Some positive news from Rockhopper Exploration (LON:RKH), the oil and gas exploration and production company. Following last year’s heads of terms with Harbour Energy (LON:HBR) and Navitas Petroleum (TLV:NVPT), Rockhopper has announced that they have signed legally binding definitive documentation in relation to Harbour exiting and Navitas entering the North Falkland Basin.
Shares jumped around 10% on the news to 10.80p although we note they have now drifted back to 8.55p which is pretty much where it was this time last year.
Subject to regulatory approvals, Navitas, which is based in the US and Israel, is increasing its original 30% stake to 65% in the Sea Lion project. Rockhopper is raising its stake from 30% to 35% of the project.Rockhopper now retains a higher working interest in the Sea Lion project than under the previous Premier-Navitas transaction announced in 2020 and it also provides a clean exit for Harbour – it has recently been streamlining its portfolio, by focusing mainly on North Sea assets.
The aim of this latest arrangement is to create greater alignment and simplify commercial arrangements, states Rockhopper. Navitas as partner should be a good choice too. In 2021, Navitas financed the US$1 billion Shenandoah development, and the Sea Lion project is now Navitas’ largest operated development asset.
Navitas to provide loan funding
Rockhopper does require further funding to achieve Sea Lion Final Investment Decision (FID) and for working capital – as of 31 March 2022, Rockhopper’s cash position was US$3.9 million. As such both parties are developing a financing and technical plan to enable the development of the Sea Lion project to achieve first oil on a lower cost and expedited basis post sanction.
Navitas has agreed to provide loan funding to Rockhopper: the majority of Rockhopper’s share of Sea Lion phase one related costs from transaction completion up to FID will be funded through a loan from Navitas with interest charged at 8% per year (the Pre-FID Loan).
Subject to a positive FID, Navitas will provide an interest free loan to Rockhopper to fund two-thirds of Rockhopper’s share of Sea Lion phase one development costs (for any costs not met by third party debt financing). Certain costs, such as licence costs, are excluded. Funds drawn under the loans will be repaid from 85% of Rockhopper’s working interest share of free cash flow.
In the event that material progress towards FID has not occurred within five years of completion of the transaction, Rockhopper can elect to remove Navitas from the Falkland Islands petroleum licences (should the licences still be in effect at that time) by repaying the Pre-FID Loan. Should material progress have been made, but FID not achieved, then the five-year period can be extended by 12 months and then a further six months if certain project milestones have been achieved.
Ombrina Mare arbritration latest
Rockhopper has also received notification from the International Centre for Settlement of Investment Disputes. The Tribunal anticipates that the Ombrina Mare proceedings will be closed in the next few weeks.
In February 2016 Italy’s Ministry of Economic Development decided not to award Rockhopper a Production Concession covering the Ombrina Mare field. This, Rockhopper believes, was a breach of the Energy Charter Treaty (ECT) – Italy left the ECT in 2016 but under a 20-year sunset clause it is possible to sue ECT host states up to 20 years after leaving, as well as sue for lost profit expectations. Rockhopper commenced international arbitration in 2017.
Despite local opposition to the Ombrina Mare oil field, Rockhopper believes it has strong prospects of recovering very significant monetary damages on the basis of lost profits.
