TIDMRKH
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 EUR190 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 EUR247 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 EUR1.25 million and EUR1.5 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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END
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