MercoPress. South Atlantic News Agency

Falklands Rockhopper set to receive huge sum because of an arbitration with Italy

CEO Moody, “We are hopeful that this new funding will largely or entirely fulfill our equity requirements for Sea Lion”

Falklands oil company, Rockhopper Exploration PLC has agreed with a regulated specialist fund to monetize the arbitration award. The award announced in August 2022 relates to arbitration against Italy involving Ombrina Mare oil field in the Adriatic. (*)

According to the agreement Rockhopper will retain legal and beneficial ownership of the award, and the fund will make cash payments in up to three tranches. of Euro 45 million. Under the terms the fund will retain some Euro 15 million of upfront payment of Euro 45 million on completion, because of previous litigation funding agreement from 2017. Rockhopper will also receive an additional Euro 65 million upon a successful annulment outcome.

It may also receive further 20% payment on recovery of amounts exceeding 200% of the fund's total investment. The agreement de-risks the award process and removes future costs. Finally the company says some proceeds will go towards equity funding requirements related to developing the Sea Lion oil field in the North Falkland basin.

Tax will also be payable on Rockhopper’s share of the proceeds from the monetization of the Award. These calculations are complex and are unlikely to be resolved for some months but Rockhopper currently estimates that the approximate effective tax rate of between 10-15% is likely.

The Specialist Fund will cover all costs related to the Arbitration from the date of this announcement.

Approval will be required from the Falkland Islands Government to the transaction. A further announcement will be made on completion. Should completion not occur by 30.6.24. either side has the right to termination. In the case of non-completion Rockhopper will use proceeds of the Award to provide compensation to the Specialist Funder based on their legal fees incurred.

Samuel Moody, CEO Rockhopper

“We are delighted to be able to announce this transaction which provides near-term certainty for Rockhopper and de-risks our exposure to the annulment process, while maintaining potentially significant upside exposure both to a successful annulment outcome and eventual recovery.

In the meantime, work continues refining the phasing of the Sea Lion development in the Falklands and we will make further updates to the market as appropriate. We are hopeful that this new funding will largely or entirely fulfill our equity requirements for Sea Lion which will only become clear once the project and financing have been finalized.”

(*)As announced on 23 March 2017, Rockhopper commenced international arbitration proceedings against the Republic of Italy in relation to the Ombrina Mare project.

Following the decision in February 2016 by the Ministry of Economic Development not to award the Company a Production Concession covering the Ombrina Mare field, the Company, with its legal advisers, has considered its options with regard to obtaining damages and compensation from the Republic of Italy for breaching the Energy Charter Treaty (“ECT”).

By way of background, the ECT entered into legal force in April 1998 and is designed to provide a stable platform for energy sector investments. The Republic of Italy, as a member of the European Union, was a founding signatory to the ECT.

In addition, the Company announced it had secured non-recourse funding for the Arbitration from the Original Arbitration Funder that specializes in financing commercial litigation and arbitration claims.

As announced on 24 August 2022, the arbitration panel unanimously held that the Republic of Italy had breached its obligations under the Energy Charter Treaty (the “Award”) entitling Rockhopper to compensation of €190 million plus interest at EURIBOR + 4%, compounded annually from 29 January 2016 until time of payment (except the four-month period immediately following the date of the Award).