Encouraging news for the Falkland Islands budding hydrocarbons industry. Rockhopper Exploration officially announced on Wednesday that it had reached a new agreement with Navitas Petroleum by which its potential farm-in portion of the Sea Lion project increases significantly, while the current holder of the majority share, Harbour Energy exits the undertaking.
Under the terms of the agreement which still needs regulatory approval, the Israel based explorer and producer will end with 65% interest in the Sea Lion project, compared to the 30% originally agreed last year. Rockhopper thus retains the 35% holding of the project it discovered in 2010 in the North Falkland Basin.
Harbour Energy last September revealed plans to exit projects in Brazil, Mexico and the Falkland Islands, because of strategic policy, concentrating on lower-risk opportunities in regions where the company already has a presence. Harbour is the largest UK-listed independent oil and gas producer with most of its assets located in Southeast Asia and the North Sea.
Rockhopper said in the statement that it hopes for “greater alignment and simplified commercial arrangements across the joint venture” to push forward the project towards FID, the final investment decision. Navitas will be the operator of Sea Lion development, and Rockhopper will retain its 35% share in the event of the need for new farm-in partners in the future.
According to prudent estimates, Sea Lion holds commercial gross reserves of 523 million barrels of oil equivalent but has seen its development delayed several years, the last time in 2020 when international oil prices collapsed caused by the Covid 19 pandemic and considerable lesser consumption.
For cash, short Rockhopper Navitas will provide a loan, with a first instalment pre-FID and later will extend additional financial support to help cover two-thirds of the company's share of development costs. The pre-FID interest will be 8%, and with a positive FID, the loan will be interest-free, and funds repaid from 85% of Rockhopper's working interest share of free cash flow.
If FID has not occurred within five years of completion of the proposed transaction, Rockhopper can elect to remove Navitas from the Falkland Islands petroleum licences by repaying the Pre-FID Loan.
However the finalisation of definitive documentation under the plan is now expected in the first quarter of 2022, the new partnership announced.
Rockhopper also underlined Navitas’ expertise in executing and financing large scale oil field developments. In effect last August and partners arranged project financing in excess of US$ 900 million and took FID on the Beacon Offshore-operated US$ 330 million barrel Shenandoah project in the US Gulf of Mexico.
Additionally, Navitas said in recent presentations to investors that it expects global oil demand to keep growing at least until 2035, despite energy transition winds. As to the working partnership, Rockhopper said partners will consider a lower-cost alternative development plan for Sea Lion using the design and engineering work that was undertaken for the project in the last decade.
An earlier ambitious development plan for Sea Lion called for the drilling of 23 subsea wells hooked up to a floating production, storage and offloading vessel.
(*) Harbour Energy was founded by private equity firm EIG Global Energy Partners in 2014. In 2017, Harbour made its first acquisition backing Chrysaor Holdings Limited to acquire a package of UK North Sea assets from Shell for US$ 3 billion and, in 2019, acquired ConocoPhillips UK North Sea for US$ 2.7 billion. In 2021, through a reverse takeover, Chrysaor merged with Premier Oil plc to create Harbour Energy plc.