MercoPress. South Atlantic News Agency

Rockhopper signs a billion dollars deal to develop Falklands’ oil discovery

Premier's Finance Director Durrant said the oil industry deals with political risks

Britain's Premier Oil announced on Thursday a 1 billion dollars deal to farm in and develop Rockhopper Exploration oil and gas discoveries in the Falkland Islands.

Premier said it would partner Rockhopper paying it an initial 231 million dollars in cash as well as providing around 770 million to help build infrastructure for the development of the Sea Lion field 2010 oil discovery in the north Falkland basin.

“We view this transaction as very positive for Rockhopper, although the upfront payment appears to be somewhat light, as its resolves a major funding issue for the company with respect to the Sea Lion development,” Westhouse analysts said.

Shares in Rockhopper, which has been looking for a partner to help it develop the Sea Lion field about 120 kilometres off the north of the Falkland Islands was up 0.3% to 274 pence in the morning, paring earlier gains of around 15%.

Premier dismissed concerns about investing in the politically sensitive project given the Falklands’ sovereignty dispute with Argentina which has threatened legal action against oil firms active in the ‘Malvinas’ for what it sees as “illegal” drilling.

“I don't want to sound flippant, but the oil industry deals with this type of political risk, of border disputes, of disputed territories all around the world, frankly,” Premier's Finance Director Tony Durrant was quoted by Reuters.

Oil is expected to start pumping in the Falklands in mid-2017, said the partners, news unlikely to be welcomed by Argentina, which has been particularly aggressive in its campaign to claim the Falklands.

The deal, which will give Premier a 60 percent stake in the Sea Lion oil field, will add about 200 million barrels of oil to its resources - a substantial boost. The Sea Lion field is large in comparison to fields in the North Sea, although small fry compared with the around 50 billion barrels of oil thought to lie offshore Brazil.

Durrant added that Premier was providing Rockhopper with a future possible financing facility should the company not be able to raise the debt to pay its part of development costs.

”It's very difficult (to raise debt) at the moment and that of course if one of the reasons why we've been able to negotiate a very attractive deal. The Argentine situation doesn't help but it's much more the state of the capital markets at the moment,“ he said.

The partners said they expected the deal, which is subject to approval by the Falkland Islands Government, to complete in September.

Rockhopper CEO Sam Moody said he was delighted to have secured such a high quality partner with an outstanding track record in developing and running producing assets and significant international experience.

“This is an excellent transaction for the company and its shareholders. It helps crystallise the value of our discoveries in the North Falkland Basin area centred on the Sea Lion field, as well as providing the funds to examine further the remaining potential of our acreage in the region. The transaction also presents the opportunity to pursue other exploration prospects in countries where there are geological similarities to the Falkland Islands and where our sub-surface skill sets can potentially create additional value. We are very much looking forward to beginning our work with Premier”, said CEO Moody.

Stephen Luxton, Director of Mineral Resources for the Falklands Government said the announcement opens the next chapter in the Islands offshore activity.

“We are delighted by the news that Premier Oil plc is joining forces with Rockhopper Exploration to develop the Sea Lion field. It opens the next chapter in the story of Falklands’ offshore activity, it brings another capable and well-funded partner into the region, and it confirms our belief that the Falklands’ offers an exciting range of opportunities for the oil industry. FIG will continue to work closely with both Rockhopper and Premier Oil to move the Sea Lion field forwards towards production” underlined Luxton.

Dr Barry Elsby, Member of the Falkland Islands Legislative Assembly described the news as “fantastic” and is something “we have been anticipating since Rockhopper announced their commercial discovery in the Sea Lion field”.

He added that this “clearly demonstrates how positively industry view prospects in the Falkland Islands, an excellent investment destination, and we look forward to working further with industry over the coming years”.

Premier Oil has interests in eight countries around the world and operates in three core areas: the North Sea, Asia and Middle East/Africa/Pakistan. As at 31 December 2011, Premier had net 2P reserves and a 2C resource base of 527 mmboe. Average production net to Premier for 2011 was 40,420 boepd with a medium term net production target of 100,000 boepd.

Premier is a world-class operator with significant experience with FPSO developments including the producing Chim Sáo field, located offshore Vietnam, West Natuna in Indonesia, as well as the Balmoral development in the North Sea.