REG - Rockhopper Exp plc - Final Results
22/05/2024 07:00
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RNS Number : 3701P Rockhopper Exploration plc 22 May 2024
22 May 2024
Rockhopper Exploration plc
("Rockhopper", the "Group" or the "Company")
Full-Year Results for the Year Ended 31 December 2023
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 2023.
2023 HIGHLIGHTS
Sea Lion Development
Navitas Petroleum LP ("Navitas") provided details of the updated Field
Development Plan ("FDP") and additional independent resource report by
Netherland Sewell & Associates ("NSAI").*
· New independent resource report commissioned by Navitas Petroleum LP
o Optimised for the specifications of identified and available redeployable
Floating Production and Offloading vessels ("FPSO"s)
o 2C resource base 791mmbbls, up from 712mmbbls
o Initial development stage targeting 312mmbbls, up from 269mmbbls
o Peak rate up to 55k bopd
o Prolonged plateau of c.8 years
o Improved economics, reduced breakeven at US$25/bbl cost life of field
§ Cost to first oil US$1.2bn
§ Capex per bbl US$8 life of field
§ Opex per bbl US$17 life of field
§ NPV 10 > US$4bn gross to the JV at US$77/bbl Brent **
· Environment Impact Statement ("EIS") pre-consultation started in
November 2023
· Navitas continues to refine Field Development Plan ("FDP")
· Navitas actively working with leading industry vendors to secure all
long lead equipment
Ombrina Mare Arbitration Award (the "Award")
Monetisation of the Award
· Monetisation of Award to Specialist Fund payable in 3 tranches:
o Tranche 1 - Rockhopper will retain approximately €15million (pre-tax) of
an initial gross payment of €45million, the balance going to pay the initial
litigation funder and available for legal success fees;
o Tranche 2 - Rockhopper will retain 100% of a payment of €65million upon
a successful annulment outcome. This amount to be reduced on a partial
annulment; and
o Tranche 3 - Rockhopper will retain 100% of a profit share of 20% on
recovery above amounts in excess of 200% of the Specialist Funds total
investment costs.
· Transaction requires Falkland Island Government ("FIG") consent to
complete
o Work continues with FIG to secure consent which should be obtained by end
June 2024
· Should consent not be obtained by end June 2024, either side has
right to terminate
o The Specialist Fund is paying the legal costs associated with the Award
from 20 December 2023
o In case of non-completion, Rockhopper will compensate the Specialist Fund
based on their legal fees incurred
Annulment Proceedings
· Italy requested to annul Arbitration Award in October 2022
· Annulment hearing completed April 2024
· Rockhopper and advisors remain confident in merits of legal case
· Continue to be hopeful a decision is possible before the end of 2024
Corporate and Financial
· High calibre, experienced and independent Board
· Focus on maintaining balance sheet strength
· Continued management of costs
* Rockhopper is not an addressee and has not been party to the production of
the 2024 NSAI Independent Report. The 2024 NSAI Independent Report has been
produced to PRMS standards. The last independent resource report commissioned
directly by Rockhopper was the ERCE 2016 Report which had an estimated 2C
value of 517mmbbls. See RNS dated 22 January 2024.
** Post royalty, pre-tax.
Simon Thomson, Chair of Rockhopper, commented:
"I am delighted to have joined Rockhopper at such a pivotal point in the
Company's history. Whilst risks plainly remain, it is possible that by this
time next year we will have both completed the monetisation of our Ombrina
Mare Arbitration and seen FID at Sea Lion. Both would be hugely significant
catalysts for the Company, and represent the culmination of many years of hard
work by our dedicated team. I look forward to working with the team to unlock
real shareholder value over the years to come."
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/Ana Ercegovic
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 2023, 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.
CHAIR AND CEO REVIEW
INTRODUCTION
Global uncertainty continued during the year, with conflict in the Middle East
as well as the continued war in Ukraine, and continued underinvestment in new
oil projects leading to oil prices averaging over US$80/bbl during the year.
Navitas Petroleum LP ("Navitas") continued to refine the Sea Lion development
which we believe is now in the most advanced stage in its history.
The monetisation of the Ombrina Mare Arbitration Award (the "Award"), subject
to the approval of FIG, will provide material near term capital certainty and
should, assuming a successful annulment outcome, provide most and potentially
all the required Rockhopper equity for Phase 1 of the Sea Lion development.
The refined Sea Lion development is, in our view, highly competitive in a
global market. We believe the main impediment to sanction remains the
Argentine sovereignty claim of the Falkland Islands. The claim does mean
certain service providers and financial institutions choose not to provides
services for fear of a potential impact an association may have on their
businesses in Argentina.
SEA LION DEVELOPMENT
Over the course of the year, Navitas continued to refine and improve the Sea
Lion development and we believe the project is now at its most advanced stage
to date. In January 2024, a new independent Netherland Sewell & Associates
("NSAI") report was produced and is available on the Navitas website ("2024
NSAI Report")*. This report confirms an increase in both the overall 2C
resource base and recovery during the first phase of the development. The
refined development plan continues to be based on a phased approach utilising
a drill to fill approach, with the first phase now targeting 312mmbbls from a
total of 23 wells with a peak rate of up to 55k bopd, an increase of some 16%
in recovery. This optimised development scheme is based on the use of
identified Floating Production, Storage and Offtake vessels ("FPSO") which are
both suitable and available. Discussions are advanced with a number of
contractors who are available and interested in offering all services required
to bring the project into production. Environmental Impact Statement ("EIS")
pre-consultation began in November 2023.
Per barrel cost life of field (rounded):
Capex US$8
Opex US$17
Total cost US$25
In January 2024, Navitas published the 2024 NSAI Report which is available on
Navitas' website, and contains the following resource estimates:
1C (mmbbls) 2C (mmbbls) 3C (mmbbls)
Development Pending 228 312 406
Development Unclarified 281 479 757
Total 509 791 1,163
The project break even oil price has been lowered during the year, with capex
per barrel under US$10 per bbl and opex under US$20 per bbl on a life of field
basis for the first phase. The updated independent NSAI report confirms an NPV
10 in excess of US$4bn to the JV (comprising Navitas and Rockhopper) at
US$77/bbl Brent on a post royalty, pre tax basis.
These numbers highlight that our 35% working interest in Sea Lion, which
benefits from two attractive loans from Navitas, will be a highly valuable
asset once sanctioned at current oil prices. The next steps towards securing
Final Investment Decision ("FID") and Project Sanction will be the
aforementioned EIS public consultation, securing contractors and putting in
place a viable financing plan. All of this work is currently ongoing.
Ombrina Mare Monetisation
As announced on 20 December 2023, we signed an agreement with a regulated
specialist fund (the "Specialist Fund") to accelerate the monetisation (the
"Monetisation") of our Ombrina Mare Arbitration award (the "Award").
Details of the payment structure of the Monetisation are below:
Tranche 1
Rockhopper will retain approximately €15 million of an upfront payment of
€45million on completion. As previously disclosed, Rockhopper entered into a
litigation funding agreement in 2017 under which all costs relating to the
Arbitration from commencement to the rendering of the Award were paid on its
behalf by a separate specialist arbitration funder (the "Original Arbitration
Funder"). That agreement entitles the Original Arbitration Funder to a
proportion of any proceeds from the Award or any monetisation of the Award.
Rockhopper has entered into an agreement with the Original Arbitration Funder
to pay €26 million of the Tranche 1 proceeds to discharge all of its
liabilities under the agreement with the Original Arbitration Funder. In
addition, on successfully contesting the annulment Rockhopper owes previously
disclosed success fees to its legal representatives. After making these
payments, Rockhopper will retain approximately €15million of the Tranche 1
payment and 100 per cent of all Tranche 2 and 3 payments.
Tranche 2
Additional contingent payment of €65 million upon a successful annulment
outcome. Should the Award be partially annulled, and the quantum reduced as a
result, then Tranche 2 will be reduced such that the amounts under Tranche 1
and Tranche 2 shall be adjusted downward on a pro-rata basis. For example, if
the quantum of the Award is reduced by 20%, then the amounts under Tranche 1
and Tranche 2 shall be reduced by 20%. For the avoidance of doubt, the amounts
under Tranche 1 and Tranche 2 shall not reduce below €45m in any
circumstance.
Tranche 3
Potential payment of 20% on recovery of amounts in excess of 200% of the
Specialist Fund's total investment including costs.
Tax will also be payable on Rockhopper's share of the proceeds from the
monetisation of the Award. These calculations are complex and are unlikely to
be resolved for some months, but Rockhopper currently estimates that the
approximate effective tax rate of between 10-15% is likely.
The transaction requires consent from FIG by 30 June 2024 in order to
complete. We are currently working with FIG to secure this consent. Should
FIG consent not be obtained by the end of June, either side can terminate the
agreement with Rockhopper compensating the Specialist Fund from any eventual
monetisation or recovery on the basis of legal fees incurred.
On 11 and 12 April 2024, a 2-day annulment hearing was held before an ad hoc
Panel put together by ICSID under the relevant rules. Following the hearing,
the ad hoc committee considering the annulment request has instructed that it
will shortly provide questions to both parties who are to respond in writing
by 18 June 2024. Based on post-hearing legal advice, Rockhopper remains
confident in the strength of its legal case and remains hopeful that a
decision will be reached on the annulment by the end of 2024.
We believe that, should we secure a positive annulment outcome and the Award
monetisation completes, we will be in a strong position to provide our share
of the required equity for the Sea Lion project.
Corporate and Financial
Following the completion of our capital raise in 2022, we enjoyed a very high
take up of warrants issued with 93.9% being exercised. Our balance sheet
remains strong with some US$8.0 million in cash at year end, with a further
US$2.0 million received post year end through warrant proceeds and an
additional c.€15million in cash due on completion of the Award Monetisation.
Normal working capital requirements and projected recurring expenditure remain
low at only US$4.0 million per annum, representing a reduction of over 60%
compared to 2014. We maintain a small, highly experienced team of technical
experts and have an unparalleled history of success in the North Falkland
Basin, in depth knowledge of operating in the Falklands, and of Sea Lion
itself.
We were delighted to welcome both Simon Thomson and Paul Mayland to the Board
in October, both of whom bring direct and highly relevant knowledge, not only
of offshore oil field developments but also listed E&P companies and
international arbitration.
We take this opportunity to thank Keith Lough and John Summers for their time
on the Board and wish them every success in the future.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE
As always, ESG remains a focus for Rockhopper. We maintain a highly
experienced Board and have a long-term relationship with the Falkland Islands,
visiting regularly. As Operator, Navitas will determine the manner in which
the Sea Lion oil field will be developed, and we are confident they will do so
in a responsible manner. We reaffirm our commitment to report transparently
and mitigate our own emissions as far as it is practicable.
Outlook
Whilst there continue to be some risks, with a strong balance sheet, a signed
transaction to monetise the Ombrina Mare Arbitration and a highly economic Sea
Lion development plan in place, we believe your Company remains well placed to
deliver long term value to its shareholders.
* Rockhopper is not an addressee and has not been party to the production of
the 2024 NSAI Independent Report. The 2024 NSAI Independent Report has been
produced to PRMS standards. The last independent resource report commissioned
directly by Rockhopper was the ERCE 2016 Report which had an estimated 2C
value of 517 MMbbls. See RNS dated 22 January 2024.
FINANCIAL REVIEW
OVERVIEW
From a finance perspective, the most significant event in 2023 was
announcement of the Monetisation as discussed in detail in the Chair and CEO's
Review. From a financial perspective, this has no impact on the results for
the period to 31 December 2023 as the Monetisation did not complete before
year end.
The Award was made in September 2022 and Italy applied to have the Award
annulled in October 2022. As such, the Award is still considered a contingent
asset and is not recognised in the financial statements.
RESULTS FOR THE YEAR
For the year ended 31 December 2023, the Group had no revenues (2022: US$0.7
million) and a loss after tax of US$4.6 million (2022: profit after tax of
US$35.5 million). The loss for the year is in line with expectations and
further details are provided below.
REVENUE AND COST OF SALES
Following cessation of production in Italy, the Group had no revenues during
the year (2022: US$0.7 million). Revenues in the prior year related entirely
to the sale of natural gas in the Greater Mediterranean (specifically Italy)
region.
Cost of sales amounted to US$0.9 million (2022: US$2.0 million). The prior
year cost of sales included US$1.0 million in costs associated with increasing
decommissioning provisions. Excluding these amounts, which were driven by
particularly high global inflation rates, cost of sales reduced slightly. Even
though there has been no revenue in the period there are costs associated with
maintaining the various production concessions whilst potential options for
redevelopment are considered.
OPERATING COSTS
Exploration and evaluation expenses are not material in the year. The
impairment in the current year of US$0.2 million (2022: US$0.3 million) due to
cost write offs relating to the South Falkland Basin and areas of the North
Falkland Basin which will not be developed as part of the Sea Lion Phase 1
project.
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. As part
of this ongoing focus on costs the Rome office was closed during 2023.
Administrative expenses have increased during the year to US$4.3 million
(2022: US$3.6 million). These costs include legal fees in relation to
contesting the Annulment of the Award of US$1.6 million (2022: US$0.2
million). The Group chose to use existing resources to fund all legal costs
arising from contesting the request by Italy for Annulment while it explored
all acceptable funding possibilities. Following signing of the Monetisation
agreement, the Specialist Fund are responsible for all legal fees, therefore
no costs have been incurred in relation to the Arbitration in 2024 to date.
Administrative expenses excluding these legal fees have reduced by
approximately US$0.7 million.
In prior years foreign exchange movements were impacted by the tax liability
arising from the Group's 2012 farm-out, a GBP denominated balance. This
liability also impacted on finance expenditure as it was deferred and hence
discounted. During the prior year this liability was derecognised and so has
no impact in the current year. The foreign exchange gain in the year of US$0.3
million (2022: gain of US$6.6 million) is therefore materially smaller,
something that is expected to continue going forward. The tax liability is
discussed further below.
Finance expenses have reduced significantly to US$0.5 million (2022:
US$4.2million). As well as prior year exchange differences on tax balances
there was a loss on fair value of derivative financial liabilities of US$0.5
million. This related to fair value adjustments on Warrants issued as part of
the 2022 Placing and Subscription ("Warrants") which were treated as
derivative financial liabilities and as such carried at fair value on the
balance sheet.
Full year 2023 saw a gain on derivative financial liabilities of US$0.9
million. This, along with an increase in interest receivable on term deposits,
explains the finance income during the year of US$1.2 million as opposed to
negligible amounts in 2022.
CASH MOVEMENTS AND CAPITAL EXPENDITURE
At 31 December 2023, the Group had cash and term deposits of US$8.0 million
(31 December 2022: US$9.8 million).
Cash and term deposit movements during the period:
US$m
Opening cash balance (31 December 2022) 9.8
Cost of sales (0.9)
Falkland Islands (1.3)
Administrative expenses (4.3)
Net proceeds of warrant exercises 3.7
Miscellaneous 1.0
Closing cash balance (31 December 2023) 8.0
Miscellaneous includes foreign exchange and movements in working capital
during the period.
The additions to intangible exploration and evaluation assets during the year
of US$5.4 million relate principally to the Sea Lion development. Management
considered whether there were any indicators of impairment to the carrying
value of the intangible as it relates to the first phase of the Sea Lion
development and concluded there were none.
We continue to impair amounts capitalised in relation to licences that hold
discovered barrels of oil that would be produced in any subsequent phases of
development. This is in line with accounting standards given the limited
capital we are currently spending on these licences. We continue to believe
that these licences are hugely valuable and the Group's long‐term strategy
is still for multiple phases of development in the North Falkland Basin which
would eventually include these licences. This is discussed in more detail in
note 14 to the financial statements.
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 2012 farm
out. 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.
In September 2022 the transaction enabling Harbour Energy plc ("Harbour") to
exit and Navitas to enter the North Falkland Basin completed (the
"Transaction"). Under the Transaction the balance of development carry,
approximately US$670 million, has become irrecoverable.
Due to the irrecoverable Development Carry in the Group's judgment no further
amounts are due on the Group's 2012 farm-out. Given the highly material nature
of this judgment professional advice has been sought to confirm that it is
probable that the Group is entitled to adjust the outstanding tax liability
for the irrecoverable Development Carry. As such, in the prior year, the Group
derecognised the tax liability to measure it at the most likely amount it will
be settled for, US$nil. We understand that FIG still believe that the £59.6
million to be due and we are currently engaged with FIG to resolve this
matter.
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 improbable
instance Management believes the most likely timing of payment is in line with
the first royalty payment.
Separately, we have submitted tax returns in relation to the farm out to
Navitas that occurred immediately after their acquisition from Harbour of the
company that holds the North Falkland's Basin licences. The consideration for
this transaction was the provision of loan funding to the Group to cover the
majority of its share of Sea Lion phase 1 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 1 development costs (for any costs not met by third party debt
financing). Whilst we continue to engage with FIG on the value of this
consideration, we are confident that we have sufficient losses to ensure no
tax liability will arise.
Based on correspondence with FIG, Management does not believe that the farmout
constitutes a substantial disposal and therefore would not have accelerated
the £59.6 million liability should it be shown to still be payable.
The prior year derecognition of the tax liability led to a tax income of
US$38.8 million. The tax liability had been treated as long term and hence
discounted. In 2022, the unwinding of discounts on the previously recognised
liability, prior to derecognition, was US$3.4 million and treated as a finance
expense. This was offset by prior year foreign exchange gains of US$7.8
million.
Warrants
During the prior 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
(together the "Fund Raising"). In each case at an issue price of 7 pence per
Unit (the "Issue Price"). Each Unit offered comprised one new ordinary share
("New Ordinary Share") and, for every two New Ordinary Shares subscribed for,
one warrant ("Warrant").
Each Warrant gave 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.
During the year 32.4 million Warrants were exercised, raising US$3.7 million.
Immediately after the year end a further 20.3 million shares were issued in
relation to Warrants that were validly exercised pre year end and prior to
their expiry. This raised an additional US$2.0 million of net proceeds. Of the
60,917,237 Warrants issued as part of the Fund Raising, 93.9% were exercised.
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 2023, the Group had cash and cash equivalents and term deposits of
US$8.0 million.
After the year end, the Group received the proceeds of warrants validly
exercised pre year end but where shares were allotted in 2024. This raised
additional net proceeds of approximately US$2.0 million.
Historically, the Group's largest annual expenditure has been pre-sanction
costs associated with the Sea Lion development. Following completion of
Navitas coming into the North Falkland Basin (the "Navitas Transaction"), the
Group benefits from loan funding for its share of all Sea Lion pre-sanction
costs (other than licence fees and taxes). Following the Navitas Transaction,
normal working capital requirements and projected recurring expenditure is
expected to be around US$4.0 million per year in addition to costs associated
with maintaining the various licences and concessions in the Group's Italian
portfolio.
Under these base assumptions the Group has sufficient financial headroom to
meet forecast cash requirements for the twelve months from the date of
approval of these consolidated financial statements but would need to raise
additional funds to meet ongoing liabilities in the second half of 2025.
As detailed in note 26 on contingent assets, the Group was awarded
approximately €190 million plus interest and costs pursuant to an
International Centre for the Settlement of Investment Disputes ("ICSID")
arbitration from Italy (the "Award"). In October 2022 Italy requested to have
this Award annulled.
In December 2023 the Group entered into a funded participation agreement with
a Specialist Fund (the "Monetisation") the key terms of which are also set out
in note 26 and include a requirement for the approval of the Falkland Islands
Government (the "Approval"). Under the terms of the Monetisation either party
can terminate the agreement should the Approval not be received by 30 June
2024.
In the event the Approval is granted before termination of the Monetisation,
regardless of whether Italy is successful in its request to have the Award
annulled, the Group will receive net pre-tax proceeds of €15 million after
discharging all of its liabilities under the agreement with the original
Arbitration Funder and certain success fees to its legal representatives.
In the event the Approval is not granted, and the Award is annulled no amounts
would fall due in relation to previously funded litigations as they are linked
to receipt of proceeds from the Award. Similarly, no success fees would fall
due. However, in the event Approval is not granted and the Award is not
annulled the success fees of approximately £3 million would be due to our
legal representatives. Under this downside scenario the Group would need to
raise additional funds to meet ongoing liabilities at the beginning of 2025.
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 Monetisation does not complete and additional funding is not raised,
material uncertainties exist 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 2023 as being:
1 oil price volatility;
2 availability and 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 2023
Year ended 31 December Year ended 31 December
2023 2022
$'000 $'000
Notes
Revenue 3 - 652
Cost of sales 4 (870) (1,965)
Gross loss (870) (1,313)
Exploration and evaluation expenses 5 (278) (331)
Administrative expenses 6 (4,286) (3,625)
Charge for share based payments 9 (117) (393)
Foreign exchange movement 10 307 6,596
Results from operating activities (5,244) 934
Finance income 11 1,191 23
Finance expense 11 (497) (4,175)
Loss before tax (4,550) (3,218)
Tax income 12 - 38,763
(Loss)/profit for the year attributable to the equity shareholders of the (4,550) 35,545
parent company
(Loss)/profit per share attributable to the equity shareholders of the parent
company: cents
Basic 13 (0.77) 6.77
Diluted 13 (0.77) 6.68
All operating income and operating gains and losses relate to continuing
activities.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2023
Year ended Year ended
31 December 31 December
2023 2022
$'000 $'000
Loss/(profit) for the year (4,550) 35,545
Items that may be reclassified to profit or loss
Exchange differences on translation of foreign operations (502) 1,683
Total comprehensive (loss)/profit for the year (5,052) 37,228
The notes on pages 51 to 71 form an integral part of these consolidated
financial statements.
CONSOLIDATED BALANCE SHEET
as at 31 December 2023
31 December 31 December
2023 2022
Notes $'000 $'000
Non current assets
Exploration and evaluation assets 14 257,228 251,970
Property, plant and equipment 15 29 68
Finance lease receivable - 444
Current assets
Other receivables 16 1,241 1,406
Finance lease receivable 235 259
Restricted cash 529 519
Term deposits 17 4,501 8,736
Cash and cash equivalents 3,487 1,059
Total assets 267,250 264,461
Current liabilities
Other payables 18 7,176 3,383
Derivative financial liabilities 19 450 1,744
Lease liability 246 209
Non-current liabilities
Lease liability - 344
Tax payable 20 - -
Provisions 21 20,121 19,177
Deferred tax liability 22 39,137 39,137
Total liabilities 67,130 63,994
Equity
Share capital 23 9,196 8,771
Share premium 24 10,181 6,518
Share based remuneration 24 2,109 1,492
Own shares held in trust 24 (1,320) (1,494)
Merger reserve 24 78,208 78,208
Foreign currency translation reserve 24 (8,501) (7,999)
Special reserve 24 175,281 175,281
Retained losses 24 (65,034) (60,310)
Attributable to the equity shareholders of the company 200,120 200,467
Total liabilities and equity 267,250 264,461
These financial statements on pages 47 to 71 were approved by the directors
and authorised for issue on 21 May 2024 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 2023
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 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
Loss for the year - - - - - - - (4,550) (4,550)
Other comprehensive loss for the year - - - - - (502) - - (502)
Total comprehensive loss for the year - - - - - (502) - (4,550) (5,052)
Share based payments (see note 9) - - 617 - - - - - 617
Share issues (net of expenses) 425 3,663 - - - - - - 4,088
Other transfers - - - 174 - - - (174) -
Balance at 31 December 2023 9,196 10,181 2,109 (1,320) 78,208 (8,501) 175,281 (65,034) 200,120
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.
The notes on pages 51 to 71 form an integral part of these consolidated
financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 December 2023
Year ended 31 December Year ended 31 December
2023 2022
$'000 $'000
Notes
Cash flows from operating activities
Loss before tax (4,550) (3,218)
Adjustments to reconcile net losses to cash:
Depreciation 15 39 122
Share based payment charge 9 117 393
Written off exploration costs 14 158 307
Disposal of property, plant and equipment - 8
Finance expense 11 482 4,167
Finance income 11 (889) -
Foreign exchange (356) (7,764)
Operating cash flows before movements in working capital (4,999) (5,985)
Changes in:
Other receivables 517 1,564
Payables 112 837
Movement on provisions (41) 1,030
Cash utilised by operating activities (4,411) (2,554)
Cash flows from investing activities
Capitalised expenditure on exploration and evaluation assets (1,293) (1,797)
Investing cash flows before movements in capital balances (1,293) (1,797)
Changes in:
Term deposits 4,533 (8,697)
Cash flow from/(used in) investing activities 3,240 (10,494)
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 3,682 481
Lease liability payments (132) (257)
Cash flow from financing activities 3,550 9,318
Currency translation differences relating to cash and cash equivalents 49 (33)
Net cash flow 2,379 (3,730)
Cash and cash equivalents brought forward 1,059 4,822
Cash and cash equivalents carried forward 3,487 1,059
The notes on pages 51 to 71 form an integral part of these consolidated
financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 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 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 21 May 2024 and are subject to approval at the Annual General
Meeting of shareholders on 25 June 2024.
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.
- IFRS 17 Insurance Contracts;
- Disclosure of Accounting Policies (Amendments to IAS 1
and IFRS Practice Statement 2);
- Definition of Accounting Estimates (Amendments to IAS
8);
- Deferred Tax Related to Assets and Liabilities arising
from a Single Transaction (Amendments to IAS 12).); and
- International Tax Reform - Pillar Two Model Rules
(Amendment to IAS 12 Income Taxes).
New accounting pronouncements
At 31 December 2023, the following Standards, Amendments and Interpretations
were in issue but not yet effective:
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); and
- Supplier Finance Arrangements (Amendments to IAS 7
Statement of Cash flows and IFRS 7 Financial Instruments: Disclosures).
The following amendments are effective for the period beginning 1 January
2024:
- Lack of Exchangeability (Amendments to IAS 21 The
Effects of changes in Foreign Exchange Rates)
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 2023, the Group had cash and cash equivalents and term deposits of
US$8.0 million. After the year end the Group received the proceeds of warrants
validly exercised pre year end but where shares were allotted in 2024. This
raised additional net proceeds of approximately $2.0 million.
Historically, the Group's largest annual expenditure has been pre-sanction
costs associated with the Sea Lion development. Following completion of
Navitas coming into the North Falkland Basin (the "Navitas Transaction") the
Group benefits from loan funding for its share of all Sea Lion pre-sanction
costs (other than licence fees and taxes). Following the Navitas Transaction
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.
Under these base assumptions the Group has sufficient financial headroom to
meet forecast cash requirements for the twelve months from the date of
approval of these consolidated financial statements but would need to raise
additional funds to meet ongoing liabilities in the second half of 2025.
As detailed in note 26, Contingent assets, the Group was awarded approximately
€190 million plus interest and costs pursuant to an ICSID arbitration from
Italy (the "Award"). In October 2022 Italy requested to have this Award
annulled.
In December 2023 the Group entered into a funded participation agreement with
a Specialist Fund (the "Monetisation") the key terms of which are also set out
in note 26 and include a requirement for the approval of the Falkland Islands
Government (the "Approval"). Under the terms of the Monetisation either party
can terminate the agreement should the Approval not be received by 30 June
2024.
In the event the Approval is granted before termination of the Monetisation,
regardless of whether Italy is successful in its request to have the Award
annulled, the Group will receive net pre tax proceeds of €15 million after
discharging all of its liabilities under the agreement with the original
Arbitration Funder and certain success fees to its legal representatives.
In the event the Approval is not granted and the Award is annulled no amounts
would fall due in relation to previously funded litigations as they are linked
to receipt of proceeds from the Award. Similarly, no success fees would fall
due. However, in the event Approval is not granted and the Award is not
annulled the success fees of approximately £3 million would be due to our
legal representatives. Under this downside scenario the Group would need to
raise additional funds to meet ongoing liabilities at the beginning of 2025.
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 Monetisation does not complete and additional funding is not raised,
material uncertainties exist 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 2023.
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 centred 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) 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$, using the closing
rate
method for assets and liabilities which are translated at the rate of exchange
prevailing at the balance sheet date and rates at the date of transactions for
income statement accounts. Differences are taken through the Statement of
Comprehensive Income to reserves.
Transactions and balances:
Foreign currency transactions are translated into the functional currency
using the exchange rates prevailing at the dates of the transactions. Foreign
exchange gains and losses resulting from the settlement of such transactions
and from the translation at year end exchange rates of monetary assets and
liabilities denominated in foreign currencies are expensed in the income
statement, except when deferred in equity as qualifying cash flow hedges and
qualifying net investment hedges.
The year end rates of exchange were:
31 December 2023 31 December 2022
£ : US$ 1.27 1.21
€ : US$ 1.10 1.07
(G) 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.
(H) 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.
(I) 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.
(J) 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 typically 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.
(K) 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.
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, that of upstream oil and gas exploration and
production.
Falkland Islands Greater Mediterranean Corporate Total
Year ended 31 December 2023 $'000 $'000 $'000 $'000
Revenue - - - -
Cost of sales - (870) - (870)
Gross loss - (870) - (870)
Exploration and evaluation expense (158) (3) (117) (278)
Administrative expenses - (446) (3,840) (4,286)
Charge for share based payments - - (117) (117)
Foreign exchange gain/(loss) - (21) 328 307
Results from operating activities and other income (158) (1,340) (3,746) (5,244)
Finance income - - 1,191 1,191
Finance expense (110) (376) (11) (497)
Loss before tax (268) (1,716) (2,566) (4,550)
Tax - - - -
Loss for year (268) (1,716) (2,566) (4,550)
Reporting segments assets 256,847 1,352 9,051 267,250
Reporting segments liabilities 47,294 17,697 2,139 67,130
Depreciation and impairments 158 - 39 197
Falkland Greater
Year ended 31 December 2022 Islands Mediterranean Corporate Total
$'000 $'000 $'000 $'000
Revenue - 652 - 652
Cost of sales - (1,965) - (1,965)
Gross loss - (1,313) - (1,313)
Exploration and evaluation expense (307) (1) (23) (331)
Administrative expenses - (1,109) (2,516) (3,625)
Charge for share based payments - - (393) (393)
Foreign exchange gain/(loss) 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)
Profit/(loss) before tax 4,055 (2,695) (4,578) (3,218)
Tax 38,763 - - 38,763
Profit/(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
During the year the group had no revenue. In the prior year all of the Group's
worldwide sales revenues of oil and gas US$652 thousand arose from contracts
to one customer.
4. Cost of sales
Year ended Year ended
31 December 31 December
2023 2022
$'000 $'000
Other cost of sales 870 927
Increase in decommissioning provisions (see note 21) - 1,038
870 1,965
Even though there has been no revenue in the year there are fixed costs
associated with maintaining the various production concessions whilst
potential options for redevelopment are considered.
5. Exploration and evaluation expenses
Year ended Year ended
31 December 31 December
2023 2022
$'000 $'000
Allocated from administrative expenses (see note 6) - 22
Exploration and evaluation assets written off (see note 14) 158 307
Other exploration and evaluation expenses 120 2
278 331
6. Administrative expenses
Year ended Year ended
31 December 31 December
2023 2022
$'000 $'000
Directors' remuneration excluding benefits (see note 7) 785 1,066
Other employees' salaries 1,148 1,175
National insurance costs 382 383
Pension costs 79 91
Employee benefit costs 57 53
Total staff costs 2,451 2,768
Amounts reallocated (1,004) (648)
Total staff costs charged to administrative expenses 1,447 2,120
Auditors' remuneration (see note 8) 178 164
Other professional fees 2,120 666
Other 807 857
Depreciation 39 117
Amounts reallocated (305) (299)
4,286 3,625
The average number of full time equivalent staff employed during the year was
7 (2022: 8). As at the year end the Group employed (including part time) 9
staff, 7 of which were in the UK and 2 in Italy.
Amounts reallocated relate to the costs of staff and associated overhead in
relation to non administrative tasks. These costs are allocated to cost of
sales, exploration and evaluation expenses or capitalised as part of the
intangible exploration and evaluation assets as appropriate.
Other professional fees include legal fees in relation to contesting the
Annulment of the Award of US$1.6 million (2022: US$0.2 million).
7. Directors' remuneration
Year ended Year ended
31 December 31 December
2023 2022
$'000 $'000
Executive salaries 475 746
Company pension contributions to money purchase schemes & pension cash 58 62
allowance
Benefits 11 7
Non-executive fees 252 258
796 1,073
The total remuneration of the highest paid director in GBP, was:
Year ended 31 December Year ended
2023 31 December
£'000 2022
£'000
Annual salary 381 513
Money purchase pension schemes & pension cash allowance 47 47
Benefits 5 4
433 564
Interest in outstanding share options, LTIPs and SARs, by director, are also
separately disclosed in the directors' remuneration report.
8. Auditors' remuneration
Year ended Year ended
31 December 31 December
2023 2022
$'000 $'000
Fees payable to the Company's auditors for the audit of the Company's annual 146 130
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 6 8
178 164
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
2023 2022
$'000 $'000
Charge for option scheme 117 156
Charge for the long term incentive plan options - 237
Charge for share based payments 117 393
Charge for services outside the Group 500 -
617 393
During the year 4.5 million options were issued at 7.0p per share in
connection with the delivery of the Sea Lion project to an individual employed
outside of the Rockhopper group. These options vest in three tranches of 1.5
million each at project sanction, first oil, and reaching project completion.
The value of these options was $500,000 and made with reference to the
services received.
The cost of the options was offset against the liability in relation to the
service provided.
9. Share based payments (continued)
The models and key assumptions used to value each of the other grants and hence calculate the above charges are set out below:
Option scheme
A one-off equity option package was implemented during 2020 (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: 18 May 2020 18 May 2020 18 May 2020
Vesting date 18 May 2023 18 May 2024 18 May 2025
Closing share price (pence) 6.25 6.25 6.25
Number granted 7,949,997 7,950,000 7,950,003
Weighted average volatility 50.0% 50.0% 50.0%
Weighted average risk free rate 0.10% 0.12% 0.14%
Exercise price (pence) 6.25 6.25 6.25
Dividend yield 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 2022 (Lapsed/Granted 2023
18 May 2020 18 Nov 2020 18 May 2030 1,986,972 - 1,986,972
18 May 2020 18 May 2021 18 May 2030 6,357,616 (3,085,699) 3,271,917
18 May 2020 18 May 2023 18 May 2030 5,116,664 - 5,116,664
18 May 2020 18 May 2024 18 May 2030 5,116,667 - 5,116,667
18 May 2020 18 May 2025 18 May 2030 5,116,669 - 5,116,669
25 January 2023 Variable 25 January 2033 - 4,500,000 4,500,000
23,694,588 1,414,301 25,108,889
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. All LTIPs as at
the year end have vested.
The LTIP has been valued using a Monte Carlo model the key inputs of which are
summarised below:
Grant date: 31 July 2019
Closing share price 20.75
Number granted 7,200,000
Weighted average volatility 50.0%
Weighted average volatility of index 70.0%
Weighted average risk free rate 0.35%
Correlation in share price movement with comparator group 5%
Exercise price 0p
Dividend yield 0%
The following movements occurred during the year:
At 31 December At 31 December
Issue date Expiry date 2022 Expired/Exercised 2023
8 October 2013 8 October 2023 546,145 (546,145) -
10 March 2014 10 March 2024 70,391 (70,391) -
16 June 2017 16 June 2027 3,216,000 (864,000) 2,352,000
31 July 2019 31 July 2029 3,300,001 (962,500) 2,337,501
7,132,537 (2,443,036) 4,689,501
Share appreciation rights
All SARs have expired during the year.
The following movements occurred during the year:
Issue date Expiry date Exercise price At 31 December 2022 Expired At
(pence) 31 December
2023
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
2023 2022
$'000 $'000
Foreign exchange gain on Falkland Islands tax liability (see note 20) - 7,756
Other foreign exchange movements 307 (1,160)
Total net foreign exchange gain 307 6,596
11. Finance income and expense
Year ended Year ended
31 December 31 December
2023 2022
$'000 $'000
Warrants (see note 19) 889 -
Bank and other interest receivable 302 23
Total finance income 1,191 23
Warrants (see note 19) - 494
Unwinding of discount on Falkland Islands Tax Liability (see note 20) - 3,354
Unwinding of discount on decommissioning provisions (see note 21) 482 304
Other 15 23
Total finance expense 497 4,175
12. Taxation
Year ended 31 December Year ended 31 December
2023 2022
$'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 - -
Total deferred tax credit - note 22 - -
Tax on loss on ordinary activities - 38,763
Loss on ordinary activities before tax (4,550) (3,218)
Loss on ordinary activities multiplied at 26% weighted average rate (31 (1,183) (837)
December 2022: 26%)
Effects of:
Income and gains not subject to taxation - (2,017)
Expenditure not deductible for taxation 41 872
Depreciation in excess of capital allowances 10 32
IFRS2 Share based remuneration cost 30 102
Losses carried forward 1,102 1,848
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 31 December Year ended 31 December
2023 2022
$'000 $'000
UK 81,729 81,124
Falkland Islands 623,323 621,765
Italy 69,748 66,808
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. As disclosed in Note 20 Tax payable, we are
in the process of agreeing our tax returns in relation to the farm-out to
Navitas that completed in September 2022. The carried forward losses is based
on our returns to FIG and may be revised leading to fewer losses carried
forward.
13. Basic and diluted (loss)/profit per share
31 December 31 December
2023 2022
Number Number
Weighted average number of Ordinary Shares 595,630,305 527,767,197
Weighted average of shares held in Employee Benefit Trust (1,304,500) (2,539,227)
Weighted average number of Ordinary Shares for the purposes of basic earnings 594,325,805 525,227,970
per share
Effects of
Share options and warrants - 6,740,654
Weighted average number of Ordinary Shares for the purposes of diluted 594,325,805 531,968,624
earnings per share
$'000 $'000
Net (loss)/ profit after tax for purposes of basic and diluted earnings per (4,550) 35,545
share
(Loss)/profit per share - cents
Basic (0.77) 6.77
Diluted (0.77) 6.68
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 (2022:
1,304,500) which have been purchased to settle future exercises of options. As
the Group is reporting a loss in the current 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 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
Additions 5,416 - 5,416
Written off exploration costs (158) - (158)
Foreign exchange movement - - -
At 31 December 2023 256,847 381 257,228
Falkland Islands Licences
The amounts for intangible exploration and evaluation assets represent active
exploration and evaluation projects. The additions during the year of US$5.4
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 Operator published an updated CPR in January 2024 which continued
to evidence a robust project;
• Rockhopper and Navitas have used the extensive engineering work
already carried out to create a lower cost developmen;
• Licences expire at the end of 2024. A license extension has been
requested across all the licences. Whilst there is no guarantee this will be
granted historically the Falkland Islands Government have been supportiveand
Management believe that an extension will be receieved; and
• 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 and investment resumes on the Phase 2
project.
15. Property, plant and equipment
Oil and gas Other
assets assets Total
$'000 $'000 $'000
Cost
At 31 December 2021 24,503 812 25,315
Foreign exchange (1,441) (18) (1,459)
Disposals - (244) (244)
At 31 December 2022 23,062 550 23,612
Foreign exchange 782 - 782
Disposals - (255) (255)
At 31 December 2023 23,844 295 24,139
Depreciation and impairment
At 31 December 2021 24,503 611 25,114
Charge for the year - 122 122
Foreign exchange (1,441) (19) (1,460)
Disposals - (232) (232)
At 31 December 2022 23,062 482 23,544
Charge for the year - 39 39
Foreign exchange 782 - 782
Disposals - (255) (255)
At 31 December 2023 23,844 266 24,110
Net book value at 31 December 2022 - 68 68
Net book value at 31 December 2023 - 29 29
All oil and gas assets relate to the Greater Mediterranean region,
specifically former producing assets in Italy.
16. Other receivables
Year ended Year ended
31 December 31 December
2023 2022
$'000 $'000
Current
Receivables 675 294
Other 566 1,112
1,241 1,406
The carrying value of receivables approximates to fair value.
17. Term deposits
Year ended Year ended
31 December 31 December
2023 2022
$'000 $'000
Maturing after the period end
Within three months 4,501 6,324
Six to nine months - 1,206
Nine months to one year - 1,206
4,501 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 Year ended
31 December 31 December
2023 2022
$'000 $'000
Accounts payable 2,309 1,428
Accruals 4,586 1,692
Other creditors 281 263
7,176 3,383
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 Year ended
31 December 31 December
2023 2022
$'000 $'000
Brought forward 1,744 -
Warrant liabilities - initial value on grant - 1,250
Changes in fair value taken to finance (income)/expense (see note 11) (889) 494
Exercise of warrants (405) -
450 1,744
Warrants issued as part of the Placing and Subscription ("Warrants") 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 income
or expenses in the income statement as appropriate. They are not designated as
hedging instruments.
The Warrants had an expiry date of 31 December 2023. The value as at 31
December 2023 relates to validly exercised Warrants where the corresponding
ordinary shares were issued after 31 December 2023. Fair value of the Warrants
as at 31 December 2023 was determined to be the premium of the share price
over and above the exercise price of the Warrants. Fair value at the prior
year end and on grant were determined using a black scholes model the key
inputs of which 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 Year ended
31 December 31 December
2023 2022
$'000 $'000
- -
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 2012 farm out.
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.
In September 2022 the transaction enabling Harbour Energy plc to exit and
Navitas to enter the North Falkland Basin completed. Under the transaction the
balance of Development Carry, approximately $670 million, has become
irrecoverable .
Due to the irrecoverable Development Carry in the Group's judgment no further
amounts are due on the Group's 2012 farm-out. Given the highly material nature
of this judgment professional advice has been sought to confirm that it is
probable that the Group is entitled to adjust the outstanding tax liability
for the Development Carry that has become irrecoverable. As such, in the prior
year, the Group derecognised the tax liability to measure it at the most
likely amount it will be settled for, US$nil. We understand that FIG still
believe that the £59.6 million still to be due. We are currently engaged with
FIG to resolve this matter.
20. Tax payable (continued)
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 improbable
instance Management believes the most likely timing of payment is in line with
the first royalty payment. Based on correspondence with FIG, Management does
not believe that the farmout constitutes a substantial disposal and therefore
would not have accelerated the £59.6 million liability should it be shown to
still be payable. The prior year derecognition of the tax liability led to a
tax income of US$38.8 million.
Separately we have submitted tax returns in relation to the farm out to
Navitas that occurred immediately after their acquisition, from Harbour Energy
plc of the company that holds the North Falkland's Basin licences. The
consideration for this transaction was the provision of loan funding to the
Group to cover the majority of its share of Sea Lion phase 1 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 1 development costs (for any costs not met by
third party debt financing). Whilst we continue to engage with FIG on the
value of this consideration, we are confident that we have sufficient losses
to ensure no tax liability will arise.
21. Provisions
Year ended Year ended
Decommissioning Other 31 December 31 December
provision provisions 2023 2022
$'000 $'000 $'000 $'000
Brought forward 19,099 78 19,177 18,287
Amounts utilized - (48) (48) (17)
Amounts arising in the year - 2 2 1,367
Unwinding of discount 482 - 482 304
Foreign exchange 507 1 508 (764)
Carried forward at year end 20,088 33 20,121 19,177
The decommissioning provision relates to the Group's licences in the Greater
Mediterranean region and 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 prior
year $320 thousand has been capitalised in intangible exploration and
evaluation assets and US$1,038 thousand 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.
Recognising short term inflationary pressures have eased, the Group believe it
appropriate to use an inflation rate of 2.0 per cent (2022: 2.5 per cent) and
a discount rate of 2.0 per cent (2022: 2.5 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$1,507 thousand. Similarly, a 10 per cent reduction in these estimated
costs would decrease both the provision and the loss in the year by US$1,507
thousand.
Other provisions include amounts due for accrued holiday and leaving indemnity
to staff in Italy, that will become payable when they cease employment.
22. Deferred tax liability
Year ended Year ended
31 December 31 December
2023 2022
$'000 $'000
At beginning of period 39,137 39,137
Foreign exchange - -
Movement in period - -
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 2023 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 2023 Year ended 31 December 2022
$'000 Number $'000 Number
Authorised, called up, issued and fully paid: Ordinary shares of £0.01 each 9,196 620,229,436 8,771 586,485,319
31 December 31 December
2023 2022
Number Number
Shares in issue brought forward 586,485,319 458,482,117
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 33,744,117 6,168,266
Shares in issue carried forward 620,229,436 586,485,319
During the prior year Rockhopper raised funds by way of a Placing and
Subscription as well as through an Open Offer. New Shares were issued 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 gave 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").
On 8 January 2024 the Company issued 20,349,328 Ordinary shares of £0.01 each
pursuant to the final exercise of Warrants. The warrants were validly
exercised prior to their expiry on 31 December 2023 but due to logistics of
validating this fact they were not issued until post year end.
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 (2022: US$0.7
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.
26. Contingent assets (continued)
Italy has refused to comply with the Panel's 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 took place in April
2024. There is no set timetable for the decision ad hoc committee to publish
their decision with regard Italy's request for annulment, however we are
hopeful that a decision will be published before the end of 2024.
On 20 December 2023, Rockhopper announced its entry into a funded
participation agreement (the "Agreement") with a regulated specialist fund
with over $4bn of investments under management that has experience in
investing in legal assets (the "Specialist Fund") to monetise its Award.
Key terms of the Agreement
Rockhopper to retain legal and beneficial ownership of the Award.
Under the terms of the Agreement, the Specialist Fund will make cash payments
to Rockhopper in up to three tranches:
Tranche 1 - Rockhopper will retain approximately €15 million of an upfront
payment of €45million on completion. As previously disclosed, Rockhopper
entered into a litigation funding agreement in 2017 under which all costs
relating to the Arbitration from commencement to the rendering of the Award
were paid on its behalf by a separate specialist arbitration funder (the
"Original Arbitration Funder"). That agreement entitles the Original
Arbitration Funder to a proportion of any proceeds from the Award or any
monetisation of the Award. Rockhopper has entered into an agreement with the
Original Arbitration Funder to pay €26 million of the Tranche 1 proceeds to
discharge all of its liabilities under the agreement with the Original
Arbitration Funder. In addition, Rockhopper is due to pay certain success fees
to its legal representatives. After making these payments, Rockhopper will
retain approximately €15million of the Tranche 1 payment and 100 per cent of
all Tranche 2 and 3 payments.
Tranche 2 - Additional contingent payment of €65 million upon a successful
annulment outcome. Should the Award be partially annulled and the quantum
reduced as a result, then Tranche 2 will be reduced such that the amounts
under Tranche 1 and Tranche 2 shall be adjusted downward on a pro-rata basis.
For example, if the quantum of the Award is reduced by 20%, then the amounts
under Tranche 1 and Tranche 2 shall be reduced by 20%. For the avoidance of
doubt, the amounts under Tranche 1 and Tranche 2 shall not reduce below €45m
in any circumstance.
Tranche 3 - Potential payment of 20% on recovery of amounts in excess of 200%
of the Specialist Fund's total investment including costs.
Tax will also be payable on Rockhopper's share of the proceeds from the
monetisation of the Award. These calculations are complex and are unlikely to
be resolved for some time but Rockhopper currently estimates that the
approximate effective tax rate of between 10-15% is likely.
The Specialist Fund will cover all costs related to the Arbitration from the
20 December 2023.
Approval will be required from the Falkland Islands Government to complete the
transaction (the "Precedent Condition"). A further announcement will be made
on completion. Should completion not occur by 30 June 2024 either side has the
right to termination. In the case of non-completion Rockhopper will use
proceeds of the Award to provide compensation to the Specialist Fund based on
the costs they have incurred in relation to the Arbitration from 20 December
2023 up to the date of termination.
Rockhopper is extremely confident in the strength of its case, as was
reflected in the unanimous decision underpinning the Award in August 2022. As
at the year end the Precedent Condition had not been met and that fact along
with the ongoing 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
2023 2022
$'000 $'000
Short term employee benefits 796 1,076
Share based payments 72 235
868 1,311
On 6 April 2023, Alison Baker, Senior Independent Director, in order to effect
a "Bed and ISA" transaction, sold 142,865 Ordinary shares of 1 pence each
(Ordinary Shares) at a price of 10.725 pence per Ordinary Share and then
purchased into an Individual Savings Account (ISA) 142,753 Ordinary Shares at
the same price.
During the prior year the Company announced a successful Placing and
Subscription. This involved the Placing of, and Subscription for 82,182,776
Units in each case at the Issue Price of 7 pence per Unit. Each Unit comprises
one New Ordinary Share and, for every two New Ordinary Shares subscribed for,
one Warrant.
Pursuant to the Subscription, the following Directors agreed to subscribe for
the following Units comprising Subscription Shares and Warrants.
Number of subscription shares Number of subscription Warrants)
Sam Moody 1,428,570 714,285
Keith Lough 428,570 214,285
Alison Baker 142,856 71,428
John Summers 142,856 71,428
On the 20 December 2023 the Company received notifications from all of the
above Directors and former Directors of the exercise of all of their above
Warrants. In total an aggregate 1,071,426 new Ordinary Shares of £0.01 each
("Ordinary Shares") in the Company were issued at an exercise price of 9
pence per ordinary share, providing the Company with proceeds of £96,428.
28. Risk management policies
The risks and uncertainties facing the Group are set out in the risk
management report. Risks which require further quantification are set out
below.
Foreign exchange risks: The Group is exposed to foreign exchange movements on
monetary assets and liabilities denominated in currencies other than US$, 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$8.5 million of which US$1.0 million was held in US$ 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:
$ £ €
Currency denomination of balance $'000 $'000 $'000
Assets
31 December 2023 258,152 7,743 1,355
31 December 2022 253,415 8,482 1,787
Liabilities
31 December 2023 47,180 2,249 17,697
31 December 2022 43,452 3,475 15,220
28. Risk management policies (continued)
The following table summarises the impact on the Group's pre-tax (loss)/profit
and equity of a reasonably possible change in the US$ to GB£ exchange rate
and the US$ to euro exchange:
Pre tax profit /(loss) 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 2023
549 (549) 549 (549)
31 December 2022 501 (501) 501 (501)
US$ against euro 31 December 2023
(1,634) 1,634 (1,634) 1,634
31 December 2022 (1,450) 1,450 (1,450) 1,450
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
2023 were $910,000 (31 December 2022: $2,109,000). 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 2023 $'000 $'000 $'000 $'000 $'000
Other payables 7,176 - - 7,176 7,176
Lease liability 246 - - 246 246
7,422 - - 7,422 7,422
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
3,957 286 - 4,243 3,936
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