TIDMRKH
RNS Number : 1312C
Rockhopper Exploration plc
11 April 2017
Rockhopper Exploration plc
("Rockhopper" or the "Company")
Annual Results for the year ended 31 December 2016
Rockhopper Exploration plc (AIM: RKH), the oil and gas company
with key interests in the North Falkland Basin and the Greater
Mediterranean region, is pleased to announce its audited results
for the year ended 31 December 2016.
Highlights
Building a material, full-cycle, exploration-led portfolio:
-- Consolidated leading North Falkland Basin acreage position
through the all-share merger with Falkland Oil & Gas Limited
("FOGL")
-- Acquired non-operated production and exploration assets in Egypt from Beach Energy
-- Ambition to further grow the Greater Mediterranean asset base
Maintaining operational resilience based on compelling portfolio
economics:
-- Material increase in economic production(1) to 1,350 barrels
of oil equivalent per day ("boepd")
-- Cash operating costs in Greater Mediterranean reduced to US$14 per boe
-- Sea Lion project economics enhanced with further cost reductions achieved
-- Sea Lion life of field costs estimated at US$35 per barrel
and project "break-even" at US$45 per barrel
Continued to progress the development of the large scale Sea
Lion project:
-- FEED contracts for the Sea Lion Phase 1 development awarded
to a set of world-class contractors
-- Independent resource audit confirmed 517 mmbbl (2C) and 900
mmbbl (3C) oil resources (gross), and near-field, low-risk
exploration upside of 207 mmbbl (gross, mid case, unrisked)
-- Updated draft Field Development Plan and draft Environmental
Impact Statement submitted to Falkland Islands Government
Protecting financial strength to enable growth:
-- Debt-free and fully funded for current commitments
-- Strong balance sheet maintained with cash and term deposits
of US$81 million (at 31 December 2016)
-- General and Administrative costs expected to be largely
covered by existing production going forward
-- Initiated international arbitration to seek significant
monetary damages in relation to Ombrina Mare
(1) - Economic production includes production from the effective
date (being 1 January 2016) of the acquisition of assets in
Egypt
David McManus, Chairman of Rockhopper, commented:
"In 2016, Rockhopper delivered on a number of operational,
corporate and strategic objectives: completing a highly successful
exploration campaign in the Falklands, progressing the Company's
flag-ship Sea Lion development into FEED, whilst at the same time
adding material incremental production in the Greater
Mediterranean.
"As the technical engineering phase of the Sea Lion FEED
approaches conclusion, focus will shift in 2017 to the commercial,
fiscal and financing elements of the project.
"With the spot price for Brent crude fluctuating around $55 per
barrel in early 2017, and the cost efficiencies realised through
the FEED process, the Board is convinced the economics of the Sea
Lion project are sufficiently robust to be sanctioned in the
current environment, assuming the required capital investment can
be secured.
"As a result of the acquisition of Beach Egypt, combined with
corporate cost savings achieved through the year, operating cash
flows are expected to broadly cover the Group's overheads during
2017. The Board believes that this production and cash flow, when
combined with our existing balance sheet, helps secure the
long-term sustainability of the Company whilst preserving
flexibility to further grow our Greater Mediterranean business in
2017."
For further information, please contact:
Rockhopper Exploration plc
Tel: (via Vigo Communications) - 020 7830 9700
Sam Moody - Chief Executive
Fiona MacAulay - Chief Operating Officer
Stewart MacDonald - Chief Financial Officer
Canaccord Genuity Limited (NOMAD and Joint Broker)
Tel: 020 7523 8000
Henry Fitzgerald-O'Connor
Vigo Communications
Tel: 020 7830 9700
Patrick d'Ancona
Ben Simons
Note regarding Rockhopper oil and gas disclosure
This announcement has been approved by Rockhopper's geological
staff who include Fiona MacAulay (Chief Operating Officer), who is
a Fellow of the Geological Society of London and a Member of 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. In compiling its resource estimates, Rockhopper has
used the definitions and guidelines as set forth in the 2007
Petroleum Resources Management System approved by the Society of
Petroleum Engineers.
Chairman and Chief Executive Officer's Review
Rockhopper's strategy is to build a well-funded, full-cycle,
exploration-led E&P company.
In 2016, Rockhopper delivered on a number of operational,
corporate and strategic objectives: completing a highly successful
exploration campaign in the Falklands, progressing the Company's
flag-ship Sea Lion development into FEED, whilst at the same time
adding material incremental production in the Greater
Mediterranean.
Our balance sheet remains strong with no debt, which ensures we
are well placed to take advantage of the opportunities created by
the challenging commodity price environment.
In the Falkland Islands, we have grown our resource position
substantially through exploration and acquisition
In January 2016, we completed the merger with Falkland Oil &
Gas Limited. The Board believes the combination of Rockhopper and
FOGL will create significant value for shareholders, not only by
positioning Rockhopper as the largest acreage holder in the North
Falkland Basin, but our enhanced interests provide us with a
stronger strategic position in the future commercialisation of our
world-class Sea Lion project.
In February 2016, we concluded our highly successful North
Falkland Basin exploration drilling campaign, which saw material
oil discoveries at each of Zebedee, Isobel Deep and Isobel
Elaine.
Following the conclusion of the exploration campaign, ERC
Equipoise Limited ("ERCE") were appointed to conduct an independent
audit of resources in the North Falkland Basin. Further details are
outlined in the Chief Operating Officer's Review but the Board was
particularly pleased to see the audit confirm oil in place on the
Sea Lion Complex is estimated at more than 1.6 billion barrels
gross with estimated gross recoverable contingent oil resources of
517 mmbbls (2C) and 900 mmbbls (3C).
The impressive results of this campaign and the subsequent
independent resource audit endorse Rockhopper's view that the North
Falkland Basin has the potential to deliver multiple future phases
of development and, ultimately, a billion barrels of recoverable
oil.
Continued cost OPTIMISATION MATERIALLY reduces project
break-even cost at Sea Lion
In January 2016, the Sea Lion Phase 1 project entered FEED with
a set of world-class contractors. The Phase 1 development aims to
commercialise the resources in the north of the Sea Lion Complex in
licence PL032.
The latest estimates of capex to first oil are US$1.5 billion
which, combined with other cost and efficiency improvements, has
resulted in a life-of-field cost (capex, opex and lease) of
approximately US$35 per barrel. The project "break-even" oil price
is approximately US$45 per barrel (with break-even economics
premised on achieving an ungeared project IRR of 10%).
A draft Environmental Impact Statement and revised draft Field
Development Plan were submitted to the Falkland Islands Government
("FIG") in late 2016.
Rockhopper is an engaged and active participant in the Sea Lion
joint venture providing support and challenge to Premier Oil plc
("Premier") across the range of subsurface, engineering, commercial
and financing aspects of the project.
Having operated in the Falklands for over 12 years we have
unparalleled insights and bring these to bear as we move the
project towards sanction.
In September 2016, the Board noted with interest the joint
statement between the British Government and the Government of
Argentina in relation to closer cooperation on areas of mutual
interest. This announcement is believed to be the first positive
statement made by both countries on South Atlantic issues since
1999 and sets out a commitment to work towards removing restrictive
measures affecting the oil and gas and other industries in the
Falkland Islands.
Building a second core area in the Greater Mediterranean
In our Greater Mediterranean portfolio, we have benefitted from
a material increase in production following the completion of the
successful Guendalina side-track and the Rockhopper operated Civita
development in H2 2015. Production further increased in 2016
following the acquisition of a portfolio of interests in Egypt.
Economic production(2) in 2016 averaged 1,350 boepd.
Following the decision in February 2016 by the Ministry of
Economic Development not to award the Company a Production
Concession covering the Ombrina Mare field, in March 2017 the
Company commenced international arbitration proceedings against the
Republic of Italy. Based on legal and other expert opinions,
Rockhopper has been advised that it has strong prospects of
recovering very significant monetary damages as a result of the
Republic of Italy's breaches of the Energy Charter Treaty. Damages
would be sought on the basis of lost profits, with the arbitration
process expected to take 2-3 years.
Portfolio management and corporate cost reduction
initiatives
Over the last 24 months a corporate cost reduction program has
been implemented across the Group - as a result, headcount in Italy
has reduced to eight (a reduction of over two-thirds since the
acquisition of Mediterranean Oil & Gas plc in August 2014).
Initiatives to streamline the Group's UK operations have been
achieved by combining our London and Salisbury staff in a single
office in London. As a result, the Group's net recurring general
and administrative ("G&A") cost in 2016 has reduced to US$7.4
million (compared with US$9.4 million in 2015 and US$10.8 million
in 2014(3) ) - further G&A savings are anticipated in 2017.
Board changes
Following the Company's AGM in May, Dr Pierre Jungels retired as
Non-executive Chairman having served as Chairman of the Company for
over 10 years. David McManus, an existing Non-executive Director,
was appointed Non-Executive Chairman following Pierre's retirement.
We pay tribute to Pierre's achievements over that time and offer
our sincere thanks for the leadership provided.
In addition, Robert (Bob) Peters, Senior Independent Director,
retired from the Board effective 31 December 2016. We thank Bob for
his significant contribution and input to Board deliberations over
his six years with the Company. Keith Lough, Non-executive Director
and Chairman of the Audit and Risk Committee, was appointed Senior
Independent Director following Bob Peters' retirement.
Outlook
As the technical engineering phase of the Sea Lion FEED
approaches conclusion, focus will shift in 2017 to the commercial,
fiscal and financing elements of the project. Engagement with FIG
on a range of operational, fiscal and regulatory matters is
expected to continue through H1 2017.
With the spot price for Brent crude fluctuating around $55 per
barrel in early 2017, and the cost efficiencies realised through
the FEED process, the Board is convinced the economics of the Sea
Lion project are sufficiently robust to be sanctioned in the
current environment, assuming the required capital investment can
be secured.
With that in mind Premier, Rockhopper's partner in the Sea Lion
project, has confirmed that, given their financing position, any
final investment decision on Sea Lion will be subject to the
successful conclusion of a farm-down or alternative financing
process.
Given the importance of the Sea Lion project to Rockhopper and
our shareholders, we are dedicated to investigating every possible
means to progress the development, including assisting Premier in
their financing efforts, actively engaging with a number of oil
industry participants with regard to potential farm-in transactions
and a number of initiatives to further reduce the pre first oil
capital required to sanction the project. We believe the completion
of Premier's re-financing will significantly enhance the
discussions around the funding and resulting sanction of the Sea
Lion development.
As a result of the acquisition of Beach Egypt, combined with
corporate cost savings achieved through the year, operating cash
flows are expected to broadly cover the Group's overheads during
2017. The Board believes that this production and cash flow, when
combined with our existing balance sheet, helps secure the
long-term sustainability of the Company whilst preserving
flexibility to further grow our Greater Mediterranean business in
2017.
David McManus Samuel Moody
Non-Executive Chief Executive
Chairman Officer
10 April 2017
(2) - Economic production includes production from the effective
date (being 1 January 2016) of the acquisition of Beach Egypt
(3) - Based on audited results for the nine month period to 31
December 2014, pro-rated for a full year
Chief Operating Officer's Review
SEA LION FEED TARGETS SIGNIFICANT COST REDUCTIONS
2016 was a year of intense activity following the commencement
of Front End Engineering and Design ("FEED") for the Sea Lion Phase
1 development. FEED contracts were awarded to an aligned
partnership of world-class contractors comprising SBM Offshore for
the FPSO, Subsea 7 for the subsea installation, National Oilwell
Varco for the flexible flowlines and One Subsea for the subsea
production system. The innovative contractor partnership having
been designed to create collaborative engagement with a view to
optimising the facilities design and installation methodology and
to reduce project costs. In tandem engagement with drilling and
logistics service providers is progressing, again with a range of
innovative commercial and contractual arrangements being
discussed.
The joint venture team of Premier and Rockhopper have worked
collaboratively to support and challenge the design specifications
throughout the FEED process, leading to significant savings across
the project.
Additionally, support from Rockhopper has enabled a right sizing
of the operators project team and a significant reduction in the
project management costs for 2017.
Cost estimates for field support services, including supply
boats, helicopters and shuttle tankers have seen a material
reduction. As a result, field operating costs for Sea Lion Phase 1
are now estimated at $15 per barrel, down from over $20 per barrel,
while the total project breakeven cost has reduced to just below
$45 per barrel from $55 per barrel.
Given the magnitude of resources already discovered in the North
Falkland Basin, a phased approach to development is being pursued.
Phase 1 will commercialise approximately 220 mmbbls in the north of
PL032 (in which Rockhopper has a 40% working interest). The Phase 2
development will commercialise a further 300 mmbbls from the
remaining resources in PL032 and the adjacent resources in PL004
(in which Rockhopper has a 64% working interest). Subject to
further appraisal drilling, Phase 3 will develop the resources in
the Isobel-Elaine Complex to the south of PL004.
An application was made to FIG to extend the licence for the Sea
Lion Discovery Area. FIG has confirmed that an extension to April
2020 has been granted by the Secretary of State. Additionally,
extensions are being granted to all licences held in the North
Falkland Basin by FIG.
Success of recent North Falkland Basin exploration campaign
confirmed by independent resource audit
In February 2016, we concluded the Isobel Elaine well, the last
in our multi-well exploration campaign in the North Falkland Basin
and continued our success in the role of sub-surface lead for
exploration, in which Rockhopper have had unparalled success in the
basin.
Following the success of the exploration campaign, ERCE were
appointed to conduct an independent audit of the contingent and
prospective resources in licences PL032 and PL004 which was
completed in April 2016. A summary of the resource update is
outlined below.
Sea Lion Complex
ERCE audit
- Discovered STOIIP 1,667MMstb, 834MMstb net to RKH (Mid Case)
- Discovered 2C resources 517MMstb oil, 258MMstb net to RKH
- Discovered 3C resources 900MMstb oil, 452MMstb net to RKH
- Total discovered 2C resources including gas 747MMboe, 392MMboe net to RKH
- Total discovered 3C resources including gas 1,462MMboe, 798MMboe net to RKH
Upside
- ERCE audited near field low risk exploration upside of
207MMstb, 105MMstb net to RKH (Mid Case, unrisked)
- Management estimates additional resource upside in West Flank
of 60MMstb if oil-bearing
Isobel-Elaine Complex
ERCE audit
- Utilising the operationally compromised data suite ERCE
audited significant discovered and prospective STOIIP and resources
in the Isobel-Elaine Complex of:
- Discovered STOIIP 277MMstb oil, 177MMstb net to RKH (Mid
Case)
- Discovered STOIIP 832MMstb oil, 532MMstb net to RKH (High
Case)
- Discovered 2C resources for Isobel Deep (F3H Fan) 20MMstb oil,
13MMstb net to RKH
- Prospective STOIIP 282MMstb oil, 180MMstb net to RKH (Mid
Case)
Management estimates
- Without the benefit of completed formation pressure data,
management has applied conservative recovery factors of 25% and 35%
respectively for 2C and 3C resources against audited STOIIP for
each of the Emily, Isobel and Isobel Deep (J) fans:
-- Management 2C resources 49MMstb oil, 31MMstb net to RKH
-- Management 3C resources 198MMstb oil, 127MMstb net to RKH
Management plus ERCE audited resources
-- 2C resources 69MMstb oil, 43MMstb net to RKH
-- 3C resources 270MMstb oil, 173MMstb net to RKH
-- Prospective (Mid Case) resources 70MMstb, 45MMstb net to RKH
-- Prospective (High Case) resources 350MMstb, 224MMstb net to RKH
Rockhopper was delighted that the audit confirmed the Company's
net 2C oil contingent resource base in the North Falkland Basin, as
a result of the exploration campaign and the acquisition of FOGL,
had increased to over 270 million barrels, or over 300 million
barrels including management estimates for the Emily, Isobel and
Isobel Deep J fans.
In the Isobel-Elaine Complex, where data collection was
compromised for operational reasons, ERCE has evaluated the
discovered STOIIP for each of the fans and attributed contingent
resources to the Isobel Deep (F3H) fan from which significant oil
was recovered to surface. For the other oil-bearing fans (Emily,
Isobel and Isobel Deep J), ERCE believes that recovery factors
comparable to those applied to discoveries could be achieved if an
appraisal programme demonstrates the potential to flow oil at a
rate comparable to wells in these offset discoveries. For these
fans, management has assigned a 25% recovery factor for the 2C and
35% for the 3C resources.
In addition to the discovered resources, management believes
there are a large number of near field prospects in the attractive
and relatively low risk Isobel / Elaine appraisal area for which
estimates of STOIIP and oil prospective resources have been
made.
South and East Falkland Basin
Through the acquisition of FOGL, Rockhopper acquired a 52%
interest in Noble Energy operated acreage to the South and East of
the Falkland Islands. Following the results of the Humpback well,
Noble and Edison have given notice to withdraw from this acreage
(although retain an interest in PL001 in the North Falkland Basin).
As a result, Rockhopper expects to become operator of the South and
East Falkland Basin acreage with a 100% working interest when the
process of assignment is complete. Selective technical work by the
Rockhopper sub-surface team will continue to establish the
remaining prospectivity on the acreage and a decision on whether to
extend the current phase of the licences will then be made.
Step-change in production in Greater Mediterranean following
acquisition in Egypt
Rockhopper is focused on building a second core area in the
Greater Mediterranean region following its acquisition of
Mediterranean Oil & Gas plc in 2014.
In August 2016, Rockhopper completed the acquisition of Beach
Petroleum (Egypt) Pty Limited ("Beach Egypt"), as a result
acquiring a 22% interest in the Abu Sennan Concession and a 25%
interest in the El Qa'a Plain Concession.
Abu Sennan, Egypt (Rockhopper 22%)
Operated by Kuwait Energy, the Abu Sennan Concession is located
in the Abu Gharadig basin in the Western Desert. The Concession was
signed in June 2007 with first commercial production achieved
during 2012.
During the second half of 2016, both the Al Jahraa SE-1X
exploration well and the ASH-1X ST2 development wells were brought
onto production with additional zones in the wells to be brought
into production at a later date.
A new development lease of c.30 square km was awarded around the
Al Jahraa SE-1X well with EGPC attributing gross reserves of over 9
mmbbls to the development area, a material increase to the net 4.5
mmbbl of 2P/2C acquired in August 2016.
The 2017 work programme and budget for the Abu Sennan Concession
sees the drilling of both an exploration and a development well
close to the Al Jahraa and Al Jahraa SE fields during the first
half of 2017. These wells are aimed at improving the joint ventures
technical understanding of Al Jahraa SE as well as maintaining
production levels by offsetting natural decline from existing wells
within the Concession.
The Rockhopper sub-surface team have been working closely with
the operator since completion of the acquisition to both prioritise
the large prospect inventory and to better understand the reservoir
management of the fields already on production.
The exploration well, Al Jahraa-SE2, which is due to spud
shortly, will target the AR-C reservoir in the fault block
immediately to the south of the Al Jahraa SE field and which has
the potential to increase the Al Jahraa SE field area to the
upthrown side of that fault.
On completion of the exploration well, the rig will move
directly to Al Jahraa-9, which is a development well. This
development well targets the AR-C reservoir at a location deeper
than the current deepest oil penetration at Al Jahraa-4 (no oil
water contact has yet been encountered in the field) thereby aiming
to prove additional reserves. The well also seeks to demonstrate
the connection between the Al Jahraa and Al Jahraa SE fields
through the oil leg. In addition, the operator has proposed two
work-over operations during Q2 2017.
The outcome of operations in H1 2017 on the Abu Sennan
Concession will determine the activities during the second half of
the year.
In addition, the Company expects to receive final ratification
for a 5-year extension to the Abu Sennan exploration licence in H1
2017. Once approved, the Company will undertake to participate in
at least two exploration wells over the next 3 years at a
commitment (net to Rockhopper's 22% working interest) of
approximately US$1.3 million.
Guendalina, Italy (Rockhopper 20%)
Operated by Eni, the Guendalina gas field, located in the
Northern Adriatic, has been in production since October 2011.
Guendalina has continued to produce to forecast during 2016 and
production over the year averaged 68,000 scm per day net to
Rockhopper (approximately 410 boe per day). Plant availability over
the year has been close to 100% and production from the side track
well in 2015 continues to make a material contribution to field
production.
The Rockhopper team have worked closely with the operator to
look at more efficient and cost effective methodologies of produced
water disposal which should have a significant reduction on field
opex going forward.
Civita, Italy (Rockhopper 100%)
Operated by Rockhopper, the Civita gas field located onshore
Abruzzo, came into production in November 2015.
During 2016, production from the field averaged approximately
21,000 scm per day (approximately 130 boe per day). Gas compression
was successfully commissioned at the site in December 2016.
Ombrina Mare, Italy (Rockhopper 100%)
Following the decision in February 2016 by the Ministry of
Economic Development not to award the Company a Production
Concession covering the Ombrina Mare field, a decision was made to
plug and abandon ("P&A") the existing OM-2 well and remove the
tri-pod structure which had been constructed in 2008 and at that
time intended to form part of the future production facilities on
the field. The P&A operation was successfully completed without
incident in early August 2016 using the Attwood Beacon rig, taking
advantage of depressed rig rates. The decommissioning and removal
of the tri-pod structure is anticipated to take place during H2
2017 and a fixed price contract for this work has been awarded.
Monte Grosso, Italy (Rockhopper 23%)
Operated by Eni, the Serra San Bernado permit which contains the
Monte Grosso oil prospect is located in the Southern Apennine
thrust-fold belt on trend with Val D'Agri and Tempa Rossa, in the
largest onshore oil production and development area in Western
Europe. Monte Grosso remains one of the largest undrilled prospects
onshore Western Europe.
Rockhopper transferred the operatorship of the Serra San Bernado
permit to Eni during 2016. It is hoped that the transfer of
operatorship will accelerate the regulatory and permitting process
to enable drilling.
El Qa'a Plain, EGYPT (Rockhopper 25%)
Operated by Dana Petroleum, the El Qa'a Plain concession is
located on the eastern shore of the Gulf of Suez and contains a
number of oil leads identified on existing 2D seismic data. The
concession was signed in January 2014. Approximately 470 sq km of
3D seismic plus 35 km of 2D seismic was acquired in early 2016 and
is currently being processed. The drilling of an exploration
commitment well is planned in late 2017 / early 2018.
Area 3, Malta (Rockhopper 40%)
In line with Rockhopper's highly selective approach to new
exploration ventures and following completion of seismic and
geological evaluation work, the Company has given notice to the
operator and the Maltese regulator that it does not intend to
participate in any extension of the current term of the Area 3
Exploration Study Agreement which expired in December 2016.
Block 9, Croatia (Rockhopper 40%)
In January 2015, Rockhopper was awarded a 40% interest in
offshore Block 9 in Croatia in partnership with Eni (60% interest
and operator). The award was made subject to the execution of a
Production Sharing Agreement ("PSA") with the Croatian Hydrocarbon
Authority ("CHA"). Given the general elections in Croatia in
November 2015 and September 2016, significant delays have been
experienced in the signing of a PSA with the CHA. Rockhopper is in
discussions with the CHA to understand the status of the Block
award and options going forward.
Fiona MacAulay
Chief Operating Officer
10 April 2017
Chief Financial Officer's Review
Overview
During 2016, Rockhopper continued to allocate capital primarily
to its world-class assets in the North Falkland Basin whilst at the
same time actively pursuing value-accretive acquisitions to meet
our strategic objectives. Rockhopper retains its robust financial
position despite the low oil and gas price environment experienced
through much of 2016.
In the North Falkland Basin, we have grown our asset base
through the merger with Falkland Oil & Gas Limited and through
exploration drilling on the Isobel-Elaine complex.
As in 2015, we have seen a step change in production and
revenues compared with the previous year, primarily as a result of
the acquisition of a portfolio of assets in Egypt.
Our balance sheet remains strong with year-end cash and term
deposits of US$81 million.
Results summary
$m (unless otherwise FY 2016 FY 2015 9 months
specified) 2014
Economic production(4)
(boepd) 1,350 322 272
Revenue 7 4 2
Profit after tax 98 11 (8)
Cash out flow from
operating activities (21) (7) (11)
Cash 81 110 200
Net assets 427 262 255
Results for the period
For the year ended 31 December 2016, the Company reported
revenues of US$7.4 million and a profit after tax of US$98 million.
The profit after tax in the year arose primarily due to the excess
of fair value over consideration associated with the acquisition of
FOGL. Excluding the impact of the excess fair value over
consideration associated with the FOGL acquisition would have
resulted in a loss after tax in the year of US$14 million.
Revenue
The Group's revenues of US$7.4 million (2015: $4.0 million)
during the year relate entirely to the sale of oil and natural gas
in the Greater Mediterranean (Egypt and Italy). The increase in
revenues from the comparable year reflects (i) the acquisition of
production assets in Egypt, which completed in August 2016; and
(ii) the increase in realised oil and gas prices.
Working interest economic production(4) averaged 1,350 boepd in
2016, a more than trebling of production from the prior year (2015:
322 boepd).
During the year, the Group's gas production in Italy was sold
under short-term contract with an average realised price of EUR0.15
per standard cubic metre (scm), equivalent to US$4.85 per thousand
standard cubic feet. 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 is sold to
the Egyptian General Petroleum Company ("EGPC"). The average
realised price for oil was US$46.2 per barrel, a small discount to
the average Brent price over the same period. Gas is sold at a
fixed price of US$2.65 per mmbtu.
Operating costs
Cash operating costs, excluding depreciation and impairment
charges, amounted to US$4.4 million (2015: US$3.0 million). The
increase in underlying cash operating costs is principally due to
the addition of Egyptian production. Cash operating costs on a per
barrel of oil equivalent basis reduced from US$25.5 per boe in 2015
to US$14.4 per boe in 2016.
The Group's general and administrative ("G&A") cost,
excluding non-recurring expenses related to acquisitions and group
restructuring, reduced further in 2016 to US$7.4 million (2015:
US$9.4 million) - further G&A savings are anticipated in
2017.
Impairment of oil and gas assets
Rockhopper has tested the carrying value of our assets for
impairment. Carrying values are compared to the value in use of the
assets based on discounted cash flow models. Future cash flows were
estimated using an oil price assumption equal to the Brent forward
curve during the period 2017 to 2019, with a long-term price of
US$75/bbl (in "real" terms) thereafter. A post-tax nominal discount
rate of 12.5% was used for the Group's Falkland Island assets.
With no cash flow generation expected from Sea Lion until 2020
at the earliest, the impact of the Brent forward curve during the
period 2017 to 2019 on the fair value calculation is limited. As
such, no impairment arises on the Sea Lion project. A range of
sensitivities have been considered as part of the impairment
testing process. Even in the event of a $20 per barrel reduction in
its long-term oil price, no impairment on Sea Lion arises. Equally,
no impairment would arise even if the Company assumed project
sanction was delayed by 10 years.
Cash movements and capital expenditure
At 31 December 2016, the Company had cash resources of US$81.0
million (31 December 2015: US$110.4 million) and no debt.
Cash and term deposit movements during the period:
US$m
------------------------------------ -----
Opening cash balance (31 December
2015) 110
Revenue 7
Cost of sales (4)
Falkland Islands (net of insurance
proceeds) 7
Greater Mediterranean (4)
Recurring administration expenses (7)
Acquisition of subsidiaries
(FOGL and Beach Egypt) (14)
Other (14)
------------------------------------ -----
Closing cash balance (31 December
2016) 81
------------------------------------ -----
There was a net inflow for the Falkland Islands in 2016 of US$7
million due to insurance proceeds exceeding outflows that primarily
relate to the 2015/16 drilling campaign, as well as spend relating
to the pre-development activities on Sea Lion. For a variety of
reasons, the costs of drilling the Zebedee, Isobel Deep and
Isobel-Elaine wells were higher than originally anticipated.
Certain costs incurred during the North Falkland Basin exploration
campaign were the subject of an insurance claim which settled in
late 2016. In total, US$49 million of insurance proceeds were
received, net to Rockhopper.
Spend on assets in the Greater Mediterranean largely relates to
residual costs associated with the Guendalina side-track and Civita
development in H2 2015 and the plugging and abandonment of the
Ombrina Mare-2 well following the decision earlier in the year by
the Ministry of Economic Development not to award the Company a
Production Concession covering the Ombrina Mare field. In addition
there has been expenditure on the Abu Sennan production concession
and El Qa'a exploration concession in Egypt.
Other cash outflows include foreign exchange losses, movements
on working capital balances, group restructuring costs as well as
non-recurring liabilities acquired as part of the FOGL
acquisition.
Less than 15% of the Group's cash resources as at mid June 2016
were held in Sterling and therefore the impact of the weakness in
Sterling : US dollar exchange rates on the Group's cash position,
following the UK referendum decision to leave the European Union,
was limited.
Mergers, acquisitions and disposals
The merger with Falkland Oil & Gas Limited completed in
January 2016. Through the merger of FOGL, Rockhopper consolidated
its leading North Falkland Basin acreage position.
Under the terms of the merger, shareholders of FOGL received
0.2993 new Rockhopper shares for each FOGL share held.
The transaction has been accounted for by the purchase method of
accounting with an effective date of 18 January 2016 being the date
on which the Group gained control of FOGL. Information in respect
of the assets and liabilities acquired and the fair value
allocation to the FOGL assets in accordance with the provisions of
"IFRS 3 - Business Combinations" has been determined on a firm
basis as follows:
Recognised
values
on acquisition
US$m
----------------------------- ---------------
Intangible exploration
and appraisal assets 170.0
Property, plant and
equipment 0.1
Inventories 0.2
Trade and other receivables 21.0
Trade and other payables (19.2)
----------------------------- ---------------
Net identifiable assets
and liabilities 172.0
----------------------------- ---------------
The fair value of the net assets acquired was US$172.0 million
resulting in an excess of fair value over consideration of US$111.8
million, recorded as a credit in the income statement.
The fair value of equity instruments has been determined by
reference to the closing share price on the trading day immediately
prior to the completion of the acquisition.
In determining the fair value of the assets, the Directors
acknowledge the inherent subjectivity and wide range of possible
values given the unique nature of the FOGL assets acquired, a lack
of truly comparable transactions and the highly volatile commodity
price environment at the time of acquisition.
The excess of fair value over consideration has arisen primarily
due to the fact that the financial position of FOGL had
deteriorated due to cost overruns at the Humpback exploration well
as well as merger terms being agreed prior to the Isobel-Elaine
well results, which substantially de-risked the Isobel-Elaine
complex.
In April 2016, Rockhopper announced revised terms for the
acquisition of Beach Egypt for cash consideration of US$11.9
million. The acquisition of Beach Egypt completed in August
2016.
In September 2016, Rockhopper completed the sale of a package of
non-core assets in Italy including interests in the Monteardone and
Fornovo di Taro fields to a local company for nominal
consideration. As a result of this transaction, US$1.1 million of
provisions related to future abandonment and decommissioning have
been removed from the balance sheet.
TAXATION
On the 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 Oil
plc.
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 Company's remaining licence interests in the North Falkland
Basin; or (iii) a change of control of Rockhopper Exploration
plc.
Due to the movement in the Sterling : US dollar exchange rate,
the outstanding tax liability in US dollar terms has reduced to
US$79 million (31 December 2015: US$95 million).
The outstanding tax liability is classified as non-current and
discounted to a year end value of US$39 million.
As the Company received the full Exploration Carry from Premier
during the 2015/16 campaign, the Company is entitled under the
terms of the Tax Settlement Deed to request the outstanding tax
liability is reduced by GBP4.7 million. Such a request has been
made to FIG although no adjustment in the outstanding tax liability
has yet been recorded as this is subject to agreement with the
Falkland Islands' Commissioner of Taxation.
Full details of the provisions and undertakings of the Tax
Settlement Deed were disclosed in the Company's 2014 Annual Report
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 Company 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 Company's acquisition of production and
exploration assets in Egypt, the Company is exposed to potential
payment delay from EGPC, which is an issue common to many upstream
companies operating in the country. As at 31 December 2016,
Rockhopper's EGPC receivable balance (net of amounts due to Beach
Energy) was $4.2 million. The Company maintains an active dialogue
with EGPC and has seen a material increase in monthly payments
following the year-end. Payments from EGPC are received in US
dollars directly to bank accounts held in the UK.
The Directors have assessed that the cash balance held provides
the Company with adequate headroom over forecast expenditure for
the following 12 months - as a result, the Directors have adopted
the going concern basis of accounting in preparing the annual
financial statements.
Principal risks 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
2016 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.
Outlook
Our balance sheet remains strong with year-end 2016 cash of $81
million. Adjusting the year-end cash position for Rockhopper's
contribution to anticipated North Falkland Basin exploration
campaign close out costs and the previously announced settlement
with Ocean Rig, maintains Rockhopper's adjusted year-end 2016 cash
balance in line with the Company's previous guidance of $60-65
million.
Following the completion of the acquisition of Beach Egypt,
revenues from our Greater Mediterranean assets are estimated to be
in excess of US$10 million in 2017 (based on current commodity
prices, foreign exchange rates and production projections).
2017 development, exploration and abandonment spend is expected
to be approximately US$13 million, of which US$8 million relates to
pre-development activities on Sea Lion, US$3 million to exploration
and development activities in Egypt and US$2 million to abandonment
costs. The abandonment spend principally relates to the
decommissioning and removal of the Ombrina Mare tripod - the cost
of which Rockhopper will seek to recover through the recently
commenced international arbitration process the costs of which will
be funded on a non-recourse basis from a specialist arbitration
funder.
Rockhopper has been an active acquirer during 2016 as we seek to
take advantage of the current market environment to grow our
business. We have significantly increased production and cash flow
in the Greater Mediterranean region during 2016 and see further
scope to materially grow that business in the year ahead.
Stewart MacDonald
Chief Financial Officer
10 April 2017
(4) - Economic production includes production from the effective
date (being 1 January 2016) of the acquisition of Beach Egypt
Group income statement
for the YEAR ended 31 DeCEMBER 2016
Year Year
ended ended
31 Dec 31 Dec
16 15
Notes $'000 $'000
-------------------------------------------- ------ --------- ---------
Revenue 7,417 3,966
-------------------------------------------- ------ --------- ---------
Other cost of sales (4,373) (2,951)
Depreciation and impairment of oil
and gas assets (3,294) (8,098)
-------------------------------------------- ------ --------- ---------
Total cost of sales 4 (7,667) (11,049)
-------------------------------------------- ------ --------- ---------
Gross loss (250) (7,083)
Exploration and evaluation expenses 5 (8,237) (22,934)
-------------------------------------------- ------ --------- ---------
Costs in relation to acquisition and
group restructuring (2,529) (1,544)
Recurring administrative costs (7,441) (9,351)
-------------------------------------------- ------ --------- ---------
Total administrative expenses 6 (9,970) (10,895)
Excess of fair value over cost 29 111,842 -
Charge for share based payments 9 (994) (1,937)
Foreign exchange movement 10 5,679 1,927
Results from operating activities and
other income 98,070 (40,922)
Finance income 11 307 975
Finance expense 11 (333) (4,750)
-------------------------------------------- ------ --------- ---------
Profit/(loss) before tax 98,044 (44,697)
Tax 12 - 55,395
-------------------------------------------- ------ --------- ---------
PROFIT FOR THE YEAR ATTRIBUTABLE TO
THE
EQUITY SHAREHOLDERS OF THE PARENT COMPANY 98,044 10,698
-------------------------------------------- ------ --------- ---------
Profit per share: cents
Basic 13 21.98 3.65
Diluted 13 21.98 3.64
-------------------------------------------- ------ --------- ---------
All operating income and operating gains and losses relate to
continuing activities.
Group statement of comprehensive income
for the YEAR ended 31 DECEMBER 2016
Year Year
ended ended
31 Dec 31 Dec
16 15
$'000 $'000
------------------------------------- --------- --------
Profit for the year 98,044 10,698
Exchange differences on translation
of foreign operations 192 (4,943)
------------------------------------- --------- --------
TOTAL COMPREHENSIVE PROFIT FOR
THE YEAR 98,236 5,755
------------------------------------- --------- --------
Group balance sheet
as at 31 DECEMBER 2016
31 Dec 31 Dec
2016 2015
Notes $'000 $'000
----------------------------------------- ------ ---------- ----------
NON CURRENT ASSETS
Exploration and evaluation assets 14 426,419 256,658
Property, plant and equipment 15 18,025 12,637
Goodwill 16 9,439 9,803
CURRENT ASSETS
Inventories 1,608 1,670
Other receivables 17 17,184 6,199
Restricted cash 18 495 2,192
Term deposits 19 30,000 60,000
Cash and cash equivalents 51,019 50,434
----------------------------------------- ------ ---------- ----------
TOTAL ASSETS 554,189 399,593
----------------------------------------- ------ ---------- ----------
CURRENT LIABILITIES
Other payables 20 34,012 30,457
Tax payable 21 9 9
NON-CURRENT LIABILITIES
Tax payable 21 39,115 47,405
Provisions 22 14,914 20,343
Deferred tax liability 23 39,145 39,145
----------------------------------------- ------ ---------- ----------
TOTAL LIABILITIES 127,195 137,359
----------------------------------------- ------ ---------- ----------
EQUITY
Share capital 24 7,194 4,910
Share premium 25 3,149 2,995
Share based remuneration 25 6,251 5,491
Own shares held in trust 25 (3,407) (3,513)
Merger reserve 25 74,332 11,112
Foreign currency translation reserve 25 (8,968) (9,160)
Special reserve 25 462,549 472,967
Retained losses 25 (114,106) (222,568)
----------------------------------------- ------ ---------- ----------
ATTRIBUTABLE TO THE EQUITY SHAREHOLDERS
OF THE COMPANY 426,994 262,234
----------------------------------------- ------ ---------- ----------
TOTAL LIABILITIES AND EQUITY 554,189 399,593
----------------------------------------- ------ ---------- ----------
These financial statements were approved by the directors and
authorised for issue on 10 April 2017 and are signed on their
behalf by:
STEWART MACDONALD
CHIEF FINANCIAL OFFICER
Group statement of changes in equity
for the YEAR ended 31 DECEMBER 2016
Foreign
Shares currency
Share Share Share held Merger translation Special Retained Total
based
capital premium remuneration in reserve reserve reserve losses Equity
trust
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
--------------- -------- -------- ------------- -------- -------- ------------ --------- ---------- ---------
Balance
at 31
December
2014 4,854 662 4,960 (628) 11,112 (4,217) 536,976 (298,681) 255,038
Total
comprehensive
income
for the
year - - - - - (4,943) - 10,698 5,755
Share
based
payments - - 1,937 - - - - - 1,937
Share
issues
in relation
to SIP 3 186 - (152) - - - - 37
Exercise
of share
options 53 2,147 (1,406) - - - - 1,406 2,200
Purchase
of own
shares - - - (2,733) - - - - (2,733)
Other
transfers - - - - - - (64,009) 64,009 -
--------------- -------- -------- ------------- -------- -------- ------------ --------- ---------- ---------
Balance
at 31
December
2015 4,910 2,995 5,491 (3,513) 11,112 (9,160) 472,967 (222,568) 262,234
Total
comprehensive
income
for the
year - - - - - 192 - 98,044 98,236
Share
based
payments - - 884 - - - - - 884
Issue
of shares 2,278 - - 63,220 - - - 65,498
Share
issues
in relation
to SIP 6 154 110 (128) - - - - 142
Exercise
of share
options - - (234) 234 - - - - -
Other
transfers - - - - - - (10,418) 10,418 -
Balance
at 31
December
2016 7,194 3,149 6,251 (3,407) 74,332 (8,968) 462,549 (114,106) 426,994
--------------- -------- -------- ------------- -------- -------- ------------ --------- ---------- ---------
Group cash flow statement
for the YEAR ended 31 DECEMBER 2016
Year Year
ended ended
31 Dec 31 Dec
16 15
Notes $'000 $'000
---------------------------------------------- ------ ---------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net profit before tax 98,044 (44,697)
Adjustments to reconcile net losses
to cash:
Depreciation 15 4,725 2,744
Loss on impairment on property, plant
and equipment 15 - 5,649
Other non-cash movements 15 (1,205) -
Share based payment charge 9 994 1,937
Excess fair value over cost 29 (111,842) -
Exploration impairment expenses 14 3,549 22,335
Loss on disposal of property, plant
and equipment 139 12
Finance expense 333 4,742
Finance income (317) (800)
Foreign exchange 10 (6,187) (1,921)
---------------------------------------------- ------ ---------- ---------
Operating cash flows before movements
in working capital (11,767) (9,999)
Changes in:
Inventories - 291
Other receivables 277 (981)
Payables (7,962) 3,765
Movement on other provisions (1,748) 68
---------------------------------------------- ------ ---------- ---------
Cash utilised by operating activities (21,200) (6,856)
---------------------------------------------- ------ ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash proceeds received on North Falkland 45,507 -
Basin exploration insurance claim
Capitalised expenditure on exploration
and evaluation assets (38,985) (70,661)
Purchase of property, plant and equipment (1,218) (10,258)
Acquisition of FOGL 29 5,312 -
Acquisition of Beach Egypt 29 (18,839) -
Interest 559 617
Investing cash flows before movements
in capital balances (7,664) (80,302)
Changes in:
Restricted cash 1,689 (826)
Term deposits 30,000 40,000
---------------------------------------------- ------ ---------- ---------
Cash flow from investing activities 24,025 (41,128)
---------------------------------------------- ------ ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Share options exercised - 2,200
Share incentive plan 31 37
Purchase of own shares - (2,733)
Finance expense (33) (18)
---------------------------------------------- ------ ---------- ---------
Cash flow from financing activities (2) (514)
---------------------------------------------- ------ ---------- ---------
Currency translation differences relating
to cash and cash equivalents (2,238) (794)
Net cash flow 2,823 (48,498)
Cash and cash equivalents brought forward 50,434 99,726
---------------------------------------------- ------ ---------- ---------
CASH AND CASH EQUIVALENTS CARRIED FORWARD 51,019 50,434
---------------------------------------------- ------ ---------- ---------
Notes to the group financial statements
for the Year ended 31 DECEMBER 2016
1 Accounting policies
1.1 GROUP AND ITS OPERATIONS
Rockhopper Exploration plc, the 'Company', a public limited
company quoted on AIM, incorporated and domiciled in the United
Kingdom ('UK'), together with its subsidiaries, collectively 'the
'Group' holds certain exploration licences granted in 2004 and 2005
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 and
during 2016 augmented this through the acquisition of exploration
and production assets in Egypt. The registered office of the
Company is 4(th) 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 UK company
law. The consolidated financial statements were approved for issue
by the board of directors on 10 April 2017 and are subject to
approval at the Annual General Meeting of shareholders on 16 May
2017.
1.3 Basis of preparation
The results upon which these financial statements have been
based were prepared using the accounting policies set out below.
These policies have been consistently applied unless otherwise
stated.
These consolidated financial statements have been prepared under
the historical cost convention except, as set out in the accounting
policies below, where certain items are included at fair value.
Items included in the results of each of the Group's entities
are measured in the currency of the primary economic environment in
which that entity operates (the "functional currency").
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
In the current year new and revised standards, amendments and
interpretations were effective and are applicable to the
consolidated financial statements of the Group but did not affect
amounts reported in these financial statements.
At the date of authorisation of this report the following
standards and interpretations, which have not been applied in this
report, were in issue but not yet effective.
-- IFRS9 Financial Instruments (effective date for annual
periods beginning on or after 1 January 2018);
-- IFRS15 Revenue from Contracts with customers (effective date
for annual periods beginning on or after 1 January 2018);
-- IFRS16 Leases (effective date for annual periods beginning on or after 1 January 2019);
Management does not believe that the application of these
standards will have a material impact on the financial
statements.
1.5 Going concern
At 31 December 2016, the Group had available cash and term
deposits of $81 million. In addition the first phase of the Group's
main development, Sea Lion, is fully funded from sanction through a
combination of Development Carries and a loan facility from the
operator.
It is for these reasons that the board is of the opinion, at the
time of approving the financial statements, that the Group and
Company has adequate resources to continue in operational existence
for the foreseeable future, being at least twelve months from the
date of approval of the financial statements. For this reason, the
board has adopted the going concern basis in preparation of the
financial statements.
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 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 indications 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) 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.
(F) Foreign currency translation
Functional and presentation currency:
Items included in the results of each of the Group's entities
are measured using the currency of the primary economic environment
in which the entity operates, the functional currency. The
consolidated financial statements are presented in US$ as this best
reflects the economic environment of the oil exploration sector in
which the Group operates. The Group maintains the accounts of the
parent and subsidiary undertakings in their functional currency.
Where applicable, the Group translates subsidiary accounts into the
presentation currency, US$, using the closing rate method for
assets and liabilities which are translated at the rate of exchange
prevailing at the balance sheet date and rates at the date of
transactions for income statement accounts. Differences are taken
directly to reserves.
Transactions and balances:
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year
end exchange rates of monetary assets and liabilities denominated
in foreign currencies are capitalised in the income statement,
except when deferred in equity as qualifying cash flow hedges and
qualifying net investment hedges.
The period end rates of exchange actually used were:
31 Dec 2016 31 Dec 2015
----------- ------------ ------------
GBP : US$ 1.22 1.48
EUR : US$ 1.05 1.09
----------- ------------ ------------
(g) Revenue and income
(i) Revenue
Revenue arising from the sale of goods is recognized when the
significant risks and rewards of ownership have passed to the
buyer, which is typically at the point that title passes, and the
revenue can be reliably measured. Revenue is measured at the fair
value of the consideration received or receivable and represents
amounts receivable for goods provided in the normal course of
business, net of discounts, customs duties and sales taxes.
(ii) Investment income
Investment income consists of interest receivable for the
period. Interest income is recognised as it accrues, taking into
account the effective yield on the investment.
(h) NON-DERIVATIVE Financial instruments
Financial assets and financial liabilities are recognised on the
Group's balance sheet when the Group has become a party to the
contractual provisions of the instrument.
(i) Other receivables
Other receivables are 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.
(I) INCOME TAXES AND DEFERRED TAXATION
The current tax expense is based on the taxable profits for the
period, after any adjustments in respect of prior years. Tax,
including tax relief for losses if applicable, is allocated over
profits before tax and amounts charged or credited to reserves as
appropriate.
Deferred taxation is recognised in respect of all taxable
temporary differences that have originated but not reversed at the
balance sheet date where a transaction or events have occurred at
that date that will result in an obligation to pay more, or a right
to pay less or to receive more, tax, with the exception that
deferred tax assets are recognised only to the extent that the
directors consider that it is probable that there will be suitable
taxable profits from which the future reversal of the underlying
temporary differences can be deducted.
Deferred tax is measured on an undiscounted basis at the tax
rates that are expected to apply in the periods in which temporary
differences reverse, based on tax rates and laws enacted or
substantively enacted at the balance sheet date.
(j) Share based remuneration
The Group issues equity settled share based payments to certain
employees. Equity settled share based payments are measured at fair
value (excluding the effect of non market based vesting conditions)
at the date of grant. The fair value determined at the grant date
of the equity settled share based payments is expensed on a
straight line basis over the vesting period, based on the Group's
estimate of shares that will eventually vest and adjusted for non
market based vesting conditions.
Fair value is measured by use of either Binomial or Monte-Carlo
simulation. The main assumptions are disclosed in note 9.
Cash settled share based payment transactions result in a
liability. Services received and liability incurred are measured
initially at fair value of the liability at grant date, and the
liability is remeasured each reporting period until settlement. The
liability is recognised on a straight line basis over the period
that services are rendered.
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 14) and property, plant and equipment (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, and property plant and equipment
assets 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.
Carrying value of goodwill (note 16)
Following the acquisition of Mediterranean Oil & Gas plc
during 2014, Rockhopper recognised goodwill in line with the
requirements of IFRS 3- Business Combinations. Management performs
annual impairment tests on the carrying value of goodwill and the
Greater Mediterranean CGU that the goodwill is attributed to. The
calculation of the recoverable amount is based on the likely future
economic benefits of the exploration and evaluation assets in the
acquired portfolio and is based on estimated value of the potential
and actual discoveries as noted above.
Decommissioning costs (note 22)
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.
Fair value on acquisition (note 29)
Following the acquisition of Falkland Oil and Gas Limited
("FOGL") assets and liabilities acquired and the fair value
allocation in accordance with the provisions of "IFRS3 - Business
Combinations" has been determined. Inherently determining fair
values, particularly of intangible exploration and evaluation
assets, is subjective. The valuation was based on the $ per barrel
multiples applied in similar transactions in the market place
involving similar early stage development assets. Not all factors
in any particular transaction may be known and the market provides
only a range of possible values. For reasonableness, this fair
value was compared and supported by 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.
3 Revenue and segmental information
Year ended 31 December 2016
Falkland Greater
Islands Mediterranean Corporate Total
$'000 $'000 $'000 $'000
----------------------------------- --------- -------------- ---------- --------
Revenue - 7,417 - 7,417
Cost of sales - (7,667) - (7,667)
----------------------------------- --------- -------------- ---------- --------
Gross loss - (250) - (250)
Exploration and evaluation
expenses (35) (7,427) (775) (8,237)
----------------------------------- --------- -------------- ---------- --------
Costs in relation to acquisition
and group restructuring - (1,350) (1,179) (2,529)
Other administrative costs - (2,557) (4,884) (7,441)
----------------------------------- --------- -------------- ---------- --------
Total administrative expenses - (3,907) (6,063) (9,970)
Excess of fair value over
cost 111,842 - - 111,842
Charge for share based payments - - (994) (994)
Foreign exchange movement 8,292 27 (2,640) 5,679
----------------------------------- --------- -------------- ---------- --------
Results from operating activities
and other income 120,099 (11,557) (10,472) 98,070
Finance income - - 307 307
Finance expense - (325) (8) (333)
----------------------------------- --------- -------------- ---------- --------
Profit/(loss) before tax 120,099 (11,882) (10,173) 98,044
Tax - - - -
----------------------------------- --------- -------------- ---------- --------
Profit /(loss) for year 120,099 (11,882) (10,173) 98,044
----------------------------------- --------- -------------- ---------- --------
Reporting segments assets 424,867 36,369 92,953 554,189
Reporting segments liabilities 77,952 18,968 30,275 127,195
Depreciation - 4,529 196 4,725
Year ended 31 December 2015
Falkland Greater
Islands Mediterranean Corporate Total
$'000 $'000 $'000 $'000
--------------------------------------------- --------- -------------- ---------- ---------
Revenue - 3,966 - 3,966
Cost of sales - (11,049) - (11,049)
--------------------------------------------- --------- -------------- ---------- ---------
Gross loss - (7,083) - (7,083)
Exploration and evaluation
expenses (52) (22,382) (500) (22,934)
--------------------------------------------- --------- -------------- ---------- ---------
Costs in relation to acquisition
and restructuring - - (1,544) (1,544)
Other administrative costs - (1,943) (7,408) (9,351)
--------------------------------------------- --------- -------------- ---------- ---------
Total administrative expenses - (1,943) (8,952) (10,895)
Charge for share based payments - - (1,937) (1,937)
Foreign exchange movement 1,990 196 (259) 1,927
--------------------------------------------- --------- -------------- ---------- ---------
Results from operating activities
and other income 1,938 (31,212) (11,648) (40,922)
Finance income - - 975 975
Finance expense (4,354) (396) - (4,750)
--------------------------------------------- --------- -------------- ---------- ---------
Loss before tax (2,416) (31,608) (10,673) (44,697)
Tax 55,391 4 - 55,395
--------------------------------------------- --------- -------------- ---------- ---------
Profit/(loss) for period 52,975 (31,604) (10,673) 10,698
--------------------------------------------- --------- -------------- ---------- ---------
Reporting segments assets 251,424 37,687 110,482 399,593
Reporting segments liabilities 86,542 25,978 24,839 137,359
Depreciation - 2,468 276 2,744
4 Cost of sales
Year Year
ended ended
31 Dec 31 Dec
16 15
$'000 $'000
---------------------------------------------- --------- --------
Cost of sales 4,373 2,951
Depreciation of oil and gas assets 4,499 2,449
(Reversal of) impairment loss of oil and gas
assets - 5,649
Other non-cash movements (1,205) -
---------------------------------------------- --------- --------
7,667 11,049
---------------------------------------------- --------- --------
5 exploration and evaluation expenses
Year Year
ended ended
31 Dec 31 Dec
16 15
$'000 $'000
--------------------------------------------- --------- --------
Allocated from administrative expenses (see
note 6) 754 310
Capitalised exploration costs impaired (see
note 14) 3,549 22,335
Other exploration and evaluation expenses 3,957 318
Amounts recharged to partners (23) (29)
--------------------------------------------- --------- --------
8,237 22,934
--------------------------------------------- --------- --------
6 Administrative expenses
Year Year
ended ended
31 Dec 31 Dec
16 15
$'000 $'000
-------------------------------------------------- --------- --------
Directors' salaries and fees, including bonuses
(see note 7) 2,469 3,008
Other employees' salaries 3,157 3,975
National insurance costs 1,098 1,377
Pension costs 1,337 455
Employee benefit costs 333 180
Total staff costs (including group restructuring
costs) 8,394 8,995
Amounts reallocated (3,375) (4,438)
-------------------------------------------------- --------- --------
Total staff costs charged to administrative
expenses 5,019 4,557
Costs in relation to acquisition 1,179 1,544
Auditor's remuneration (see note 8) 278 293
Other professional fees 1,832 1,962
Other 2,905 3,185
Depreciation 283 352
Amounts reallocated (1,526) (998)
-------------------------------------------------- --------- --------
9,970 10,895
-------------------------------------------------- --------- --------
The average number of staff employed during the year was 31 (31
December 2015: 39). The relative decrease between years reflects
the restructuring of the Greater Mediterranean operation. As at 31
December 2016 the number of staff employed had reduced to 25
following a review of staffing levels.
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.
7 directors' remuneration
Year Year
ended ended
31 Dec 31 Dec
16 15
$'000 $'000
------------------------------------------------- --------- --------
Executive salaries 1,283 1,497
Executive bonuses 508 1,013
Company pension contributions to money purchase
schemes 139 150
Benefits 52 33
Non-executive fees 487 498
Gain on exercise of share options - 946
2,469 4,137
------------------------------------------------- --------- --------
Gain on exercise of share options during the prior period
relates to the exercise by two Directors of the Company of
3,000,000 shares in the Company at an exercise price of 42 pence
per share. The options were due to expire during the year.
The total remuneration of the highest paid director was:
Year Year
ended ended
31 Dec 31 Dec
16 15
GBP GBP
----------------------------------- -------- --------
Annual salary 362,100 362,100
Bonuses 153,900 253,470
Money purchase pension schemes 44,600 36,210
Benefits 14,361 7,069
Gain on exercise of share options - 318,750
----------------------------------- -------- --------
574,961 977,599
----------------------------------- -------- --------
Interest in outstanding share options and SARs, by director, are
separately disclosed in the directors' remuneration report.
8 Auditor's remuneration
Year Year
ended ended
31 Dec 31 Dec
16 15
$'000 $'000
---------------------------------------------- -------- --------
KPMG LLP
Fees payable to the Company's auditor for
the audit of the Company's annual financial
statements 148 152
Fees payable to the Company's auditor and
its associates for other services:
Audit of the accounts of subsidiaries 79 82
Half year review 41 48
Tax compliance services 10 11
278 293
---------------------------------------------- -------- --------
9 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
16 15
$'000 $'000
--------------------------------------------------- -------- --------
Charge for the long term incentive plan options 934 1,796
Charge for shares issued under the SIP throughout
the year 60 141
--------------------------------------------------- -------- --------
994 1,937
--------------------------------------------------- -------- --------
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. Certain awards have an escalator
applied which means that they vest in excess of 100% if the Company
is the top or second highest performer in 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 had an
additional performance condition so that no awards would vest if
the Company's share price did not exceed GBP1.80 based on the
average price over the 90 day dealing period up to 31 March 2016.
The Remuneration Committee has exercised its discretion to vary the
performance condition so that the period for achievement of
theGBP1.80 hurdle rate is extended to 31 March 2023. As a result,
any LTIP awards that would have vested on 31 March 2016 will not 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. At the same time, the Remuneration Committee agreed to remove
its discretion to allow vesting for performance in the third
quartile for all existing and future LTIP awards.
The LTIP has been valued using a Monte Carlo model the key
inputs of which are summarised below
Grant date: 22 Apr 13 Apr 13 Oct 13 Oct 10 Mar 8 Oct
2016 2015 14 14 14 13
----------------------------- ----------- ---------- ---------- ---------- -------- ----------
Closing share price 31.5p 64.0p 76.0p 76.0p 115.0p 131.0p
----------------------------- ----------- ---------- ---------- ---------- -------- ----------
Minimum exercise/base
price N/A N/A N/A N/A 180p 180p
----------------------------- ----------- ---------- ---------- ---------- -------- ----------
Escalation applied for N/A N/A N/A 33% N/A N/A
being best of peer group
----------------------------- ----------- ---------- ---------- ---------- -------- ----------
Escalation applied for N/A N/A N/A 29% N/A N/A
being second of peer
group
----------------------------- ----------- ---------- ---------- ---------- -------- ----------
Number granted 10,047,885 4,111,838 1,063,750 2,382,581 201,117 1,757,786
----------------------------- ----------- ---------- ---------- ---------- -------- ----------
Weighted average volatility 60.4% 44.5% 36.5% 36.5% 60.1% 60.1%
----------------------------- ----------- ---------- ---------- ---------- -------- ----------
Weighted average volatility
of index 71.2% 55.8% 42.2% 42.2% 62.0% 62.0%
----------------------------- ----------- ---------- ---------- ---------- -------- ----------
Weighted average risk
free rate 0.58% 0.70% 1.27% 1.27% 0.30% 0.30%
----------------------------- ----------- ---------- ---------- ---------- -------- ----------
Correlation in share
price movement with
comparator group 27.5% 33.5% 32.0% 32.0% 49.0% 49.0%
----------------------------- ----------- ---------- ---------- ---------- -------- ----------
Exercise price 0p 0p 0p 0p 0p 0p
----------------------------- ----------- ---------- ---------- ---------- -------- ----------
Dividend yield 0% 0% 0% 0% 0% 0%
----------------------------- ----------- ---------- ---------- ---------- -------- ----------
The following movements occurred during the year:
At 31 December At 31 December
Issue date Expiry date 2015 Issued Lapsed 2016
------------ ------------- --------------- ----------- ------------ ---------------
8 October 8 October
2013 2023 1,560,418 - (1,014,273) 546,145
------------ ------------- --------------- ----------- ------------ ---------------
10 March 10 March
2014 2024 201,117 - (130,726) 70,391
------------ ------------- --------------- ----------- ------------ ---------------
13 October 13 October
2014 2024 3,446,331 - (404,143) 3,042,188
------------ ------------- --------------- ----------- ------------ ---------------
13 April 13 April
2015 2025 4,111,838 - (383,303) 3,728,535
------------ ------------- --------------- ----------- ------------ ---------------
22 April 22 April
2016 2026 - 10,047,885 - 10,047,885
------------ ------------- --------------- ----------- ------------ ---------------
9,319,704 10,047,885 (1,932,445) 17,435,144
-------------------------- --------------- ----------- ------------ ---------------
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 GBP50,997 (year ended
31 December 2015 GBP49,547) worth of Free Shares to eligible
employees.
This resulted in 177,772 (year ended 31 December 2015:92,277)
Free Shares and 216,778 (year ended 31 December 2015:99,456)
Matching Shares being issued under the SIP in the period.
31 Dec 31 Dec
2015 2015
---------------------------------------------- ------- -------
The average fair value of the shares awarded
(pence) 29 52
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 period on SARs:
Exercise At 31 At 31
price Dec Dec
Issue date Expiry date (pence) 2015 Exercised Lapsed 2016
------------- -------------- --------- ---------- ---------- ------- ----------
22 November 22 November
2008 2018 19.25 355,844 - - 355,844
3 July 2009 3 July 2019 30.87 103,368 - - 103,368
11 January 11 January
2011 2021 372.75 212,641 - - 212,641
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 303.75 291,531 - - 291,531
30 January 30 January
2013 2023 159.00 366,931 - - 366,931
------------- -------------- --------- ---------- ---------- ------- ----------
1,420,531 - - 1,420,531
---------------------------- --------- ---------- ---------- ------- ----------
10 FOREign Exchange
Year Year
ended ended
31 Dec 31 Dec
16 15
---------------------------------------------- -------- --------
$'000 $'000
Foreign exchange gain on Falkland Islands
tax liability 8,290 1,990
Foreign exchange loss on term deposits, cash
and restricted cash (2,103) (69)
---------------------------------------------- -------- --------
6,187 1,921
Foreign exchange on operating activities (508) 6
---------------------------------------------- -------- --------
Total net foreign exchange gain 5,679 1,927
---------------------------------------------- -------- --------
11 FINANCE INCOME AND EXPENSE
Year Year
ended ended
31 Dec 31 Dec
16 15
-------------------------------------------------- -------- --------
$'000 $'000
Bank and other interest receivable 307 975
Total finance income 307 975
Unwinding of discount on provisions 300 378
Unwinding of discount on long term tax liability - 4,347
Other 33 25
-------------------------------------------------- -------- --------
Total finance expense 333 4,750
-------------------------------------------------- -------- --------
12 Taxation
Year Year
ended ended
31 Dec 31 Dec
16 15
--------------------------------------------------- --------- ---------
$'000 $'000
Current tax:
Overseas tax - 9
Adjustment in respect of prior years - (55,405)
--------------------------------------------------- --------- ---------
Total current tax - (55,396)
--------------------------------------------------- --------- ---------
Deferred tax:
Overseas tax - 1
--------------------------------------------------- --------- ---------
Total deferred tax - note 23 - 1
--------------------------------------------------- --------- ---------
Tax on profit on ordinary activities - (55,395)
--------------------------------------------------- --------- ---------
Profit / (loss) on ordinary activities before
tax 98,044 (44,697)
--------------------------------------------------- --------- ---------
Profit / (loss) on ordinary activities multiplied
at 26% weighted average rate (31 December
2015: 26%) 25,491 (11,621)
Effects of:
Income and gains not subject to taxation (32,055) -
Expenditure not deductible for taxation 253 10,365
Depreciation in excess of capital allowances (349) (597)
IFRS2 Share based remuneration cost 216 174
Losses carried forward 6,894 2,537
Effect of tax rates in foreign jurisdictions (436) (539)
Adjustments in respect of prior years - (55,405)
Other (14) (309)
--------------------------------------------------- --------- ---------
Tax (credit)/charge for the year - (55,395)
--------------------------------------------------- --------- ---------
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 21 Tax payable.
The total carried forward losses and carried forward pre trading
expenditures available for relief on commencement of trade are as
follows:
Year Year
ended ended
31 Dec 31 Dec
16 15
------------------ -------- --------
$'000 $'000
UK 59,529 53,161
Falkland Islands 123,732 127,388
Italy 54,051 19,917
Egypt 3,010 -
------------------ -------- --------
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.
13 Basic and diluted loss per share
31 Dec 16 31 Dec
15
Number Number
-------------------------------------------- ------------ ------------
Shares in issue brought forward 296,579,834 292,805,453
Shares issued
- Issued in relation to acquisitions 159,684,668 -
- Issued in relation to share options - 3,532,920
- Issued under the SIP 394,550 241,461
-------------------------------------------- ------------ ------------
Shares in issue carried forward 456,659,052 296,579,834
-------------------------------------------- ------------ ------------
Weighted average number of Ordinary Shares
for the purposes of basic earnings per
share 446,106,108 293,442,707
Effects of dilutive potential Ordinary
shares
Contingently issuable shares - 321,330
446,106,108 293,764,037
-------------------------------------------- ------------ ------------
$'000 $'000
-------------------------------------------- ------- -------
Net profit after tax for purposes of basic
and diluted earnings per share 98,044 10,698
-------------------------------------------- ------- -------
Earnings per share - cents
Basic 21.98 3.65
Diluted 21.98 3.64
-------------------------------------------- ------- -------
The average market value of the Company's shares for the purpose
of calculating the dilutive effect of share options was on quoted
market prices for the year during which the options were
outstanding.
14 intangible exploration and evaluation assets
Falkland Greater
Islands Mediterranean Total
$'000 $'000 $'000
---------------------------- --------- -------------- ---------
As at 31 December 2014 175,504 28,660 204,164
Additions 75,920 2,577 78,497
Written off to exploration
costs - (22,335) (22,335)
Foreign exchange movement - (3,668) (3,668)
------------------------------ --------- -------------- ---------
As at 31 December 2015 251,424 5,234 256,658
Acquisitions through
business combinations 170,000 - 170,000
Asset additions - 5,772 5,772
Additions (2,840) 587 (2,253)
Written off to exploration
costs - (3,549) (3,549)
Foreign exchange movement - (209) (209)
As at 31 December 2016 418,584 7,835 426,419
FALKLAND ISLANDS LICENCES
The Acquisition during the period of $170 million reflects the
fair value of the licences held by Falkland Oil & Gas Limited
and its subsidiary, principally being its 40% interest in the PL004
licences, further details are given in note 29.
The additions during the period relate to $7.2 million of costs
for the exploration campaign in the North Falkland Basin including
the exploration successes at Zebedee and Isobel Deep. $17.2 million
relates to the Sea Lion development. These have been offset by
$27.7 million as a result of insurance proceeds received on a claim
relating to costs incurred on the Isobel deep well during the
2015/16 North Falkland Basin exploration campaign. This reflects
the total insurance proceeds of $48.5 million that was recognised
as receivable on acquisition of FOGL. These costs have been
previously capitalised.
The carrying value of phase 1 of the Sea Lion Development, a
discovered asset still under evaluation was checked for impairment
by reference to a discounted cashflow model. The key inputs to this
model were a 2016 real terms oil price of $75/bbl, a post-tax
discount rate of 12.5% and utilising the operator's current
estimates of capital and operating costs and production profiles.
The project is targeting project sanction decision in mid 2018
(with such decision dependent on funding) and is expected to take
three and half years from sanction to first oil. The remaining
barrels in Sea Lion are expected to be recovered along with those
in near field discoveries in a second phase of the development.
This second phase has been checked for impairment in a similar
manner.
Sensitivity analysis was 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 associated with Isobel/Elaine discoveries and a potential
phase 3 development are carried at cost and no indication of
impairment currently exist although the assets require further
appraisal.
GREATER MEDITERRANEAN LICENCES
The asset additions in the period ($5.8 million) relate to the
Egyptian exploration assets acquired as part of the acquisition of
Beach Petroleum (Egypt) Pty Limited, further details are provided
in note 29.
The additions during the period ($0.6 million) predominantly
relate to work on the Egyptian and Italian license interests.
As at the end of the prior year the costs associated with the
Ombrina Mare exploration permit were impaired due to the Italian
Parliament approving the 2016 Budget Law which reintroduces
restrictions on offshore oil and gas activity including the general
ban on exploration and production activity within 12 nautical miles
of the coast of Italy. The Budget Law came into force on 1 January
2016 and directly affects the Ombrina Mare Field Area.
The Group was also informed by the Ministry of Economic
Development that, following the re-introduction of the ban, the
Production Concession covering the Ombrina Mare Field Area will not
be awarded. This is despite the Ombrina Mare project having
completed all the required technical and environmental
authorisations.
Given the current legal position the decision was made to plug
and abandon the Ombrina Mare well, the unprovided costs associated
with this activity have been initially capitalised in intangible
assets and then impaired.
Following the decision in February 2016 by the Ministry of
Economic Development not to award the Company a Production
Concession covering the Ombrina Mare field, in March 2017 the
Company commenced international arbitration proceedings against the
Republic of Italy. Based on legal and expert opinions, Rockhopper
has been advised that it has strong prospects of recovering very
significant monetary damages as a result of the Republic of Italy's
breaches of the Energy Charter Treaty. Damages would be sought on
the basis of lost profits.
The write-off in relation to Ombrina Mare has been taken without
prejudice to the legal remedies that may be obtained through the
legal proceedings against the Republic of Italy and organs of the
Italian State.
At the end of the year, following a review of the operator's
technical evaluation of the Maltese assets, the decision was made
to relinquish the licence. This was the main component of the $3.5
million written off to exploration costs in the Greater
Mediterranean region as all costs associated with the licence were
written off.
15 property, plant and equipment
Oil and Other Oil Other
gas and
gas
assets assets 31 Dec assets assets 31 Dec
16 15
$'000 $'000 $'000 $'000 $'000 $'000
--------------------------- --------- -------- --------- --------- -------- ---------
Cost brought forward 23,245 1,645 24,890 14,413 1,990 16,403
Acquisitions - 58 58 - - -
Asset additions 9,696 33 9,729 - - -
Additions 1,615 96 1,711 10,513 60 10,573
Foreign exchange (787) (7) (794) (1,681) (22) (1,703)
Disposals (1,391) (729) (2,120) - (383) (383)
--------------------------- --------- -------- --------- --------- -------- ---------
Cost carried forward 32,378 1,096 33,474 23,245 1,645 24,890
--------------------------- --------- -------- --------- --------- -------- ---------
Accumulated depreciation
and impairment
loss brought forward (11,208) (1,045) (12,253) (3,245) (1,012) (4,257)
Current year depreciation
charge (4,499) (226) (4,725) (2,449) (295) (2,744)
Impairment loss - - - (5,649) - (5,649)
Foreign exchange 566 3 569 135 2 137
Disposals 310 650 960 - 260 260
--------------------------- --------- -------- --------- --------- -------- ---------
Accumulated depreciation
and impairment
loss carried forward (14,831) (618) (15,449) (11,208) (1,045) (12,253)
Net book value
brought forward 12,037 600 12,637 11,168 978 12,146
--------------------------- --------- -------- --------- --------- -------- ---------
Net book value
carried forward 17,547 478 18,025 12,037 600 12,637
--------------------------- --------- -------- --------- --------- -------- ---------
All oil and gas property plant and equipment assets relate to
the Greater Mediterranean region, specifically producing assets in
Italy and Egypt.
Asset additions in the period relate almost entirely to the
addition of the Abu Sennan production asset in Egypt which was
acquired as part of the acquisition of Beach Petroleum (Egypt) Pty
Limited, further information is provided in note 29.
Impairment testing was performed across the Group's oil and gas
assets and was calculated by comparing the future discounted cash
flows expected to be derived from production of commercial reserves
(the value in use being the recoverable amount) against the
carrying value of the asset. The future cash flows were estimated
using a realised gas price assumption equal to existing contracts
in place and relevant forward curve in 2017 and 2018, and
EUR0.25/sm3 in 2017 real terms thereafter and were discounted using
a post-tax rate of 10%. Assumptions involved in the impairment
measurement include estimates of commercial reserves and production
volumes, future oil and gas prices and the level and timing of
expenditures, all of which are inherently uncertain. No impairment
was recognised in the period (2015: charge of $5.6 million).
16 GOODWILL
Greater
Mediterranean Total
$'000 $'000
--------------------------- -------------- ------
As at 31 December 2015 9,803 9,803
Foreign exchange movement (364) (364)
As at 31 December 2016 9,439 9,439
Goodwill relates to the corporate acquisition of Mediterranean
Oil & Gas plc ("MOG") during the period ended 31 December 2014.
This goodwill is fully allocated to the Italian CGU and arises due
to the difference between the fair value of the net assets and the
consideration transferred and relates more specifically to Monte
Grosso and Ombrina Mare, which have the optionality and potential
to provide value in excess of this fair value as well as the
strategic premium associated with a significant presence in a new
region. The functional currency of MOG is euros. As such the
goodwill is also expressed in the same functional currency and
subject to retranslation at each reporting period end. The
reduction in the period of $364,000 (2015: $1,137,000) is entirely
due to this foreign currency difference. None of the goodwill
recognised is expected to be deductible for tax purposes.
The Group tests goodwill annually for impairment or more
frequently if there are indicators goodwill might be impaired. The
recoverable amounts are determined by reference to a value in use
calculations. Future cashflows are estimated using long term
realised gas price of EUR0.25/sm3 and a realised oil price of
$75/bbl in 2016 real terms and were discounted using a post-tax
rate of 10%. Assumptions involved in the impairment measurement
include estimates of commercial reserves and production volumes,
future oil and gas prices and the level and timing of expenditures,
all of which are inherently uncertain.
17 OTHER Receivables
31 Dec 31 Dec
16 15
$'000 $'000
--------------------- ------- -------
Current
Receivables 12,633 1,104
Prepayments 374 391
Accrued interest 106 349
Income tax 74 77
Other 3,997 4,278
--------------------- ------- -------
17,184 6,199
--------------------- ------- -------
The carrying value of receivables approximates to fair value.
The increase in receivables in the year is due to the acquisition
of Beach Petroleum (Egypt) Pty Limited which came with an
associated receivable due from EGPC. At 31 December 2016, the
receivable balance due from EGPC was $11.4 million of which net
$4.2 million was due to Rockhopper after offsetting the amount
payable to the former parent company, Beach Energy Limited. Further
details regarding this balance are disclosed in note 29.
18 Restricted cash
31 Dec 31 Dec
16 15
$'000 $'000
---------------------------------------------------- ------- -------
Charged accounts - 874
Other amounts including in relation to exploration
licence applications 495 1,318
---------------------------------------------------- ------- -------
495 2,192
---------------------------------------------------- ------- -------
19 Term Deposits
31 Dec 31 Dec
16 15
$'000 $'000
-------------------------------- ------- -------
Maturing after the period end:
Within three months - 30,000
Three to six months - 10,000
Six to nine month 10,000 10,000
Nine months to one year 20,000 10,000
-------------------------------- ------- -------
30,000 60,000
-------------------------------- ------- -------
Term deposits are disclosed separately on the face of the
balance sheet when their term is greater than three months and they
are unbreakable.
20 Other payables and accrualS
31 Dec 31 Dec
16 15
$'000 $'000
------------------ ------- -------
Accounts payable 687 2,377
Accruals 25,202 25,390
Other creditors 8,123 2,690
------------------ ------- -------
34,012 30,457
------------------ ------- -------
The increase in other creditors in the year is due to the
acquisition of Beach Petroleum (Egypt) Pty Limited and a payable
balance due to the former parent company Beach Energy Limited
related to the associated receivable from EGPC (see note 17). The
balance outstanding as at 31 December 2016 was $7.2 million.
Further details on this transaction are disclosed in note 29.
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.
21 Tax payable
31 Dec 31 Dec
16 15
$'000 $'000
------------------------- ------- -------
Current tax payable 9 9
Non current tax payable 39,115 47,405
------------------------- ------- -------
39,124 47,414
------------------------- ------- -------
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 was confirmed at GBP64.4 million and payable on the first
royalty payment date on Sea Lion. Currently the first royalty
payment date 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%. The
movement in the tax liability since the 31 December 2015 relates to
an $8.3 million foreign exchange gain. Management are considering
strategies to mitigate currency risk in relation to this
balance.
The tax liability may be revised downward if the Falkland
Islands' Commissioner of Taxation is satisfied that either (i) the
Exploration Carry from Premier is utilised to fund exploration
activities or (ii) any element of the Development Carry from
Premier becomes "irrecoverable". The full benefit of the $48.0
million Exploration Carry has been received from Premier during the
current campaign and a request has been made to the Falkland
Islands Commissioner of Taxation to reduce the tax liability by
GBP4.7 million. No adjustment in the tax liability has been made as
this is still subject to agreement with the Falkland Islands'
Commissioner of Taxation.
22 Provisions
Abandonment Other
provision provisions 31 Dec 31 Dec
16 15
$'000 $'000 $'000 $'000
------------------------------- ------------ ----------- -------- --------
Brought forward 20,059 284 20,343 21,816
Amounts utilized (4,003) (242) (4,245) (45)
Amounts arising in the period - 66 66 64
Change in estimate (849) - (849) 382
Unwinding of discount 300 - 300 393
Foreign exchange (695) (6) (701) (2,267)
------------------------------- ------------ ----------- -------- --------
Carried forward at period end 14,812 102 14,914 20,343
------------------------------- ------------ ----------- -------- --------
The abandonment 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, 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.
23 deferred tax liability
31 Dec 31 Dec
16 15
$'000 $'000
------------------------ ------- -------
At beginning of period 39,145 39,144
Movement in period - 1
At end of period 39,145 39,145
------------------------ ------- -------
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 2016 are disclosed in note 12 Taxation. No deferred tax
asset has been recognised in relation to these losses due to
uncertainty that future suitable taxable profits will be available
against which these losses can be utilized. The potential deferred
tax asset at the 31 December 2016 would be $59 million (31 December
2015: $49 million).
24 Share capital
31 Dec 2016 31 Dec 2015
-------------------- --------------------
$'000 Number $'000 Number
----------------------------------- ------ ------------ ------ ------------
Called up, issued and fully
paid: Ordinary shares of GBP0.01
each 7,194 456,659,552 4,910 296,579,834
----------------------------------- ------ ------------ ------ ------------
For details of all movements during the year, see note 13.
25 reserves
Set out below is a description of each of the reserves of the
Group:
Share Amount subscribed for share capital in excess
premium of its nominal value.
Share The share incentive plan reserve captures the
based equity related element of the expenses recognised
remuneration 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
held in of shares held on behalf of participants in
trust 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 The difference between the nominal value and
reserve the fair value of shares issued on acquisition
of subsidiaries.
Foreign Exchange differences arising on consolidating
currency the assets and liabilities of the Group's subsidiaries
translation are classified as equity and transferred to
reserve the Group's translation reserve.
Special The reserve is non distributable and was created
reserve 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 Cumulative net gains and losses recognised
losses in the financial statements.
26 Lease commitments
The future aggregate minimum lease payments under
non-cancellable operating leases in respect of land and buildings
were as follows:
31 Dec 31 Dec
16 15
$'000 $'000
--------------------------------------- ------- -------
Total committed within 1 year 902 1,258
Total committed between 1 and 5 years 1,117 2,951
--------------------------------------- ------- -------
2,019 4,209
--------------------------------------- ------- -------
27 CAPITAL COMMITMENTS
Capital commitments represent the Group's share of expected
costs in relation to its interests in joint ventures net of any
carry arrangements that are in force.
The Group also committed to fund its share of the approved work
program for PL032 for the calendar year ending 31 December 2017 of
US$8 million.
In addition, the Group has approved a capital work plan and
budget commitments of US$3 million in relation to its portfolio of
assets in the Greater Mediterranean region.
28 Related Party Transactions
The remuneration of directors, who are the key management
personnel of the Group, is set out below in aggregate.
Year Year
ended ended
31 Dec 31 Dec
16 15
$'000 $'000
----------------------------------- --------- ---------
Short term employee benefits 2,538 3,041
Pension contributions 139 150
Other long term employee benefits - 946
Share based payments 508 1,013
----------------------------------- --------- ---------
3,185 5,150
----------------------------------- --------- ---------
Other long term employee benefits relate to the gain on exercise
of share options during the previous period. Additional details are
disclosed in note 7 Directors' remuneration.
The Company was notified that directors of the Company exercised
options over shares in the Company during the prior year. In
addition a former director of the Company also exercised options.
The options were due to expire during that year and were exercised
during one of the few remaining open periods prior to their expiry.
The directors and former director elected to sell shares to
discharge the cost of exercise and their tax and national insurance
obligations (where applicable). These shares were purchased by the
Rockhopper Employee Benefit Trust (the "EBT") which was established
in 2013 for the purpose of holding shares to satisfy future
exercises of options and vesting of awards under the Company's Long
Term Incentive Plan. The shares were acquired by the EBT by way of
an off market purchase at the closing share price on the date prior
to exercise. The remaining shares were retained.
Year ended Number Exercise Shares EBT share Shares
31 Dec of shares price sold to purchase retained
15 subject EBT price
to option
------------ ----------- --------- ---------- ---------- ----------
63.25
Sam Moody 1,500,000 42 pence 1,236,472 pence 263,528
Pierre 63.25
Jungels 1,500,000 42 pence 1,222,827 pence 277,173
Former 63.25
director 525,000 42 pence 434,565 pence 90,435
29 acquisition of subsidiaries
Acquisition of Falkland Oil and Gas Limited
In January 2016 Rockhopper completed the acquisition of the
entire issued share capital of Falkland Oil and Gas Limited
("FOGL").
The boards of Rockhopper and FOGL believe that a combination of
the Rockhopper and FOGL Groups (together, the "Combined Group")
represents a significant value opportunity arising from the
combination of their highly complementary portfolios. Specifically,
the Combined Group is expected to:
-- be the largest North Falkland Basin licence and discovered
resource holder with a material working interest in all key
licences;
-- have enhanced prospects of progressing the Sea Lion project
through final investment decision;
-- have greater exposure to exploration and appraisal upside potential; and
-- benefit from enhanced scale and capabilities creating value
in the current market environment.
Under the terms of the agreement announced on 24 November 2015,
shareholders of FOGL received 0.2993 shares of the Company per FOGL
share.
At acquisition FOGL had a portfolio of assets and internal
technical resources and management and administrative processes. In
addition it has potential future outputs through the monetization
of its 2C resources as such it is a business and the transaction
has been accounted for by the purchase method of accounting with an
effective date of 18 January 2016 being the date on which the group
gained control of FOGL. Information in respect of the assets and
liabilities acquired and the fair value allocation to the FOGL
assets in accordance with the provisions of "IFRS3 - Business
Combinations" has been determined as follows:
Recognised values on
acquisition
$'000
----------------------------------------- ---------------------
Intangible exploration and appraisal
assets 170,000
Property, plant and equipment 58
Inventories 162
Trade and other receivables 21,031
Trade and other payables (19,222)
----------------------------------------- ---------------------
Net identifiable assets and liabilities 172,029
Fair value in excess of consideration (111,842)
----------------------------------------- ---------------------
Satisfied by:
Equity instruments 159,684,668 ordinary
shares 65,499
Less cash acquired (5,312)
----------------------------------------- ---------------------
Total consideration 60,187
----------------------------------------- ---------------------
The fair value of equity instruments has been determined by
reference to the closing share price on the trading day immediately
prior to the completion of the acquisition.
Inherently determining fair values, particularly of intangible
exploration and evaluation assets, is subjective. The valuation of
intangible assets acquired was based on the $ per barrel multiples
applied in transactions in the market place involving similar early
stage development assets. Not all factors in any particular
transaction may be known and the market provides only a range of
possible values over a relatively small population of analogous
transactions. Analysis of $ per barrel multiples implied a wide
range of reasonable possible outcomes between $1.5 per barrel and
$2.5 per barrel although actual transactions ranged from near zero
to values in well in excess of $5 per barrel. The value above
equates to just under $2 per barrel of 2C resource acquired in the
Sea Lion complex and around $1.6 per barrel if managements view of
the additional 2C resource discovered in the Emily, Isobel and
Isobel Deep J fans is included.
For reasonableness, this fair value was compared and supported
by both historic investment in the basin and 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.
The fair value in excess of consideration arises due to the
difference between the fair value of the net assets and the
consideration transferred and relates to the fact that the
financial position of FOGL had deteriorated due to cost overruns at
the Humpback exploration well as well as merger terms being agreed
prior to the Isobel Elaine well results, which as noted above added
additional 2C resource and substantially de-risked the
Isobel-Elaine complex. The fair value in excess of consideration
arises due to the difference between the fair value of the net
assets and the consideration transferred and relates to the fact
that the financial position of FOGL had deteriorated due to cost
overruns at the Humpback exploration well as well as merger terms
being agreed prior to the Isobel Elaine well results, which as
noted above added additional 2C resource and substantially
de-risked the Isobel-Elaine complex.
Acquisition costs of $1,430,000 arose as a result of the
transaction in this and the prior period. These have been
recognised as part of administrative expenses in the statement of
comprehensive income.
Since the acquisition date, FOGL has contributed $nil to group
revenues and added $873,000 to the group loss. If the acquisition
had occurred on 31 December 2015, group revenues and group profit
for the period would be materially the same.
Acquisition of Beach Petroleum (Egypt) Pty Limited
In August 2016 Rockhopper completed the acquisition of the
entire issued share capital of Beach Petroleum (Egypt) Pty Limited
("Beach Egypt"). Beach Egypt holds a 22% interest in the Abu Sennan
concession and a 25% interest in the El Qa'a Plain concession.
Whilst the Company acquired had assets and outputs the processes of
Beach Egypt were all managed by the former parent company. As such
the acquisition has not been accounted for as a business
combination under IFRS 3 but an asset acquisition; the upfront
consideration paid for the asset acquisition was $11.9m excluding
working capital adjustments and further consideration of $7.4m to
be paid in line with the recovery of Beach Energy's retained
interest in the gross transferred EGPC receivable. Under the
transaction terms the former parent company Beach Energy Limited
retains the economic benefit of the EGPC receivable balance as at
31 December 2015, being US$8.6 million. Rockhopper pays the
receivable due to Beach Energy Limited as the funds are received by
Rockhopper post-completion.
30 Post balance sheet events
OCean rig settlement
The Company announced on 14 September 2016, the operators of the
2015/16 North Falkland Basin exploration campaign had entered into
arbitration with Ocean Rig in relation to the termination of Eirik
Raude rig.
The Company confirmed in February 2017 that a settlement had
been reached between the operators and Ocean Rig. The financial
impact of this settlement is fully reflected in the results to 31
December 2016.
Commencement of international arbitration
On the 23 March 2017, Rockhopper announced that it has commenced
international arbitration proceedings against the Republic of Italy
in relation to the Ombrina Mare project.
Following the decision in February 2016, by the Ministry of
Economic Development not to award the Company a Production
Concession covering the Ombrina Mare field, the Company, with its
legal advisers, has considered its options with regard to obtaining
damages and compensation from the Republic of Italy for breaching
the Energy Charter Treaty ("ECT").
Based on legal and expert opinions, Rockhopper has been advised
that it has strong prospects of recovering very significant
monetary damages as a result of the Republic of Italy's breaches of
the ECT. Damages would be sought on the basis of lost profits.
In addition, the Company has secured non-recourse funding for
the arbitration from a funder that specialises in financing
commercial litigation and arbitration claims. In the event of
success (with an award above a nominal threshold) Rockhopper
retains a very material proportion of any award.
31 Risk management policies
Risk review
The risks and uncertainties facing the Group are set out in the
risk management report. Risks which require further quantification
are set out below.
Foreign exchange risks: The Group's functional currency is US$
and as such the Group is exposed to foreign exchange movements on
monetary assets and liabilities denominated in other currencies, 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 $81.5 million of which $71.4 million was
held in US$ denominations. The following table summarises the split
of the Group's assets and liabilities by currency:
Currency denomination $ GBP EUR EGP GBP
of balance
$'000 $'000 $'000 $'000
----------------------- -------- ------- ------- --------
Assets
31 December 2016 520,607 7,811 27,064 7
31 December 2015 346,295 15,546 37,752 -
------------------------ -------- ------- ------- --------
Liabilities
31 December 2016 72,908 41,852 12,735 -
31 December 2015 60,585 52,262 24,512 -
------------------------ -------- ------- ------- --------
The following table summarises the impact on the Group's pre-tax
profit and equity of a reasonably possible change in the US$ 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 2016 (2,519) 2,519 (2,519) 2,519
31 December 2015 (3,672) 3,672 (3,672) 3,672
------------------- ---------- ---------- ---------- ----------
US$ against euro
31 December 2016 (1,060) 1,060 (1,060) 1,060
31 December 2015 (126) 126 1,198 (1,198)
------------------- ---------- ---------- ---------- ----------
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 2016 were
$12,633,000 (31 December 2015: $1,104,000). 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 2016
were $30,000,000 (31 December 2015: $60,000,000).
Glossary:
2C best estimate of contingent resources
2P proven plus probable reserves
3C a high estimate category of contingent
resources
AGM Annual General Meeting
Beach Energy Beach Energy Limited
Beach Egypt Beach Petroleum (Egypt) Pty Limited
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
boepd barrels of oil equivalent per day
Capex capital expenditure
Company Rockhopper Exploration plc
E&P exploration and production
ERCE ERC Equipoise Limited
Farm-down to assign an interest in a licence
to another party
FEED Front End Engineering and Design
FID Final Investment Decision
FIG Falkland Islands Government
FOGL Falkland Oil and Gas Limited
FPSO Floating Production, Storage and
Offtake vessel
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
KPI Key Performance Indicators
Low a low estimate category of Prospective
Resources also used as a generic
term to describe a low or conservative
estimate
Mmbbls million barrels
Mmboe million barrels of oil equivalent
MMstb million stock barrels (of oil)
Mmbtu one million British Thermal Units
Mscf thousand standard cubic feet
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
Premier Premier Oil plc
PSV virtual exchange point
Scm standard cubic metre
STOIIP stock-tank oil initially in place
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").
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR GGUWCCUPMPPU
(END) Dow Jones Newswires
April 11, 2017 02:01 ET (06:01 GMT)
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