TIDMRKH
RNS Number : 1325J
Rockhopper Exploration plc
08 April 2020
8 April 2020
Rockhopper Exploration plc
("Rockhopper" or the "Company")
Full-year results for the year ended 31 December 2019
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 2019.
HIGHLIGHTS
Sea Lion Phase 1 development - project validated and de-risked
through introduction of Navitas as joint venture partner
-- Detailed Heads of Terms signed with Navitas to farm-in for a
30 per cent interest in the Sea Lion project
-- Under the Heads of Terms, Rockhopper's costs for the Phase 1
development (not met by external debt) are to be funded by Premier
and Navitas from 1 January 2020 to Phase 1 Project Completion
(estimated to occur 9-12 months after first oil)*
-- Through the FEED and optimisation processes, the project has
been substantially de-risked from a technical and cost
perspective
-- Resources to be developed in Phase 1 increased from 220 to
250 mmbbls (gross) with associated capex to
first oil estimated at approximately US$1.8 billion (gross)
-- Public commitment that Sea Lion will be developed on a net zero emissions basis
Financial
-- Revenue of US$10.3 million and operating costs US$4.6 million
-- Cash operating costs of US$9.9 per boe - maintaining a low cost base
-- Continued management of G&A costs - US$5.3 million -
reduced by circa 30% in the last 3 years
-- Cash resources of US$21.9 million as at 1 April 2020 (unaudited)
Corporate
-- A ppointment of Keith Lough as Non-Executive Chairman
following the retirement of David McManus at the Company's AGM in
May 2019
-- Ombrina Mare arbitration - in June 2019 the Tribunal rejected
Italy's request for suspension and related intra-EU jurisdictional
objections
-- Disposal of Rockhopper Egypt Pty Limited for US$16.0 million completed in February 2020
-- Initiatives identified to further materially reduce corporate
G&A costs in response to current market conditions
Outlook
-- Despite the current oil price weakness, all parties remain
committed to the finalisation of the Navitas farm-out agreement
with completion subject to agreed consents and approvals
-- In response to recent external events, cost reduction process
initiated to scale-back headcount and activity at Sea Lion pending
an improvement in the external macro environment
-- Outcome in relation to Ombrina Mare arbitration expected in
the coming months - seeking significant monetary damages
Keith Lough, Chairman of Rockhopper, commented:
" In the first quarter of 2020, equity markets and oil prices
have fallen significantly due to a combination of fears over the
spread of COVID-19 and the impact this will have on the global
balance of supply and demand for oil coupled with the recent
inability of OPEC and Russia to agree on supply cuts.
Recent initiatives by the Company, including the sale of
Rockhopper Egypt Pty Limited together with the legally binding
Heads of Terms signed with Premier Oil place the Company in a
relatively stable financial position with cash at 1 April 2020 of
approximately US$22 million and with limited exposure to future
development costs at Sea Lion.
We look forward to the finalisation and ultimate completion of
the farm-out to Navitas which we believe validates the world-class
nature of the Sea Lion asset and enhances, once the oil price and
capital markets recover, the prospects of securing the requisite
senior debt to allow sanction.
With a supportive interim ruling on jurisdiction, we are
positive on the prospects of recovering significant monetary
damages through our international arbitration against the Republic
of Italy in respect of Ombrina Mare and look forward to an outcome
in the coming months."
* Excluding licence fees, taxes and project wind down costs
Enquiries:
Rockhopper Exploration plc
Sam Moody - Chief Executive
Stewart MacDonald - Chief Financial Officer
Tel. +44 (0) 20 7390 0234 (via Vigo Communications)
Canaccord Genuity Limited (NOMAD and Joint Broker)
Henry Fitzgerald-O'Connor/James Asensio
Tel. +44 (0) 20 7523 8000
Peel Hunt LLP (Joint Broker)
Richard Crichton
Tel. +44 (0) 20 7418 8900
Vigo Communications
Patrick d'Ancona/Ben Simons
Tel. +44 (0) 20 7390 0234
Note regarding Rockhopper oil and gas disclosure
This announcement has been approved by Rockhopper's geological
staff which includes Lucy Williams (Geoscience Manager) who is a
Chartered Geologist, a Fellow of the Geological Society of London
and a Member of both the Petroleum Exploration Society of Great
Britain and American Association of Petroleum Geologists, with over
25 years of experience in petroleum exploration and management and
who is the qualified person as defined in the Guidance Note for
Mining, Oil and Gas Companies issued by the London Stock Exchange
in respect of AIM companies.
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulations (EU) No. 596/2014 ("MAR").
CHAIRMAN AND CHIEF EXECUTIVE OFFICER'S REPORT
Rockhopper's strategy is to build a well-funded, full-cycle,
exploration-led E&P company.
In the first quarter of 2020, equity markets and oil prices have
fallen significantly due to a combination of fears over the spread
of COVID-19 and the impact this will have on the global balance of
supply and demand for oil coupled with the recent inability of OPEC
and Russia to agree on supply cuts. Recent initiatives by the
Company, including the sale of Rockhopper Egypt together with the
legally binding Heads of Terms signed with Premier Oil plc
("Premier") place the Company in a relatively stable financial
position to weather this current period of uncertainty.
The Company was delighted to announce the signing of a Heads of
Terms with Navitas Petroleum LP ("Navitas") in January 2020 as the
Board believes the introduction of Navitas into the Sea Lion joint
venture validates the attractive nature of the asset, enhances the
prospects of securing the requisite senior debt to allow sanction
(once oil prices and capital markets recover) and, at the same
time, through the revised commercial arrangements ensures that
Rockhopper is fully funded for all Sea Lion development costs
(excluding licence fees, taxes and project wind down costs) from 1
January 2020 to project completion (estimated 9 - 12 months after
first oil).
Our interest in Abu Sennan has performed very well for us both
operationally and financially. However, despite our efforts to
acquire and grow a more material position in Egypt, we were unable
to do so on attractive terms given the competitive market dynamics
and significant buyer interest for assets. As a result, we took the
opportunity to instead divest, crystallise an attractive return on
investment and at the same time strengthen the Company's balance
sheet.
Sea Lion Phase 1 development - project validated and de-risked
through introduction of Navitas as joint venture partner
The introduction of Navitas represents an important milestone
both for the Sea Lion project and Rockhopper itself. Highlights of
the proposed transaction include:
-- Working interests aligned across the Sea Lion licences PL032,
PL004b and PL004c: Premier 40% (Operator); Rockhopper 30%; Navitas
30%
-- Adds additional strength to the Sea Lion joint venture which
Rockhopper believes will increase the likelihood of a successful
senior debt project financing for the Sea Lion Phase 1 development
once markets recover
-- Brings additional sources of senior debt financing to the project
-- Rockhopper's costs for the Phase 1 development (not met by
external debt and save for licence fees, taxes and project wind
down costs) to be met by a combination of carry and loans from
Premier and Navitas from 1 January 2020 to Phase 1 Project
Completion (estimated to occur 9-12 months after first oil)
-- Greater alignment and simplified commercial arrangements across the joint venture
-- Rockhopper maintains material share of Phase 1 project NPV, a
significant 30% interest in Phase 2 Sea Lion development, and
additional upside from the Isobel-Elaine area (PL004a)
-- Contingent consideration payable to Rockhopper by Premier and
Navitas of up to US$48 million related to future phases of
development in the North Falkland Basin
Good progress has been made during the first quarter of 2020 to
convert the Heads of Terms into fully documented agreements.
Despite the current oil price weakness, all parties remain
committed to the finalisation of the Navitas farm-out agreement
with completion subject to agreed consents and approvals.
Following the FEED and optimisation processes which concluded
during 2019, the resources to be developed in Phase 1 have
increased from 220 to 250 mmbbls (gross) with associated capex to
first oil estimated at approximately US$1.8 billion (gross). A
total of 29 wells are now expected to be drilled in the Phase 1
project with 12 wells drilled pre-first oil, supporting ramp-up to
plateau production rates of approximately 85,000 bopd. This
optimisation and value engineering has resulted in a substantially
de-risked project with robust economics, which is critical as we
progress the process to secure senior debt funding for the
project.
From an operational standpoint, the overall strategy to develop
the North Falkland Basin remains a phased development solution,
starting with Sea Lion Phase 1, which will commercialise through a
conventional FPSO development scheme 250 mmbbls (gross) of oil
resources in the northern part of PL032 (in which Rockhopper has a
30% working interest post farm-out to Navitas). A subsequent Phase
2 development will commercialise the remaining approximately 280
mmbbls (gross) resources in both PL032 and the satellite
accumulations in the north of PL004 (in which Rockhopper has a 30%
working interest post farm-out to Navitas). In addition, there is a
further 200 mmbbls (gross) of low risk, near field exploration
potential which could be included in either the Phase 1 or Phase 2
developments. Phase 3 will entail the development of the
Isobel/Elaine fan complex in the south of PL004, subject to further
appraisal drilling.
The Sea Lion financing plan comprises funding elements including
senior project finance debt (likely involving a combination of
export credit guarantees and loans as well as commercial debt),
vendor financing from contractors and equity from the joint
venture.
During 2019, the joint venture engaged with a wide range of
stakeholders to obtain the support required to secure senior debt,
which represents the core of the project's funding strategy. In
this regard, a Preliminary Information Memorandum and comprehensive
set of independent expert reports, which formed the basis of a
financing application for the senior debt component of the project
financing, were submitted to potential senior lenders including
export credit agencies in July 2019. It is clear that the UK
General Election in December 2019 and the subsequent Cabinet
reshuffle in February 2020 have had the impact of delaying the
decision-making process. While engagement with senior debt
providers has been constructive, feedback received highlights the
need for Premier to complete its announced corporate actions and
extension of its credit facilities to provide certainty over its
medium- to long-term funding position before financial guarantees
for the project can be secured. Recovery of the oil price is
clearly also critical to securing such funding.
On the vendor financing side, the project contractors have
undertaken an extensive due diligence and assurance process and
remain supportive of the project and its financing plan.
Rockhopper's share of the joint venture equity is to be funded
through an interest free loan from Premier and Navitas.
Constructive and supportive engagement with the Falkland Islands
Government ("FIG") continues on a range of environmental, fiscal
and regulatory matters with a view to obtaining the consents and
agreements necessary to reach a final investment decision. Formal
approval of the Environmental Impact Statement ("EIS") and Field
Development Plan ("FDP") are expected at sanction. As part of this
engagement, the Sea Lion Discovery Area licence, which was due to
expire on 15 April 2020, has been extended to 1 May 2021 with no
additional licence commitments.
Greater Mediterranean - opportunistic disposal of Abu Sennan to
generate attractive return on investment and strengthen the balance
sheet
Our Greater Mediterranean portfolio continued to perform well in
2019 with production averaging 1.3 kboepd net to Rockhopper.
In March 2019, Rockhopper announced the commencement of a four
well drilling campaign on the Abu Sennan concession with activity
focused on the continued development of the Al Jahraa field as well
as an exploration / appraisal well at ASH.
In July 2019, Rockhopper announced the disposal of Rockhopper
Egypt Pty Limited to United Oil & Gas plc ("United") for
consideration of US$16.0 million. The key asset of Rockhopper Egypt
Pty Limited is a 22% working interest in the Abu Sennan concession.
Having acquired the interest in Abu Sennan for US$11.9 million in
August 2016 and agreeing to sell for US$16.0 million, plus
benefitting from free cash flow during our period of ownership, the
Board concluded that it was a suitable time to dispose.
Corporate matters
Rockhopper commenced international arbitration proceedings
against the Republic of Italy in relation to the Ombrina Mare field
in March 2017. The hearing took place in early February 2019 in
Paris. In June 2019, the Tribunal rejected Italy's request for the
suspension of the arbitration and Italy's related intra-EU
jurisdictional objections. Post-hearing briefings were submitted in
October and November 2019 with a final outcome anticipated in the
coming months.
Rockhopper continues to believe it has strong prospects of
recovering very significant monetary damages - on the basis of lost
profits - as a result of the Republic of Italy's breaches of the
Energy Charter Treaty. All costs associated with the arbitration
are funded on a non-recourse ("no win - no fee") basis from a
specialist arbitration funder.
As part of the Board's long-term succession planning, and having
served on the Board for nearly nine years, the past three as
Non-Executive Chairman, David McManus retired as a Director at the
Company's AGM in May 2019. Keith Lough, previously Senior
Independent Director, succeeded David as Non-Executive Chairman. In
addition, and as previously announced, Tim Bushell will step down
from the Board effective 30 April 2020. We thank David and Tim for
their significant contribution and wish them every success in the
future.
The Company continues to actively manage its corporate costs and
has reduced G&A by circa 50% over the last 5 years. In these
particularly difficult times, a further review of corporate
overheads has been initiated with additional cost savings of circa
30% of G&A identified. Implementation of such cost reduction
initiatives has already commenced.
Environmental, Social and Governance ("ESG")
ESG continues to be a key focus for Rockhopper and we are
committed to acting as a socially responsible contributor to the
global energy mix.
For the Sea Lion development, Rockhopper is committed to net
zero in respect of scope 1 and 2 emissions from the project. Such a
commitment is expected to be achieved through a combination of
reduced emissions from the use of best-in-class technologies and
investment in carbon-offsetting projects both in the Falklands and
the UK.
In June 2019, FIG approved the establishment of an environment
fund to receive and administer future off-setting payments from the
Sea Lion joint venture and distribute those funds for activities
aimed at ensuring a positive environmental legacy.
Impact on the Company of COVID-19
The immediate human and economic impact of COVID-19 has been
very significant. At this point, the longer-term implications are
unclear and will depend on a number of factors which will develop
in the coming months.
In part related to COVID-19, the Brent oil price has fallen
dramatically during Q1 2020 hitting a low of c.$25 per barrel in
late March. This has resulted in a material fall in global equities
(including the Company's share price) and will bring balance sheet
strength, liquidity and cost reduction measures to the fore. In the
upstream oil & gas sector, companies have announced very
material and widespread cost reductions through deferment or
eliminations of non-essential capital and operating costs. Premier,
the operator of the Sea Lion project has made similar public
statements. As a consequence, a process to reduce headcount levels
and activity on the Sea Lion project has commenced with a smaller
team continuing to progress mainly regulatory, fiscal and financial
matters, pending a recovery in the external macro environment. A
delay to the Final Investment Decision on the Sea Lion project is
inevitable until the oil price and capital markets recover.
With the Company's modest presence in Italy already having been
substantially scaled back, the Company's day to day operations
remain unaffected by the spread of COVID-19 with necessary
contingency measures in place.
In these unprecedented times, our priority remains the health
and wellbeing of our employees and wider stakeholders. At the time
of writing, we are glad to report all our employees and their
families are safe and well.
Outlook
Notwithstanding the current market volatility, Sea Lion remains
a world-class oil resource with the potential to be
transformational for Rockhopper and the Falklands as a whole.
We look forward to the finalisation and ultimate completion of
the proposed farm-out to Navitas which we believe validates the
world-class nature of the asset, enhances the prospects of securing
the requisite senior debt to allow sanction and at the same time,
through the revised commercial arrangements, ensures that
Rockhopper is fully funded for all Sea Lion development costs
(excluding licence fees, taxes and project wind down costs) from 1
January 2020 to project completion (estimated 9 - 12 months after
first oil).
With a supportive interim ruling on jurisdiction, we remain
positive on the prospects of recovering significant monetary
damages through our international arbitration against the Republic
of Italy in respect of Ombrina Mare and look forward to an outcome
in the coming months.
The Company continues to believe that the creation of
shareholder value will be maximised through a strategy to build a
well-funded, full-cycle, exploration led-E&P company. As such,
we maintain ambitions to materially expand our production base
thereby generating additional free cash flow to strengthen our
balance sheet and invest in future exploration or other
value-accretive growth opportunities both in the Falklands and
elsewhere.
Keith Lough Samuel Moody
Non-Executive Chairman Chief Executive
FINANCIAL REVIEW
OVERVIEW
From a finance perspective, the most significant events in the
year include:
-- Heads of Terms signed with Navitas to farm-in for a 30 per
cent interest in the Sea Lion project (signed January 2020)
-- Progression of the Sea Lion project financing with the
submission of a Preliminary Information Memorandum to potential
senior lenders
-- Disposal of Rockhopper Egypt Pty Limited to United for
consideration of US$16.0 million (completed February 2020)
Following the disposal of Rockhopper Egypt Pty Limited, the
Company has cash and term deposits of US$21.9 million as at 1 April
2020 (unaudited).
The revised funding arrangements ensure that Rockhopper is
funded for all pre-sanction costs related to Sea Lion (other than
licence fees, taxes and project wind down costs). As such, the
Company believes the above events materially strengthen the
Company's financial position in the short and medium term and
significantly enhance the prospects for a successful project
financing for the Sea Lion project once markets recover.
RESULTS SUMMARY
US$m (unless otherwise 2019 2018
specified)
Working interest production
(kboepd) 1.3 1.1
Realised oil price (US$/bbl) 60.8 68.4
Revenue 10.3 10.6
Cash operating costs 4.6 4.6
Recurring administrative
costs ("G&A") 5.3 5.3
Loss after tax (20.6) (7.1)
Cash (out)/in flow from
operating activities (0.2) 5.4
Capital expenditure 23.9 15.8
Cash and term deposits 17.2 40.4
RESULTS FOR THE YEAR
For the period ended 31 December 2019, the Group reported
revenues of US$10.3 million and loss after tax of US$20.6 million.
The loss after tax primarily arose as a result of non-recurring
non-cash impairments associated with the Group's Greater
Mediterranean portfolio.
REVENUE
The Group's revenues of US$10.3 million (2018: $10.6 million)
during the period relate entirely to the sale of oil and natural
gas in the Greater Mediterranean (Egypt and Italy). The reduction
in revenues from the comparable period reflects a decrease in
realised oil and gas prices, partially offset by an increase in
production.
Working interest production averaged approximately 1,284 boepd
during 2019, an increase over the comparable period (2018: 1,064
boepd) primarily relating to the ASH-2 well within the Abu Sennan
concession in Egypt.
During the period, the Group's gas production in Italy was sold
under short-term contract with an average realised price of EUR0.17
per scm (2018: EUR0.25 per scm), equivalent to US$5.3 per mscf. Gas
is sold at a price linked to the Italian "PSV" (Virtual Exchange
Point) gas marker price.
In Egypt, all of the Group's oil and gas production was sold to
Egypt General Petroleum Company ("EGPC"). The average realised
price for oil was US$60.8 per barrel (2018: $68.4 per barrel), a
small discount to the average Brent price over the same period. Gas
was sold at a fixed price of US$2.65 per mmbtu.
OPERATING COSTS
Cash operating costs, excluding depreciation and impairment
charges, amounted to US$4.6 million (2018: US$4.6 million).
Underlying cash operating costs were flat on 2018 levels despite
increased production in the period. Cash operating costs on a per
barrel of oil equivalent basis improved on the comparative period
and remain attractive at US$9.9 per boe.
The Group continues to manage corporate costs having achieved an
approximate 30% reduction in general and administrative ("G&A")
cost, excluding non-recurring expenses related to restructuring and
acquisitions, over the last three years. G&A costs remained
flat in 2019 amounting to US$5.3 million, compared to the
corresponding period last year (2018: US$5.3 million). In light of
the sharp reduction in oil prices experienced in Q1 2020,
initiatives to further reduce corporate costs have been explored
and are in the process of being implemented.
Following the decision in February 2016 by the Ministry of
Economic Development not to award the Group a Production Concession
covering the Ombrina Mare field, in March 2017 the Group commenced
international arbitration proceedings against the Republic of
Italy. All costs associated with the arbitration are funded on a
non-recourse ("no win - no fee") basis from a specialist
arbitration funder.
CASH MOVEMENTS AND CAPITAL EXPITURE
At 31 December 2019, the Company had cash and term deposits of
US$17.2 million (31 December 2018: US$40.4 million) and no debt.
Following the disposal of Rockhopper Egypt Pty Limited, the Company
has cash and term deposits of US$21.9 million as at 1 April 2020
(unaudited).
Cash and term deposit movements during the period:
US$m
----------------------------------------- -------
Opening cash balance (31 December 2018) 40.4
Revenues 10.3
Cost of sales (4.6)
Falkland Islands (19.3)
Greater Mediterranean (4.6)
Admin and miscellaneous (5.0)
Closing cash balance (31 December 2019) 17.2
----------------------------------------- -------
Falkland Islands spend of US$19.3 million relates primarily to
pre-development activities on Sea Lion. Following signature of a
Heads of Terms in January 2020, Rockhopper's share of pre-sanction
costs from 1 January 2020 (other than licence fees, taxes and
project wind down costs) are funded by Premier and/or Navitas.
During the first quarter of 2020, the Company paid US$3.9 million
of Sea Lion costs related to the period prior to 1 January 2020.
Whilst timing remains unclear, further such costs, estimated at up
to US$10.0 million and included in the balance sheet under current
liabilities, could become payable in the next 12 months.
Spend in the Greater Mediterranean largely relates to the
Egyptian drilling campaign at Abu Sennan. Following completion of
the disposal of Rockhopper Egypt Pty Limited, annual capital
expenditure in the Greater Mediterranean is expected to be
limited.
Admin and miscellaneous includes G&A, foreign exchange and
movements in working capital during the period.
MERGERS, ACQUISITIONS AND DISPOSALS
On 23 July 2019, Rockhopper announced the disposal of Rockhopper
Egypt Pty Limited which holds a 22% working interest in the Abu
Sennan concession to United for consideration of US$16.0
million.
The consideration payable to Rockhopper under the transaction
comprised:
-- cash of $11.5 million; and
-- the issue of 114,503,817 Consideration Shares (at an issue
price of 3 pence) representing approximately 18.5% of United's
enlarged ordinary share capital.
Consideration Shares held by Rockhopper in United are subject to
certain lock-up and orderly market disposal provisions for a period
of up to 12 months from completion.
The transaction was subject to satisfaction of customary
conditions precedent including United shareholder approval,
completion of the readmission of United to trading on AIM and
receipt of Egyptian government approvals. The transaction completed
on 28 February 2020.
Following impairments of US$2.0 million to reflect the value of
consideration received, assets and liabilities associated with the
transaction, as at 31 December 2019, were US$17.9 million and
US$2.0 million respectively.
TAXATION
On 8 April 2015, the Group agreed binding documentation ("Tax
Settlement Deed") with the Falkland Islands Government in relation
to the tax arising from the Group's farm-out to Premier.
The Tax Settlement Deed confirms the quantum and deferment of
the outstanding tax liability and is made under Extra Statutory
Concession 16.
As a result of the Tax Settlement Deed, the outstanding tax
liability was confirmed at GBP64.4 million and is 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.
During the first half of 2017, as a result of the Group
receiving the full Exploration Carry from Premier during the
2015/16 drilling campaign, the Falkland Islands Commissioner of
Taxation agreed to reduce the tax liability in line with the terms
of the Tax Settlement Deed. As such, the tax liability has been
revised downwards to GBP59.6 million. The outstanding tax liability
is classified as non-current and is discounted to a period-end
value of US$39.2 million.
Full details of the provisions and undertakings of the Tax
Settlement Deed are disclosed in note 23 of these consolidated
financial statements and these include "creditor protection"
provisions including undertakings not to declare dividends or make
distributions while the tax liability remains outstanding (in whole
or in part).
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, with surplus cash held on term deposits with a
number of major financial institutions.
Following the completion of the disposal of Rockhopper Egypt Pty
Limited, the Group has cash resources of US$21.9 million (as at 1
April 2020, unaudited) and generates limited revenue and cash flow
from the sale of oil or gas but continues to fund the Group's
reduced G&A costs.
Historically, the Group's largest annual expenditure has related
to pre-sanction costs associated with the Sea Lion development.
However, following signature of a legally binding Heads of Terms in
January 2020, Rockhopper's share of all Sea Lion pre-sanction costs
from 1 January 2020 (other than licence fees, taxes and project
wind down costs) are funded by Premier and/or Navitas.
Management's base case forecast assumes a final investment
decision on the Sea Lion development during 2021, subject to
securing requisite financing. With the Group's costs funded by
Premier and/or Navitas during this period.
Management has also considered a downside scenario in which the
project does not achieve sanction which could be due to a number of
factors including funding not being achieved, or Premier deciding
to withdraw from the Sea Lion Development which could also
ultimately result in relinquishment of the acreage. In this
scenario the Sea Lion project would need to be wound down including
the decommissioning of the assets in the Falklands and the Group is
liable for its share of these project wind down costs with no
funding support from Premier and/or Navitas.
Under the base case forecast, the Group will have sufficient
financial headroom to meet forecast cash requirements for the 12
months from the date of approval of these consolidated financial
statements. However, in the downside scenario, in the absence of
any mitigating actions, the Group may have insufficient funds to
meet its forecast cash requirements. Potential mitigating actions,
some of which are outside the Group's control, could include
collection of arbitration award proceeds, deferral of expenditure
or raising additional equity.
Accordingly, after making enquiries and considering the risks
described above, the Directors have assessed that the cash balance
held provides the Group with adequate headroom over forecasted
expenditure for the following 12 months - as a result, the
Directors have adopted the going concern basis of accounting in
preparing these consolidated financial statements. Nonetheless, for
the avoidance of doubt, in the downside scenario run and in the
absence of potential mitigating actions, a material uncertainty
exists that may cast significant doubt on the Group's ability to
continue as a going concern. The consolidated financial statements
do not include any adjustments that may be necessary if the Group
were not a going concern.
PRINCIPAL RISK AND UNCERTAINTIES
A detailed review of the potential risks and uncertainties which
could impact the Company are outlined elsewhere in this Strategic
Report. The Company identified its principal risks at the end of
2019 as being:
-- sustained low oil price;
-- joint venture partner alignment and funding issues, both of
which could ultimately create a delay to the Sea Lion Final
Investment Decision; and
-- failure of the joint venture partners to secure the requisite
funding to allow a Sea Lion Final Investment Decision.
During 2019, the environmental impact of oil and gas extraction
(e.g. Climate Change) has been added to the risk register,
reflecting the increased focus on ESG issues which could have an
adverse impact on investor and lender sentiment towards the Company
and the Sea Lion project.
Stewart MacDonald
Chief Financial
Officer
CONSOLIDATED income statement
for the YEAR ended 31 DeCEMBER 2019
Year Year
ended ended
31 Dec 19 31 Dec 18
Notes $'000 $'000
---------------------------------------------------- ------ ----------- -----------
Revenue 10,328 10,580
---------------------------------------------------- ------ ----------- -----------
Other cost of sales (4,647) (4,563)
Depreciation and impairment of oil and gas assets (5,738) (3,968)
---------------------------------------------------- ------ ----------- -----------
Total cost of sales 4 (10,385) (8,531)
---------------------------------------------------- ------ ----------- -----------
Gross (loss)/profit (57) 2,049
Exploration and evaluation expenses 5 (1,974) (5,014)
Impairment of goodwill (10,057) -
---------------------------------------------------- ------ ----------- -----------
Costs in relation to acquisition and disposals (649) (58)
Recurring administrative costs (5,293) (5,328)
---------------------------------------------------- ------ ----------- -----------
Total administrative expenses 7 (5,942) (5,386)
Charge for share based payments 10 (1,307) (1,478)
Other income - 943
Foreign exchange movement 11 (1,627) 1,208
Results from operating activities and other income (20,964) (7,678)
Finance income 12 624 825
Finance expense 12 (291) (253)
---------------------------------------------------- ------ ----------- -----------
Loss before tax (20,631) (7,106)
Tax 13 - (25)
---------------------------------------------------- ------ ----------- -----------
LOSS FOR THE YEAR ATTRIBUTABLE TO THE
EQUITY SHAREHOLDERS OF THE PARENT COMPANY (20,631) (7,131)
---------------------------------------------------- ------ ----------- -----------
Loss per share: cents
Basic 14 (4.54) (1.57)
Diluted 14 (4.54) (1.57)
---------------------------------------------------- ------ ----------- -----------
All operating income and operating gains and losses relate to
continuing activities.
CONSOLIDATED statement of comprehensive income
for the YEAR ended 31 DECEMBER 2019
Year Year
ended ended
31 Dec 31 Dec
19 18
$'000 $'000
------------------------------------------------ --------- --------
Loss for the year (20,631) (7,131)
Exchange differences on translation of foreign
operations 70 371
------------------------------------------------ --------- --------
TOTAL COMPREHENSIVE LOSS FOR THE YEAR (20,561) (6,760)
------------------------------------------------ --------- --------
The notes form an integral part of these financial
statements.
CONSOLIDATED balance sheet
as at 31 DECEMBER 2019
31 Dec 31 Dec
2019 2018
Notes $'000 $'000
--------------------------------------------- ------ -------- ----------
NON CURRENT ASSETS
Exploration and evaluation assets 15 465,820 447,035
Property, plant and equipment 16 1,814 11,836
Right-of-use assets 1.4 1,255 -
Finance lease receivable 1.4 628 -
Goodwill 17 - 10,308
CURRENT ASSETS
Inventories 1,463 1,779
Other receivables 18 3,501 9,510
Finance lease receivable 1.4 146 -
Restricted cash 19 467 568
Term deposits 20 - 30,000
Cash and cash equivalents 17,223 10,426
Assets held for sale 21 17,925 -
--------------------------------------------- ------ -------- ----------
TOTAL ASSETS 510,242 521,462
--------------------------------------------- ------ -------- ----------
CURRENT LIABILITIES
Other payables 22 17,943 15,148
Lease liability 1.4 426 -
Liabilities directly associated with assets
held for sale 21 2,000 -
NON-CURRENT LIABILITIES
Lease liability 1.4 1,735
Tax payable 23 39,167 37,860
Provisions 24 13,636 13,888
Deferred tax liability 25 39,221 39,223
TOTAL LIABILITIES 114,128 106,119
--------------------------------------------- ------ -------- ----------
EQUITY
Share capital 26 7,212 7,205
Share premium 27 3,547 3,422
Share based remuneration 27 4,871 5,103
Own shares held in trust 27 (3,371) (3,369)
Merger reserve 27 74,332 74,332
Foreign currency translation reserve 27 (9,678) (9,748)
Special reserve 27 433,766 456,680
(114 ( 118,282
Retained losses 27 ,565 ) )
--------------------------------------------- ------ -------- ----------
ATTRIBUTABLE TO THE EQUITY SHAREHOLDERS OF
THE COMPANY 396,114 415,343
--------------------------------------------- ------ -------- ----------
TOTAL LIABILITIES AND EQUITY 510,242 521,462
--------------------------------------------- ------ -------- ----------
These financial statements were approved by the directors and
authorised for issue on 8 April 2020 and are signed on their behalf
by:
STEWART MACDONALD
CHIEF FINANCIAL
OFFICER
The notes form an integral part of these financial
statements.
CONSOLIDATED statement of changes in equity
for the YEAR ended 31 DECEMBER 2019
Own Foreign
shares currency
Share Share Share based held Merger translation Special Retained Total
capital Premium remuneration in reserve reserve reserve losses Equity
trust
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
--------------- -------- -------- ------------- -------- -------- ------------ --------- ----------- -----------
Balance
at 31
December
2017 7,200 3,282 5,609 (3,383) 74,332 (10,119) 460,077 (116,400) 420,598
Total
comprehensive
loss for
the year - - - - - 371 - (7,131) (6,760)
Share based
payments - - 1,478 - - - - - 1,478
Share issues
in relation
to SIP 5 140 - (118) - - - - 27
Other
transfers - - (1,984) 132 - - (3,397) 5,249 -
Balance
at 31
December
2018 7,205 3,422 5,103 (3,369) 74,332 (9,748) 456,680 (118,282) 415,343
--------------- -------- -------- ------------- -------- -------- ------------ --------- ----------- -----------
Total
comprehensive
loss for
the year - - - - - 70 - (20,631) (20,561)
Share based
payments
(see note
10) - - 1,307 - - - - - 1,307
Share issues
in relation
to SIP 7 125 (105) (2) - - - - 25
Other
transfers - - (1,434) - - - (22,914) 24,348 -
Balance
at 31
December
2019 7,212 3,547 4,871 (3,371) 74,332 (9,678) 433,766 (114,565) 396,114
--------------- -------- -------- ------------- -------- -------- ------------ --------- ----------- -----------
See note 27 for a description of each of the reserves of the
Group.
CONSOLIDATED statement OF CASHFLOWS
for the YEAR ended 31 DECEMBER 2019
Year Year
ended ended
31 Dec 31 Dec
19 18
Notes $'000 $'000
---------------------------------------------------- ------ --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss before tax (20,631) (7,106)
Adjustments to reconcile net losses to cash:
1.4 &
Depreciation 16 4,544 4,111
Share based payment charge 10 1,307 1,478
Impairment of oil and gas assets 16 1,600 -
Impairment of exploration and evaluation assets 15 350 3,884
Impairment of goodwill 17 10,057 -
Finance expense 291 253
Finance income (624) (825)
Foreign exchange 11 1,221 (2,256)
---------------------------------------------------- ------ --------- ---------
Operating cash flows before movements in working
capital (1,885) (461)
Changes in:
Inventories 214 (23)
Other receivables 3,259 7029
Payables (1,623) (103)
Movement on other provisions (189) (1,012)
---------------------------------------------------- ------ --------- ---------
Cash (utilised by)/from operating activities (224) 5,430
---------------------------------------------------- ------ --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capitalised expenditure on exploration and
evaluation assets (20,152) (13,940)
Purchase of property, plant and equipment (3,743) (1,844)
Acquisition of Beach Egypt - (658)
Interest 1,020 750
Investing cash flows before movements in capital
balances (22,875) (15,692)
Changes in:
Restricted cash 101 (28)
Term deposits 30,000 -
Cash flow from investing activities 7,226 (15,720)
---------------------------------------------------- ------ --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Share incentive plan 25 27
Lease liability payments (259) -
Finance expense (13) (9)
---------------------------------------------------- ------ --------- ---------
Cash flow from financing activities (247) 18
---------------------------------------------------- ------ --------- ---------
Currency translation differences relating to
cash and cash equivalents 42 (31)
Net cash flow 6,755 (10,272)
Cash and cash equivalents brought forward 10,426 20,729
---------------------------------------------------- ------ --------- ---------
CASH AND CASH EQUIVALENTS CARRIED FORWARD 17,223 10,426
---------------------------------------------------- ------ --------- ---------
Notes to the CONSOLIDATED financial statements
for the Year ended 31 DECEMBER 2019
1 ACCOUNTNG 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 2014, it
diversified its portfolio into the Greater Mediterranean through
the acquisition of an exploration and production company with
operations principally based in Italy. During 2016 the Group
augmented this through the acquisition of exploration and
production assets in Egypt which were subsequently divested in
2020. The registered office of the Company is 4th Floor, 5 Welbeck
Street, London, W1G 9YQ.
1.2 STATEMENT OF COMPLIANCE
The consolidated financial statements are prepared in compliance
with International Financial Reporting Standards (IFRS) as adopted
by the European Union and applied in accordance with the provisions
of the Companies Act 2006. The consolidated financial statements
were approved for issue by the board of directors on 8 April 2020
and are subject to approval at the Annual General Meeting of
shareholders which will take place in June 2020.
1.3 BASIS OF PREPARATION
The results upon which these consolidated 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 as set out in the accounting
policies below.
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").
All values are rounded to the nearest thousand dollars ($'000)
or thousand pounds (GBP'000), except when otherwise indicated.
1.4 CHANGE IN ACCOUNTING POLICY
Changes in accounting standards
Adoption of IFRS 16
In the current year new and revised standards, amendments and
interpretations were effective and are applicable to the
consolidated financial statements of the Group. Furthermore, IFRIC
23 "Uncertainty over Income Tax Treatments" was adopted on 1
January 2019. These did not affect amounts reported in these
consolidated financial statements other than the adoption of IFRS16
with effect from 1 January 2019. The Group applied the modified
retrospective approach to adoption, measuring right-of-use assets
at an amount based on their respective lease liability on adoption,
with the cumulative effect of adopting the standard recognised in
the balance sheet on 1 January 2019.
Adjustments on adoption of IFRS 16
On adoption of IFRS 16, the Group recognised lease liabilities
and receivables in relation to leases which had previously been
classified as 'operating leases' under the principles of IAS 17
Leases. These leases were measured at the present value of the
remaining lease payments and discounted using an incremental
borrowing rate representing the rate of interest Rockhopper would
have to pay to borrow over a similar term, and with a similar
security, the funds necessary to obtain an asset of similar value
to the right-of-use asset in a similar economic environment. The
incremental borrowing rate applied to the leases as of 1 January
2019 was 6%. The resulting lease liability and receivable as of 1
January 2019 was determined as follows:
1 January
2019
$'000
------------------------------------------------------ ----------
Operating lease commitments disclosed at 31 December
2018 855
Add: finance lease liabilities recognised at 31
December 2018 2,117
Less: effects of discounting (522)
------------------------------------------------------ ----------
Lease liability recognised at 1 January 2019 2,450
The associated right-of-use assets were measured at the amount
equal to the lease, therefore there was no adjustment to retained
earnings on adoption.
The effect of adoption of IFRS 16 is as follows:
Right-of-use Lease receivable Lease liabilities
assets
$'000 $'000 $'000
-------------------------------- ------------- ----------------- ------------------
As at 1 January 2019 1,555 912 (2,450)
Depreciation expense (300) - -
Interest income/expense - 55 (147)
Receipts/payments - (193) 436
-------------------------------- ------------- ----------------- ------------------
Balance as at 31 December 2019 1,255 774 (2,161)
Of which are:
Current - 146 (426)
Non-current 1,255 628 (1,735)
-------------------------------- ------------- ----------------- ------------------
1,255 774 (2,161)
-------------------------------- ------------- ----------------- ------------------
Practical expedients applied
In applying IFRS 16 for the first time, the Group used the
following practical expedients permitted by the standard:
-- Reliance on previous assessments on whether leases are onerous;
-- The exclusion of initial direct costs for the measurement of
the right-of-use asset at the date of the initial application,
and;
-- The use of hindsight in determining the lease term where the
contract contains options to extend or terminate the lease
The Group's leasing activities and how these are accounted
for
The Group lets and sub-lets various offices typically for
periods of 5 years but may have extension options. Until the 2018
financial year, leases of property were classified as operating
leases. Payments and receipts made under operating leases (net of
any incentives received from the lessor) were charged to profit and
loss on a straight-line basis over the period of the lease.
From 1 January 2019, leases are recognised as a right-of-use
asset and a corresponding liability and receivable at the date at
which the leased asset is available for use by the Group. Each
lease payment is allocated between the liability and finance cost,
while the corresponding receipt associated with the sub-lease are
allocated between the receivable and finance income. The finance
cost and income are charged to profit and loss over the lease
period. The right-of-use asset is depreciated over the lease term
on a straight-line basis.
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.
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, with surplus cash held on term deposits with a
number of major financial institutions.
Following the completion of the disposal of Rockhopper Egypt Pty
Limited, the Group has cash resources of US$21.9 million (as at 1
April 2020, unaudited) and generates limited revenue and cash flow
from the sale of oil or gas but continues to fund the Group's
reduced G&A costs.
Historically, the Group's largest annual expenditure has related
to pre-sanction costs associated with the Sea Lion development.
However, following signature of a legally binding Heads of Terms in
January 2020, Rockhopper's share of all Sea Lion pre-sanction costs
from 1 January 2020 (other than licence fees, taxes and project
wind down costs) are funded by Premier and/or Navitas.
Management's base case forecast assumes a final investment
decision on the Sea Lion development during 2021, subject to
securing requisite financing. With the Group's costs funded by
Premier and/or Navitas during this period.
Management has also considered a downside scenario in which the
project does not achieve sanction which could be due to a number of
factors including funding not being achieved, or Premier deciding
to withdraw from the Sea Lion Development which could also
ultimately result in relinquishment of the acreage. In this
scenario the Sea Lion project would need to be wound down including
the decommissioning of the assets in the Falklands and the Group is
liable for its share of these project wind down costs with no
funding support from Premier and/or Navitas.
Under the base case forecast, the Group will have sufficient
financial headroom to meet forecast cash requirements for the 12
months from the date of approval of these consolidated financial
statements. However, in the downside scenario, in the absence of
any mitigating actions, the Group may have insufficient funds to
meet its forecast cash requirements. Potential mitigating actions,
some of which are outside the Group's control, could include
collection of arbitration award proceeds, deferral of expenditure
or raising additional equity.
Accordingly, after making enquiries and considering the risks
described above, the Directors have assessed that the cash balance
held provides the Group with adequate headroom over forecasted
expenditure for the following 12 months - as a result, the
Directors have adopted the going concern basis of accounting in
preparing these consolidated financial statements. Nonetheless, for
the avoidance of doubt, in the downside scenario run and in the
absence of potential mitigating actions, a material uncertainty
exists that may cast significant doubt on the Group's ability to
continue as a going concern. The consolidated financial statements
do not include any adjustments that may be necessary if the Group
were not 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 judgment based on information
and data that may change in future periods.
Since these policies involve the use of assumptions and
subjective judgments 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 with the exception of
financial assets, which are held at fair value.
The significant accounting policies adopted in the preparation
of the results are set out below.
(b) Basis of consolidation
The consolidated financial statements include the results of
Rockhopper Exploration plc and its subsidiary undertakings to the
balance sheet date. Where subsidiaries follow differing accounting
policies from those of the Group, those accounting policies have
been adjusted to align with those of the Group. Inter-company
balances and transactions between Group companies are eliminated on
consolidation, though foreign exchange differences arising on
inter-company balances between subsidiaries with differing
functional currencies are not offset.
(c) Segmental reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision maker
as required by IFRS8 Operating Segments. The chief operating
decision maker, who is responsible for allocating resources and
assessing performance of the operating segments, has been
identified as the board of directors.
The Group's operations are made up of three segments, the oil
and gas exploration and production activities in the geographical
regions of the Falkland Islands and the Greater Mediterranean
region as well as its corporate activities centered in the UK.
(d) Oil and Gas Assets
The Group applies the successful efforts method of accounting
for exploration and evaluation ("E&E") costs, having regard to
the requirements of IFRS6 - 'Exploration for and evaluation of
mineral resources'.
Exploration and evaluation ("E&E") expenditure
Expensed exploration & evaluation costs
Expenditure on costs incurred prior to obtaining the legal
rights to explore an area, geological and geophysical costs are
expensed immediately to the income statement.
Capitalised intangible exploration and evaluation assets
All directly attributable E&E costs are initially
capitalised in well, field, prospect, or other specific, cost pools
as appropriate, pending determination.
Treatment of intangible E&E assets at conclusion of
appraisal activities
Intangible E&E assets related to each cost pool are carried
forward until the existence, or otherwise, of commercial reserves
have been determined, subject to certain limitations including
review for indicators of impairment. If commercial reserves have
been discovered, the carrying value, after any impairment loss, of
the relevant E&E assets, are then reclassified as development
and production assets within property plant and equipment. However,
if commercial reserves have not been found, the capitalised costs
are charged to expense.
The Group's definition of commercial reserves for such purpose
is proved and probable reserves on an entitlement basis. Proved and
probable reserves are the estimated quantities of crude oil,
natural gas and natural gas liquids which geological, geophysical
and engineering data demonstrate with a specified degree of
certainty (see below) to be recoverable in future years from known
reservoirs and which are considered commercially producible. There
should be a 50% statistical probability that the actual quantity of
recoverable reserves will be more than the amount estimated as
proved and probable. The equivalent statistical probabilities for
the proven component of proved and probable reserves are 90%.
Such reserves may be considered commercially producible if
management has the intention of developing and producing them and
such intention is based upon:
- a reasonable assessment of the future economics of such
production;
- a reasonable expectation that there is a market for all or
substantially all the expected hydrocarbon production;
- evidence that the necessary production, transmission and
transportation facilities are available or can be made available;
and
- the making of a final investment decision.
Furthermore:
(i) Reserves may only be considered proved and probable if
producibility is supported by either actual production or a
conclusive formation test. The area of reservoir considered proved
includes: (a) that portion delineated by drilling and defined by
gas-oil and/or oil-water contacts, if any, or both; and (b) the
immediately adjoining portions not yet drilled, but which can be
reasonably judged as economically productive on the basis of
available geophysical, geological and engineering data. In the
absence of information on fluid contacts, the lowest known
structural occurrence of hydrocarbons controls the lower proved
limit of the reservoir.
(ii) Reserves which can be produced economically through
application of improved recovery techniques (such as fluid
injection) are only included in the proved and probable
classification when successful testing by a pilot project, the
operation of an installed programme in the reservoir, or other
reasonable evidence (such as, experience of the same techniques on
similar reservoirs or reservoir simulation studies) provides
support for the engineering analysis on which the project or
programme was based.
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) Right OF USE Assets
The Group's accounting policy for Right of Use assets is
explained in note 1.4.
(F) Capital commitments
Capital commitments include all projects for which specific
board approval has been obtained up to the reporting date. Projects
still under investigation for which specific board approvals have
not yet been obtained are excluded.
(G) Foreign currency translation
Functional and presentation currency:
Items included in the results of each of the Group's entities
are measured using the currency of the primary economic environment
in which the entity operates, the functional currency. The
consolidated financial statements are presented in US$ as this best
reflects the economic environment of the oil exploration sector in
which the Group operates. The Group maintains the financial
statements of the parent and subsidiary undertakings in their
functional currency. Where applicable, the Group translates
subsidiary financial statements into the presentation currency,
US$, using the closing rate method for assets and liabilities which
are translated at the rate of exchange prevailing at the balance
sheet date and rates at the date of transactions for income
statement accounts. Differences are taken directly to reserves.
Transactions and balances:
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year
end exchange rates of monetary assets and liabilities denominated
in foreign currencies are capitalised in the income statement,
except when deferred in equity as qualifying cash flow hedges and
qualifying net investment hedges.
The year end rates of exchange actually used were:
31 Dec 2019 31 Dec 2018
----------- ------------ ------------
GBP : US$ 1.32 1.28
EUR : US$ 1.12 1.15
----------- ------------ ------------
(H) Revenue and income
(i) Revenue
Revenue arising from the sale of goods is recognised when a
performance obligation is satisfied by transferring control over a
product or service to a customer, which is typically at the point
that title passes, and the revenue can be reliably measured.
Revenue is measured at the fair value of the consideration received
or receivable and represents amounts receivable for goods provided
in the normal course of business, net of discounts, customs duties
and sales taxes
(ii) Investment income
Investment income consists of interest receivable for the
period. Interest income is recognised as it accrues, taking into
account the effective yield on the investment.
(I) NON-DERIVATIVE Financial instruments
Financial assets and financial liabilities are recognised on the
Group's balance sheet when the Group has become a party to the
contractual provisions of the instrument.
(i) Other receivables
Other receivables are classified as loans and receivables and
are initially recognised at fair value. They are subsequently
measured at their amortised cost using the effective interest
method less any provision for impairment. 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. A provision for impairment is established when the
carrying value of the receivable exceeds the present value of the
future cash flow discounted using the original effective interest
rate. The carrying value of the receivable is reduced through the
use of an allowance account and any impairment loss is recognised
in the income statement.
(ii) Term deposits
Term deposits are disclosed separately on the face of the
balance sheet when their term is greater than three months and they
are unbreakable.
(iii) 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.
(iv) Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and at bank and
other short-term deposits held by the Group including breakable and
unbreakable deposits with terms of less than three months and
breakable term deposits of greater terms than three months where
amounts can be accessed within three months without material loss.
They are stated at carrying value which is deemed to be fair
value.
(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) Equity instruments
Equity instruments issued by the Company are recorded at the
proceeds received, net of direct issue costs.
(J) INCOME TAXES AND DEFERRED TAXATION
The current tax expense is based on the taxable profits for the
year, after any adjustments in respect of prior years. Tax,
including tax relief for losses if applicable, is allocated over
profits before tax and amounts charged or credited to reserves as
appropriate.
Deferred taxation is recognised in respect of all taxable
temporary differences that have originated but not reversed at the
balance sheet date where a transaction or events have occurred at
that date that will result in an obligation to pay more, or a right
to pay less or to receive more, tax, with the exception that
deferred tax assets are recognised only to the extent that the
directors consider that it is probable that there will be suitable
taxable profits from which the future reversal of the underlying
temporary differences can be deducted.
Deferred tax is measured on an undiscounted basis at the tax
rates that are expected to apply in the periods in which temporary
differences reverse, based on tax rates and laws enacted or
substantively enacted at the balance sheet date.
(K) Share based remuneration
The Group issues equity settled share based payments to certain
employees. Equity settled share based payments are measured at fair
value (excluding the effect of non market based vesting conditions)
at the date of grant. The fair value determined at the grant date
of the equity settled share based payments is expensed on a
straight line basis over the vesting period, based on the Group's
estimate of shares that will eventually vest and adjusted for non
market based vesting conditions.
Fair value is measured by use of either Binomial or Monte-Carlo
simulation. The main assumptions are disclosed in note 10.
Cash settled share based payment transactions result in a
liability. Services received and liability incurred are measured
initially at fair value of the liability at grant date, and the
liability is remeasured each reporting period until settlement. The
liability is recognised on a straight line basis over the period
that services are rendered.
2 Use of estimates, assumptions and judgements
The Group makes estimates, assumptions and judgements that
affect the reported amounts of assets and liabilities. Estimates,
assumptions and judgements are continually evaluated and based on
historical experience and other factors, including expectations of
future events that are believed to be reasonable under the
circumstances.
The key assumptions concerning the future, and other key sources
of estimation uncertainty at the balance sheet date, that have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year,
are discussed below.
Carrying value of intangible exploration and evaluation assets
(note 15)
The amounts for intangible exploration and evaluation assets
represent active exploration and evaluation projects. These amounts
will be written off to the income statement as exploration costs
unless commercial reserves are established or the determination
process is not completed and there are indications of impairment in
accordance with the Group's accounting policy.
In addition for assets under evaluation where discoveries have
been made, such as Sea Lion, their carrying value is checked by
reference to the net present value of future cashflows which
requires key assumptions and estimates in relation to: commodity
prices that are based on forward curves for a number of years and
the long-term corporate economic assumptions thereafter, discount
rates that are adjusted to reflect risks specific to individual
assets, the quantum of commercial reserves and the associated
production and cost profiles. Future development costs are
estimated taking into account the level of development required to
produce the reserves by reference to operators, where applicable,
and internal engineers.
Decommissioning costs (note 24)
Decommissioning costs are uncertain and 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 provision for
decommissioning. The estimated decommissioning costs are reviewed
annually by an external expert and the results of the most recent
available review used as a basis for the amounts in the Financial
Statements. Provision for environmental clean-up and remediation
costs is based on current legal and contractual requirements,
technology and price levels.
3 REVENUE AND SEGMENTAL INFORMATION
YEARED 31 DECEMBER 2019
The Group's operations are located and managed in three
geographically distinct business units; namely the Falkland
Islands, the Greater Mediterranean, and Corporate (or UK). Some of
the business units currently do not generate any revenue or have
any material operating income. The business is only engaged in one
business of upstream oil and gas exploration and production.
Falkland Greater
Islands Mediterranean Corporate Total
$'000 $'000 $'000 $'000
--------------------------------------- --------- -------------- ---------- ---------
Revenue - 10,328 - 10,328
Cost of sales - (10,385) - (10,385)
--------------------------------------- --------- -------------- ---------- ---------
Gross profit - (57) - (57)
Exploration and evaluation
expenses (315) (560) (1,099) (1,974)
Impairment of goodwill - (10,057) - (10,057)
--------------------------------------- --------- -------------- ---------- ---------
Costs in relation to acquisition
and group restructuring - (649) - (649)
Recurring administrative costs - (1,603) (3,690) (5,293)
--------------------------------------- --------- -------------- ---------- ---------
Total administrative expenses - (2,252) (3,690) (5,942)
Charge for share based payments - - (1,307) (1,307)
Other income - - - -
Foreign exchange gain/(loss) (1,307) (142) (178) (1,627)
--------------------------------------- --------- -------------- ---------- ---------
Results from operating activities
and other income (1,622) (13,068) (6,274) (20,964)
Finance income - 29 595 624
Finance expense - (214) (77) (291)
--------------------------------------- --------- -------------- ---------- ---------
Loss before tax (1,622) (13,253) (5,756) (20,631)
Tax - - - -
--------------------------------------- --------- -------------- ---------- ---------
Profit/(loss) for year (1,622) (13,253) (5,756) (20,631)
--------------------------------------- --------- -------------- ---------- ---------
Reporting segments assets 464,638 27,230 18,374 510,242
Reporting segments liabilities 78,304 16,621 19,203 114,128
Depreciation - 4,249 295 4,544
Year ended 31 December 2018
Falkland Greater
Islands Mediterranean Corporate Total
$'000 $'000 $'000 $'000
--------------------------------------- --------- -------------- ---------- --------
Revenue - 10,580 - 10,580
Cost of sales - (8,531) - (8,531)
--------------------------------------- --------- -------------- ---------- --------
Gross profit - 2,049 - 2,049
Exploration and evaluation
expenses (253) (3,682) (1,079) (5,014)
--------------------------------------- --------- -------------- ---------- --------
Costs in relation to acquisition
and group restructuring - (58) - (58)
Recurring administrative costs (1,406) (3,922) (5,328)
--------------------------------------- --------- -------------- ---------- --------
Total administrative expenses (1,464) (3,922) (5,386)
Charge for share based payments - - (1,478) (1,478)
Other income - 943 - 943
Foreign exchange movement 2,197 (100) (889) 1,208
--------------------------------------- --------- -------------- ---------- --------
Results from operating activities
and other income 1,944 (2,254) (7,368) (7,678)
Finance income - 8 817 825
Finance expense - (254) 1 (253)
--------------------------------------- --------- -------------- ---------- --------
Loss before tax 1,944 (2,500) (6,550) (7,106)
Tax (25) - (25)
--------------------------------------- --------- -------------- ---------- --------
Loss for year 1,944 (2,525) (6,550) (7,131)
--------------------------------------- --------- -------------- ---------- --------
Reporting segments assets 440,314 41,992 39,156 521,462
Reporting segments liabilities 76,996 18,183 10,940 106,119
Depreciation - 3,991 120 4,111
All of the Group's worldwide sales revenues of oil and gas
$10,328 thousand (2018: $10,580 thousand) arose from contracts to
customers. Total revenue relates to revenue from two customers
(2018: two customers) each exceeding 10 per cent of the Group's
consolidated revenue.
4 Cost of sales
Year Year
ended ended
31 Dec 31 Dec
19 18
$'000 $'000
-------------------------------------------------- --------- --------
Cost of sales 4,647 4,563
Impairment of oil and gas assets (see note 16) 1,600 -
Depreciation of oil and gas assets (see note 16) 4,138 3,968
10,385 8,531
-------------------------------------------------- --------- --------
5 exploration and evaluation expenses
Year Year
ended ended
31 Dec 31 Dec
19 18
$'000 $'000
-------------------------------------------------- --------- --------
Allocated from administrative expenses (see note
7) 790 891
Capitalised exploration costs impaired (see note
15) 350 3,884
Other exploration and evaluation expenses 834 239
1,974 5,014
-------------------------------------------------- --------- --------
6 IMPAIRMENT OF GOODWILL
As a result of the acquisition of Mediterranean Oil & Gas
plc in 2014, goodwill of EUR9.0 million arose relating to the
portfolio of intangible exploration and appraisal assets and the
strategic premium associated with a significant presence in a new
region. However, following the decision to dispose of Rockhopper
Egypt Pty Limited and with Italian portfolio now deemed largely
non-core, a decision was made to impair the goodwill associated
with that acquisition.
7 Administrative expenses
Year Year
ended ended
31 Dec 31 Dec
19 18
$'000 $'000
-------------------------------------------------- --------- --------
Directors' salaries and fees, including bonuses
(see note 8) 1,563 1,727
Other employees' salaries 2,475 2,638
National insurance costs 541 637
Pension costs 148 164
Employee benefit costs 96 88
Total staff costs (including group restructuring
costs) 4,823 5,254
Amounts reallocated (1,518) (2,105)
-------------------------------------------------- --------- --------
Total staff costs charged to administrative
expenses 3,305 3,149
Auditors' remuneration (see note 9) 232 251
Other professional fees 1,444 1,058
Other 1,527 1,648
Depreciation 106 143
Amounts reallocated (672) (863)
-------------------------------------------------- --------- --------
5,942 5,386
-------------------------------------------------- --------- --------
The average number of staff employed during the year was 18 (31
December 2018: 20). The relative decrease between years reflects
the continued restructuring of the Greater Mediterranean operation.
Following the sale of Rockhopper Egypt Pty Ltd the number of staff
further reduced to 16, comprising 12 in the UK and 4 in Italy.
Amounts reallocated relate to the costs of staff and associated
overhead in relation to non administrative tasks. These costs are
allocated to exploration and evaluation expenses or capitalised as
part of the intangible exploration and evaluation assets as
appropriate.
8 directors' remuneration
Year Year
ended ended
31 Dec 31 Dec
19 18
$'000 $'000
------------------------------------------------- --------- --------
Executive salaries 887 912
Executive bonuses 178 250
Company pension contributions to money purchase
schemes & pension cash allowance 133 137
Benefits 27 28
Non-executive fees 338 400
1,563 1,727
------------------------------------------------- --------- --------
The total remuneration of the highest paid director was:
Year Year
ended ended
31 Dec 31 Dec
19 18
GBP GBP
-------------------------------- --------- --------
Annual salary 380,400 373,000
Bonuses 76,000 93,000
Money purchase pension schemes 57,100 55,900
Benefits 11,400 11,200
524,900 533,100
-------------------------------- --------- --------
Interest in outstanding share options and SARs, by director, are
separately disclosed in the directors' remuneration report.
9 Auditors' remuneration
Year Year
ended ended
31 Dec 31 Dec
19 18
$'000 $'000
----------------------------------------------------- --------- --------
Fees payable to the Company's auditors for the
audit of the Company's annual financial statements 119 128
Fees payable to the Company's auditors and its
associates for other services:
Audit of the accounts of subsidiaries 81 72
Half year review 32 38
Tax compliance services - 13
232 251
----------------------------------------------------- --------- --------
In May 2019, after a competitive tender process,
PricewaterhouseCoopers LLP was appointed as the Group's auditors,
replacing KPMG LLP.
10 Share based Payments
The charge for share based payments relate to options granted to
employees of the Group.
Year Year
ended ended
31 Dec 31 Dec
19 18
$'000 $'000
--------------------------------------------------- --------- --------
Charge for the long term incentive plan options 1,202 1,360
Charge for shares issued under the SIP throughout
the year 105 118
--------------------------------------------------- --------- --------
1,307 1,478
--------------------------------------------------- --------- --------
The models and key assumptions used to value each of the grants
and hence calculate the above charges are set out below:
Long term incentive plan
During 2013 a long term incentive plan ("LTIP") was approved by
shareholders. The LTIP is operated and administered by the
Remuneration Committee. During the year a number of LTIP awards
('Awards'), structured as nil cost options, were granted to
executive directors and senior staff.
LTIP awards will generally only vest or become exercisable
subject to the satisfaction of a performance condition measured
over a three year period ("Performance Period") determined by the
Remuneration Committee at the time of grant. The performance
conditions must contain objective conditions, which must be related
to the underlying financial performance of the Company. The current
performance condition used is based on Total Shareholder Return
("TSR") measured over a three-year period against the TSR of a peer
group of at least 9 other oil and gas companies comprising both
FTSE 250, larger AIM oil and gas companies and Falkland Islands
focused companies ("Peer Group"). The Peer Group for the Awards may
be amended by the Remuneration Committee at their sole discretion
as appropriate.
Performance measurement for the Awards are based on the average
price over the relevant 90 day dealing period measured against the
90 dealing day period three years later. Awards will typically vest
on a sliding scale from 35% to 100% for performance in the top two
quartiles of the Peer Group. No awards will vest for performance in
the bottom two quartiles.
The Awards granted on 8 October 2013 and 10 March 2014 have an
additional performance condition so that no awards will be
exercisable unless the Company's share price exceeds GBP1.80 based
on an average price over any 90 day dealing period up to 31 March
2023.
The LTIP has been valued using a Monte Carlo model the key
inputs of which are summarised below
Grant date: 31 July 23 April 16 June 22 Apr
2019 2018 2017 2016
Closing share price 20.75 25.7p 21.25p 31.5p
Number granted 7,200,000 7,000,000 6,700,000 10,047,885
Weighted average volatility 50.0% 44.4% 53.3% 60.4%
Weighted average volatility
of index 70.0% 64.0% 71.4% 71.2%
Weighted average risk free
rate 0.35% 0.90% 0.18% 0.58%
Correlation in share price
movement with comparator
group 5% 13.0% 15.3% 27.5%
Exercise price 0p 0p 0p 0p
Dividend yield 0% 0% 0% 0%
----------------------------- ---------- ---------- ---------- -----------
The following movements occurred during the year:
At 31 December
At 31 December
Issue date Expiry date 2018 Issued Lapsed 2019
---------------- ------------- ----------------- ---------- ------------ ---------------
8 October
8 October 2013 2023 546,145 - - 546,145
10 March
10 March 2014 2024 70,391 - - 70,391
22 April
22 April 2016 2026 6,017,850 - (6,017,850) -
16 June
16 June 2017 2027 6,700,000 - - 6,700,000
23 April
23 April 2018 2028 7,000,000 - - 7,000,000
31 July
31 July 2019 2029 - 7,200,000 - 7,200,000
---------------- ------------- ----------------- ---------- ------------ ---------------
20,334,386 7,200,000 (6,017,850) 21,516,536
------------------------------ ----------------- ---------- ------------ ---------------
Share incentive plan
The Group has in place an HMRC approved Share Incentive Plan
("SIP"). The SIP allows the Group to award Free Shares to UK
employees (including directors) and to award shares to match
Partnership Shares purchased by employees, subject to HMRC
limits.
Throughout this and the prior year the Group issued two Matching
Shares for every Partnership Share purchased.
In the year the Group made a free award of GBP38,999 (year ended
31 December 2018 GBP41,997) worth of Free Shares to eligible
employees.
This resulted in 173,329 (year ended 31 December 2018: 156,268)
Free Shares and under the SIP scheme matching and partnership
shares issued were 310,527 (year ended 31 December 2018: 223,131)
in the year.
31 Dec 31 Dec
2019 2018
------------------------------------------------------ ------- -------
The average fair value of the shares awarded (pence) 21 28
Vesting 100% 100%
Dividend yield Nil Nil
Lapse due to withdrawals Nil Nil
------------------------------------------------------ ------- -------
The fair value of the shares awarded will be spread over the
expected vesting period.
Share appreciation rights
A share appreciation right ("SAR") is effectively a share option
that is structured from the outset to deliver, on exercise, only
the net gain in the form of new ordinary shares that would have
been made on the exercise of a market value share option.
No consideration is payable on the grant of a SAR. On exercise,
an option price of 1 pence per ordinary share, being the nominal
value of the Company's ordinary shares, is paid and the relevant
awardee will be issued with ordinary shares with a market value at
the date of exercise equivalent to the notional gain that the
awardee would have made, being the amount by which the aggregate
market value of the number of ordinary shares in respect of which
the SAR is exercised, exceeds a notional exercise price, equal to
the market value of the shares at the time of grant (the "base
price"). The remuneration committee has discretion to settle the
exercise of SARs in cash.
The following movements occurred during the year on SARs:
Exercise At 31 Dec At 31
price Dec
Issue date Expiry date (pence) 2018 Exercised Lapsed 2019
---------------- -------------- --------- ---------- ---------- ---------- --------
3 July 2009 3 July 2019 30.87 103,368 - (103,368) -
11 January 11 January
2011 2021 372.75 175,048 - - 175,048
14 July 2011 14 July 2021 239.75 43,587 - - 43,587
16 August
16 August 2011 2021 237.00 17,035 - - 17,035
13 December 13 December
2011 2021 240.75 29,594 - - 29,594
17 January 17 January
2012 2022 303.75 244,541 - - 244,541
30 January 30 January
2013 2023 159.00 277,162 - - 277,162
---------------- -------------- --------- ---------- ---------- ---------- --------
890,335 - (103,368) 786,967
------------------------------- --------- ---------- ---------- ---------- --------
11 FOREign Exchange
Year ended Year ended
31 Dec 31 Dec
19 18
$'000 $'000
-------------------------------------------------- ------------- -----------
Foreign exchange (loss)/gain on Falkland Islands
tax liability (see note 23) (1,307) 2,197
Foreign exchange gain on term deposits, cash and
restricted cash 86 59
-------------------------------------------------- ------------- -----------
(1,221) 2,256
Foreign exchange on operating activities (406) (1,048)
-------------------------------------------------- ------------- -----------
Total net foreign exchange (loss) /gain (1,627) 1,208
-------------------------------------------------- ------------- -----------
12 FINANCE INCOME AND EXPENSE
Year ended Year ended
31 Dec 31 Dec
19 18
$'000 $'000
----------------------------------------------------- ------------- -------------
Bank and other interest receivable 624 825
Total finance income 624 825
----------------------------------------------------- ------------- -------------
Unwinding of discount on decommissioning provisions
(see note 24) 204 244
Other 87 9
----------------------------------------------------- ------------- -------------
Total finance expense 291 253
----------------------------------------------------- ------------- -------------
13 Taxation
Year ended Year ended
31 Dec 31 Dec
19 18
$'000 $'000
-------------------------------------------------------- ----------- -----------
Current tax:
Overseas tax - -
Adjustment in respect of prior years - -
-------------------------------------------------------- ----------- -----------
Total current tax - -
-------------------------------------------------------- ----------- -----------
Deferred tax:
Overseas tax - 25
-------------------------------------------------------- ----------- -----------
Total deferred tax - note 25 - 25
-------------------------------------------------------- ----------- -----------
Tax on profit on ordinary activities - 25
-------------------------------------------------------- ----------- -----------
Loss on ordinary activities before tax (20,631) (7,106)
-------------------------------------------------------- ----------- -----------
Loss on ordinary activities multiplied at 26% weighted
average rate (31 December 2018: 26%) (5,364) (1,848)
Effects of:
Income and gains not subject to taxation (1,646) (2,528)
Impairment of goodwill 1,911 -
Expenditure not deductible for taxation 1,631 1,688
Depreciation in excess of capital allowances 1,060 1,050
IFRS2 Share based remuneration cost 313 384
Losses carried forward 1,326 1,275
Effect of tax rates in foreign jurisdictions 769 (21)
Adjustments in respect of prior years - 25
Tax charge/(credit) for the year - 25
-------------------------------------------------------- ----------- -----------
On the 8 April 2015 the Group agreed binding documentation ("Tax
Settlement Deed") with the Falkland Island Government ("FIG") in
relation to the tax arising from the Group's farm-out to Premier
Oil plc ("Premier"). As such the Group is able to defer this tax
liability under Extra Statutory Concession 16. As it is deferred,
the liability is classified as non-current and discounted.
Additional information is given in Note 23 Tax payable.
The total carried forward losses and carried forward pre trading
expenditures potentially available for relief are as follows:
Year ended Year ended
31 Dec 31 Dec
19 18
$'000 $'000
------------------ ----------- -----------
UK 70,429 66,740
Falkland Islands 631,203 592,483
Italy 56,156 75,278
------------------ ----------- -----------
In Egypt under the terms of the PSC any taxes arising are
settled by EGPC on behalf of the Group. Consequently, any carried
forward losses would have no impact on the reported profits of the
Group.
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.
14 Basic and diluted loss per share
31 Dec 31 Dec
19 18
Number Number
------------------------------------------------ ------------ ------------
Shares in issue brought forward 457,495,899 457,116,500
Shares issued
- Issued under the SIP 483,856 379,399
------------------------------------------------ ------------ ------------
Shares in issue carried forward 457,979,755 457,495,899
------------------------------------------------ ------------ ------------
Weighted average number of Ordinary Shares for
the purposes of basic earnings per share 454,659,998 457,369,112
454,659,998 457,369,112
------------------------------------------------ ------------ ------------
$'000 $'000
------------------------------------------------------ --------- --------
Net loss after tax for purposes of basic and diluted
earnings per share (20,631) (7,131)
------------------------------------------------------ --------- --------
Loss per share - cents
Basic (4.54) (1.57)
Diluted (4.54) (1.57)
------------------------------------------------------ --------- --------
The weighted average number of Ordinary Shares takes into
account those shares which are treated as own shares held in trust
(see note 27). As the Group is reporting a loss in the year then in
accordance with IAS33 the share options are not considered dilutive
because the exercise of the share options would have the effect of
reducing the loss per share.
15 intangible exploration and evaluation assets
Falkland Greater
Islands Mediterranean Total
$'000 $'000 $'000
---------------------------- --------- -------------- --------
As at 31 December
2017 425,971 6,176 432,147
Additions 14,595 3,364 17,959
Written off to exploration
costs (252) (3,632) (3,884)
Transfer to assets
held for sale (see
note 21) - 834 834
Foreign exchange
movement - (21) (21)
------------------------------ --------- -------------- --------
As at 31 December
2018 440,314 6,721 447,035
Additions 24,325 1,745 26,070
Written off to exploration
costs - (350) (350)
Transfer to oil
and gas assets (see
note 16) - (3,901) (3,901)
Transfer to assets
held for sale (see
note 21) - (3,012) (3,012)
Foreign exchange
movement - (22) (22)
------------------------------ --------- -------------- --------
As at 31 December
2019 464,639 1,181 465,820
------------------------------ --------- -------------- --------
FALKLAND ISLANDS LICENCES
The additions during the year of $24.3 million relate
principally to the Sea Lion development.
In assessing whether it is necessary to undertake a detailed
impairment test, management consider whether there are any
triggers, e.g. a significant change in the view on long term oil
pricing or project cost, that would suggest such a detailed test is
necessary. Management do not consider there to be any such
triggers.
Nevertheless, management, as a matter of good practice, run
their cashflow model regularly. At the year end, the key inputs to
this model were a 2019 real terms Brent oil price of $70/bbl, a
post-tax discount rate of 12.5% and utilising the operator's
current estimates of capital and operating costs and production
profiles. In response to current market conditions, the cash flow
model now assumes a project sanction decision at the end of 2021
(with such decision dependent on securing funding) and is expected
to take three and half years from sanction to first oil.
Sensitivity analysis is performed by, in turn, reducing oil
price by $10/bbl, reducing production by 10%, increasing capital
expenditure by 10%, increasing operating expenditure by 10% and
delaying the development by one year. None of these sensitivities
would have led to an impairment charge in the year.
Costs related to the remaining barrels in Sea Lion and
associated near field discoveries as well as the Isobel/Elaine
discoveries are carried at cost and no indication of impairment
currently exists. The assets are still pending determination but
are expected to be monetised in a second and third phase of
development respectively.
GREATER MEDITERRANEAN LICENCES
The $1.7 million additions during the year predominantly relate
to work on the Egyptian license interests. A $3.9 million transfer
of costs to oil and gas assets was made following the award of a
development lease concerning the oil discovery in the Abu Roash
C-Reservoir (see note 16). A further $3 million reallocation was
made concerning all costs associated with the disposal of the
Group's interest in Egypt.
16 property, plant and equipment
Oil and Other Oil and Other
gas gas
assets assets 31 Dec assets assets 31 Dec
19 18
$'000 $'000 $'000 $'000 $'000 $'000
----------------------------- --------- ------- --------- --------- ------- ---------
Cost brought forward 37,168 878 38,046 31,043 1,134 32,177
Additions 3,757 40 3,797 1,996 25 2,021
Transfer from intangible
exploration and evaluation
assets 3,901 - 3,901 - - -
Foreign exchange (430) (4) (434) (762) (10) (772)
Disposals - - - - (271) (271)
Transfer from/(to)
assets held for sale (20,121) - (20,121) 4,891 - 4,891
----------------------------- --------- ------- --------- --------- ------- ---------
Cost carried forward 24,275 914 25,189 37,168 878 38,046
----------------------------- --------- ------- --------- --------- ------- ---------
Accumulated depreciation
and impairment loss
brought forward (25,504) (706) (26,210) (19,751) (841) (20,592)
Current year depreciation
charge (4,138) (106) (4,244) (3,968) (143) (4,111)
Impairment (1,600) - (1,600) - - -
Foreign exchange 317 2 319 611 7 618
Disposals - - - - 271 271
Transfer (from)/to
assets held for sale 8,360 - 8,360 (2,396) - (2,396)
----------------------------- --------- ------- --------- --------- ------- ---------
Accumulated depreciation
and impairment loss
carried forward (22,565) (810) (23,375) (25,504) (706) (26,210)
----------------------------- --------- ------- --------- --------- ------- ---------
Net book value brought
forward 11,664 172 11,836 11,292 293 11,585
----------------------------- --------- ------- --------- --------- ------- ---------
Net book value carried
forward 1,710 104 1,814 11,664 172 11,836
----------------------------- --------- ------- --------- --------- ------- ---------
All oil and gas assets relate to the Greater Mediterranean
region, specifically producing assets in Italy and Egypt.
Asset additions, transfers from intangible exploration and
evaluation assets and impairment relate almost entirely to the the
Abu Sennan production asset in Egypt.
The value of the Abu Sennan production asset was written down in
the year to the value of net consideration receivable and was
subsequently transferred to asset held for sale.
17 GOODWILL
Greater
Mediterranean
$'000
--------------------------- --------------
As at 31 December 2018 10,308
Impairment (10,057)
Foreign exchange movement (251)
------------------------------ --------------
As at 31 December 2019 -
------------------------------ --------------
As a result of the acquisition of Mediterranean Oil & Gas
plc in 2014, goodwill of EUR9.0 million arose relating to the
portfolio of intangible exploration and appraisal assets and the
strategic premium associated with a significant presence in a new
region. However, following the decision to dispose of Rockhopper
Egypt Pty Limited and with Italian portfolio now deemed largely
non-core, a decision was made to impair the goodwill associated
with that acquisition.
18 OTHER Receivables
31 Dec 31 Dec
19 18
$'000 $'000
--------------------- ------- -------
Current
Receivables 1,059 3,811
Accrued interest - 396
Other 2,442 5,303
--------------------- ------- -------
3,501 9,510
--------------------- ------- -------
The carrying value of receivables approximates to fair value.
The decrease in receivables in the year is due to transfer of
receivable balances associated with the Group's interest in Egypt
and the reclaim of prior period IVA balances from the Italian tax
authorities.
Other receivables predominantly relate to IVA balances due from
the Italian tax authorities which are in the process of being
reclaimed.
19 Restricted cash
31 Dec 31 Dec
19 18
$'000 $'000
------------------ ------- -------
Charged accounts 467 568
467 568
------------------ ------- -------
Restricted cash amounts mainly relate to sums on deposit in
relation to offices leased by the group.
20 Term Deposits
31 Dec 31 Dec
19 18
$'000 $'000
-------------------------------- -------- -------
Maturing after the period end:
Within three months - 10,000
Six to nine months - 10,000
Nine months to one year - 10,000
-------------------------------- -------- -------
- 30,000
----------------------------------------- -------
Term deposits are disclosed separately on the face of the
balance sheet when their term is greater than three months and they
are unbreakable.
21 Disposal group held for sale
On 23 July 2019, the Group announced the sale of Rockhopper
Egypt Pty Limited. The key asset of Rockhopper Egypt Pty Limited is
a 22% working interest in the Abu Sennan concession. The
transaction completed on the 28 February 2020 and accordingly the
assets and associated liabilities are presented as a disposal
group.
As at 31 December 2019, following impairments to intangible
exploration and evaluation assets ($0.3 million) and property,
plant and equipment ($1.6 million) the disposal group comprised net
assets of $15.9 million, detailed as follows.
$'000
------------------------------- --------
Intangible exploration and
evaluation assets 3,012
Property, plant and equipment 11,764
Inventories 67
Other receivables 3,082
Other payables (2,000)
15,925
------------------------------- --------
22 Other payables and accrualS
31 Dec 31 Dec
19 18
$'000 $'000
------------------ ------- -------
Accounts payable 2,248 2,462
Accruals 15,272 12,246
Other creditors 423 440
------------------ ------- -------
17,943 15,148
------------------ ------- -------
Accruals have increased due to costs associated with the Sea
Lion development.
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.
23 Tax payable
31 Dec 31 Dec
19 18
$'000 $'000
------------------------- ------- -------
Non current tax payable 39,167 37,860
------------------------- ------- -------
39,167 37,860
------------------------- ------- -------
On the 8 April 2015, the Group agreed binding documentation
("Tax Settlement Deed") with the Falkland Island Government ("FIG")
in relation to the tax arising from the Group's farm-out to Premier
Oil plc ("Premier").
The Tax Settlement Deed confirms the quantum and deferment of
the outstanding tax liability and is made under Extra Statutory
Concession 16.
As a result of the Tax Settlement Deed the outstanding tax
liability is confirmed at GBP59.6 million and payable on the first
royalty payment date on Sea Lion. Currently the first royalty
payment date is anticipated to occur within six months of first oil
production which itself is estimated to occur approximately three
and a half years after project sanction. As such the tax liability
has been reclassified as non-current and discounted at 15%. A
foreign exchange loss of US$1.3 million (2018: US$2.2 million gain)
has been recognised in the year.
24 Provisions
Decommissioning Other
provision provisions 31 Dec 31 Dec
19 18
$'000 $'000 $'000 $'000
-------------------------------------- ---------------- ----------- ------- -------
Brought forward 13,815 73 13,888 5,986
Amounts utilized (193) (5) (198) (881)
Amounts arising in the year - 8 8 10
Unwinding of discount 204 - 204 247
Transfer from liabilities associated
with assets held for sale - - - 8,750
Foreign exchange (265) (1) (266) (224)
-------------------------------------- ---------------- ----------- ------- -------
Carried forward at year end 13,561 75 13,636 13,888
-------------------------------------- ---------------- ----------- ------- -------
The decommissioning provision relates to the Group's licences in
the Greater Mediterranean region. The provision covers both the
plug and abandonment of wells drilled as well as any requisite site
restoration. Assumptions, based on the current economic environment
being an inflation rate of 2 per cent and a discount rate of 2 per
cent, have been made which management believe are a reasonable
basis upon which to estimate the future liability. These estimates
are reviewed regularly to take into account any material changes to
the assumptions. 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. Furthermore, the timing of decommissioning is
likely to depend on when the fields cease to produce at
economically viable rates. This in turn will depend upon future oil
and gas prices, which are inherently uncertain.
Other provisions include amounts due to employees for accrued
holiday and leaving indemnity for staff in Italy, that will become
payable when they cease employment.
25 deferred tax liability
31 Dec 31 Dec
19 18
$'000 $'000
------------------------ ------- -------
At beginning of period 39,223 39,202
Movement in period (2) 21
At end of period 39,221 39,223
------------------------ ------- -------
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 2019 are disclosed in note 13 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. The potential deferred
tax asset at the 31 December 2019 would be $197 million (31
December 2018: $185 million).
26 Share capital
31 Dec 2019 31 Dec 2018
-------------------- --------------------
$'000 Number $'000 Number
---------------------------------- ------ ------------ ------ ------------
Authorised, called up, issued
and fully paid: Ordinary shares
of GBP0.01 each 7,212 457,979,755 7,205 457,495,899
---------------------------------- ------ ------------ ------ ------------
For details of all movements during the year, see note 14.
27 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 The share incentive plan reserve captures the equity
remuneration 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 Shares held in trust represent the issue value of
held in trust shares held on behalf of participants in the SIP
by Capita IRG Trustees Limited, the trustee of the
SIP as well as shares held 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 Exchange differences arising on consolidating the
translation assets and liabilities of the Group's subsidiaries
reserve 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.
28 CAPITAL COMMITMENTS
Significant capital expenditure contracted for at the end of the
reporting period but not recognised as liabilities is US$0.6
million (2018: US$18 million) relating to the Group's intangible
exploration and evaluation assets.
29 Related Party Transactions
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 is
provided in the Directors' Remuneration Report on pages 35 to 45 of
the Group's financial statements.
Year Year
ended ended
31 Dec 31 Dec
19 18
$'000 $'000
------------------------------ --------- ---------
Short term employee benefits 1,430 1,636
Pension contributions 133 137
Share based payments 679 742
------------------------------ --------- ---------
2,242 2,515
------------------------------ --------- ---------
30 POST BALANCE SHEET EVENTS
Impact of COVID-19
The immediate human and economic impact of COVID-19 has been
very significant. At this point, the longer-term implications are
unclear and will depend on a number of factors which will develop
in the coming months.
In part related to COVID-19, the Brent oil price has fallen
dramatically during Q1 2020 hitting a low of c.$25 per barrel in
late March. This has resulted in a material fall in global equities
(including Company's share price) and will bring balance sheet
strength, liquidity and cost reduction measures to the fore. In the
upstream oil & gas sector, companies have announced very
material and widespread cost reductions through deferment or
eliminations of non-essential capital and operating costs. Premier,
the operator of the Sea Lion project has made similar public
statements. As a consequence, headcount levels and activity on the
Sea Lion project are expected to reduce in the coming months. A
delay to the Final Investment Decision on the Sea Lion project is
inevitable until the oil price and capital markets recover.
With the Company's modest presence in Italy already having been
substantially scaled back, the Group's day to day operations remain
unaffected by the spread of COVID-19 with necessary contingency
measures in place.
Heads of Terms for farm-in to Sea Lion signed
On the 7 January 2020 the Group announced that itself and
Premier had signed a detailed Heads of Terms with Navitas to
farm-in for a 30 per cent interest in the Sea Lion project (the
"Transaction"). In addition, Rockhopper and Premier agreed certain
amendments to their existing commercial arrangements.
Under the Heads of Terms w orking interest in Sea Lion licences
PL032, PL004b and PL004c to be aligned: Premier 40% (Operator);
Rockhopper 30%; Navitas 30%. The joint venture will continue to
pursue a senior debt project finance (or similar) to fund the Phase
1 development of Sea Lion.
Existing funding arrangements between Rockhopper and Premier are
to be replaced such that Rockhopper is funded for all pre- and
post-sanction costs not met by senior debt by Premier and/or
Navitas through a combination of carry and loans.
Premier will carry all of Rockhopper's costs from 1 January 2020
to 1 March 2020 (being the effective date for the Transaction) and
on a bridging basis pending completion of the Transaction (the
"Carry").
Premier and Navitas will fund all of Rockhopper's project
development costs (excluding production area licence fees, taxes
and project wind down costs) from 1 March 2020 to Phase 1 Project
Completion (estimated to occur 9-12 months after first oil) through
an interest free loan ("Loan"). Funds drawn under the Loan will be
repaid from 85% of Rockhopper's working interest share of free cash
flow.
An additional standby loan ("Standby Loan") will be available
from Premier to cover Rockhopper's share of production area licence
fees and any Capital Gains Tax liability. This new Standby Loan
will attract interest at a rate of 15% per annum and will be repaid
from Rockhopper's residual share of Phase 1 free cash flow.
Existing funding arrangements between Rockhopper and Premier
will be replaced such that, subject to certain conditions,
Rockhopper will receive contingent payments of up to US$36 million
from Premier and Navitas' share of Phase 2 cash flows, linked to
the achievement of certain production and oil price milestones.
Rockhopper has granted Navitas and Premier an option to acquire
working interests in PL004a (30% and 4% respectively) to align
working interests across PL032 and PL004. The option must be
exercised by Navitas within 8 years of completion of the
Transaction, or the date of Phase 2 FID ("Financial Investment
Decision"). In the event the option is exercised and subject to
certain conditions, Rockhopper will receive contingent payments of
up to US$12 million from Navitas' and Premier's share of Phase 3
cash flows, linked to the achievement of certain production and oil
price milestones.
Good progress has been made during the first quarter of 2020 to
convert the Heads of Terms into fully documented agreements.
Despite the current oil price weakness, all parties remain
committed to the finalisation of the Navitas farm-out agreement
with completion subject to agreed consents and approvals.
Completion of disposal of Rockhopper Egypt Pty Limited
On the 28 February 2020 the Group announced that following
satisfaction of the requisite conditions precedent, the disposal of
Rockhopper Egypt Pty Limited to United was completed .
The US$16.0 million consideration payable to Rockhopper under
the transaction comprises:
-- cash of $11.5 million; and
-- the issue of 114,503,817 Consideration Shares (at an issue
price of 3 pence) representing approximately 18.5% of United's
enlarged ordinary share capital.
--
Consideration Shares held by Rockhopper in United are subject to
certain lock--up and orderly market disposal provisions for a
period of up to 12 months from completion.
31 Risk management policies
Risk review
The risks and uncertainties facing the Group are set out in the
risk management report. Risks which require further quantification
are set out below.
Foreign exchange risks: The Group is exposed to foreign exchange
movements on monetary assets and liabilities denominated in
currencies other than US$, in particular the tax liability with the
Falkland Island Government which is a GBGBP 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.
Asset balances include cash and cash equivalents, restricted
cash and term deposits of $17.7 million of which $13.0 million was
held in US$ denominations. The following table summarises the split
of the Group's assets and liabilities by currency:
Currency denomination $ GBP EUR EGP GBP CAD $
of balance
$'000 $'000 $'000 $'000 $'000
----------------------- -------- ------- ------- -------- ------
Assets
31 December 2019 494,570 3,454 10,688 1,530 -
31 December 2018 491,148 2,440 27,234 640 -
------------------------ -------- ------- ------- -------- ------
Liabilities
31 December 2019 57,857 41,451 14,820 - -
31 December 2018 51,200 38,346 16,518 - 55
------------------------ -------- ------- ------- -------- ------
The following table summarises the impact on the Group's pre-tax
profit and equity of a reasonably possible change in the US$ to
GBGBP exchange rate and the US$ to euro exchange:
Pre tax profit Total equity
+10% US$ -10% US$ +10% US$ -10% US$
rate rate rate rate
increase decrease increase decrease
$'000 $'000 $'000 $'000
------------------- ---------- ---------- ---------- ----------
US$ against GBGBP
31 December 2019 (3,800) 3,800 (3,800) 3,800
31 December 2018 (3,591) 3,591 (3,591) 3,591
------------------- ---------- ---------- ---------- ----------
US$ against euro
31 December 2019 (413) 413 (413) 413
31 December 2018 1,072 (1,072) 1,072 (1,072)
------------------- ---------- ---------- ---------- ----------
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.
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 2019 were
$2,168,000 (31 December 2018: $3,948,000). 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, two of which are part owned by the British
government.
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 makes limited use of term deposits
where the amounts placed on deposit cannot be accessed prior to
their maturity date. The amounts applicable at the 31 December 2019
were $nil (31 December 2018: $30,000,000).
(i) 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.
At 31 December Within 1 2 to 5 years More than Total contractual Carrying
2019 year 5 years cashflows amount
$'000 $'000 $'000 $'000 $'000
----------------- --------- ------------- ---------- ------------------ ---------
Other payables 17,943 - - 17,943 17,943
Lease liability 539 1,975 - 2,514 2,161
Tax payable - - 78,780 78,780 39,167
18,482 1,975 78,780 99,237 59,271
At 31 December Within 1 2 to 5 years More than Total contractual Carrying
2018 year 5 years cashflows amount
$'000 $'000 $'000 $'000 $'000
----------------- --------- ------------- ---------- ------------------ ---------
Other payables 15,148 - - 15,148 15,148
Lease liability 458 2,149 365 2,972 2,450
Tax payable - - 76,150 76,150 37,860
15,606 2,149 76,515 94,270 55,458
The financial information set out above does not constitute the
Group's statutory accounts for the year ended 31 December 2019, 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.
Glossary :
2C best estimate of contingent resources
2P proven plus probable reserves
3C a high estimate category of contingent resources
AGM Annual General Meeting
Best a best estimate category of Prospective Resources
also used as a generic term to describe a
best, or mid estimate
Board the Board of Directors of Rockhopper Exploration
plc
Boe barrels of oil equivalent
Bopd barrels of oil per day
boepd barrels of oil equivalent per day
Capex capital expenditure
Cash resources Cash and term deposits
Company Rockhopper Exploration plc
E&E Exploration and evaluation
E&P exploration and production
EGPC Egyptian General Petroleum Company
EIS Environmental Impact Statement
ERCE ERC Equipoise Limited
ESG Environmental, Social and Governance
Farm-down to assign an interest in a licence to another
party
FEED Front End Engineering and Design
FDP Field Development Plan
FID Final Investment Decision
FIG Falkland Islands Government
FOGL Falkland Oil and Gas Limited
FPSO Floating Production, Storage and Offtake
vessel
G&A General and administrative costs
Group the Company and its subsidiaries
High high estimate category of Prospective Resources
also used as a generic term to describe a
high or optimistic estimate
IFRS International Financial Reporting Standard
Kboepd thousand barrels of oil equivalent per day
Low a low estimate category of Prospective Resources
also used as a generic term to describe a
low or conservative estimate
LOI Letter of Intent
LTIP Long term incentive plan
Mmbbls million barrels
Mmboe million barrels of oil equivalent
Mmbtu million British thermal units
MMstb million stock barrels (of oil)
Mscf thousand standard cubic feet
Navitas Navitas Petroleum LP
net pay the portion of reservoir containing hydrocarbons
that through the placing of cut offs for
certain properties such as porosity, water
saturation and volume of shale determine
the productive element of the reservoir
P&A plug and abandon
PIM Project Information Memorandum
Premier Premier Oil plc
PSV virtual exchange point
SAR Share appreciation right
Scm standard cubic metre
SIP Share incentive plan
STOIIP stock-tank oil initially in place
SURF Subsea, Umbilicals, Risers and Flowlines
TSR Total shareholder return
Tvdss true vertical depth subsea
United United Oil & Gas plc
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR MZGGDLNZGGZM
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April 08, 2020 02:00 ET (06:00 GMT)
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