MercoPress. South Atlantic News Agency

Falklands, Rockhopper Exploration disposes of Italian assets to focus on Sea Lion

“The combination of the insurance policy and transaction with Zodiac allows us to refocus the Company on Sea Lion,” said CEO Samuel Moody (Pic Rockhoper Exploration)

Rockhopper Exploration plc (AIM: RKH), the oil and gas company with key interests in the North Falkland Basin (“NFB”), has announced it has put in place an insurance policy to cover the event that the Italian Republic succeeds in its attempt to have the Rockhopper Ombrina Mare Arbitration Award annulled and has also signed a share purchase agreement with Zodiac Energy Limited to exit its other Italian assets.

Whilst both the Company and its advisors remain confident of its position it has decided, in line with normal market practice, that insuring to protect shareholders against loss resulting from an annulment of the Award to be the most prudent course of action.

The insurance policy will ensure that, in the event that the Italian Republic succeeds in having the entire Award annulled or in the event of partial annulment, the combination of the Tranche 2 payment and the insurance payout shall entitle Rockhopper to a total no less than €31 million.

The policy has been placed via a FCA-registered specialist insurance brokerage. The policy has been underwritten by a specialist underwriting agency and subscribed to by a number of A-rated insurance carriers and syndicates.

The total cost of the policy, including applicable taxes and underwriting fees, is €4 million. Following placing the policy, Rockhopper’s cash balance will be approximately US$ 24 million.

The SPA is for the sale of Rockhopper Civita Limited (a wholly owned subsidiary of Rockhopper Exploration Plc). Rockhopper Civita Limited holds all Rockhopper’s Italian assets and liabilities with the exception of the Ombrina Mare Arbitration Award.

Under the terms of the SPA consideration, Rockhopper will pay Zodiac in two installments, with a retained upside participation to Rockhopper in two undeveloped licenses.

The first installment of €3 million is payable to Zodiac on satisfaction of two precedent conditions (“Completion”), those being receipt of all necessary regulatory consents in Italy, as well as regulatory consents in the Falklands.

The second installment of €2.5 million is payable to Zodiac on or after Completion, assuming the satisfaction of two additional conditions, those being successfully defending the Italian Republic’s annulment application and receiving a minimum of €10 million from the Award monetization (the Tranche 2 payment under the Award monetization is €65 million, due on a successful defense of the annulment application, but can be reduced in the event of a partial annulment).

In addition, assuming the second installment is payable, Rockhopper will retain a royalty on two assets within the Rockhopper Civita Limited portfolio, those being AC19 (a northern Adriatic license with two gas discoveries and an additional adjacent prospect) and Serra San Bernado (which contains the Monte Grosso exploration prospect).

The royalties will take the form of either 10% of the revenues of the interests acquired by Zodiac or, should they realize value by on-selling the licenses acquired, 25% of the gross proceeds received for the part sold.

The transaction is subject to both Italian and Falkland Island Government regulatory approval, the timing of which is uncertain but is anticipated within 12 months.

Following completion of the transaction, Rockhopper will have no remaining liabilities relating to its Italian licenses, its P&A liability will have been reduced by some US$15 million (unaudited as at 30 June 2024) and its annual cash burn reduced by approximately €500,000 – €750,000. In the year ended 31 December 2023, Rockhopper Civita contributed a US$ 1.6 million loss to the Group.

Samuel Moody, CEO commented: “The steps announced today provide us with further strategic and commercial clarity as we continue to focus on progressing the Sea Lion development. The combination of the insurance policy and transaction with Zodiac allows us to refocus the Company on Sea Lion by further reducing both short and long term costs, reducing risk, protecting our balance sheet whilst maintaining some potential upside in two Italian licenses.”