 - 6,357,616
19 May 2020 19 May 2023 18 Nov 2030 7,949,997 (2,833,333) 5,116,664
19 May 2020 19 May 2024 18 Nov 2030 7,950,000 (2,833,333) 5,116,667
19 May 2020 19 May 2025 18 Nov 2030 7,950,003 (2,833,334) 5,116,669
32,194,588 (8,500,000) 23,694,588
Long term incentive plan
LTIP awards vest or become exercisable subject to the satisfaction of a
performance condition measured over a three year period ("Performance Period")
determined by the Remuneration Committee at the time of grant. The performance
condition used is based on Total Shareholder Return ("TSR") measured over a
three-year period against the TSR of a peer group of at least 9 other oil and
gas companies comprising both FTSE 250, larger AIM oil and gas companies and
Falkland Islands focused companies ("Peer Group"). The Peer Group for the
Awards may be amended by the Remuneration Committee at their sole discretion
as appropriate.
Performance measurement for the Awards are based on the average price over the
relevant 90 day dealing period measured against the 90 dealing day period
three years later. Awards vest on a sliding scale from 35% to 100% for
performance in the top two quartiles of the Peer Group. No awards vest for
performance in the bottom two quartiles.
The Awards granted on 8 October 2013 and 10 March 2014 have an additional
performance condition so that no awards will be exercisable unless the
Company's share price exceeds £1.80 based on an average price over any 90 day
dealing period up to 31 March 2023.
The LTIP has been valued using a Monte Carlo model the key inputs of which are
summarised below:
Grant date: 31 July 2019 23 April 2018
Closing share price 20.75 25.7p
Number granted 7,200,000 7,000,000
Weighted average volatility 50.0% 44.4%
Weighted average volatility of index 70.0% 64.0%
Weighted average risk free rate 0.35% 0.90%
Correlation in share price movement with comparator group 5% 13.0%
Exercise price 0p 0p
Dividend yield 0% 0%
The following movements occurred during the year:
At 31 December At 31 December
Issue 2021 Expired/Exercised 2022
date
Expiry date
8 October 546,145 - 546,145
2013 8
October 2023
10 March 70,391 - 70,391
2014 10
March 2024
16 June 3,216,000 - 3,216,000
2017
16 June 2027
31 July 7,200,000 (3,899,999) 3,300,001
2019
31 July 2029
11,032,536 (3,899,999) 7,132,537
Share appreciation rights
A share appreciation right ("SAR") is effectively a share option that is
structured from the outset to deliver, on exercise, only the net gain in the
form of new ordinary shares that would have been made on the exercise of a
market value share option. All SARs lapsed post year end.
The following movements occurred during the year:
Exercise price At 31 December At 31 December
Issue date Expiry date (pence) 2021 Expired 2022
30 January 2013 30 January 2023 159.00 277,162 - 277,162
277,162 - 277,162
10. Foreign exchange
Year ended Year ended
31 December 31 December
2022 2021
$'000 $'000
Foreign exchange gain on Falkland Islands tax liability (see note 20) 7,756 679
Other foreign exchange movements (1,160) 110
Total net foreign exchange gain 6,596 789
11. Finance income and expense
Year ended Year ended
31 December 31 December
2022 2021
$'000 $'000
Bank and other interest receivable 23 4
Total finance income 23 4
Warrants (see note 19) 494 -
Unwinding of discount on Falkland Islands Tax Liability (see note 20) 3,354 3,180
Unwinding of discount on decommissioning provisions (see note 21) 304 274
Other 23 68
Total finance expense 4,175 3,522
12. Taxation
Year ended Year ended
31 December 31 December
2022 2021
$'000 $'000
Current tax:
Overseas tax - -
Adjustment in respect of prior years (see Note 20) 38,763 -
Total current tax 38,763 -
Deferred tax:
Overseas tax - (151)
Total deferred tax credit - note 22 - (151)
Tax on profit on ordinary activities 38,763 (151)
Loss on ordinary activities before tax (3,218) (7,910)
Loss on ordinary activities multiplied at 26% weighted average rate (31 (837) (2,057)
December 2021: 26%)
Effects of:
Income and gains not subject to taxation (2,017) (248)
Expenditure not deductible for taxation 872 827
Depreciation in excess of capital allowances 32 281
IFRS2 Share based remuneration cost 102 214
Losses carried forward 1,848 983
Adjustments in respect of prior years (see Note 20) 38,763 -
Current tax credit for the year 38,763 -
The total carried forward losses and carried forward pre trading expenditures
potentially available for relief are as follows:
Year ended Year ended
31 December 31 December
2022 2021
$'000 $'000
UK 81,124 77,393
Falkland Islands 621,765 619,400
Italy 66,808 65,202
No deferred tax asset has been recognised in respect of temporary differences
arising on losses carried forward, outstanding share options or depreciation
in excess of capital allowances due to the uncertainty in the timing of
profits and hence future utilisation. Losses carried forward in the Falkland
Islands includes amounts held within entities where utilisation of the losses
in the future may not be possible.
13. Basic and diluted loss per share
31 December 31 December
2022 2021
Number Number
Weighted average number of Ordinary Shares 527,767,197 458,482,117
Weighted average of shares held in Employee Benefit Trust (2,539,227) (3,131,000)
Weighted average number of Ordinary Shares for the purposes of basic earnings 525,227,970 455,351,117
per share
Effects of
Share options and warrants 8,731,904 -
Weighted average number of Ordinary Shares for the purposes of diluted 531,968,624 455,351,117
earnings per share
$'000 $'000
Net profit/(loss) after tax for purposes of basic and diluted earnings per 35,545 (7,759)
share
Profit/(loss) per share - cents
Basic 6.77 (1.70)
Diluted 6.68 (1.70)
The weighted average number of Ordinary Shares takes into account those shares
which are treated as own shares held in trust. As at the year end the Group
had 1,304,500 Ordinary shares held in an Employee Benefit Trust (2021:
3,131,000) which have been purchased to settle future exercises of options.
As the Group is reporteda loss in the prior year then in accordance with IAS33
the share options are not considered dilutive because the exercise of the
share options would have the effect of reducing the loss per share.
14. Intangible exploration and evaluation assets
Falkland Greater
Islands Mediterranean Total
$'000 $'000 $'000
At 31 December 2020 243,647 702 244,349
Additions 4,956 54 5,010
Written back/(off) exploration costs 608 (335) 273
Foreign exchange movement - (49) (49)
At 31 December 2021 249,211 372 249,583
Additions 2,685 31 2,716
Written off exploration costs (307) - (307)
Foreign exchange movement - (22) (22)
At 31 December 2022 251,589 381 251,970
Falkland Islands Licences
The amounts for intangible exploration and evaluation assets represent active
exploration and evaluation projects. The additions during the year of US$2.7
million relate principally to the Sea Lion development.
Given the quantum of intangible exploration and evaluation assets potential
impairment could have a material impact on the financial statements. As such
whether there are indicators of impairment is a key judgement. Management
looked at a number of factors in making a judgement as to whether there are
any indicators of impairment during the year. In particular with regard to the
carrying value of the Falkland Islands assets, which relates to the Sea Lion
Phase one development these include, but are not limited to;
· The Transaction, which completed in September 2022, brought on board
a new partner with a track record of funding large offshore developments
· A two year license extension was granted
· Rockhopper and Navitas have used the extensive engineering work
already carried out to create a lower cost development with the target to
reach FID early 2024.
· Current market conditions, including oil price and security of
supply, provide stronger prospects for ultimate sanction of Sea Lion
Management concluded that for these reasons, currently for Phase 1 of the Sea
Lion development, there were no indicators of impairment.
Management made the judgement that the limited near term capital being
invested outside of the Phase 1 project is still an indicator of impairment in
the subsequent phases of the project. Accordingly the decision continues to be
to write off historic exploration costs associated with the resources which
will not be developed as part of the Sea Lion Phase 1 project. This impairment
has no impact on the Group's long‐term strategy for multiple phases of
development in the North Falkland Basin. This will be re-evaluated when the
Phase 1 project has been sanctioned, currently anticipated in 2024, and
investment resumes on the Phase 2 project.
15. Property, plant and equipment
Oil and gas Right of use Other
assets assets assets Total
$'000 $'000 $'000 $'000
Cost
At 31 December 2020 26,281 1,693 913 28,887
Additions 228 - - 228
Foreign exchange (2,006) (22) (11) (2,039)
Disposals - - (497) (497)
Derecognition - (1,264) - (1,264)
At 31 December 2021 24,503 407 405 25,315
Foreign exchange (1,441) (14) (4) (1,459)
Disposals - - (244) (244)
At 31 December 2022 23,062 393 157 23,612
Depreciation and impairment
At 31 December 2020 25,871 828 768 27,467
Charge for the year 667 353 62 1,082
Foreign exchange (2,035) (15) (4) (2,054)
Disposals - - (501) (501)
At 31 December 2021 24,503 286 325 25,114
Charge for the year - 96 26 122
Foreign exchange (1,441) (16) (3) (1,460)
Disposals - - (232) (232)
At 31 December 2022 23,062 366 116 23,544
Net book value at 31 December 2021 - 121 80 201
Net book value at 31 December 2022 - 27 41 68
All oil and gas assets relate to the Greater Mediterranean region,
specifically former producing assets in Italy. Right of use assets relate to
rented offices.
16. Other receivables
Year ended 31 December Year ended 31 December
2022 2021
$'000 $'000
Current
Receivables 294 478
Other 1,112 1,596
1,406 2,074
The carrying value of receivables approximates to fair value.
17. Term deposits
Year ended 31 December Year ended 31 December
2022 2021
$'000 $'000
Maturing after the period end
Within three months 6,324 -
Six to nine months 1,206 -
Nine months to one year 1,206 -
8,736 -
Term deposits relate to amounts placed on fixed term deposit with various A
rated deposit banks.
18. Other payables and accruals
Year ended 31 December Year ended 31 December
2022 2021
$'000 $'000
Accounts payable 1,428 608
Accruals 1,692 1,129
Other creditors 263 263
3,383 2,000
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.
19. Derivative financial liabilities
Year ended 31 December Year ended 31 December
2022 2021
$'000 $'000
Warrant liabilities - initial value on grant 1,250 -
Changes in fair value taken to finance expense (see note 11) 494 -
1,744 -
Warrants issued as part of the Placing and Subscription were treated as
derivative financial liabilities and as such carried at fair value on the
balance sheet with changes in fair value recognised in finance expenses in the
income statement. They are not designated as hedging instruments.
Fair value has been determined using a black scholes model the key inputs of
which on recognition and as at year end are summarised below.
Grant 31 December 2022
Time to maturity 1.5 year 1.0 year
Closing share price (pence) 8.00 9.00
Number 41,091,388 41,091,388
Weighted average volatility 80.0% 98.4%
Weighted average risk free rate 1.90% 3.22%
Exercise price (pence) 9.00 9.00
20. Tax payable
Year ended 31 December Year ended 31 December
2022 2021
$'000 $'000
Non current tax payable - 43,204
- 43,204
On the 8 April 2015, the Group agreed binding documentation ("Tax Settlement
Deed") with the Falkland Island Government ("FIG") in relation to the tax
arising from the Group's farm out to Premier.
The Tax Settlement Deed confirms the quantum and deferment of the outstanding
tax liability and is made under Extra Statutory Concession 16.
The Tax Settlement Deed also states that the Group is entitled to make
adjustment to the outstanding tax liability if and to the extent that the
Commissioner is satisfied that any part of the Development Carry becomes
irrecoverable. Under the Transaction the balance of Development Carry has
become irrecoverable and in the Group's judgment no further amounts are due on
the Group's 2012 farm-out to Premier.
Given the highly material nature of this judgment professional advice has been
sought to confirm that it is probable that if challenged it would be concluded
that the Group is entitled to adjust the outstanding tax liability for the
Development Carry that has become irrecoverable. As such the Group has
derecognised the tax liability to measure it at the most likely amount that
the liability will be settled for of US$nil. We are currently engaged with FIG
in relation to formalising the tax implications of the termination of the 2012
Premier Oil farm down which resulted in an irrecoverable carry amount of
approximately US$670 million.
Should it be proven that there is no entitlement to adjustment under the Tax
Settlement Deed then the outstanding tax liability would be £59.6 million and
still payable on the earlier of: (i) the first royalty payment date on Sea
Lion; (ii) the date of which Rockhopper disposes of all or a substantial part
of the Group's remaining licence interests in the North Falkland Basin; or
(iii) a change of control of Rockhopper Exploration plc.
In this unlikely instance Management believes the most likely timing of
payment is in line with the first royalty payment. Based on previous
correspondence with FIG, Management does not believe that the Transactions
completion constitutes a substantial disposal and therefore would not have
accelerated the liability should it be shown to be still payable.
The derecognition of the tax liability has led to a tax income of US$38.8
million. The tax liability had been treated as long term and hence discounted.
The unwinding of discounts on the previously recognised liability, prior to
derecognition, was US$3.4 million (2021: US$3.2 million) and treated as a
finance expense. This was offset by a foreign exchange gain of US$7.8 million
(2021: US$0.7 million gain) in the year.
21. Provisions
Year ended Year ended
Decommissioning Other 31 December 31 December
provision provisions 2022 2021
$'000 $'000 $'000 $'000
Brought forward 18,197 90 18,287 15,158
Amounts utilized - (17) (17) -
Amounts arising in the year 1,358 9 1,367 4,006
Unwinding of discount 304 - 304 274
Foreign exchange (760) (4) (764) (1,151)
Carried forward at year end 19,099 78 19,177 18,287
The decommissioning provision relates to the Group's licences in the Greater
Mediterranean region as well as facilities in the Falkland Islands. The
provision covers both the plug and abandonment of wells drilled as well as
removal of facilities and any requisite site restoration. Of amounts arising
in the year $320 thousand (2021: $4,000 thousand) has been capitalised in
intangible exploration and evaluation assets and $1,038 thousand (2021: $nil)
taken to cost of sales.
Judgements are made based on the long term economic environment around
appropriate inflation and discount rates to be applied as well as the timing
of any future decommissioning. In the Falkland Islands costs are most likely
to be in $US or GB£ so management consider the UK economic environment when
informing these judgements. In the Greater Mediterranean all assets are in
Italy and so costs are likely to be in Euros and as such management consider
the Italian as well as the broader Eurozone region to inform these judgements.
Whilst recognising short term inflationary pressures, the Group believe it
appropriate to use an inflation rate of 2.5 per cent (2021: 2 per cent) and a
discount rate of 2.5 per cent (2021: 2 per cent).
Decommissioning costs are uncertain and management's cost estimates can vary
in response to many factors, including changes to the relevant legal
requirements, the emergence of new technology or experience at other assets.
The expected timing, work scope and amount of expenditure may also change.
Therefore, significant estimates and assumptions are made in determining the
costs associated with the provision for decommissioning. The estimated
decommissioning costs are reviewed annually, and the results of the most
recent available review used as a basis for the amounts in the Consolidated
Financial Statements. Provision for environmental clean-up and remediation
costs is based on current legal and contractual requirements, technology and
price levels. 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.
The estimated costs associated with the decommissioning works are those that
are likely to have a material impact on the provision. A 10 per cent increase
in these estimates would increase both the provision and the loss in the year
by US$1,470 thousand. Similarly, a 10 per cent reduction in these estimated
costs would decrease both the provision and the loss in the year by US$1,470
thousand.
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.
22. Deferred tax liability
Year ended 31 December Year ended 31 December
2022 2021
$'000 $'000
At beginning of period 39,137 39,300
Foreign exchange - (12)
Movement in period - (151)
At end of period 39,137 39,137
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 2022 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 utilised.
23. Share capital
Year ended 31 December 2022 Year ended 31 December 2021
$'000 Number $'000 Number
Authorised, called up, issued and fully paid: Ordinary shares of £0.01 each 8,771 586,485,319 7,218 458,482,117
31 December 31 December
2022 2021
Number Number
Shares in issue brought forward 458,482,117 458,482,117
Shares issued
- Issued as part of Placing and Subscription 82,182,776 -
- Issued as part of Open offer 39,652,160 -
- Issued on exercise of warrants and share options 6,168,266 -
Shares in issue carried forward 586,485,319 458,482,117
During the year Rockhopper raised funds by way of a Placing and Subscription,
in each case at an issue price of 7 pence per Unit (the "Issue Price").
Each Unit offered comprises one New Ordinary Share and, for every two New
Ordinary Shares subscribed for, one Warrant. Each Warrant gives the holder the
right to subscribe for one new Ordinary Share at a price of 9 pence per
Ordinary Share (the "Strike Price") at any time from the issue of the
Warrants up to (and including) 5.00 p.m. on 31 December 2023 (the "Warrant
Exercise Period").
In accordance with IAS 32:16(b)(ii), for a derivative over own equity to
qualify as equity, the instrument may only be settled by exchanging a fixed
amount of cash (or another financial instrument) for a fixed number of its own
equity instruments. The functional currency of Rockhopper is US$. Given the
warrant exercise price is determined in GBP, a foreign currency, the Warrants
do not meet the fixed amount of cash criteria as it will depend on the
exchange rate at time of exercise. The Warrants therefore have been treated as
a derivative financial liability as disclosed in note 19 with the balance of
proceeds treated as Equity.
The Placing utilised a cashbox structure and therefore the premium on the
ordinary shares and associated costs have in accordance with section 621 of
the Companies Act 2006 been recognised within the merger reserve. The Placing
and Subscription raised net $6,252 thousand with $1,250 thousand classified as
a derivative financial liability and $5,002 thousand classified as Equity
after associated costs of $784 thousand.
Rockhopper raised additional funds through an Open Offer (together with the
Placing and Subscription, the "Capital Raising") pursuant to which Units were
offered to all existing Shareholders at the Issue Price. IAS32:16 (b)(ii)
states "For this purpose, rights, options or warrants to acquire a fixed
number of the entity's own equity instruments for a fixed amount of any
currency are equity instruments if the entity offers the rights, options or
warrants pro rata to all of its existing owners of the same class of its own
non-derivative equity instruments.". Therefore warrants issued as part of the
Open Offer have been treated as equity. The Open Offer raised net $2,842
thousand after associated costs of $410 thousand.
24. 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 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.
25. Capital commitments
Significant capital expenditure contracted for at the end of the reporting
period but not recognised as liabilities is US$0.7million (2021: US$0.4
million) relating to the Group's intangible exploration and evaluation assets.
26. Contingent assets
In August 2022, pursuant to an ICSID arbitration which commenced in 2017,
Rockhopper was awarded approximately €190 million plus interest and costs
following a unanimous decision by the ICSID appointed arbitral Tribunal
that Italy had breached its obligations under the Energy Charter Treaty (the
"Award").
Rockhopper submitted a letter to the Italian Republic in September 2022
formally requesting payment of €247 million, representing the Award amount
plus accrued interest from 29 January 2016 to 23 August 2022 and costs.
Interest was paused for four months following the date of the Award (being 23
August 2022) and is now accruing at EURIBOR + 4% which Rockhopper estimates at
between €1.25 million and €1.5 million per calendar month. Interest
compounds annually.
As announced, Italy requested that this Award be annulled in October 2022.
When Italy applied for the Award to be annulled, a provisional Stay of
Enforcement was automatically put in place by ICSID pursuant to the ICSID
Convention and Arbitration Rules.
Following Italy's request to seek annulment of the Award, an ad hoc Committee
was constituted to hear relevant arguments and make a ruling on Italy's
application for a continuation of the provisional Stay of Enforcement pending
the determination of Italy's request to annul the Award. A hearing on whether
the ad hoc Committee will continue or lift the provisional Stay of Enforcement
was held on 6 March 2023. On the 24 April 2023 the Committee issued the
following orders,
1: that Italy and Rockhopper shall confer - in good faith and using their
best efforts to cooperate and find an effective arrangement - for the
mitigation of the risk of non-recoupment using a first-class international
bank outside the European Union (or as Italy and Rockhopper otherwise agree)
to be put into place in anticipation of the termination of the provisional
stay of enforcement of the Award. This is to mitigate the perceived risk that,
in the event the Award is annulled, Italy may not be able to recover Italian
assets seized or frozen by Rockhopper (before the ad hoc Committee issues its
decision on annulment) in court enforcement proceedings.
2: that Rockhopper shall, within 30 days of the date of the decision,
apprise the Committee of arrangements agreed with Italy for the mitigation
of the risk of non-recoupment or that negotiations have failed and, in the
latter event, propose concrete arrangements in accordance with the decision
for the mitigation of the risk of non-recoupment. Italy may then briefly
comment on Rockhopper's proposal within 10 days, constructively highlighting
any areas of disagreement between the Parties.
Italy has refused to comply with the Panels instructions. Rockhopper intends
to continue to work in good faith to resolve the issues raised regarding
non-recoupment and has submitted to the Panel its proposal to mitigate this
risk.
The decision on whether to continue or lift the provisional Stay of
Enforcement is unrelated to the merits of Italy's annulment request. A final
hearing in relation to Italy's request to annul the Award is scheduled to
take place in Q1 2024. Guidance given by Rockhopper in the Company's 31
October 2022 announcement that the entire annulment process is likely to take
18-24 months from that date remains in place.
Rockhopper is extremely confident in the strength of its case, as was
reflected in the unanimous decision underpinning the Award in August. Given
the annulment request the virtual certainty required by IAS 37 "Provisions,
Contingent Liabilities and Contingent Assets" which would allow recognition of
an asset on the Balance Sheet has not been met. The receivable under the Award
therefore remains classified as a contingent asset at this time.
27. Related party transactions
Transactions between the Company and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed.
Subsidiaries are listed in notes of the Company financial statements.
The remuneration of directors, who are the key management personnel of the
Group, is set out below in aggregate. Further information about the
remuneration of individual directors, including deferred salary and bonus
amounts, is provided in the Directors' Remuneration Report on
pages 28 to 37.
Year ended Year ended
31 December 31 December
2022 2021
$'000 $'000
Short term employee benefits 1,076 1,005
Pension contributions - 117
Share based payments 235 447
1,311 1,569
During the year the Company announced a successful Placing and Subscription.
This involved the Placing of, and Subscription for 82,182,776 Units in each
case at the Issue Price of 7 pence per Unit. Each Unit comprises one New
Ordinary Share and, for every two New Ordinary Shares subscribed for, one
Warrant.
Pursuant to the Subscription, the following Directors agreed to subscribe for
the following Units comprising Subscription Shares and Warrants.
Number of subscription shares Number of subscription Warrants)
Sam Moody 1,428,570 714,285
Keith Lough 428,570 214,285
Alison Baker 142,856 71,428
John Summers 142,856 71,428
28. Risk management policies
Risk review
The risks and uncertainties facing the Group are set out in the risk
management report. Risks which require further quantification are set out
below.
Foreign exchange risks: The Group is exposed to foreign exchange movements on
monetary assets and liabilities denominated in currencies other than US$, 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.
The Group has cash and cash equivalents, term deposits and restricted cash of
US$10.3 million of which US$1.7 million was held in US$ denominations. The
Group has expenditure in GB£ and Euro and accepts that to the extent current
cash balances in those currencies are not sufficient to meet those
expenditures they will need to acquire them. The following table summarises
the split of the Group's assets and liabilities by currency:
$ £ €a
Currency denomination of balance $'000 $'000 $'000
Assets
31 December 2022 253,415 8,482 1,787
31 December 2021 253,975 1,859 2,443
Liabilities
31 December 2022 43,452 3,475 15,220
31 December 2021 43,352 45,067 15,337
The following table summarises the impact on the Group's pre-tax profit and
equity of a reasonably possible change in the US$ to GB£ exchange rate and
the US$ to euro exchange:
Pre tax profit Total equity
+10% US$ rate -10% US$ rate +10% US$ rate -10% US$ rate
increase decrease increase decrease
$'000 $'000 $'000 $'000
US$ against GB£
31 December 2022 501 (501) 501 (501)
31 December 2021 (4,321) 4,321 (4,321) 4,321
US$ against euro
31 December 2022 (1,450) 1,450 (1,450) 1,450
31 December 2021 (1,289) 1,289 (1,289) 1,289
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. Further
information can be found in the going concern assessment contained in Note
1.5.
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
2022 were $2,109,000 (31 December 2021: $2,306,000). 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.
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 monitors the liquidity position by preparing cash flow forecasts to
ensure sufficient funds are available. Further information can be found in the
going concern assessment contained in Note 1.5.
Maturity of financial liabilities
The table below analyses the Group's financial liabilities, which will be
settled on a gross basis, into relevant maturity groups based on the remaining
period at the balance sheet to the contractual maturity date. The amounts
disclosed in the table are the contractual undiscounted cash flows.
More than Total contractual
Within 1 year 2 to 5 years 5 years cashflows Carrying amount
At 31 December 2022 $'000 $'000 $'000 $'000 $'000
Other payables 3,383 - - 3,383 3,383
Lease liability 574 286 - 860 553
Tax payable - - - - -
3,957 286 - 4,243 3,936
More than 5 years Total contractual
Within 1 year 2 to 5 years cashflows Carrying amount
At 31 December 2021 $'000 $'000 $'000 $'000 $'000
Other payables 2,000 - - 2,000 2,000
Lease liability 574 860 - 1,434 1,128
Tax payable - - 79,413 79,413 43,204
2,574 860 79,413 82,847 46,332
Tax payable amounts in the current and prior year relate to amounts as
disclosed in note 20.
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