REG - Rockhopper Exp plc - Half-year Results
28/09/2023 07:00
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RNS Number : 9013N Rockhopper Exploration plc 28 September 2023
28 September 2023
Rockhopper Exploration plc
("Rockhopper", the "Group" or the "Company")
Half-Year Results for the Six Months Ended 30 June 2023
Rockhopper Exploration plc (AIM: RKH), the oil and gas company with key
interests in the North Falkland Basin, announces its unaudited results for the
six months ended 30 June 2023 ("H1 2023").
YEAR TO DATE HIGHLIGHTS
Sea Lion and North Falkland Basin
· Reworked base case project reduces costs while increasing total
production
o Total barrels developed: 269mmbbls
o Production plateau: 80,000 bbls/d
o Pre first oil capex US$1.3bn, assuming leased FPSO
o Life of field costs less than US$30 per barrel
· Sea Lion is competitive on a global scale
o Base case gross joint venture NPV10 >US$4bn at $77 Brent
· Work to refine project phasing and financing plan continues
Ombrina Mare
· Rockhopper awarded c.€190 million plus interest (the "Award") in
August 2022 following successful arbitration outcome
· Italy seeking to have the Award annulled; Rockhopper contesting
annulment
· Stay of Enforcement lifted, escrow arrangements in place
· Rockhopper exploring all avenues to secure value
· Annulment hearing set for January 2024
Corporate and Financial
· Continued focus on costs post completion of successful capital raise
in July 2022
· At 30 June 2023, the Group had 53.9 million unexercised 9 pence
warrants in issue, with an expiry date of 31 December 2023
· Cash and term deposit balance at 30 June 2023 of US$6.7 million
· Highly experienced new Non-Executive Chair (Simon Thomson) and
Non-Executive Director (Paul Mayland) assuming roles from 1 October 2023
Outlook
· Work continues on refining new lower cost Sea Lion development and
financing plan
· Stay on Enforcement on Award lifted - Rockhopper in a position to
commence legal proceedings against Italy for non-payment
· Navitas targeting Sea Lion FID during 2024
Keith Lough, outgoing Chairman of Rockhopper, commented:
"After nine challenging and enjoyable years, John Summers and I will leave
Rockhopper in the strongest position your Company has seen for some
considerable time. We have a committed, focussed, and capable partner that has
already worked up a hugely impressive lower cost, highly capital efficient
project at Sea Lion. In addition, the Stay of Enforcement on our €190million
ICSID award is now lifted and we are working with our advisers on all avenues
to monetise this award. Our 2022 capital raise allowed us to extend our
licences, bring Navitas on board and continue to contest the Arbitration.
Finally, we welcome Simon Thomson and Paul Mayland to the Board, bringing with
them a wealth of directly relevant experience in the industry and detailed
knowledge of Sea Lion.
"I wish the new Board and all holders every success for the future, and I know
your Company remains in the best possible hands."
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/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
CHAIRMAN AND CHIEF EXECUTIVE OFFICER'S REVIEW
INTRODUCTION
Rockhopper's strategy is to create value for all our stakeholders through the
safe and responsible development of our assets in the North Falkland Basin.
The Company has been operating offshore the Falkland Islands since 2004 and
discovered the Sea Lion oilfield in 2010. We are a long-term partner of the
Falkland Islands Government ("FIG"), and our aim has always been to support
the rights of the Falkland Islanders to develop their natural resources.
SEA LION PROJECT
It remains our view that Sea Lion, which at the 700mmbbls 2C audited by
Netherland Sewell & Associates ("NSAI")(1) is larger than Cambo and
Rosebank combined, and represents an important and potentially highly valuable
strategic asset for the Falkland Islands, the UK and all our stakeholders.
The work Navitas Petroleum LP ("Navitas") has done reduces upfront and
operating costs to such an extent that we see the project as being in a
position to compete with almost any currently undeveloped offshore project in
the world.
The base development case is for 269 mmbbls of oil via a leased, re-deployed
FPSO with 23 wells in total, spread over two separate drilling campaigns. The
first campaign comprises 18 wells, of which 11 are drilled pre-first-oil, with
the second campaign for a further five wells to be drilled post-first-oil.
Plateau production is expected to reach approximately 80,000 bbls per day.
Following the exit of Harbour Energy and the formation of the new
Rockhopper-Navitas JV that completed in September 2022 (the "Transaction"), we
have full alignment across our North Falkland Basin ("NFB") acreage, with
Navitas as Operator and holding a 65% interest, and Rockhopper retaining a 35%
working interest.
As a result of the Transaction, Rockhopper benefits from two loans from
Navitas. The first loan covers all Rockhopper's net Sea Lion Phase 1 working
interest costs (other than licence fees and taxes) at an interest rate of 8%
and is available currently, following transaction completion, through to FID.
The second 0% interest loan covers two-thirds of our net working interest Sea
Lion Phase 1 costs from FID to the earlier of 12 months post-first oil or
project completion (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 a result of the works undertaken by Navitas, total capex for the project
estimates have been reduced to c.US$2.2bn, with pre-first oil capex now
estimated to be around US$1.3bn, a significant reduction on previous
estimates. Life of field costs are expected to be less than US$30 per barrel
with capex and opex (including FPSO lease) as previously disclosed.
(( 1 )) 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 was not
an addressee of the report, we endorsed its conclusions. 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.
Reducing project breakeven from over US$40 to under US$30 per barrel in a
rising cost environment is a hugely impressive achievement, significantly
improving both project economics and the ability to raise finance. Having
established a new base project, work focuses on project phasing and financing,
with Navitas still targeting FID during 2024.
OMBRINA MARE ARBITRATION
As announced on 24 August 2022, the arbitration panel unanimously held that
Italy had breached its obligations under the Energy Charter Treaty (the
"Award") entitling Rockhopper to compensation of €190 million plus interest
at EURIBOR + 4%, compounded annually from 29 January 2016 until time of
payment (except the four-month period immediately following the date of the
Award).
On 28 October 2022, Italy submitted an application to the International Centre
for Settlement of Investment Disputes ("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. The provisional stay prevented Rockhopper from taking legal action
to enforce the Award in any jurisdiction.
Following a hearing on 6 March 2023, the ad hoc committee (the "Committee")
convened by the ICSID to rule on the annulment issued the following orders
with regard to the provisional stay of enforcement:
1: that Italy and Rockhopper (together the "Parties") 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.
In line with preceding orders and following failure to agree arrangements
with Italy, Rockhopper submitted its proposed arrangements (the "Escrow
Arrangements") to mitigate the risk of non-recoupment on 24 May 2023. On 5
June 2023 Italy submitted its comments on the Escrow Arrangements.
On 11 July 2023, and having received additional comments from the Parties, the
Committee issued the following orders with regard to the provisional stay of
enforcement:
1: That the provisional stay of enforcement shall terminate 5 business days
following the provision by Rockhopper to Italy of documentation that escrow
arrangements in the form proposed have been established, provided
that Italy does not within those 5 business days submit a reasoned written
objection in these annulment proceedings that the escrow arrangements
established are not in accordance with the proposed arrangements.
2: Reserves its right to revisit its decision at any time; and
3: Reserves its decision on costs
Italy submitted no further comments on the Escrow Arrangements and so the stay
of enforcement is now lifted.
Against this background, we are working with our advisers on all avenues to
monetise this award.
CORPORATE MATTERS
Having undertaken a well-supported capital raise during the summer of 2022, we
continue to monitor costs closely and ended the period with cash and term
deposits of US$6.7 million on our balance sheet, despite higher legal spend as
a result of positive developments on the Ombrina Mare arbitration.
We offered warrants to those participating in the capital raise, giving them
the right to purchase shares at 9p, to be exercised at any point until 31
December 2023. This provided shareholders with additional potential upside,
and Rockhopper a stronger balance sheet should those warrants be exercised. As
at 30 June 2023 there were c53.9 million unexercised warrants which if all
exercised would raise an additional £4.9 million before expenses.
We retain our core technical and financial knowledge and capabilities using a
low cost, efficient business model and this continues to be our focus going
forwards.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE
ESG and Corporate Responsibility more generally continue to be a key focus for
Rockhopper. As an oil and gas exploration and production business, our role is
to discover and produce hydrocarbons in an environmentally responsible manner.
As noted previously, the Falkland Islands Government established an
independent environment trust to receive and administer future off-setting
payments from the Sea Lion project and distribute those funds for activities
aimed at ensuring a positive environmental legacy in the Falkland Islands.
Once FID on Sea Lion has been achieved, the Company commits to defining
measures, reporting transparently, and mitigating our own emissions as far as
practicable.
OUTLOOK
The positive momentum we have been building over recent years continues. The
reworked, lower-cost Sea Lion development competes with almost any undeveloped
500-700 mmbbls field in the world with returns plainly helped by current oil
prices. Work on refining the phasing and financing of the development
continues.
Now the stay of enforcement has been lifted on Ombrina Mare we are
investigating any and all avenues to create value for holders in the face of
continued Italian non-compliance with their international treaty obligations.
The new Board has direct, relevant, in-depth experience and knowledge of
arbitration processes, and is committed to working closely with all
stakeholders to maximise the chance of unlocking the value within the
Falklands and Ombrina Mare arbitration award.
FINANCIAL REVIEW
Results for the period
For the period ended 30 June 2023, the Group reported revenues of US$nil (H1
2022: US$0.5 million) and a loss after tax of US$2.6 million (H1 2022: loss of
US$0.7 million). The increase in loss after tax was driven mainly by a
reduction in net foreign exchange gains on GBP denominated balances. In
particular, the weakening of the GBP against the USD resulted in a prior year
US$4.4 million gain on the carrying value of the tax liability with FIG.
Revenue and cost of sales
The Group's production ceased during the prior year and as such there were no
revenues in the period (H1 2022: US$0.5 million). The existing portfolio
continues to be evaluated for further opportunities but revenue and cost of
sales are not expected to be material in the immediate future.
Operating costs
The Group continues to manage corporate costs and has achieved significant
reductions in recurring general and administrative ("G&A") costs over the
last five years. The full benefit of these cost reduction initiatives was
realised in 2021. The increase in G&A cost for the period to US$2.1million
(H1 2022: US$1.5 million) almost entirely relates to legal fees associated
with the Ombrina Mare arbitration. The Group made the decision to use existing
resources to fund all legal costs arising from contesting the request by Italy
for annulment whilst it explores all funding possibilities. Costs were
incurred contesting Italy's request for a stay of enforcement as well as
initial fees drafting the Group's counter memorial on annulment itself. We
continue to focus on our cost base and made the decision to close our Rome
office in the period. Whilst accelerating some costs in the short term
overall, this results in a lower cost base moving forward.
The foreign exchange gain in the period of US$0.6 million (2022: gain of
US$3.4 million) mainly arose on GBP denominated cash and term deposit
balances. In previous years, foreign exchange movements were predominantly in
relation to the tax balance arising from the Group's farm-out to Premier Oil
("Premier"). In the prior year, subsequent to the Transaction this balance was
adjusted to nil and as a result foreign exchange gains and losses are expected
to be less significant going forward. The tax balance is discussed in greater
detail below and in note 7 of these interim condensed consolidated financial
statements.
Finance expenses in the period of US$0.7 million (H1 2022: $US2.0 million)
relate to the unwinding of discounts on provisions. The previous period
finance expense related mainly to the impact of discounting the aforementioned
Falkland Islands tax liability.
Cash movements and capital expenditure
At 30 June 2023, the Group had cash and term deposits of US$6.7 million (31
December 2022: US$9.8 million).
Cash and term deposit movements during the period:
US$m
Opening cash and term deposit balance (31 December 2022) 9.8
Cost of sales (0.4)
Falkland Islands (0.7)
Administrative expenses (2.1)
Proceeds of warrants 0.3
Miscellaneous (0.2)
Closing cash and term deposit balance (30 June 2023) 6.7
Miscellaneous includes foreign exchange and movements in working capital
during the period.
Oil and gas assets
The Sea Lion development remains central to the Group's plans and the
additions in the period of US$2.0 million almost entirely relate to this
project. As part of the transaction to bring Navitas onto the licences,
Navitas agreed to provide loan funding to the Group to cover the majority of
its share of Sea Lion phase one related costs from Transaction completion, in
September 2022, up to Final Investment Decision ("FID") and has interest
charged at 8% per annum (the "Pre-FID Loan"). Subject to a positive FID,
Navitas will provide a second interest free loan to fund two-thirds of the
Group's share of Sea Lion phase one development costs (for any costs not met
by third party debt financing).
Certain costs, such as licence costs, are excluded in both instances. Funds
drawn under the loans will be repaid from 85% of Rockhopper's working interest
share of free cash flow.
Taxation
On the 8 April 2015, the Group agreed binding documentation ("Tax Settlement
Deed") with FIG in relation to the tax arising from the Group's farm out to
Premier.
The Tax Settlement Deed confirms the quantum and deferment of the outstanding
tax liability and is made under Extra Statutory Concession 16.
The Tax Settlement Deed also states that the Group is entitled to make
adjustments to the outstanding tax liability if and to the extent that the
Commissioner is satisfied that any part of the Development Carry becomes
irrecoverable. Under the Transaction the balance of Development Carry has
become irrecoverable and in the Group's judgment no further amounts are due on
the Group's 2012 farm-out to Premier.
Given the highly material nature of this judgment professional advice has been
sought to confirm that it is probable that if challenged it would be concluded
that the Group is entitled to adjust the outstanding tax liability for the
irrecoverable Development Carry. As such the Group has derecognised the tax
liability to measure it at the most likely amount that the liability will be
settled for of US$nil. We continue to engage with FIG to formalise the tax
implications of the termination of the 2012 Premier Oil farm down which
resulted in an 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, the Group 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 Transaction's
completion constitutes a substantial disposal and therefore would not have
accelerated the liability should it be shown to be still payable.
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 30 June 2023, the Group had cash resources of US$6.7 million. Historically,
the Group's largest annual expenditure has related to pre-sanction costs
associated with the Sea Lion development. Following completion of 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 licences 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 £3.3 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. As previously mentioned the Group has 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 period end the Group had 53.9 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
£4.9 million. However, in the downside circumstances where these outstanding
warrants are not fully exercised the Group would have to raise additional
funds within the next 12 months to meet both legal costs in relation to the
arbitration and normal working capital requirements.
In light of this the Group is actively considering all potential sources of
additional funding including but not limited to collection/monetisation of
arbitration award proceeds, deferral of expenditure or raising additional
equity. We continue to monitor the short, medium and long term funding
requirements as we work towards project sanction of Sea Lion.
Principal risk and uncertainties
A detailed review of the potential risks and uncertainties which could impact
the Group are outlined in the Strategic Report of the Group's annual
consolidated financial statements. The Group identified its key risks at the
end of 2022 as being:
· oil price volatility;
· access to capital;
· joint venture partner alignment; and
· failure of joint venture partners to secure the requisite funding to
allow a Sea Lion Final Investment Decision.
CONDENSED CONSOLIDATED income statement
for the six months ended 30 June 2023
Six months Six months
Ended Ended
30 June 30 June
2023 2022
Unaudited Unaudited
Notes $'000 $'000
Revenue 2 - 523
Cost of sales (378) (803)
Gross loss (378) (280)
Exploration and evaluation expenses (3) -
Administrative expenses (2,132) (1,461)
Charge for share based payments (70) (314)
Foreign exchange movement 586 3,356
Results from operating activities and other income 1,997 1,301
Finance income 128 2
Finance expense (739) (2,052)
Loss before tax (2,608) (749)
Tax 3 - -
Loss for the period attributable to the equity shareholders of the parent (2,608) (749)
company
Loss per share attributable to the equity shareholders of the parent company:
cents
4 (0.44) (0.16)
4 (0.44) (0.16)
CONDENSED CONSOLIDATED statement of comprehensive income
for the six months ended 30 June 2023
Six months Six months
Ended Ended
30 June 30 June
2023 2022
Unaudited Unaudited
Notes $'000 $'000
Loss for the period (2,608) (749)
Exchange differences on translation of foreign operations (615) 2,350
TOTAL COMPREHENSIVE PROFIT FOR THE period (3,223) 1,601
CONDENSED CONSOLIDATED balance sheet
as at 30 June 2023
As at As at
30 June 31 December
2023 2022
Unaudited Audited
Notes $'000 $'000
NON CURRENT Assets
Exploration and evaluation assets 5 253,980 251,970
Property, plant and equipment 6 36 68
Finance lease receivable 248 444
CURRENT Assets
Other receivables 1,532 1,406
Finance lease receivable 270 259
Restricted cash 545 519
Term deposits 5,532 8,736
Cash and cash equivalents 1,197 1,059
Total assets 263,340 264,461
CURRENT Liabilities
Other payables 6,085 3,383
Lease liability 220 209
NON-CURRENT Liabilities
Lease liability 137 344
Tax payable 7 - -
Provisions 19,663 19,177
Deferred tax liability 39,137 39,137
Total liabilities 65,242 63,994
Equity
Share capital 8,803 8,771
Share premium 6,770 6,518
Share based remuneration 2,062 1,492
Owns shares held in trust (1,320) (1,494)
Merger reserve 78,208 78,208
Foreign currency translation reserve (8,614) (7,999)
Special reserve 175,281 175,281
Retained losses (63,092) (60,310)
Attributable to the equity shareholders of the company 198,098 200,467
Total liabilities and equity 263,340 264,461
These condensed consolidated interim financial statements were approved by the
directors and authorised for issue on 27 September 2023 and are signed on
their behalf by:
Samuel Moody
Chief Executive Officer
UNAUDITED CONDENSED CONSOLIDATED statement of changes in equity
for the six months ended 30 June 2023
Foreign
Shares currency
Share Share Share based held Merger translation Special Retained Total
capital Premium remuneration in trust reserve reserve reserve losses Equity
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
Balance at 31 December 2022 8,771 6,518 1,492 (1,494) 78,208 (7,999) 175,281 (60,310) 200,467
Loss for the period - - - - - - - (2,608) (2,608)
Other comprehensive loss for the year - - - - - (615) - - (615)
Total comprehensive loss for the year
- - - - - (615) - (2,608) (3,223)
Shares issued 32 252 - - - - - - 284
Share based payments - - 570 - - - - - 570
Other transfers - - - 174 - - - (174) -
Balance at 30 June 2023 8,803 6,770 2,062 (1,320) 78,208 (8,614) 175,281 (63,092) 198,098
for the six months ended 30 June 2022
Foreign
Shares currency
Share Share Share based held Merger translation Special Retained Total
capital Premium remuneration in trust reserve reserve reserve losses Equity
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
Balance at 31 December 2021 7,218 3,622 4,327 (3,342) 74,332 (9,682) 175,281 (97,235) 154,521
Loss for the period - - - - - - - (749) (749)
Other comprehensive profit for the year - - - - - 2,350 - - 2,350
Total comprehensive profit for the year
- - - - - 2,350 - (749) 1,601
Shares issued in placing 1,005 120 - - 3,905 - - - 5,030
Share based payments - - 314 - - - - - 314
Other transfers - - (1,380) - - - - 1,380 -
Balance at 30 June 2022 8,223 3,742 3,261 (3,342) 78,237 (7,332) 175,281 (96,604) 161,466
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 30 JUNE 2023
Six months Six months
Ended Ended
30 June 30 June
2023 2022
Unaudited Unaudited
Notes $'000 $'000
Cash flows from operating activities
Net loss before tax (2,608) (749)
Adjustments to reconcile net losses to cash:
Depreciation 32 64
Share based payment charge 70 314
Finance expense 735 2,050
Finance income (1) (1)
Foreign exchange (637) (4,213)
Operating cash flows before movements in working capital (2,409) (2,535)
Changes in:
Other receivables (103) 1,053
Payables (405) 600
Provisions (45) -
Cash utilised by operating activities (2,962) (882)
Cash Flows from investing activities
Capitalised expenditure on exploration and evaluation assets (680) (877)
Investing activities before movements in capital balances (680) (877)
Changes in:
Term deposits 3,478 -
Cash flow from investing activities 2,798 (877)
Cash flows from financing activities
Net proceeds of share placing and subscription - 6,280
Exercise of warrants 284 -
Net lease payments (10) (133)
Cash flow from financing activities 274 6,147
Currency translation differences relating to cash and cash equivalents 28 (128)
Net cash flow 110 4,388
Cash and cash equivalents brought forward 1,059 4,822
Cash and cash equivalents carried forward 1,197 9,082
Notes to the condensed CONSOLIDATED group financial statements
for the six months ended 30 June 2023
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 interests in the Falkland
Islands and the Greater Mediterranean. The Company's registered office address
is Warner House, 123 Castle Street, Salisbury, SP1 3TB.
The interim condensed consolidated financial statements for the six months
ended 30 June 2023 were authorised for issue in accordance with a resolution
of the directors on 27 September 2023.
1.2 Statement of compliance and basis of preparation
The interim condensed consolidated financial statements for the six months
ended 30 June 2023 have been prepared in accordance with IAS 34 Interim
Financial Reporting.
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 £3.3 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 period end the Group had 53.9 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
£4.9million.
However, in the downside circumstances where these outstanding warrants are
not fully exercised the Group would have to raise additional funds within the
next 12 months 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 interim condensed 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 interim condensed
consolidated 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 interim condensed consolidated financial statements do not
include adjustments that would result if the Group was unable to continue as a
going concern.
Accounting policies are consistent with those adopted in the last statutory
financial statements of Rockhopper Exploration plc. The information as of 31
December 2022 has been extracted from the audited financial statements of
Rockhopper Exploration plc for the year ended 31 December 2022. These interim
condensed consolidated financial statements do not constitute statutory
financial statements under the Companies Act 2006. The information for the
year ended 31 December 2022 shown in this report does not constitute statutory
accounts for that year as defined in section 434 of the Companies Act 2006. A
copy of the statutory accounts for that year has been delivered to the
Registrar of Companies. The auditor has reported on those accounts. Their
report was unqualified, did include an emphasis of matter but did not contain
a statement under section 498 (2) or (3) of the Companies Act 2006.
1.3 New standards, interpretations and amendments adopted by the Group
The accounting policies adopted in the preparation of the interim condensed
consolidated financial statements are consistent with those followed in the
preparation of the Group's annual consolidated financial statements for the
year ended 31 December 2022, except for the adoption of new standards
effective as of 1 January 2023. The Group has not early adopted any standard,
interpretation or amendment that has been issued but is not yet effective.
Several amendments apply for the first time in 2023, but do not have an impact
on the interim condensed consolidated financial statements of the Group.
1.4 Period end exchange rates
The period end rates of exchange actually used were:
30 June 2023 30 June 2022 31 December 2022
£ : US$ 1.27 1.21 1.21
€ : US$ 1.09 1.05 1.07
2 Revenue and segmental information
Six months ended 30 June 2023 (unaudited)
Falkland Greater
Islands Mediterranean Corporate Total
$'000 $'000 $'000 $'000
Revenue - - - -
Cost of sales - (378) - (378)
Gross profit/(loss) - (378) - (378)
Exploration and evaluation expenses - (3) - (3)
Administrative expenses - (1,130) (1,002) (2,132)
Charge for share based payments - - (70) (70)
Foreign exchange movement - (21) 607 586
Results from operating activities and other income - (1,532) (465) (1,997)
Finance income - - 128 128
Finance expense (55) (187) (497) (739)
Loss before tax (55) (1,719) (834) (2,608)
Tax - - - -
Loss for period (55) (1,719) (834) (2,608)
Reporting segments assets 253,557 1,650 8,133 263,340
Reporting segments liabilities (43,592) (17,133) (4,517) (65,242)
There main additions to segment assets in the period are disclosed in note 5.
Six months ended 30 June 2022 (unaudited)
Falkland Greater
Islands Mediterranean Corporate Total
$'000 $'000 $'000 $'000
Revenue - 523 - 523
Cost of sales - (803) - (803)
Gross profit/(loss) - (280) - (280)
Administrative expenses - (332) (1,129) (1,461)
Charge for share based payments - - (314) (314)
Foreign exchange movement 4,368 - (1,012) 3,356
Results from operating activities and other income 4,368 (612) (2,455) (1,301)
Finance income - - 2 2
Finance expense (1,904) (140) (8) (2,052)
Loss before tax 2,464 (752) (2,461) (749)
Tax - - - -
Loss for period 2,464 (752) (2,461) (749)
Reporting segments assets 249,988 2,298 10,820 263,106
Reporting segments liabilities (83,878) (14,430) (3,332) (101,640)
There are no material additions to segment assets.
All of the Group's prior period worldwide sales revenues of oil and gas US$523
thousand arose from contracts to customers. Total revenue relates to revenue
from one customer.
3 Taxation
Six months Six months
ended ended
30 June 30 June
2023 2022
$'000 $'000
Unaudited Unaudited
Current tax:
Overseas tax - -
Adjustment in respect of prior periods - -
Total current tax - -
Deferred tax:
Overseas tax - -
Total deferred tax - -
Tax on ordinary activities - -
4 Basic and diluted loss per share
Six months Six months
ended ended
30 June 30 June
2023 2022
Number Number
Unaudited Unaudited
Shares in issue brought forward 586,485,319 458,482,117
Shares issued
- Issued 2,532,064 82,182,776
Shares in issue carried forward 589,017,383 540,664,893
Weighted average of Ordinary Shares 593,539,285 463,476,650
Shares held in Employee Benefit Trust (1,304,500) (3,131,000)
Weighted average number of Ordinary Shares for the purposes of basic earnings 592,234,785 460,345,650
per share
$'000 $'000 $'000
Net loss after tax for purposes of basic and diluted earnings per share
(2,608) (749)
Earnings per share - cents
Basic (0.44) (0.16)
Diluted (0.44) (0.16)
Shares issued in the period all relate to the exercise of the warrants that
were issued in the prior year as part of a Placing and Subscription as well as
an Open Offer.
The weighted average number of Ordinary Shares takes into account those shares
which are treated as own shares held in trust. As at the period end the Group
had 1,304,500 Ordinary shares held in an Employee Benefit Trust which have
been purchased to settle future exercises of options. It also takes into
account those LTIPs which have vested and have a nil exercise cost as in
substance these are similar to a vested ordinary share, and the entity will
receive no further substantive consideration when the option is exercised. As
at the period end the Group had 5,553,501 such LTIPs.
As the Group is reporting a loss in the 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.
At the period end, the Group had the following unexercised options and share
appreciation rights in issue.
Six months
ended
30 June
2023
Number
Unaudited
Long term incentive plan 5,553,501
Share options 26,497,651
Warrants 53,913,844
Warrants were issued in the prior year as part of a Placing and an Open Offer.
Each Warrant gives the holder the right to subscribe for one new Ordinary
Share at a price of 9 pence per Ordinary Share at any time from the issue
of the Warrants up to (and including) 5.00 p.m. on 31 December 2023.
5 Intangible exploration and evaluation assets
During the period there were $2.0 million of additions. These mainly relate to
the Sea Lion Development as does the balance carried forward.
At 30 June 2023, the Group reviewed its intangible exploration/appraisal
assets for indicators of impairment, with no indicators of impairment being
identified. No impairment tests were therefore performed.
6 Property, plant and equipment
During the period there have not been any material additions. The movement in
the period mainly relates to depreciation.
7 Tax payable
Six months ended Six months ended
30 June 31 December
2023 2022
$'000 $'000
Unaudited Unaudited
Current tax payable - -
Non current tax payable - -
- -
On the 8 April 2015, the Group agreed binding documentation ("Tax Settlement
Deed") with FIG in relation to the tax arising from the Group's farm-out to
Premier. The Tax Settlement Deed confirms the quantum and deferment of the
outstanding tax liability and is made under Extra Statutory Concession 16.
The Tax Settlement Deed also states that the Group is entitled to make
adjustment to the outstanding tax liability if and to the extent that the
Commissioner is satisfied that any part of the Development Carry becomes
irrecoverable.
On 23 September 2022 the Company announced the Transaction enabling Harbour to
exit and Navitas to enter the North Falkland Basin with a 65% stake in, and
operatorship of, all of Rockhopper's North Falkland Basin licences, has
completed. As a result of the Transaction the balance of Development Carry has
become irrecoverable and, in the Group's judgment, no further amounts are due
on the Group's 2012 farm-out to Premier.
Given the highly material nature of this judgment, professional advice has
been sought to confirm that it is probable that if challenged it would be
concluded that the Group is entitled to adjust the outstanding tax liability
for the Development Carry that has become irrecoverable. As such, in the prior
year, the Group derecognised the tax liability to measure it at the most
likely amount that the liability will be settled for of US$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.
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