TIDMRKH
RNS Number : 8808A
Rockhopper Exploration plc
30 May 2023
30 May 2023
Rockhopper Exploration plc
("Rockhopper", the "Group" or the "Company")
Full-Year Results for the Year Ended 31 December 2022
Rockhopper Exploration plc (AIM: RKH), the oil and gas
exploration and production company with key interests in the North
Falkland Basin, is pleased to announce its audited results for the
year ended 31 December 2022.
2022 HIGHLIGHTS
SEA LION AND NORTH FALKLAND BASIN
-- Completion of transaction to bring Navitas Petroleum LP
("Navitas") into the North Falkland Basin licences (the
"Transaction")
-- Licence interests fully aligned
o Navitas 65% and Operator
o Rockhopper 35%
-- Rockhopper benefits from two loans from Navitas
o Pre-Final Investment Decision ("FID") loan: covers all
Rockhopper's Phase 1 Sea Lion project costs pre-FID via 8% loan
o Post FID loan: covers two-thirds of Rockhopper's Phase 1 Sea
Lion project costs from FID to the earlier of 12 months post-first
oil or project completion (for any costs not met by third party
debt financing) via 0% loan
o Loans repaid from 85% of Rockhopper's working interest share
of Sea Lion Phase 1 project cash flows
-- Sea Lion project re-defined
o Total barrels developed: 269mmbbls
o Phased drilling
-- First campaign: 18 wells (11 pre first oil)
-- Further campaign: 5 wells
o Production plateau: 80,000 bbls/d
o Redeployed FPSO
o Gross JV NPV10 US$4.3 billion
o Pre first oil capex US$1.3billion
OMBRINA MARE
-- Successful arbitration outcome announced in August 2022
-- Awarded compensation c.EUR190 million plus interest (the "Award")
-- Rockhopper sent letter to Italy in September 2022 requesting payment of EUR247 million
-- Italy seeking to annul; Rockhopper contesting annulment; confident in merits of legal case
-- Interest accruing at c.EUR1.25 million per month
-- Rockhopper and Italy directed to find an outcome that allows
Rockhopper to enforce whilst protecting Italy from risk of
non-recoupment should it succeed in annulment
CORPORATE AND FINANCIAL
-- Capital raise of US$10.4 million pre-expenses in placing and
open offer which completed in July 2022
-- Warrants outstanding at 9p per share
-- Administrative expenses remain low
Keith Lough, Chairman of Rockhopper, commented:
" As John Summers and I approach our final AGM, we are pleased
for shareholders that the Company is in such a strong position. The
combination of a new, committed and capable partner in Navitas, a
reworked hugely attractive Sea Lion development and the outcome of
the Ombrina Mare arbitration sets our company up for what we
believe is an exciting moment in our development. We are delighted
with the hugely significant progress achieved in the last year and
are convinced that we are closer than ever to unlocking the value
of Sea Lion for all stakeholders. "
Enquiries:
Rockhopper Exploration plc
Sam Moody - Chief Executive Officer
Tel. +44 (0) 20 7390 0234 (via Vigo Consulting)
Canaccord Genuity Limited (NOMAD and Joint Broker)
Henry Fitzgerald-O'Connor/James Asensio/Gordon Hamilton
Tel. +44 (0) 20 7523 8000
Peel Hunt LLP (Joint Broker)
Richard Crichton/Georgia Langoulant
Tel. +44 (0) 20 7418 8900
Vigo Consulting
Patrick d'Ancona/Ben Simons/Fiona Hetherington
Tel. +44 (0) 20 7390 0234
Note regarding financial information disclosure
The financial information set out below does not constitute the
Group's statutory accounts for the year ended 31 December 2022, but
is derived from those accounts. References within the document may
refer to information in the statutory accounts and these will be
sent to shareholders and published on the Company's website
imminently.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER'S REVIEW
INTRODUCTION
2022 and the first months of 2023 saw the most material and
positive developments at Rockhopper for some time. A combination of
conflict in Europe with the terrible events in Ukraine, structural
long-term underinvestment in global oil and gas projects, and a
post-pandemic recovery in demand saw oil prices remain above US$70
for the year. Against this background, we made real progress,
completing the Navitas transaction, extending our licences by two
years, strengthening our balance sheet and benefiting from a
unanimous Award in our favour from the ICSID Tribunal with
compensation of approximately EUR190 million plus interest. Taken
together, these developments put us in our strongest position for
many years.
We continue to believe that oil and gas, responsibly produced,
will play a hugely important role in the security of global energy
supply for many decades to come as the energy transition continues.
Indeed, the IEA forecasts global oil demand will grow to over 104
million barrels per day by 2026. Countries such as the United
Kingdom continue to import energy from parts of the world with
lower environmental standards than are applied in the Falklands,
meaning that switching the source of that supply to Sea Lion would
result in a reduction in that country's overall greenhouse gas
emissions.
Sea Lion has the potential to play an important role not only in
securing the financial future and thereby political independence of
the Falklands against continued Argentine economic aggression, but
also providing the UK with a secure and responsibly produced source
of energy.
NAVITAS TRANSACTION COMPLETES; LICENCES EXTED
Having announced the exit of Harbour Energy ("Harbour") exit and
the formation of the new Rockhopper-Navitas JV in April 2022, we
completed what was a complex transaction with numerous moving parts
in September of that year. We are delighted to welcome Navitas to
the North Falkland Basin.
The transaction sees full alignment of all our North Falkland
Basin (NFB) acreage with Navitas taking a 65% interest and becoming
Operator of licences PL003, PL004, PL005, PL032, and PL033, which
we consider to be the most prospective areas in the basin.
Importantly, this removes the risk of future unitisation
negotiations within the partnership as the Sea Lion development
straddles a block boundary.
As a result of the transaction, Rockhopper benefits from two
attractive loans from Navitas. The first loan, which we are
currently drawing on, covers all of our net Sea Lion Phase 1
working interest costs (other than licence fees and taxes) at an
interest rate of 8% and is available from transaction completion to
FID. The second 0% interest loan covers two-thirds of our net
working interest Sea Lion Phase 1 costs (other than licence fees
and taxes) for project costs not covered by third party debt
financing. Both loans are repaid from 85% of Rockhopper's net Sea
Lion Phase 1 cash flows.
As part of closing the transaction, the new JV agreed to buy out
the remaining unsatisfied exploration well commitment on licences
PL032 and PL033 for US$1.8 million, with Rockhopper paying its 35%
net working interest amount directly, due to it being effectively a
licence fee-related cost. We also extended our South Falkland Basin
("SFB") licences by two years, which we hold 100% as Operator,
where all exploration commitments have already been satisfied.
Whilst our focus is very much on getting Sea Lion up and running,
we continue to work up prospectivity in the SFB where we have what
we believe to be a direct analogue feature to the large Darwin
discovery held by Borders & Southern Petroleum in adjacent
acreage. Between what has been discovered and appraised and what
can be inferred, the Company believes the Falkland basins represent
a long-term, world-class resource, and the key to unlocking it is
getting to FID on Sea Lion.
SEA LION PROJECT RE-DEFINED
In March 2023, only six months after the transaction completed,
R announced a material and hugely impressive improvement in the
project costs and economics.
Building on previous work carried out by both Rockhopper and
Premier Oil ("Premier"), the development team at Navitas re-defined
the Sea Lion project such that, when compared to the previous
project, production rates are maintained, total oil produced
increases, pre-first-oil costs are down by some half a billion
dollars and life-of-field cash costs have been reduced to less than
US$30 per barrel. All of this has been achieved in an industry
environment of rising costs. We are, perhaps not surprisingly,
hugely impressed and absolutely delighted at these developments
which materially improve the economics and therefore the ability to
finance the project.
The new project develops 269 million barrels of oil via a
leased, re-deployed FPSO with 23 wells in total spread over two
separate drilling campaigns. The first campaign has 18 wells, of
which 11 are drilled pre-first-oil with a second campaign of a
further five wells to be drilled around 42 months post-first
oil.
Navitas continues to refine these development plans and work on
the financing with a view to reaching FID during 2024.
Navitas appointed Netherland Sewell & Associates ("NSAI") to
review the quantities of oil and gas in the basin and produce a net
present value calculation based on the new development plan. Whilst
Rockhopper is not an addressee of the report, we endorse its
conclusions. That report, which is available in Navitas' annual
report which can be found on its web site, contains the following
estimates of contingent resources in the Rockhopper Navitas JV
acreage(1) :
1C (mmbbls) 2C (mmbbls) 3C (mmbbls)
Development pending 204 269 368
Development unclarified 247 443 761
Total 451 712 1,129
The NSAI report contains net to Navitas economics. Using the
outputs from the report, we have calculated the NPV10 at Brent
US$77 flat (the oil price used in the report) gross to the JV on a
post-Falkland Island Government ("FIG") royalty, pre-tax basis, to
be US$4.3 billion for the first 269 million barrels development
alone (2C).
[1] The last independent resource report commissioned directly
by Rockhopper was the ERCE 2016 Report which had an estimated 2C
value of 517 MMbbls. The Navitas commissioned NSAI Independent
Report used an updated approach and assumptions to the ERCE 2016
report.
Rockhopper is not an addressee and has not been party to the
production of the NSAI Independent Report. The NSAI Independent
Report has been produced to PRMS standards. Rockhopper's technical
team which includes Lucy Williams (BSc Geology, MSc Petroleum
Geology, Chartered Geologist) had limited opportunity to review the
NSAI Independent Report before its publication but endorses the
work conducted and conclusions drawn.
OMBRINA MARE
Having started our Arbitration against the Republic of Italy in
2017 we were delighted when, in August 2022, we received a
unanimous decision in our favour from the ICSID Tribunal. The
Tribunal awarded us compensation of approximately EUR190 million
plus interest at EURIBOR + 4% backdated to January 2016 with a four
month pause in that interest from the date of the Award.
In September 2022, having made the appropriate interest
calculations, we wrote to Italy requesting payment of EUR247
million. Italy has not yet responded to that letter.
On 28 October 2022, Italy submitted an application to the ICSID
seeking to annul the Award under Article 52 of the ICSID
Convention. Italy also requested a provisional stay of the
enforcement of the Award pursuant to Article 52(5) of the ICSID
Convention. A hearing on whether or not to continue the stay took
place on 6 March 2023 and on 24 March 2023 the Committee issued
orders with regard to the provisional stay. Those orders were, as
follows:
1: that Italy and Rockhopper shall confer - in good faith and
using their best efforts to cooperate and find an effective
arrangement - for the mitigation of the risk of non-recoupment
using a first-class international bank outside the European Union
(or as Italy and Rockhopper otherwise agree) to be put into place
in anticipation of the termination of the provisional stay of
enforcement of the Award. This is to mitigate the perceived risk
that, in the event the Award is annulled, Italy may not be able to
recover Italian assets seized or frozen by Rockhopper (before the
ad hoc Committee issues its decision on annulment) in court
enforcement proceedings.
2: that Rockhopper shall, within 30 days of the date of the
decision, apprise the Committee of arrangements agreed with Italy
for the mitigation of the risk of non-recoupment or that
negotiations have failed and, in the latter event, propose concrete
arrangements in accordance with the decision for the mitigation of
the risk of non-recoupment. Italy may then briefly comment on
Rockhopper's proposal within 10 days, constructively highlighting
any areas of disagreement between the Parties.
Italy has refused to comply with the Panels instructions.
Rockhopper intends to continue to work in good faith to resolve the
issues raised regarding non-recoupment and has submitted to the
Panel its proposal to mitigate this risk. The provisional stay
remains in force during this time, pending further orders from the
Committee.
The decision to lift the provisional stay of enforcement is
unrelated to the merits of Italy's annulment request. A final
hearing in relation to Italy's request to annul the Award is
scheduled to take place in Q1 2024. Guidance given by Rockhopper in
the Company's 31 October 2022 announcement that the entire
annulment process is likely to take 18-24 months from that date
remains in place. Rockhopper is currently paying its own legal
costs as the previous funding budget put in place to cover the
original Arbitration has been discharged.
Whilst proceedings at ICSID are confidential between the
parties, ICSID does publish the grounds on which it is possible to
seek annulment and statistics on the success of such
applications.
The funding budget covering the costs of the Arbitration was
fully discharged at the point that we received the Award and that
agreement does not cover any costs past that point in time.
Rockhopper has paid all legal fees (approximately US$500,000)
associated with contesting the provisional stay and is
investigating options for covering the balance of costs required to
contest the annulment application itself and pursue any potential
enforcement actions. Remaining costs to contest annulment are
likely to be in the region of GBP1m to GBP1.5m. Costs to undertake
enforcement are more difficult to quantify given the potential
requirement to enforce simultaneously in multiple legal
jurisdictions. Previous guidance on timing given at the time Italy
made their annulment application remains unchanged.
Whilst there can be no guarantees, given the published
statistics on annulment and the strength of our legal case, we
remain confident in the likelihood of prevailing and recovering
material compensation from Italy in the fullness of time.
CORPORATE MATTERS
Having significantly cut costs, moved offices, and reduced our
headcount in 2020 we maintain a keen focus on keeping our General
and Administrative ("G&A") costs lean. Whilst managing costs,
we have also proactively sought to retain our small team of people
who understand the assets in great detail, and who have preserved
material exposure to development success for our shareholders,
through often very challenging circumstances.
That said, with no material production revenue coming into the
business, we undertook our first capital raise for over a decade in
2022. By combining a placing with an open offer we were able to
offer all our shareholders the chance to participate in the raise
on the same terms as larger institutional investors. By issuing
121,834,936 shares at 7pence per share we raised approximately
US$10.4 million before expenses, also issuing one warrant for every
two shares taken up with those warrants giving holders the right to
buy shares at 9pence. Should the bulk of those warrants be taken up
this would provide important additional working capital for the
Company.
ENVIRONMENTAL, SOCIAL, AND GOVERNANCE
ESG and Corporate Responsibility more generally continue to be a
focus for Rockhopper. As an oil and gas exploration and production
business our role is to ensure that we carry out our operations in
a responsible manner. We have visited the Falklands twice during
2023 and pride ourselves on being a long-term partner to the people
of the Islands. Once FID on Sea Lion has been achieved, we commit
to defining measures to report transparently and mitigate our
emissions as far as is practicable.
In recent years, we have retained a small and stable board to
support the CEO and his team as we progressed important initiatives
such as the ICSID tribunal and transaction with Navitas. Now is
therefore an appropriate time for change as we move into a new
phase for the Company, having passed through important milestones
on both those fronts.
In light of this we plan to phase in a new board led by a new
chair. Their focus will be on recovering our tribunal Award and
working with the Falkland Islands and UK governments, as well as
Navitas, to move towards approval of the Sea Lion development. Work
to identify a new chair is underway and we hope to have made the
appointment by Q4 of this year. In addition Non-Executive Director,
John Summers will also be standing down by Q4 2023 and a
replacement is also being sought.
We would like to thank the whole team for their continuing
efforts during challenging times. Given our recent progress, we are
absolutely convinced that an exciting period lies ahead of the
Company.
FINANCIAL REVIEW
OVERVIEW
From a finance perspective, the most significant events in 2022
were:
-- Detailed transaction terms agreed with Harbour and Navitas in
relation to the Sea Lion project and the Transaction completed in
September 2022
-- Successful fundraising through Placing and Subscription
raising net proceeds of US$6.3 million in June 2022
-- Additional US$2.8 million net proceeds raised through Open Offer in July 2022
-- Successful ICSID arbitration awardin respect of Ombrina Mare.
o Compensation of EUR190 million plus interest at EURIBOR + 4%,
compounded annually from 29 January 2016 until time of payment
o The Republic of Italy applied to have the Award annulled in
October 2022
With the Transaction completing the arrangements with Navitas
ensure that Rockhopper is funded going forward for all pre-sanction
costs related to the Sea Lion Phase 1 development (other than
licence fees and taxes). This, combined with the fundraising,
materially strengthens the Group's financial position in the short
and medium term and significantly enhances the prospects for a
successful project financing for Sea Lion.
The Award was made in September 2022 and Italy applied to have
the Award annulled in October 2022. The Arbitration itself is
discussed in detail in the Chairman and Chief Executive Officer's
Review, but from a financial perspective has no impact on the
results for the period to 31 December 2022 as the Award is still
considered a contingent asset and as such not recognised in the
financial statements. Assuming full recovery of the Award, after
payments due to the arbitration funder and success fees due to the
Group's legal representation, the Group expects to retain
approximately 80% pre-tax. Further analysis has begun to establish
the tax treatment on any payments received.
RESULTS FOR THE YEAR
For the year ended 31 December 2022, the Group reported revenues
of US$0.7 million (2021: US$0.8 million) and profit after tax of
US$35.5 million (2021: loss after tax US$7.8 million). The
significant profit after tax was driven by a current year tax
income of US$38.8 million (2021: US$0.2 million) This is discussed
in more detail below.
REVENUE AND COST OF SALES
The Group's revenues of US$0.7 million (2021: US$0.8 million)
during the year relate entirely to the sale of natural gas in the
Greater Mediterranean (specifically Italy) region. The reduction in
revenues from the comparable period reflects the reduction in
production offset by increased realised gas prices. Gas was sold at
a price linked to the Italian "PSV" (Virtual Exchange Point) gas
marker price.
Cash operating costs, excluding movements on provisions and
depreciation charges, amounted to US$0.9 million (2021: US$1.1
million). The reduction in operating costs reflects the reduced
production during the year.
Following cessation of production in Italy no revenues are
expected going forward.
OPERATING COSTS
Exploration and evaluation expenses are not material in the
year. The impairment in the current year mainly due to the write
off of costs relating to areas of the North Falkland Basin which
will not be developed as part of the Sea Lion Phase 1 project. The
reversal of impairment in the prior year relates to impairments
against amounts over accrued in 2020.
The Group continues to manage corporate costs and has achieved
significant reductions in recurring G&A costs over the last
five years. In light of the sharp reduction in oil prices
experienced in the first half of 2020, initiatives to further
reduce corporate costs commenced in May 2020.
Administrative expenses have increased during the year to US$3.6
million (2021: US$3.3million). It should be noted that these costs
include initial legal fees in relation to contesting the Annulment
of the Award. Having anticipated Italy might attempt to annul the
Award, Rockhopper had a non-binding offer in place to fund both
fighting the annulment and enforcing the Award. The Group has
instead chosen to use existing resources to fund all legal costs
arising from contesting the request by Italy for annulment whilst
it explores all acceptable funding possibilities.
The foreign exchange gain in the year is US$6.6 million (2021:
US$0.8 million). As with last year, this is mainly movements in
relation to the tax arising from the Group's farm-out to Premier in
2012, a GBP denominated balance. Finance expense in the year of
US$4.2 million (2021: US$3.5million) also mainly relate to
adjustments in relation to this tax balance. This balance is
discussed further below.
CASH MOVEMENTS AND CAPITAL EXPITURE
At 31 December 2022, the Group had cash and term deposits of
US$9.8 million (31 December 2021: US$4.8 million).
Cash and term deposit movements during the period:
US$m
----------------------------------------- ------
Opening cash balance (31 December 2021) 4.8
Revenues 0.7
Cost of sales (0.9)
Falkland Islands (1.8)
Administrative expenses (3.4)
Net proceeds of fundraising 9.1
Miscellaneous 1.3
Closing cash balance (31 December
2022) 9.8
----------------------------------------- ------
Miscellaneous includes foreign exchange and movements in working
capital during the period.
The additions to intangible exploration and evaluation assets
during the year of $2.7 million relate principally to the Sea Lion
development. Management considered whether there were any
indicators of impairment to the carrying value of the intangible
and concluded there were none. This is discussed in more detail in
note 14 to the financial statements.
FUNDRAISING
During the year Rockhopper raised US$9.1 million, post expenses,
by way of a Placing and Subscription in June 2022 and an Open Offer
in July 2022. In each case at an issue price of 7 pence per Unit
(the "Issue Price"). Each Unit offered comprises one New Ordinary
Share and, for every two New Ordinary Shares subscribed for, one
Warrant.
Each Warrant gives the holder the right to subscribe for one new
Ordinary Share at a price of 9 pence per Ordinary Share (the
"Strike Price") at any time from the issue of the Warrants up to
(and including) 5.00 p.m. on 31 December 2023 (the "Warrant
Exercise Period").
The Placing utilised a cashbox structure and therefore the
premium on the ordinary shares and associated costs have in
accordance with section 621 of the Companies Act 2006 been
recognised within the merger reserve.
The functional currency of Rockhopper is US$. Given the warrant
exercise price is determined in GBP, a foreign currency, the
Warrants issued under the Subscription do not meet the fixed amount
of cash criteria to be treated as equity and therefore have been
treated as a derivative financial liability. These were initially
valued at US$1.3 million on grant and subsequently revalued to
US$1.7 million as at the year end, with the difference being
treated as a finance expense.
Accounting standards allows warrants to be treated as equity
instruments where the Company offers them pro rata to all of its
existing owners equally. Therefore, warrants issued as part of the
Open Offer have been treated as equity.
The Placing and Subscription raised net US$6.3 million after
associated costs of US$0.8 million. The Open Offer raised net
US$2.8 million after associated costs of US$0.4 million.
MERGERS, ACQUISITIONS AND DISPOSALS
The Sea Lion development remains central to the Group's plans
and we are excited at the prospect of bringing in a new industry
partner, Navitas, especially given their experience in financing
projects of a similar scale to Sea Lion.
From a financial perspective Navitas will provide loan funding
to the Group to cover the majority of its share of Sea Lion phase
one related costs from Transaction completion up to FID through a
loan from Navitas with interest charged at 8% per annum (the
"Pre-FID Loan"). Subject to a positive FID, Navitas will provide an
interest free loan to fund two-thirds of the Group's share of Sea
Lion phase one development costs (for any costs not met by third
party debt financing).
Certain costs, such as licence costs, are excluded in both
instances. Funds drawn under the loans will be repaid from 85% of
Rockhopper's working interest share of free cash flow
TAXATION
On the 8 April 2015, the Group agreed binding documentation
("Tax Settlement Deed") with the FIG in relation to the tax arising
from the Group's farm out to Premier.
The Tax Settlement Deed confirms the quantum and deferment of
the outstanding tax liability and is made under Extra Statutory
Concession 16.
The Tax Settlement Deed also states that the Group is entitled
to make adjustments to the outstanding tax liability if and to the
extent that the Commissioner is satisfied that any part of the
Development Carry becomes irrecoverable. Under the Transaction the
balance of Development Carry has become irrecoverable and in the
Group's judgment no further amounts are due on the Group's 2012
farm-out to Premier.
Given the highly material nature of this judgment professional
advice has been sought to confirm that it is probable that if
challenged it would be concluded that the Group is entitled to
adjust the outstanding tax liability for the irrecoverable
Development Carry. As such the Group has derecognised the tax
liability to measure it at the most likely amount that the
liability will be settled for of US$nil. We are currently engaged
with FIG formalising the tax implications of the termination of the
2012 Premier Oil farm down which resulted in irrecoverable carry of
approximately US$ 670 million.
Should it be proven that there is no entitlement to adjustment
under the Tax Settlement Deed then the outstanding tax liability
would be GBP59.6 million and still payable on the earlier of: (i)
the first royalty payment date on Sea Lion; (ii) the date of which
Rockhopper disposes of all or a substantial part of the Group's
remaining licence interests in the North Falkland Basin; or (iii) a
change of control of Rockhopper Exploration plc.
In this unlikely instance Management believes the most likely
timing of payment is in line with the first royalty payment. Based
on previous correspondence with FIG, Management does not believe
that the Transactions completion constitutes a substantial disposal
and therefore would not have accelerated the liability should it be
shown to be still payable.
The derecognition of the tax liability has led to a tax income
of US$38.8 million.
LIQUIDITY, COUNTERPARTY RISK AND GOING CONCERN
The Group monitors its cash position, cash forecasts and
liquidity on a regular basis and takes a conservative approach to
cash management. At 31 December 2022, the Group had cash and cash
equivalents and term deposits of US$9.8 million and $7.3 million as
at 30 April 2023.
Historically, the Group's largest annual expenditure has related
to pre-sanction costs associated with the Sea Lion development.
Following completion of Navitas coming into the North Falkland
Basin (the "Transaction") the Group benefits from loan funding for
its share of all Sea Lion pre-sanction costs (other than licence
fees and taxes).
Normal working capital requirements and projected recurring
expenditure is expected to be around US$4.0 million per year and in
addition there are costs associated with maintaining the various
licence and concessions in the Group's Italian portfolio.
In addition to the above requirements the third-party funding
agreement in place to cover costs in relation to its ICSID
arbitration with the Republic of Italy does not cover any costs
arising past the date of the Award (23 August 2022). A separate
success fee of approximately GBP3 million is due to the Company's
legal representatives on establishing liability and an award
requiring Italy to pay at least EUR25 million in damages. This
amount is also not covered by the funding agreement.
Having anticipated Italy might attempt to annul the Award,
Rockhopper had a non-binding offer in place to fund both fighting
the annulment and enforcing the Award. The Group has instead chosen
to use existing resources to fund all legal costs arising from
contesting the request by Italy for annulment whilst it explores
all funding possibilities.
At the year end the Group had 56.5 million unexercised 9 pence
warrants in issue with an expiry date of 31 December 2023. Assuming
the share price is in excess of 9 pence, which it is at time of
writing, the Group expects the majority of these warrants to be
exercised providing additional funds of up to GBP5million.
However, in the downside circumstances where these outstanding
warrants are not fully exercised the Group would have to raise
additional funds to meet both legal costs in relation to the
arbitration and normal working capital requirements as we work
towards project sanction of Sea Lion.
Under the base case forecast, the Group will have sufficient
financial headroom to meet forecast cash requirements for the 12
months from the date of approval of these consolidated financial
statements. However, in the downside scenarios, in the absence of
any mitigating actions, the Group may have insufficient funds to
meet its forecast cash requirements. Potential mitigating actions,
some of which are outside the Group's control, could include
collection/monetisation of arbitration award proceeds, deferral of
expenditure or raising additional equity.
Accordingly, after making enquiries and considering the risks
described above, the Directors have reviewed the Group's overall
position and are of the opinion that the Group is able to operate
as a going concern for at least the next twelve months from the
date of approval of these financial statements and believe the use
of the going concern basis is appropriate.
Nonetheless, for the avoidance of doubt, in the downside
scenarios in which the remaining warrants are not exercised and
additional funding is not raised and in the absence of potential
mitigating actions indicates the existence of a material
uncertainty that may cast significant doubt upon the Group's
ability to continue as a going concern and the Group may therefore
be unable to realise its assets and discharge its liabilities in
the ordinary course of business. The Consolidated and Parent
Company financial statements do not include adjustments that would
result if the Group was unable to continue as a going concern.
PRINCIPAL RISK AND UNCERTAINTIES
A detailed review of the potential risks and uncertainties which
could impact the Group are outlined elsewhere in this Strategic
Report. The Group identified its key risks at the end of 2022 as
being:
1 oil price volatility;
2 access to capital;
3 joint venture partner alignment; and
4 failure of joint venture partners to secure the requisite
funding to allow a Sea Lion Final Investment Decision.
CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2022
Year ended Year ended
31 December 31 December
2022 2021
$'000 $'000
Notes
=================================================== ====== ================== ===============
Revenue 3 652 839
=================================================== ====== ================== ===============
Other cost of sales (1,965) (1,141)
Depreciation and impairment of oil and gas assets - (667)
=================================================== ====== ================== ===============
Total cost of sales 4 (1,965) (1,808)
=================================================== ====== ================== ===============
Gross loss (1,313) (969)
=================================================== ====== ================== ===============
Other exploration and evaluation expenses (24) (398)
Write off/write back of exploration costs (307) 273
=================================================== ====== ================== ===============
Total exploration and evaluation expenses 5 (331) (125)
Administrative expenses 6 (3,625) (3,263)
Charge for share based payments 9 (393) (824)
Foreign exchange movement 10 6,596 789
=================================================== ====== ================== ===============
Results from operating activities 934 (4,392)
Finance income 11 23 4
Finance expense 11 (4,175) (3,522)
=================================================== ====== ================== ===============
Loss before tax (3,218) (7,910)
Tax income 12 38,763 151
=================================================== ====== ================== ===============
Profit/(loss) for the year attributable to the
equity shareholders of the parent company 35,545 (7,759)
=================================================== ====== ================== ===============
Profit/(loss) per share attributable to the equity
shareholders of the parent company: cents
=================================================== ====== ================== ===============
Basic 13 6.77 (1.70)
Diluted 13 6.68 (1.70)
=================================================== ====== ================== ===============
All operating income and operating gains and
losses relate to continuing activities.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2022
----------------------------------------------------------- ------------ ------------
Year ended Year ended
31 December 31 December
===========================================================
2022 2021
===========================================================
$'000 $'000
=========================================================== ============ ============
Profit/(loss) for the year 35,545 (7,759)
Items that may be reclassified to profit or loss
Exchange differences on translation of foreign operations 1,683 889
=========================================================== ============ ============
Total comprehensive profit/( loss) for the year 37,228 (6,870)
=========================================================== ============ ============
The notes on pages 51 to 71 form an integral part
of these consolidated financial statements.
CONSOLIDATED BALANCE SHEET
===================================
as at 31 December 2022
=========================================== ====== ============= ============
31 December 31 December
2022 2021
Notes $'000 $'000
=========================================== ====== ============= ============
Non current assets
Exploration and evaluation assets 14 251,970 249,583
Property, plant and equipment 15 68 201
Finance lease receivable 444 730
Current assets
Other receivables 16 1,406 2,074
Finance lease receivable 259 288
Restricted cash 519 579
Term deposits 17 8,736 -
Cash and cash equivalents 1,059 4,822
=========================================== ====== ============= ============
Total assets 264,461 258,277
=========================================== ====== ============= ============
Current liabilities
Other payables 18 3,383 2,000
Derivative financial liabilities 19 1,744 -
Lease liability 209 286
Non-current liabilities
Lease liability 344 842
Tax payable 20 - 43,204
Provisions 21 19,177 18,287
Deferred tax liability 22 39,137 39,137
=========================================== ====== ============= ============
Total liabilities 63,994 103,756
=========================================== ====== ============= ============
Equity
Share capital 23 8,771 7,218
Share premium 24 6,518 3,622
Share based remuneration 24 1,492 4,327
Own shares held in trust 24 (1,494) (3,342)
Merger reserve 24 78,208 74,332
Foreign currency translation reserve 24 (7,999) (9,682)
Special reserve 24 175,281 175,281
Retained losses 24 (60,310) (97,235)
=========================================== ====== ============= ============
Attributable to the equity shareholders of
the company 200,467 154,521
=========================================== ====== ============= ============
Total liabilities and equity 264,461 258,277
=========================================== ====== ============= ============
These financial statements on pages 47 to 71 were approved by
the directors and authorised for issue on 26 May 2023 and are
signed on their behalf by:
Samuel Moody
Chief Executive Officer
Rockhopper Exploration plc Registered Company Number:
05250250
The notes on pages 51 to 71 form an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2022
Foreign
Share Share Share Merger currency Special Retained Total
capital premium based Shares reserve translation reserve losses equity
remuneration held reserve
in
trust
==============
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
============== ============= ============= =============== ======= ============ ================ ============= ============== ==============
Balance at 31
December
2020 7,218 3,622 5,973 (3,342) 74,332 (10,571) 188,028 (104,693) 160,567
Loss for the
year - - - - - - - (7,759) ( 7,759)
Other
comprehensive
profit for
the year - - - - - 889 - - 889
============== ============= ============= =============== ======= ============ ================ ============= ============== ==============
Total
comprehensive
loss for the
year - - - - - 889 - (7,759) (6,870)
Share based
payments
(see note 9) - - 824 - - - - - 824
Other
transfers - - (2,470) - - - (12,747) 15,217 -
============== ============= ============= =============== ======= ============ ================ ============= ============== ==============
Balance at 31
December
2021 7,218 3,622 4,327 (3,342) 74,332 (9,682) 175,281 (97,235) 154,521
Profit for the
year - - - - - - - 35,545 35,545
Other
comprehensive
profit for
the year - - - - - 1,683 - - 1,683
============== ============= ============= =============== ======= ============ ================ ============= ============== ==============
Total
comprehensive
profit for
the year - - - - - 1,683 - 35,545 37,228
Share based
payments
(see note 9) - - 393 - - - - - 393
Share issues
(net of
expenses) 1,553 2,896 - - 3,876 - - - 8,325
Other
transfers - - (3,228) 1,848 - - - 1,380 -
============== ============= ============= =============== ======= ============ ================ ============= ============== ==============
Balance at 31
December
2022 8,771 6,518 1,492 (1,494) 78,208 (7,999) 175,281 (60,310) 200,467
============== ============= ============= =============== ======= ============ ================ ============= ============== ==============
See note 24 for a description of each of the reserves of the
Group
Other transfers relate to amounts transferred from the Share
based remuneration reserve to either Retained losses for options
that have either not vested or expired or Shares held in trust
where they have been used to satisfy exercised options.
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 December 2022
Year ended Year ended
31 December
31 December 2021
2022 $'000
Notes $'000
============================================================ ====== ============== =============
Cash flows from operating activities
============================================================ ====== ============== =============
Loss before tax (3,218) (7,910)
Adjustments to reconcile net losses to cash:
Depreciation 15 122 1,082
Share based payment charge 9 393 824
Written off/(back) exploration costs 14 307 (273)
Profit/(loss) on disposal of property, plant and equipment 8 (156)
Finance expense 4,167 3,601
Foreign exchange (7,764) (640)
============================================================ ====== ============== =============
Operating cash flows before movements in working capital (5,985) (3,472)
Changes in:
Inventories - 287
Other receivables 1,564 176
Payables 837 420
Movement on provisions 1,030 6
============================================================ ====== ============== =============
Cash utilised by operating activities (2,554) (2,583)
============================================================ ====== ============== =============
Cash flows from investing activities
Capitalised expenditure on exploration and evaluation
assets (1,797) (3,248)
Purchase of property, plant and equipment - (228)
Disposal of assets held for sale - -
============================================================ ====== ============== =============
Investing cash flows before movements in capital balances (1,797) (3,476)
Changes in:
Restricted cash - (100)
Term deposits (8,697) -
------------------------------------------------------------ ------ -------------- -------------
Cash flow from investing activities (10,494) (3,576)
============================================================ ====== ============== =============
Cash flows from financing activities
Issue of ordinary shares 9,038 -
Expenses associated with issue of ordinary shares (1,194) -
Issue of warrants classified as derivative financial
liabilities 1,250 -
Exercise of warrants and share options 481 -
Lease liability payments (257) (587)
Cash flow from financing activities 9,318 (587)
============================================================ ====== ============== =============
Currency translation differences relating to cash
and cash equivalents (33) (112)
Net cash flow (3,730) (6,746)
Cash and cash equivalents brought forward 4,822 11,680
============================================================ ====== ============== =============
Cash and cash equivalents carried forward 1,059 4,822
============================================================ ====== ============== =============
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2022
1. Accounting policies
1.1 Group and its operations
Rockhopper Exploration plc, the 'Company', a public limited
company quoted on AIM, incorporated and domiciled in the United
Kingdom ('UK'), together with its subsidiaries, collectively 'the
'Group' holds certain exploration licences for the exploration and
exploitation of oil and gas in the Falkland Islands. In addition,
it has operations in the Greater Mediterranean based in Italy. The
registered office of the Company is Warner House, 123 Castle
Street, Salisbury, Wiltshire, SP1 3TB.
1.2 Statement of compliance
The consolidated financial statements of the Group have been
prepared on a going concern basis in accordance with UK adopted
International Accounting Standards in conformity with the
requirements of the Companies Act 2006 . The consolidated financial
statements were approved for issue by the board of directors on 26
May 2023 and are subject to approval at the Annual General Meeting
of shareholders on 29 June 2023.
1.3 Basis of preparation
The results upon which these financial statements have been
based were prepared using the accounting policies set out below.
These policies have been consistently applied unless otherwise
stated.
These consolidated financial statements have been prepared under
the historical cost convention with the exception of Share Based
Payments which are at fair value.
Items included in the results of each of the Group's entities
are measured in the currency of the primary economic environment in
which that entity operates (the "functional currency"). The
consolidated financial statements are presented in US Dollars ($),
which is Rockhopper Exploration plc's functional currency.
All values are rounded to the nearest thousand dollars ($'000)
or thousand pounds (GBP'000), except when otherwise indicated.
1.4 Change in accounting policy
Changes in accounting standards
In the current year the following new and revised Standards and
Interpretations have been adopted. None of these have a material
impact on the Group's annual results.
Onerous Contracts - Cost of Fulfilling a Contract (Amendments to
IAS 37); Property, Plant and Equipment: Proceeds before Intended
Use (Amendments to IAS 16); Annual Improvements to IFRS Standards
2018-2020 (Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41); and
References to Conceptual Framework (Amendments to IFRS 3).
New accounting pronouncements
At 31 December 2022, the following Standards, Amendments and
Interpretations were in issue but not yet effective:
The following amendments are effective for the period beginning
1 January 2023:
-- Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2);
-- Definition of Accounting Estimates (Amendments to IAS 8); and
-- Deferred Tax Related to Assets and Liabilities arising from a
Single Transaction (Amendments to IAS 12).
The following amendments are effective for the period beginning
1 January 2024:
-- IFRS 16 Leases (Amendment - Liability in a Sale and Leaseback)
-- IAS 1 Presentation of Financial Statements (Amendment -
Classification of Liabilities as Current or Non-current)
-- IAS 1 Presentation of Financial Statements (Amendment -
Non-current Liabilities with Covenants)
The Directors do not expect that the adoption of the above
Standards, Amendments and Interpretations will have a material
impact on the Financial Statements of the Group in future
periods.
1.5 Going concern
The Group monitors its cash position, cash forecasts and
liquidity on a regular basis and takes a conservative approach to
cash management. At 31 December 2022, the Group had cash and cash
equivalents and term deposits of US$9.8 million.
Historically, the Group's largest annual expenditure has related
to pre-sanction costs associated with the Sea Lion development.
Following completion of Navitas coming into the North Falkland
Basin (the "Transaction") the Group benefits from loan funding for
its share of all Sea Lion pre-sanction costs (other than licence
fees and taxes).
Normal working capital requirements and projected recurring
expenditure is expected to be around US$4.0 million per year and in
addition there are costs associated with maintaining the various
licence and concessions in the Group's Italian portfolio.
In addition to the above requirements the third-party funding
agreement in place to cover costs in relation to its ICSID
arbitration with the Republic of Italy does not cover any costs
arising past the date of the Award (23 August 2022). A separate
success fee of approximately GBP3 million is due to the Company's
legal representatives on establishing liability and an award
requiring Italy to pay at least EUR25 million in damages. This
amount is also not covered by the funding agreement.
Having anticipated Italy might attempt to annul the Award,
Rockhopper had a non-binding offer in place to fund both fighting
the annulment and enforcing the Award. The Group has instead chosen
to use existing resources to fund all legal costs arising from
contesting the request by Italy for annulment whilst it explores
all funding possibilities.
At the year end the Group had 56.5 million unexercised 9 pence
warrants in issue with an expiry date of 31 December 2023. Assuming
the share price is in excess of 9 pence, which it is at time of
writing, the Group expects the majority of these warrants to be
exercised providing additional funds of up to GBP5million.
However, in the downside circumstances where these outstanding
warrants are not fully exercised the Group would have to raise
additional funds to meet both legal costs in relation to the
arbitration and normal working capital requirements as we work
towards project sanction of Sea Lion.
Under the base case forecast, the Group will have sufficient
financial headroom to meet forecast cash requirements for the 12
months from the date of approval of these consolidated financial
statements. However, in the downside scenarios, in the absence of
any mitigating actions, the Group may have insufficient funds to
meet its forecast cash requirements. Potential mitigating actions,
some of which are outside the Group's control, could include
collection/monetisation of arbitration award proceeds, deferral of
expenditure or raising additional equity.
Accordingly, after making enquiries and considering the risks
described above, the Directors have reviewed the Group's overall
position and are of the opinion that the Group is able to operate
as a going concern for at least the next twelve months from the
date of approval of these financial statements and believe the use
of the going concern basis is appropriate.
Nonetheless, for the avoidance of doubt, in the downside
scenarios in which the remaining warrants are not exercised and
additional funding is not raised and in the absence of potential
mitigating actions indicates the existence of a material
uncertainty that may cast significant doubt upon the Group's
ability to continue as a going concern and the Group may therefore
be unable to realise its assets and discharge its liabilities in
the ordinary course of business. The Consolidated and Parent
Company financial statements do not include adjustments that would
result if the Group was unable to continue as a going concern.
1.6 Significant accounting policies
(A) Basis of accounting
The Group has identified the accounting policies that are most
significant to its business operations and the understanding of its
results. These accounting policies are those which involve the most
complex or subjective decisions or assessments, and relate to the
capitalisation of exploration expenditure. The determination of
this is fundamental to the financial results and position and
requires management to make
a complex judgement based on information and data that may
change in future periods.
Since these policies involve the use of assumptions and
subjective judgements as to future events and are subject to
change, the use of different assumptions or data could produce
materially different results. The measurement basis that has been
applied in preparing the results is historical cost.
The significant accounting policies adopted in the preparation
of the results are set out below.
(B) Basis of consolidation
The Group financial statements consolidate the financial
statements of the Company and its subsidiary undertakings drawn up
to 31 December 2022. Subsidiaries are those entities over which the
Group has control. Control is achieved where the Group has the
power over the subsidiary, is exposed, or has rights to variable
returns from the subsidiary and has the ability to use its power to
affect its returns. All subsidiaries are
100 per cent owned by the Group and there are no non-controlling
interests.
The results of subsidiaries acquired or disposed of during the
year are included in the income statement from the effective date
of acquisition or up to the effective date of disposal, as
appropriate. Where necessary, adjustments are made to the financial
statements of subsidiaries acquired to bring the accounting
policies used into line with those used by other members of the
Group.
All intercompany balances have been eliminated on
consolidation.
(C) Segmental reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision maker
as required by IFRS8 Operating Segments. The chief operating
decision maker, who is responsible for allocating resources and
assessing performance of the operating segments, has been
identified as the board of directors.
The Group's operations are made up of three segments, the oil
and gas exploration and production activities in the geographical
regions of the Falkland Islands and the Greater Mediterranean
region as well as its corporate activities centered in the UK.
(D) Oil and gas assets
The Group applies the successful efforts method of accounting
for exploration and evaluation ("E&E") costs, having regard to
the requirements of IFRS6 - 'Exploration for and evaluation of
mineral resources'.
Exploration and evaluation ("E&E") expenditure Expensed
exploration & evaluation costs
Expenditure on costs incurred prior to obtaining the legal
rights to explore an area, geological and geophysical costs are
expensed immediately to the income statement.
Capitalised intangible exploration and evaluation assets
All directly attributable E&E costs are initially
capitalised in well, field, prospect, or other specific, cost pools
as appropriate, pending determination.
Treatment of intangible E&E assets at conclusion of
appraisal activities
Intangible E&E assets related to each cost pool are carried
forward until the existence, or otherwise, of commercial reserves
have been determined, subject to certain limitations including
review for indicators of impairment. If commercial reserves have
been discovered, the carrying value, after any impairment loss, of
the relevant E&E assets, are then reclassified as development
and production assets within property plant and equipment. However,
if commercial reserves have not been found, the capitalised costs
are charged to expense.
Development and production assets
Development and production assets, classified within property,
plant and equipment, are accumulated generally on a field-by-field
basis and represent the costs of developing the commercial reserves
discovered and bringing them into production, together with the
E&E expenditures incurred in finding commercial reserves
transferred from intangible E&E assets.
Depreciation of producing assets
The net book values of producing assets are depreciated
generally on a field-by-field basis using the unit-of-production
method by reference to the ratio of production in the year and the
related commercial reserves of the field, taking into account the
future development expenditure necessary to bring those reserves
into production.
Disposals
Net cash proceeds from any disposal of an intangible E&E
asset are initially credited against the previously capitalised
costs. Any surplus proceeds are credited to the income
statement.
Decommissioning
Provision for decommissioning is recognised in full when the
related facilities are installed. The amount recognised is the
present value of the estimated future expenditure. A corresponding
amount equivalent to the provision is also recognised as part of
the cost of the related oil and gas property. This is subsequently
depreciated as part of the capital costs of the production
facilities. Any change in the present value of the estimated
expenditure is dealt with prospectively as an adjustment to the
provision and the oil and gas property. The unwinding of the
discount is included in finance cost.
(E) Leases
The Group as lessee
The Group assesses whether a contract is, or contains, a lease,
at inception of the contract. The Group recognises a right-of-use
asset and
a corresponding lease liability with respect to all lease
arrangements in which it is the lessee, except for short-term
leases and leases of low value assets.
The lease liability is initially measured at the present value
of the lease payments that are not paid at the commencement date,
discounted by using the rate implicit in the lease. Lease payments
included in the measurement of the lease liability comprise fixed
lease payments. The lease liability is presented as a separate line
in the consolidated statement of financial position. The lease
liability is subsequently measured by increasing the carrying
amount to reflect interest on the lease liability (using the
effective interest method) and by reducing the carrying amount to
reflect the lease payments made.
The Group has not had to remeasure the lease liability (and
makes a corresponding adjustment to the related right-of-use
asset).
The right-of-use assets comprise the initial measurement of the
corresponding lease liability, lease payments made at or before the
commencement day, less any lease incentives received and any
initial direct costs. They are subsequently measured at cost less
accumulated depreciation and impairment. Right-of-use assets are
depreciated over the shorter period of lease term and useful life
of the right-of-use asset. The depreciation starts at the
commencement date of the lease. The right-of-use assets are
presented as a separate line in the notes to the financial
statements.
Payment associated with short term leases and leases of low
value assets are recognised on a straight-line basis as an expense
in profit or loss. Short term leases are leases with a lease term
of 12 months or less. Low-value assets comprise IT-equipment and
small items of office furniture.
The Group as lessor
The Group enters into lease agreements as a lessor with respect
to some sublets on its rented offices. Leases for which the Group
is a lessor are classified as a finance lease as the terms of the
lease transfer substantially all the risks and rewards of ownership
to the lessee. Finance lease income is allocated to accounting
periods so as to reflect a constant periodic rate of return on the
Group's net investment outstanding in respect of the leases.
(F) Capital commitments
Capital commitments include all projects for which specific
board approval has been obtained up to the reporting date. Projects
still under investigation for which specific board approvals have
not yet been obtained are excluded.
(G) Foreign currency translation
Functional and presentation currency:
Items included in the results of each of the Group's entities
are measured using the currency of the primary economic environment
in which the entity operates, the functional currency. The
consolidated financial statements are presented in US$ as this best
reflects the economic environment of the oil exploration sector in
which the Group operates. The Group maintains the financial
statements of the parent and subsidiary undertakings in their
functional currency. Where applicable, the Group translates
subsidiary financial statements into the presentation currency,
US$, using the closing rate method for assets and liabilities which
are translated at the rate of exchange prevailing at the balance
sheet date and rates at the date of transactions for income
statement accounts. Differences are taken through the Statement of
Comprehensive Income to reserves.
Transactions and balances:
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year
end exchange rates of monetary assets and liabilities denominated
in foreign currencies are expensed in the income statement, except
when deferred in equity as qualifying cash flow hedges and
qualifying net investment hedges.
The year end rates of exchange were:
31 December 31 December 2021
2022
---------- ----------- ----------------
GBP : US$ 1.21 1.35
EUR : US 1.07 1.13
---------- ----------- ----------------
(H) Revenue and income
(i) Revenue from contracts with customers
Revenue arising from the sale of goods is recognised when a
performance obligation is satisfied by transferring control over a
product or service to a customer, which is typically at the point
that title passes, and the revenue can be reliably measured.
Revenue is measured at the fair value of the consideration received
or receivable and represents amounts receivable for goods provided
in the normal course of business, net of discounts, customs duties
and sales taxes.
(ii) Investment income
Investment income consists of interest receivable for the
period. Interest income is recognised as it accrues, taking into
account the effective yield on the investment.
(I) Non-derivative financial instruments
Financial assets and financial liabilities are recognised on the
Group's balance sheet when the Group has become a party to the
contractual provisions of the instrument.
(i) Other receivables
Other receivables are initially measured at fair value. They are
subsequently measured at amortised cost using the effective
interest method, less loss allowance. A provision for impairment is
made where there is objective evidence that amounts will not be
recovered in accordance with original terms of the agreement. The
Group recognises an allowance for expected credit losses for all
debt instruments not held at fair value through profit or loss.
Expected credit losses are based on the difference between the
contractual cash flows due in accordance with the contract and all
the cash flows that the Group expects to receive, discounted at an
approximation of the original effective interest rate.
(ii) Restricted cash
Restricted cash is disclosed separately on the face of the
balance sheet and denoted as restricted when it is not under the
exclusive control of the Group. All amounts relate to balances held
as security in relation to property leases.
(iii) Term deposits
Term deposits are disclosed separately on the face of the
balance sheet when their term is equal or greater than one month
and they are unbreakable.
(iv) Cash and cash equivalents
They are stated at carrying value which is deemed to be fair
value. Cash and cash equivalents comprise instant access bank
balances as well as a small amount of cash in hand.
(v) Financial liabilities and equity
Financial liabilities and equity instruments are classified
according to the substance of the contractual arrangements entered
into. An equity instrument is any contract that evidences a
residual interest in the assets of the Group after deducting all of
its liabilities.
(vi) Account and other payables
Account payables are initially recognised at fair value and
subsequently at amortised cost using the effective interest
method.
(vii) Derivative financial liabilities
Derivative financial liabilities are initially recognised and
carried at fair value with changes in fair value recognised in the
consolidated statement of comprehensive income.
(viii) Equity instruments
Equity instruments issued by the Company are recorded at the
proceeds received, net of direct issue costs.
(J) Income taxes and deferred taxation
The current tax amount is based on the taxable profits or losses
of the year, after any adjustments in respect of prior years. Tax,
including tax relief for losses if applicable, is allocated over
profits before tax and amounts charged or credited to reserves as
appropriate.
Deferred taxation is recognised in respect of all taxable
temporary differences that have originated but not reversed at the
balance sheet date where a transaction or events have occurred at
that date that will result in an obligation to pay more, or a right
to pay less or to receive more, tax, with the exception that
deferred tax assets are recognised only to the extent that the
directors consider that it is probable that there will be suitable
taxable profits from which the future reversal of the underlying
temporary differences can be deducted.
Deferred tax is measured on an undiscounted basis at the tax
rates that are expected to apply in the periods in which temporary
differences reverse, based on tax rates and laws enacted or
substantively enacted at the balance sheet date.
(K) Share based remuneration
The Group issues equity settled share based payments to certain
employees. Equity settled share based payments are measured at fair
value (excluding the effect of non market based vesting conditions)
at the date of grant. The fair value determined at the grant date
of the equity settled share based payments is expensed on a
straight line basis over the vesting period, based on the Group's
estimate of shares that will eventually vest and adjusted for non
market based vesting conditions.
Fair value is measured by use of either Binomial or Monte-Carlo
simulation. The main assumptions are disclosed in note 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 in the relevant note as is sensitivity analysis as
required. The key areas identified and the relevant note are as
follows:
-- Going concern (note 1.5) - judgements
-- Carrying value of intangible exploration and evaluation
assets (note 14) - judgements
-- Tax payable (note 20) - judgements
-- Decommissioning costs (note 21) - judgements and estimates
3. Revenue and segmental information
The Group's operations are located and managed in three
geographically distinct business units; namely the Falkland
Islands, the Greater Mediterranean, and Corporate (or UK). Some of
the business units currently do not generate any revenue or have
any material operating income. The business is only engaged in one
business of upstream oil and gas exploration and production.
Falkland Greater Corporate Total
Islands Mediterranean
Year ended 31 December 2022 $'000 $'000 $'000 $'000
Revenue - 652 - 652
Cost of sales - (1,965) - (1,965)
============================================= ======== ============== ========= ============
Gross profit - (1,313) - (1,313)
Exploration and evaluation reverse/(expense) (307) (1) (23) (331)
Administrative expenses - (1,109) (2,516) (3,625)
Charge for share based payments - - (393) (393)
Foreign exchange gain 7,756 - (1,160) 6,596
============================================= ======== ============== ========= ============
Results from operating activities
and other income 7,449 (2,423) (4,092) 934
Finance income - - 23 23
Finance expense (3,394) (272) (509) (4,175)
============================================= ======== ============== ========= ============
Loss before tax 4,055 (2,695) (4,578) (3,218)
Tax 38,763 - - 38,763
============================================= ======== ============== ========= ============
Loss for year 42,818 (2,695) (4,578) 35,545
============================================= ======== ============== ========= ============
Reporting segments assets 251,589 1,785 11,087 264,461
Reporting segments liabilities 43,995 16,287 3,712 63,994
Depreciation and impairments 307 50 72 429
============================================= ======== ============== ========= ============
Falkland Greater Corporate Total
Islands Mediterranean
Year ended 31 December 2021 $'000 $'000 $'000 $'000
Revenue - 839 - 839
Cost of sales - (1,808) - (1,808)
============================================= ============= ============== ========= =======
Gross profit - (969) - (969)
Exploration and evaluation reverse/(expense) 608 (589) (144) (125)
============================================= ============= ============== ========= =======
Restructuring costs - - - -
Recurring administrative costs - (823) (2,440) (3,263)
============================================= ============= ============== ========= =======
Total administrative expenses - (823) (2,440) (3,263)
Charge for share based payments - - (824) (824)
Foreign exchange gain 680 - 109 789
============================================= ============= ============== ========= =======
Results from operating activities
and other income 1,288 (2,381) (3,299) (4,392)
Finance income - 1 3 4
Finance expense (3,180) (285) (57) (3,522)
============================================= ============= ============== ========= =======
Loss before tax (1,892) (2,665) (3,353) (7,910)
Tax - 151 - 151
============================================= ============= ============== ========= =======
Loss for year (1,892) (2,514) (3,353) (7,759)
============================================= ============= ============== ========= =======
Reporting segments assets 249,211 2,440 6,626 258,277
Reporting segments liabilities 86,341 15,337 2,078 103,756
Depreciation and impairments (608) 1,117 300 809
============================================= ============= ============== ========= =======
All of the Group's worldwide sales revenues of oil and gas US
$652 thousand (2021: US $839 thousand) arose from contracts to
customers. Total revenue relates to revenue from one customer
(2021: one customer).
4. Cost of sales
Year ended Year ended
31 December 31 December
2022 2021
$'000 $'000
========================================== ============ ============
Other cost of sales 927 1,141
Increase in decommissioning provisions 1,038 -
(see note 21)
Depreciation of oil and gas assets (see
note 15) - 667
1,965 1,808
========================================== ============ ============
5. Exploration and evaluation expenses
Year ended Year ended
31 December 31 December
2022 2021
$'000 $'000
========================================== ============ ============
Allocated from administrative expenses
(see note 6) 22 143
Exploration costs written off/(back) (see
note 14) 307 (273)
Other exploration and evaluation expenses 2 255
========================================== ============ ============
331 125
========================================== ============ ============
6. Administrative expenses
Year ended 31 December Year ended
31 December
2022 2021
$'000 $'000
==================================== ============================================================ ==================
Directors' remuneration excluding
benefits
(see note 7) 1,066 1,114
Other employees' salaries 1,175 930
National insurance costs 383 453
Pension costs 91 89
Employee benefit costs 53 45
==================================== ============================================================ ==================
Total staff costs 2,768 2,631
Amounts reallocated (648) (751)
==================================== ============================================================ ==================
Total staff costs charged to
administrative
expenses 2,120 1,880
Auditors' remuneration (see note 8) 156 161
Other professional fees 674 554
Other 857 867
Depreciation 117 149
Amounts reallocated (299) (348)
==================================== ============================================================ ==================
3,625 3,263
==================================== ============================================================ ==================
The average number of full time equivalent staff employed during
the year was 8 (2021: 9). As at the year end the Group employed
(including part time) 11 staff, 7 of which were in the UK and 4 in
Italy.
Amounts reallocated relate to the costs of staff and associated
overhead in relation to non administrative tasks. These costs are
allocated to exploration and evaluation expenses or capitalised as
part of the intangible exploration and evaluation assets as
appropriate.
7. Directors' remuneration
Year ended Year
ended
31 December 31 December
2022 2021
$'000 $'000
========================================================= =========== ===========
Executive salaries (1) 746 725
Company pension contributions to money purchase schemes
& pension cash allowance 62 117
Benefits 7 8
Non-executive fees 258 272
========================================================= =========== ===========
1,073 1,122
========================================================= =========== ===========
The total remuneration of the highest paid director in
GBP was:
Year ended Year
ended
31 December 31 December
2022 2021
GBP'000 GBP'000
========================================================= =========== ===========
Annual salary (1) 513 283
Money purchase pension schemes 47 47
Benefits 4 4
========================================================= =========== ===========
564 334
========================================================= =========== ===========
1: In p rior years directors agreed to the deferment of salary and bonuses
contingent on the outcome of certain future events. These events occurred
during the year and so these amounts have been included in the current
year. Full details are provided in the directors' remuneration report.
Interest in outstanding share options, LTIPs and SARs, by director,
are also separately disclosed in the directors' remuneration report.
8. Auditors' remuneration
Year ended Year ended
31 December 31 December
2022 2021
$'000 $'000
========================================================== ========================= ==================
Fees payable to the Company's auditors for the audit
of the Company's annual financial statements 130 135
Fees payable to the Company's auditors and its associates
for other services:
Audit of the accounts of subsidiaries 26 26
Assurance related non-audit services 8 8
164 169
========================================================== ========================= ==================
9. Share based payments
The charge for share based payments relate to options granted to
employees of the Group.
Year ended Year ended
31 December 31 December
2022 2021
$'000 $'000
================================================ ========================= ==================
Charge for option scheme 156 257
Charge for the long term incentive plan options 237 567
393 824
================================================ ========================= ==================
The models and key assumptions used to value each of the grants
and hence calculate the above charges are set out below:
Option scheme
A one-off equity option package was implemented during the prior
year (the "Option Scheme") to replace the existing long term
incentive plan. In place of the LTIP scheme, executive directors
and senior staff received options to subscribe for Ordinary Shares,
exercisable at a price of 6.25 pence per new Ordinary Share (the
"Market Price Options). The Market Price Options will vest in equal
tranches after three, four and five years' further continuous
employment.
Executive directors and staff in lieu of their contractual
notice periods also received options to subscribe for an aggregate
new ordinary shares in the capital of the Company ("Ordinary
Shares"), exercisable at a price of 1 pence per new Ordinary Share
(the "1p Options").
The options have been valued using a binomial model the key
inputs of which are summarised below:
Grant date: 19 May 2020 19 May 2020 19 May 2020 19 May 2020
Vesting date 19 May 2021 19 May 2023 19 May 2024 19 May 2025
Closing share price
(pence) 6.25 6.25 6.25 6.25
Number granted 6,357,616 7,949,997 7,950,000 7,950,003
Weighted average
volatility 50.0% 50.0% 50.0% 50.0%
Weighted average
risk free rate 0.07% 0.10% 0.12% 0.14%
Exercise price (pence) 1.00 6.25 6.25 6.25
Dividend yield 0% 0% 0% 0%
======================== =========== =========== =========== ===========
Weighted average volatility has been selected with reference to
historic volatility but taking into account exceptionally high
volatility in the year preceding the grant of the options.
The following movements occurred during the year:
At 31 December At 31
Issue date Vesting date Expiry date 2021 Lapsed December
2022
============= ======================== ========================= ============== =========== ==========
19 May 2020 19 Nov 2020 18 Nov 2030 1,986,972 - 1,986,972
19 May 2020 19 May 2021 18 Nov 2030 6,357,616 - 6,357,616
19 May 2020 19 May 2023 18 Nov 2030 7,949,997 (2,833,333) 5,116,664
19 May 2020 19 May 2024 18 Nov 2030 7,950,000 (2,833,333) 5,116,667
19 May 2020 19 May 2025 18 Nov 2030 7,950,003 (2,833,334) 5,116,669
============= ======================== ========================= ============== =========== ==========
32,194,588 (8,500,000) 23,694,588
================================================================ ============== =========== ==========
Long term incentive plan
LTIP awards vest or become exercisable subject to the
satisfaction of a performance condition measured over a three year
period ("Performance Period") determined by the Remuneration
Committee at the time of grant. The 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 vest on a sliding
scale from 35% to 100% for performance in the top two quartiles of
the Peer Group. No awards vest for performance in the bottom two
quartiles.
The Awards granted on 8 October 2013 and 10 March 2014 have an
additional performance condition so that no awards will be
exercisable unless the Company's share price exceeds GBP1.80 based
on an average price over any 90 day dealing period up to 31 March
2023.
The LTIP has been valued using a Monte Carlo model the key
inputs of which are summarised below:
Grant date: 31 July 2019 23 April
2018
Closing share price 20.75 25.7p
Number granted 7,200,000 7,000,000
Weighted average volatility 50.0% 44.4%
Weighted average volatility of index 70.0% 64.0%
Weighted average risk free rate 0.35% 0.90%
Correlation in share price movement
with comparator group 5% 13.0%
Exercise price 0p 0p
Dividend yield 0% 0%
======================================= ================ ===================== ===========
The following movements occurred
during the year:
======================================= ================ ===================== ===========
At 31 December At 31
Issue date Expiry date 2021 Expired/Exercised December
2022
======================================= ================ ===================== ===========
8 October 2013 8 October 2023 546,145 - 546,145
10 March 2014 10 March 2024 70,391 - 70,391
16 June 2017 16 June 2027 3,216,000 - 3,216,000
31 July 2019 31 July 2029 7,200,000 (3,899,999) 3,300,001
======================================= ================ ===================== ===========
11,032,536 (3,899,999) 7,132,537
======================================= ================ ===================== ===========
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. All SARs
lapsed post year end.
The following movements
occurred during the year:
Exercise At 31 December At 31
price December
Issue date Expiry date (pence) 2021 Expired 2022
=========================== ================= ======== ============== ============ ============
30 January 2013 30 January 2023 159.00 277,162 - 277,162
=========================== ================= ======== ============== ============ ============
277,162 - 277,162
============================================= ======== ============== ============ ============
10. Foreign exchange
Year ended Year ended
31 December 31 December
2022 2021
$'000 $'000
=========================== ================= ======== ============== ============ ============
Foreign exchange gain on Falkland Islands
tax liability (see note 20) 7,756 679
Other foreign exchange movements (1,160) 110
============================================== ======================== ============ ============
Total net foreign exchange gain 6,596 789
============================================== ======================== ============ ============
11. Finance income and expense
Year ended Year ended
31 December 31 December
2022 2021
$'000 $'000
========================================== ============ ============
Bank and other interest receivable 23 4
=========================================== ============ ============
Total finance income 23 4
------------------------------------------- ------------ ------------
Warrants (see note 19) 494 -
Unwinding of discount on Falkland Islands
Tax Liability (see note 20) 3,354 3,180
Unwinding of discount on decommissioning
provisions (see note 21) 304 274
Other 23 68
=========================================== ============ ============
Total finance expense 4,175 3,522
=========================================== ============ ============
12. Taxation
Year Year ended
ended
31 December 31 December
2022 2021
$'000 $'000
============================================================ =========== ===========
Current tax:
Overseas tax - -
Adjustment in respect of prior years (see Note 20) 38,763 -
============================================================ =========== ===========
Total current tax 38,763 -
============================================================ =========== ===========
Deferred tax:
Overseas tax - (151)
============================================================ =========== ===========
Total deferred tax credit - note 22 - (151)
============================================================ =========== ===========
Tax on profit on ordinary activities 38,763 (151)
============================================================ =========== ===========
Loss on ordinary activities before tax (3,218) (7,910)
============================================================ =========== ===========
Loss on ordinary activities multiplied at 26% weighted
average rate (31 December 2021: 26%) (837) (2,057)
Effects of:
Income and gains not subject to taxation (2,017) (248)
Expenditure not deductible for taxation 872 827
Depreciation in excess of capital allowances 32 281
IFRS2 Share based remuneration cost 102 214
Losses carried forward 1,848 983
Adjustments in respect of prior years (see Note 20) 38,763 -
============================================================ =========== ===========
Current tax credit for the year 38,763 -
============================================================ =========== ===========
The total carried forward losses and carried forward
pre trading expenditures potentially available for relief
are as follows:
Year Year ended
ended
31 December 31 December
2022 2021
$'000 $'000
============================================================ =========== ===========
UK 81,124 77,393
Falkland Islands 621,765 619,400
Italy 66,808 65,202
============================================================ =========== ===========
No deferred tax asset has been recognised in respect of
temporary differences arising on losses carried forward,
outstanding share options or depreciation in excess of capital
allowances due to the uncertainty in the timing of profits and
hence future utilisation. Losses carried forward in the Falkland
Islands includes amounts held within entities where utilisation of
the losses in the future may not be possible.
13. Basic and diluted loss per share
31 December 31 December
2022 2021
Number Number
==================================================== =========== ===========
Weighted average number of Ordinary Shares 527,767,197 458,482,117
Weighted average of shares held in Employee Benefit
Trust (2,539,227) (3,131,000)
==================================================== =========== ===========
Weighted average number of Ordinary Shares for
the purposes of basic earnings per share 525,227,970 455,351,117
Effects of
Share options and warrants 8,731,904 -
==================================================== =========== ===========
Weighted average number of Ordinary Shares for
the purposes of diluted earnings per share 531,968,624 455,351,117
==================================================== =========== ===========
$'000 $'000
============================================= ====== =======
Net profit/( loss) after tax for purposes of
basic and diluted earnings per share 35,545 (7,759)
============================================= ====== =======
Profit/(loss) per share - cents
Basic 6.77 (1.70)
Diluted 6.68 (1.70)
============================================= ====== =======
The weighted average number of Ordinary Shares takes into
account those shares which are treated as own shares held in trust.
As at the year end the Group had 1,304,500 Ordinary shares held in
an Employee Benefit Trust (2021: 3,131,000) which have been
purchased to settle future exercises of options. As the Group is
reporteda loss in the prior year then in accordance with IAS33 the
share options are not considered dilutive because the exercise of
the share options would have the effect of reducing the loss per
share.
14. Intangible exploration and evaluation
assets
Falkland Greater
Islands Mediterranean Total
$'000 $'000 $'000
========================================== ======== ============== =======
At 31 December 2020 243,647 702 244,349
Additions 4,956 54 5,010
Written back/(off) exploration costs 608 (335) 273
Foreign exchange movement - (49) (49)
========================================== ======== ============== =======
At 31 December 2021 249,211 372 249,583
Additions 2,685 31 2,716
Written off exploration costs (307) - (307)
Foreign exchange movement - (22) (22)
========================================== ======== ============== =======
At 31 December 2022 251,589 381 251,970
========================================== ======== ============== =======
Falkland Islands Licences
The amounts for intangible exploration and evaluation assets
represent active exploration and evaluation projects. The additions
during the year of US$2.7 million relate principally to the Sea
Lion development.
Given the quantum of intangible exploration and evaluation
assets potential impairment could have a material impact on the
financial statements. As such whether there are indicators of
impairment is a key judgement. Management looked at a number of
factors in making a judgement as to whether there are any
indicators of impairment during the year. In particular with regard
to the carrying value of the Falkland Islands assets, which relates
to the Sea Lion Phase one development these include, but are not
limited to;
-- The Transaction, which completed in September 2022, brought
on board a new partner with a track record of funding large
offshore developments
-- A two year license extension was granted
-- Rockhopper and Navitas have used the extensive engineering
work already carried out to create a lower cost development with
the target to reach FID early 2024.
-- Current market conditions, including oil price and security
of supply, provide stronger prospects for ultimate sanction of Sea
Lion
Management concluded that for these reasons, currently for Phase
1 of the Sea Lion development, there were no indicators of
impairment.
Management made the judgement that the limited near term capital
being invested outside of the Phase 1 project is still an indicator
of impairment in the subsequent phases of the project. Accordingly
the decision continues to be to write off historic exploration
costs associated with the resources which will not be developed as
part of the Sea Lion Phase 1 project. This impairment has no impact
on the Group's long -- term strategy for multiple phases of
development in the North Falkland Basin. This will be re-evaluated
when the Phase 1 project has been sanctioned, currently anticipated
in 2024, and investment resumes on the Phase 2 project.
15. Property, plant and equipment
Oil and gas Right of Other
assets use assets Total
assets
$'000 $'000 $'000 $'000
================================== =========== ======== ============== =======
Cost
At 31 December 2020 26,281 1,693 913 28,887
Additions 228 - - 228
Foreign exchange (2,006) (22) (11) (2,039)
Disposals - - (497) (497)
Derecognition - (1,264) - (1,264)
---------------------------------- ----------- -------- -------------- -------
At 31 December 2021 24,503 407 405 25,315
Foreign exchange (1,441) (14) (4) (1,459)
Disposals - - (244) (244)
At 31 December 2022 23,062 393 157 23,612
================================== =========== ======== ============== =======
Depreciation and impairment
At 31 December 2020 25,871 828 768 27,467
Charge for the year 667 353 62 1,082
Foreign exchange (2,035) (15) (4) (2,054)
Disposals - - (501) (501)
At 31 December 2021 24,503 286 325 25,114
Charge for the year - 96 26 122
Foreign exchange (1,441) (16) (3) (1,460)
Disposals - - (232) (232)
At 31 December 2022 23,062 366 116 23,544
================================== =========== ======== ============== =======
Net book value at 31 December
2021 - 121 80 201
================================== =========== ======== ============== =======
Net book value at 31 December
2022 - 27 41 68
================================== =========== ======== ============== =======
All oil and gas assets relate to the Greater Mediterranean
region, specifically former producing assets in Italy. Right of use
assets relate to rented offices.
16. Other
receivables
Year ended 31 December Year ended
31 December
2022 2021
$'000 $'000
================= ================================================================================= =================
Current
Receivables 294 478
Other 1,112 1,596
================= ================================================================================= =================
1,406 2,074
================= ================================================================================= =================
The carrying value of receivables approximates to fair
value.
17. Term
deposits
Year ended 31 December Year ended
31 December
2022 2021
$'000 $'000
================ ================================================================================= =================
Maturing after
the period end
Within
three
months 6,324 -
Six to nine
months 1,206 -
Nine months
to one
year 1,206 -
================ ================================================================================= =================
8,736 -
================ ================================================================================= =================
Term deposits relate to amounts placed on fixed term deposit
with various A rated deposit banks.
18. Other payables and
accruals
Year ended 31 December Year ended
31 December
2022 2021
$'000 $'000
====================== ========================================================================== ==================
Accounts payable 1,428 608
Accruals 1,692 1,129
Other creditors 263 263
====================== ========================================================================== ==================
3,383 2,000
====================== ========================================================================== ==================
All amounts are expected to be settled within twelve months of
the balance sheet date and so the book values and fair values are
considered to be the same.
19. Derivative
financial liabilities
Year ended 31 December Year ended
31 December
2022 2021
$'000 $'000
====================== ========================================================================== ==================
Warrant liabilities -
initial value
on grant 1,250 -
Changes in fair value
taken to finance
expense (see note 11) 494 -
---------------------- -------------------------------------------------------------------------- ------------------
1,744 -
====================== ========================================================================== ==================
Warrants issued as part of the Placing and Subscription were
treated as derivative financial liabilities and as such carried at
fair value on the balance sheet with changes in fair value
recognised in finance expenses in the income statement. They are
not designated as hedging instruments.
Fair value has been determined using a black scholes model the
key inputs of which on recognition and as at year end are
summarised below.
Grant 31 December
2022
Time to maturity 1.5 year 1.0 year
Closing share price
(pence) 8.00 9.00
Number 41,091,388 41,091,388
Weighted average
volatility 80.0% 98.4%
Weighted average
risk free rate 1.90% 3.22%
Exercise price (pence) 9.00 9.00
------------------------- ---------- -----------
20. Tax payable
Year ended 31 December Year ended
31 December
2022 2021
$'000 $'000
================= ================================================================================ =================
Non current tax
payable - 43,204
================= ================================================================================ =================
- 43,204
================= ================================================================================ =================
On the 8 April 2015, the Group agreed binding documentation
("Tax Settlement Deed") with the Falkland Island Government ("FIG")
in relation to the tax arising from the Group's farm out to
Premier.
The Tax Settlement Deed confirms the quantum and deferment of
the outstanding tax liability and is made under Extra Statutory
Concession 16.
The Tax Settlement Deed also states that the Group is entitled
to make adjustment to the outstanding tax liability if and to the
extent that the Commissioner is satisfied that any part of the
Development Carry becomes irrecoverable. Under the Transaction the
balance of Development Carry has become irrecoverable and in the
Group's judgment no further amounts are due on the Group's 2012
farm-out to Premier.
Given the highly material nature of this judgment professional
advice has been sought to confirm that it is probable that if
challenged it would be concluded that the Group is entitled to
adjust the outstanding tax liability for the Development Carry that
has become irrecoverable. As such the Group has derecognised the
tax liability to measure it at the most likely amount that the
liability will be settled for of US$nil. We are currently engaged
with FIG in relation to formalising the tax implications of the
termination of the 2012 Premier Oil farm down which resulted in an
irrecoverable carry amount of approximately US$670 million.
Should it be proven that there is no entitlement to adjustment
under the Tax Settlement Deed then the outstanding tax liability
would be GBP59.6 million and still payable on the earlier of: (i)
the first royalty payment date on Sea Lion; (ii) the date of which
Rockhopper disposes of all or a substantial part of the Group's
remaining licence interests in the North Falkland Basin; or (iii) a
change of control of Rockhopper Exploration plc.
In this unlikely instance Management believes the most likely
timing of payment is in line with the first royalty payment. Based
on previous correspondence with FIG, Management does not believe
that the Transactions completion constitutes a substantial disposal
and therefore would not have accelerated the liability should it be
shown to be still payable.
The derecognition of the tax liability has led to a tax income
of US$38.8 million. The tax liability had been treated as long term
and hence discounted. The unwinding of discounts on the previously
recognised liability, prior to derecognition, was US$3.4 million
(2021: US$3.2 million) and treated as a finance expense. This was
offset by a foreign exchange gain of US$7.8 million (2021: US$0.7
million gain) in the year .
21. Provisions
Year ended Year ended
Decommissioning Other 31 December 31 December
provision provisions 2022 2021
$'000 $'000 $'000 $'000
============================ ================= ========== ================== ============
Brought forward 18,197 90 18,287 15,158
Amounts utilized - (17) (17) -
Amounts arising in the year 1,358 9 1,367 4,006
Unwinding of discount 304 - 304 274
Foreign exchange (760) (4) (764) (1,151)
Carried forward at year end 19,099 78 19,177 18,287
The decommissioning provision relates to the Group's licences in
the Greater Mediterranean region as well as facilities in the
Falkland Islands. The provision covers both the plug and
abandonment of wells drilled as well as removal of facilities and
any requisite site restoration. Of amounts arising in the year $320
thousand (2021: $4,000 thousand) has been capitalised in intangible
exploration and evaluation assets and $1,038 thousand (2021: $nil)
taken to cost of sales.
Judgements are made based on the long term economic environment
around appropriate inflation and discount rates to be applied as
well as the timing of any future decommissioning. In the Falkland
Islands costs are most likely to be in $US or GBGBP so management
consider the UK economic environment when informing these
judgements. In the Greater Mediterranean all assets are in Italy
and so costs are likely to be in Euros and as such management
consider the Italian as well as the broader Eurozone region to
inform these judgements.
Whilst recognising short term inflationary pressures, the Group
believe it appropriate to use an inflation rate of 2.5 per cent
(2021: 2 per cent) and a discount rate of 2.5 per cent (2021: 2 per
cent).
Decommissioning costs are uncertain and management's cost
estimates can vary in response to many factors, including changes
to the relevant legal requirements, the emergence of new technology
or experience at other assets. The expected timing, work scope and
amount of expenditure may also change. Therefore, significant
estimates and assumptions are made in determining the costs
associated with the provision for decommissioning. The estimated
decommissioning costs are reviewed annually, and the results of the
most recent available review used as a basis for the amounts in the
Consolidated Financial Statements. Provision for environmental
clean-up and remediation costs is based on current legal and
contractual requirements, technology and price levels. However,
actual decommissioning costs will ultimately depend upon future
market prices for the necessary decommissioning works required
which will reflect market conditions at the relevant time.
The estimated costs associated with the decommissioning works
are those that are likely to have a material impact on the
provision. A 10 per cent increase in these estimates would increase
both the provision and the loss in the year by US$1,470 thousand.
Similarly, a 10 per cent reduction in these estimated costs would
decrease both the provision and the loss in the year by US$1,470
thousand.
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.
22. Deferred tax
liability
Year ended 31 December Year ended
31 December
2022 2021
$'000 $'000
At beginning of
period 39,137 39,300
Foreign exchange - (12)
Movement in period - (151)
At end of period 39,137 39,137
The deferred tax liability arises due to temporary differences
associated with the intangible exploration and evaluation
expenditure. The majority of the balance relates to historic
expenditure on licences in the Falklands, where the tax rate is
26%, being utilised to minimise the corporation tax due on the
consideration received as part of the farm out disposal during
2012.
Total carried forward losses and carried forward pre-trading
expenditures available for relief on commencement of trade at 31
December 2022 are disclosed in note 12 Taxation. No deferred tax
asset has been recognised in relation to these losses due to
uncertainty that future suitable taxable profits will be available
against which these losses can be utilised.
23. Share capital
Year ended 31 Year ended 31 December
December 2022 2021
$'000 Number $'000 Number
Authorised, called up, issued and
fully paid: Ordinary shares of GBP0.01
each 8,771 586,485,319 7,218 458,482,117
31 December 31 December
2022 2021
Number Number
Shares in issue brought forward 458,482,117 458,482,117
Shares issued
- Issued as part of Placing and Subscription 82,182,776 -
- Issued as part of Open offer 39,652,160 -
- Issued on exercise of warrants and share options 6,168,266 -
Shares in issue carried forward 586,485,319 458,482,117
During the year Rockhopper raised funds by way of a Placing and
Subscription, in each case at an issue price of 7 pence per Unit
(the "Issue Price"). Each Unit offered comprises one New Ordinary
Share and, for every two New Ordinary Shares subscribed for, one
Warrant. Each Warrant gives the holder the right to subscribe for
one new Ordinary Share at a price of 9 pence per Ordinary Share
(the "Strike Price") at any time from the issue of the Warrants up
to (and including) 5.00 p.m. on 31 December 2023 (the "Warrant
Exercise Period").
In accordance with IAS 32:16(b)(ii), for a derivative over own
equity to qualify as equity, the instrument may only be settled by
exchanging a fixed amount of cash (or another financial instrument)
for a fixed number of its own equity instruments. The functional
currency of Rockhopper is US$. Given the warrant exercise price is
determined in GBP, a foreign currency, the Warrants do not meet the
fixed amount of cash criteria as it will depend on the exchange
rate at time of exercise. The Warrants therefore have been treated
as a derivative financial liability as disclosed in note 19 with
the balance of proceeds treated as Equity.
The Placing utilised a cashbox structure and therefore the
premium on the ordinary shares and associated costs have in
accordance with section 621 of the Companies Act 2006 been
recognised within the merger reserve. The Placing and Subscription
raised net $6,252 thousand with $1,250 thousand classified as a
derivative financial liability and $5,002 thousand classified as
Equity after associated costs of $784 thousand.
Rockhopper raised additional funds through an Open Offer
(together with the Placing and Subscription, the "Capital Raising")
pursuant to which Units were offered to all existing Shareholders
at the Issue Price. IAS32:16 (b)(ii) states "For this purpose,
rights, options or warrants to acquire a fixed number of the
entity's own equity instruments for a fixed amount of any currency
are equity instruments if the entity offers the rights, options or
warrants pro rata to all of its existing owners of the same class
of its own non-derivative equity instruments.". Therefore warrants
issued as part of the Open Offer have been treated as equity. The
Open Offer raised net $2,842 thousand after associated costs of
$410 thousand.
24. Reserves
Set out below is a description of each of the reserves of the
Group:
Share premium Amount subscribed for share capital in excess of
its nominal value.
Share based remuneration The share incentive plan reserve captures the equity
related element of the expenses recognised for the
issue of options, comprising the cumulative charge
to the income statement for IFRS2 charges for share
based payments less amounts released to retained
earnings upon the exercise of options.
Own shares held Shares held in trust by the Employee Benefit Trust
in trust which have been purchased to settle future exercises
of options.
Merger reserve The difference between the nominal value and the
fair value of shares issued on acquisition of subsidiaries.
Foreign currency Exchange differences arising on consolidating the
translation reserve assets and liabilities of the Group's subsidiaries
are classified as equity and transferred to the
Group's translation reserve.
Special reserve The reserve is non distributable and was created
following cancellation of the share premium account
on 4 July 2013. It can be used to reduce the amount
of losses incurred by the Parent Company or distributed
or used to acquire the share capital of the Company
subject to settling all contingent and actual liabilities
as at 4 July 2013. Should not all of the contingent
and actual liabilities be settled, prior to distribution
the Parent Company must either gain permission from
the actual or contingent creditors for distribution
or set aside in escrow an amount equal to the unsettled
actual or contingent liability.
Retained losses Cumulative net gains and losses recognised in the
financial statements.
25. Capital commitments
Significant capital expenditure contracted for at the end of the
reporting period but not recognised as liabilities is US$0.7million
(2021: US$0.4 million) relating to the Group's intangible
exploration and evaluation assets.
26. Contingent assets
In August 2022, pursuant to an ICSID arbitration which commenced
in 2017, Rockhopper was awarded approximately EUR190 million plus
interest and costs following a unanimous decision by the ICSID
appointed arbitral Tribunal that Italy had breached its obligations
under the Energy Charter Treaty (the "Award").
Rockhopper submitted a letter to the Italian Republic in
September 2022 formally requesting payment of EUR247 million,
representing the Award amount plus accrued interest from 29 January
2016 to 23 August 2022 and costs. Interest was paused for four
months following the date of the Award (being 23 August 2022) and
is now accruing at EURIBOR + 4% which Rockhopper estimates at
between EUR1.25 million and EUR1.5 million per calendar month.
Interest compounds annually.
As announced, Italy requested that this Award be annulled in
October 2022. When Italy applied for the Award to be annulled, a
provisional Stay of Enforcement was automatically put in place by
ICSID pursuant to the ICSID Convention and Arbitration Rules.
Following Italy's request to seek annulment of the Award, an ad
hoc Committee was constituted to hear relevant arguments and make a
ruling on Italy's application for a continuation of the provisional
Stay of Enforcement pending the determination of Italy's request to
annul the Award. A hearing on whether the ad hoc Committee will
continue or lift the provisional Stay of Enforcement was held on 6
March 2023. On the 24 April 2023 the Committee issued the following
orders,
1: that Italy and Rockhopper shall confer - in good faith and
using their best efforts to cooperate and find an effective
arrangement - for the mitigation of the risk of non-recoupment
using a first-class international bank outside the European Union
(or as Italy and Rockhopper otherwise agree) to be put into place
in anticipation of the termination of the provisional stay of
enforcement of the Award. This is to mitigate the perceived risk
that, in the event the Award is annulled, Italy may not be able to
recover Italian assets seized or frozen by Rockhopper (before the
ad hoc Committee issues its decision on annulment) in court
enforcement proceedings.
2: that Rockhopper shall, within 30 days of the date of the
decision, apprise the Committee of arrangements agreed with Italy
for the mitigation of the risk of non-recoupment or that
negotiations have failed and, in the latter event, propose concrete
arrangements in accordance with the decision for the mitigation of
the risk of non-recoupment. Italy may then briefly comment on
Rockhopper's proposal within 10 days, constructively highlighting
any areas of disagreement between the Parties.
Italy has refused to comply with the Panels instructions.
Rockhopper intends to continue to work in good faith to resolve the
issues raised regarding non-recoupment and has submitted to the
Panel its proposal to mitigate this risk.
The decision on whether to continue or lift the provisional Stay
of Enforcement is unrelated to the merits of Italy's annulment
request. A final hearing in relation to Italy's request to annul
the Award is scheduled to take place in Q1 2024. Guidance given by
Rockhopper in the Company's 31 October 2022 announcement that the
entire annulment process is likely to take 18-24 months from that
date remains in place.
Rockhopper is extremely confident in the strength of its case,
as was reflected in the unanimous decision underpinning the Award
in August. Given the annulment request the virtual certainty
required by IAS 37 "Provisions, Contingent Liabilities and
Contingent Assets" which would allow recognition of an asset on the
Balance Sheet has not been met. The receivable under the Award
therefore remains classified as a contingent asset at this
time.
27. Related party transactions
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed. Subsidiaries are listed in notes of the Company
financial statements.
The remuneration of directors, who are the key management
personnel of the Group, is set out below in aggregate. Further
information about the remuneration of individual directors,
including deferred salary and bonus amounts, is provided in the
Directors' Remuneration Report on
pages 28 to 37.
Year ended Year ended
31 December 31 December
2022 2021
$'000 $'000
Short term employee benefits 1,076 1,005
Pension contributions - 117
Share based payments 235 447
============
1,311 1,569
============
During the year the Company announced a successful Placing and Subscription.
This involved the Placing of, and Subscription for 82,182,776 Units
in each case at the Issue Price of 7 pence per Unit. Each Unit comprises
one New Ordinary Share and, for every two New Ordinary Shares subscribed
for, one Warrant.
Pursuant to the Subscription, the following Directors agreed to subscribe
for the following Units comprising Subscription Shares and Warrants.
Number of Number
subscription of subscription
shares Warrants
)
Sam Moody 1,428,570 714,285
Keith Lough 428,570 214,285
Alison Baker 142,856 71,428
John Summers 142,856 71,428
28. Risk management policies
Risk review
The risks and uncertainties facing the Group are set out in the
risk management report. Risks which require further quantification
are set out below.
Foreign exchange risks: The Group is exposed to foreign exchange
movements on monetary assets and liabilities denominated in
currencies other than US$, in particular the tax liability with the
Falkland Island Government which is a GBGBP denominated balance. In
addition a number of the Group's subsidiaries have a functional
currency other than US$, where this is the case the Group has an
exposure to foreign exchange differences with differences being
taken to reserves.
The Group has cash and cash equivalents, term deposits and
restricted cash of US$10.3 million of which US$1.7 million was held
in US$ denominations. The Group has expenditure in GBGBP and Euro
and accepts that to the extent current cash balances in those
currencies are not sufficient to meet those expenditures they will
need to acquire them. The following table summarises the split of
the Group's assets and liabilities by currency:
$ GBP EURa
Currency denomination of balance $'000 $'000 $'000
Assets
31 December 2022 253,415 8,482 1,787
31 December 2021 253,975 1,859 2,443
============
Liabilities
31 December 2022 43,452 3,475 15,220
31 December 2021 43,352 45,067 15,337
============
The following table summarises the impact on the Group's pre-tax
profit and equity of a reasonably possible change in the US$ to
GBGBP exchange rate and the US$ to euro exchange:
Pre tax profit Total
equity
+10% US$ rate -10% US$ +10% US$ rate -10%
increase rate increase US$ rate
$'000 decrease $'000 decrease
$'000 $'000
US$ against GBGBP
31 December 2022 501 (501) 501 (501)
31 December 2021 (4,321) 4,321 (4,321) 4,321
US$ against euro
31 December 2022 (1,450) 1,450 (1,450) 1,450
31 December 2021 (1,289) 1,289 (1,289) 1,289
Capital risk management: the Group manages capital to ensure
that it is able to continue as a going concern whilst maximising
the return to shareholders. The capital structure consists of cash
and cash equivalents and equity. The board regularly monitors the
future capital requirements of the Group, particularly in respect
of its ongoing development programme. Further information can be
found in the going concern assessment contained in Note 1.5.
Credit risk: the Group recharges partners and third parties for
the provision of services and for the sale of Oil and Gas. Should
the companies holding these accounts become insolvent then these
funds may be lost or delayed in their release. The amounts
classified as receivables as at the 31 December 2022 were
$2,109,000 (31 December 2021: $2,306,000). Credit risk relating to
the Group's other financial assets which comprise principally cash
and cash equivalents, term deposits and restricted cash arises from
the potential default of counterparties. Investments of cash
and
deposits are made within credit limits assigned to each
counterparty. The risk of loss through counterparty failure is
therefore mitigated by the Group splitting its funds across a
number of banks.
Interest rate risks: the Group has no debt and so its exposure
to interest rates is limited to finance income it receives on cash
and term deposits. The Group is not dependent on its finance income
and given the current interest rates the risk is not considered to
be material.
Liquidity risks:
The Group monitors the liquidity position by preparing cash flow
forecasts to ensure sufficient funds are available. Further
information can be found in the going concern assessment contained
in Note 1.5.
Maturity of financial liabilities
The table below analyses the Group's financial liabilities,
which will be settled on a gross basis, into relevant maturity
groups based on the remaining period at the balance sheet to the
contractual maturity date. The amounts disclosed in the table are
the contractual undiscounted cash flows.
More than Total contractual
Within 1 year 2 to 5 years 5 years cashflows Carrying
amount
At 31 December 2022 $'000 $'000 $'000 $'000 $'000
Other payables 3,383 - - 3,383 3,383
Lease liability 574 286 - 860 553
Tax payable - - - - -
3,957 286 - 4,243 3,936
More than Total contractual
Within 1 year 2 to 5 years 5 years cashflows Carrying
amount
At 31 December 2021 $'000 $'000 $'000 $'000 $'000
Other payables 2,000 - - 2,000 2,000
Lease liability 574 860 - 1,434 1,128
Tax payable - - 79,413 79,413 43,204
2,574 860 79,413 82,847 46,332
Tax payable amounts in the current and prior year relate to
amounts as disclosed in note 20 .
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END
FR UNOWROUUVUAR
(END) Dow Jones Newswires
May 30, 2023 02:00 ET (06:00 GMT)
Rockhopper Exploration (AQSE:RKH.GB)
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