REG - Rockhopper Exp plc - Sea Lion & Other Corporate Updates

Rockhopper ExplorationAnnouncement

23/03/2023 15:00

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RNS Number : 0599U  Rockhopper Exploration plc  23 March 2023

The information contained within this Announcement is deemed by Rockhopper
Exploration plc to constitute inside information as stipulated under the
Market Abuse Regulation (EU) No. 596/2014 as it forms part of UK law by virtue
of the European Union (Withdrawal) Act 2018 ("MAR").

 

23 March 2023

Rockhopper Exploration plc

("Rockhopper" or the "Company")

 

Sea Lion & Other Corporate Updates

Rockhopper Exploration plc (AIM: RKH), the oil and gas company with key
interests in the North Falkland Basin, notes the recent update published by
Navitas Petroleum LP ("Navitas" or the "Operator") on Sea Lion development
progress, which included an independent resource report conducted by
Netherland Sewell & Associates ("NSAI") (the "NSAI Independent Report"),
showing reduced upfront capex, reduced life of field costs, and increased
recoverable resources.

Rockhopper had previously highlighted that there was scope to reduce the
overall capex, including the pre first oil capex, of the Sea Lion development.
Rockhopper has been presented by Navitas a revised development plan and has
been provided the associated NSAI Independent Report. The key highlights from
this work and other corporate updates are provided below.

 

Sea Lion Phase 1 and 2 Development

 

Highlights of the new Sea Lion development plan, as provided by the Operator,
assuming a leased FPSO and a 100% working interest, are as follows:

 

2C Contingent Resources (Development Pending) phase 1 and 2 development
concept

 

·    23 wells

o  Phased drilling

o  18 wells in phase 1 with 11 of them pre first oil

o  Five additional wells in phase 2, approximately 42 months post first oil

·    Total barrels developed: 269 million

·    Plateau production rate: 80,000 bbls/d

·    Peak rate: 100,000 bbls/d

·    Total capex: US$2.2bn

·    Phase 1 capex: US$1.8bn

·    Pre first oil capex: US$1.3bn

 

Per barrel cost - life of field

 

·    Capex: US$7.50

·    Opex: US$20.10

·    Total cost: US$27.60

 

The new development plan, which the Operator continues to optimise and is
subject to change, adopts a staged approach and represents a material
reduction in both upfront and life of field cost when compared to the previous
development scheme, while still achieving a plateau production rate in the
initial stage of approximately 80,000 bbls/d, a peak production rate of
approximately 100,000 bbls/d and recovery of over 269 MMbbls of oil  (2C
Development Pending) out of 712 MMbbls (2C Total).

 

The new development plan proposes 18 wells to be drilled in phase 1, 11 of
these coming before first oil. The phase 2 drilling campaign will add a
further five wells approximately 42 months after first oil. Those later wells
will also be tied into the FPSO to extend the production plateau.

 

Having successfully re-defined the project, work will now focus on refining
the financing plan with a view to reaching FID during 2024. In the meantime,
technical work streams continue to further refine the project, with Navitas
focused on driving further project optimisations. Based on a redeployed FPSO,
a timeline of 30 months is envisaged from FID to first oil, with drilling
anticipated to commence approximately 12 months post FID.

 

Navitas published the NSAI Independent Report which is available in Navitas'
2022 Annual Report, and contains the following resource estimates:

 

                          1C (MMbbls)  2C (MMbbls)  3C (MMbbls)
 Development Pending      204          269          368
 Development Unclarified  247          443          761
 Total                    451          712          1,129

 

The Development Pending category of 269 MMbbls 2C is the phase 1 and 2
development outlined above. The Development Unclarified category of 443 MMbbls
2C are the additional resources contained on the North Falkland Basin held by
Navitas and Rockhopper, including Sea Lion and Isobel/Elaine, that could be
developed under future phases but for which there is currently no published
development plan.

 

The NSAI Independent Report contains analysis of cash flows and NPV on the
phase 1 and 2 development net to Navitas. Based on the NSAI Independent Report
data, the joint venture NPV10 of  the development of 269 MMbbls is US$4.3
billion on a post royalty and pre-tax basis, at US$77 Brent.

 

Rockhopper holds a 35% working interest in Sea Lion and associated North
Falkland Basin licences and benefits from various loans from Navitas in
relation to the development, which are detailed in the Appendix below.

 

Resource Disclosure

 

As previously disclosed (including in Rockhopper's 2021 Annual Report),
Rockhopper believed it was possible to materially reduce pre first oil capex
from the previously estimated US$1.8 billion (assuming a leased FPSO) and
overall project capex by taking actions such as reducing the number of wells
drilled pre first oil and reducing the number of drill centres.

 

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) has had limited
opportunity to review the NSAI Independent Report but endorses the work
conducted and conclusions drawn. Rockhopper is delighted at this additional
third-party validation of the potential of the North Falkland Basin and of Sea
Lion to produce significant quantities of oil.

 

Other Corporate Updates

 

Ombrina Mare Arbitration

 

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, with a decision expected in the next few weeks. 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 currently paying all legal costs associated with the annulment.

 

Issue of Options

 

As referred to at the time of the 2022 capital raise, Rockhopper has issued
4.5 million options at 7.0p per share outside of the Rockhopper group in
connection with the delivery of the Sea Lion project. These options vest in
three tranches of 1.5 million each at project sanction, first oil, and 12
months post first oil.

 

Samuel Moody, Chief Executive Officer of Rockhopper, commented:

 

"We are delighted with the revisions Navitas has made to the previous Sea Lion
development plan.  To reduce upfront estimated capex by such a significant
amount and reduce life of field costs to under US$30 per barrel while
increasing recoverable resources and maintaining a peak plateau of 80,000
barrels a day is hugely encouraging progress.

 

"Our cooperation with Navitas is making real progress technically and
commercially, and we believe the newly reworked Sea Lion project represents an
eminently financeable proposition, despite all the well-known political
challenges. We have developed a strong relationship with Navitas and will
continue to work closely to support them as required as we progress together
towards sanction at Sea Lion.

 

"Simultaneously, work continues on contesting the annulment application put in
by Italy and, while there can be no guarantees, we remain confident in the
merits of our legal case.

 

"Although risks remain on both Sea Lion and Ombrina Mare, following a very
strong 2022 for the business, we are more confident on positive progress than
for a number of years."

 

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

 

Appendix

 

Details of key loan terms between Rockhopper and Navitas:

 

Pre FID loan

 

 Available from:  deal completion 22 September 2022 to FID
 Loan covers:     Rockhopper net working interest project costs excluding licence costs, fees to
                  Falkland Islands Government and Rockhopper taxes
 Interest rate:   8%
 Repayable from:  Rockhopper's net Sea Lion project cash flows

 

Post FID loan

 

 Available from:  FID to the earlier of project completion or 12 months post first oil
 Loan covers:     2/3rds of Rockhopper net working interest project costs excluding licence
                  costs and Rockhopper taxes
 Interest rate:   0%
 Repayable from:  Rockhopper's net Sea Lion project cash flows

 

 

Glossary of Key Terms

 

 FPSO                  Floating Production Storage and Offloading
 FID                   Final Investment Decision
 1C                    Low estimate scenario of contingent resources
 2C                    Best (Most Likely, Mid) estimate scenario of contingent resources
 3C                    High estimate scenario of contingent resources
 Contingent Resources  Those quantities of petroleum which are estimated on a given date, to be
                       potentially recoverable from known accumulations by application of development
                       project, but which are not currently considered to be commercially recoverable
                       owing to one or more contingencies
 NSAI                  Netherland Sewell & Associates
 bbls/d                Barrels of crude oil per day
 MMbbls                Millions barrels of oil
 NPV                   Net present value
 NPV10                 Net present value at a 10% discount rate
 PRMS                  2018 Petroleum Resources Management System approved by the Society of
                       Petroleum Engineers
 ICSID                 International Centre for Settlement of Investment Disputes

 

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