Rockhopper Exploration plc Half-year Report

RNS Number : 7080F

Rockhopper Exploration plc

26 September 2024

 

26 September 2024

 

Rockhopper Exploration plc

("Rockhopper", the "Group" or the "Company")

 

Half-Year Results for the Six Months Ended 30 June 2024

 

Rockhopper Exploration plc (AIM: RKH), the oil and gas company with key interests in the North Falkland Basin ("NFB"), announces its unaudited results for the six months ended 30 June 2024 ("H1 2024").

 

YEAR TO DATE HIGHLIGHTS

 

Sea Lion and North Falkland Basin

 

·    Rockhopper holds 35% working interest

·    Rockhopper benefits from pre and post Final Investment Decision ("FID") loan from the operator Navitas Petroleum Development and Production Limited ¹ ("Navitas" or "Operator")

·    Independent Resource Report commissioned by Navitas²

o  Sea Lion initial development targeting 312mmbbls via two drilling campaigns

o  Sea Lion total 2C resource base 791mmbbls

o  Plateau production up to 55 kbbls/d for prolonged period of eight years

o  Life of field costs US$25/bbls

o  NPV 10 of first 312 mmbbls development > US$4bn gross to the JV pre tax post Falkland Islands Government royalty at US$77 Brent

·    Environmental Impact Statement ("EIS") public consultation period completed

 

Ombrina Mare Arbitration Award (the "Award")

 

·    Transaction to monetise the Award completed

·    First Tranche payment received - €19m retained by Rockhopper

·    Annulment hearing with ICSID convened ad hoc committee (the "Committee") completed

·    Post hearing submissions completed

·    Cost submissions made to Committee (by Rockhopper and Italy)

·    No formal timetable for outcome, hopeful a decision is possible by year end 2024

 

Balance Sheet

 

·    Balance sheet strengthened following completion of Award monetisation

·    Period end cash balance US$27.8m

·    Cost control maintained

 

Outlook

 

·    Strong balance sheet

·    Work continues on securing all permissions required to launch Sea Lion financing, including EIS and licence extension

·    Ombrina Mare annulment, hopeful a decision is possible by year end 2024

 

Samuel Moody, CEO, commented:

 

"Rockhopper is in its strongest position for some time. Monetisation of the Award delivers increased financial flexibility and allows the Company to focus on progressing Sea Lion to sanction, which remains our core focus. We also welcome the news, announced on 24th September, of a new general co-operation agreement between the Falklands and Argentina.

"I would like to thank our team for their continued commitment to driving progress at Rockhopper and our shareholders for their continued support at this exciting time for the Group."

 

¹ Navitas is the legal entity that holds and operates Sea Lion and our other NFB licences. The company's ultimate and controlling parent is Navitas Petroleum LP, a limited partnership established and registered in Israel and listed on the Tel Aviv Stock Exchange.

 

² Rockhopper is not an addressee and has not been party to the production of the 2024 NSAI Independent Report. The 2024 NSAI Independent Report has been produced to PRMS standards. The last independent resource report commissioned directly by Rockhopper was the ERCE 2016 Report which had an estimated 2C value of 517 MMbbls. See RNS dated 22 January 2024.

 

 

Enquiries:

 

Rockhopper Exploration plc

Sam Moody - Chief Executive Officer

Tel. [phone] (via Vigo Consulting)

 

Canaccord Genuity Limited (NOMAD and Joint Broker)

Henry Fitzgerald-O'Connor/Charlie Hammond

Tel. [phone]

 

Peel Hunt LLP (Joint Broker)

Richard Crichton/Georgia Langoulant

Tel. [phone]

 

Vigo Consulting

Patrick d'Ancona/Ben Simons/Fiona Hetherington

Tel. [phone]

 

 

 

CHAIRMAN AND CHIEF EXECUTIVE OFFICER'S REVIEW

 

Introduction

 

Rockhopper's strategy is to create value for all our stakeholders through the safe and responsible development of our assets in the NFB.  The Company has been operating offshore the Falkland Islands since 2004 and discovered the Sea Lion oilfield in 2010.  We are a long term partner of the Falkland Islands Government ("FIG") and our aim has always been to support the rights of the Falkland Islanders to develop their natural resources.

 

Sea Lion project

 

Our view remains unchanged: the Sea Lion oil field and its associated follow on potential within the NFB, represents a hugely important and valuable strategic asset for the Falkland Islands, the UK and all of our stakeholders.  Since replacing Harbour Energy in 2022, Navitas, the field's operator, has increased resources while reducing costs, resulting in a field with highly attractive and robust economics. 

 

An independent report, commissioned by Navitas, confirms that the first 312mmbbls of the total 791mmbbls of the field (on a 2C basis) has a gross NPV 10 of over US$4bn on a pre tax, post FIG royalty at US$77 Brent.  The life of field cash breakeven is currently estimated to be US$25/bbl making the project financially attractive at a range of commodity prices.

 

An updated Environmental Impact Statement was submitted to FIG in July 2024 and the statutory public consultation period has now concluded. The next step will be for FIG to consider the responses provided by the Operator.  Simultaneously we are engaged with FIG on licence extensions, prior to their expiry in November 2024.

 

We continue to engage with the Operator as they look to secure a financing package for Sea Lion phase 1 and work towards FID. We will inform the market as and when we receive material updates from the Operator, including associated timing, in this regard.

 

Ombrina Mare

 

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

 

Having announced a transaction to monetise the Award in December 2023 (the "Monetisation"), the Monetisation completed in June 2024 and Rockhopper received the first payment of €19 million that month. All of Rockhopper's costs associated with the Award from the date of signature in December 2023 are covered by the new funder ("Specialist Fund").

 

A hearing was held in Madrid in April 2024 as part of Italy's request to have the Award annulled following which post hearing submissions were made in response to questions raised by the Committee.  Additionally, during September 2024 submissions detailing costs incurred both by Rockhopper and Italy were made to the Committee.

 

Whilst there is no formal timetable, we continue to be hopeful that a decision is possible before the end of 2024 but otherwise expected in H1 2025.

 

Corporate matters

 

Following completion of the Monetisation, our balance sheet is the strongest it has been for some time, and we ended the period with approximately US$27.8 million in cash and term deposits.

 

We maintain a small core team with unparalleled historic knowledge of the Sea Lion field and its associated Falkland Islands oil and gas operations.

 

Environmental, Social and Governance ("ESG")

 

ESG and Corporate Responsibility continue to be a key focus for Rockhopper. As an oil and gas exploration and production business, our role is to discover and produce hydrocarbons in an environmentally responsible manner, supporting energy requirements during the energy transition.

 

As noted previously, FIG established an independent environment trust to receive and administer future off-setting payments from the Sea Lion project and distribute those funds for activities aimed at ensuring a positive environmental legacy in the Falkland Islands.

 

Once FID on Sea Lion has been achieved, the Company commits to defining measures, reporting transparently, and mitigating our own emissions as far as practicable.

 

Outlook

 

The completion of the Award Monetisation puts our balance sheet in the best position it has been for a number of years and we now await the outcome of the annulment request from Italy.

 

Meanwhile, Navitas continues to progress our core asset, Sea Lion, having not only completed the EIS public consultation period but also developed the field development plan to a highly advanced stage.  We continue to believe that our 35% interest in the field and all associated upside represents a potentially hugely valuable asset.

 

In addition, we continue to focus on ways in which we can strengthen and protect the Company's balance sheet.

 

As a result, the coming 12 months could see some of the most exciting developments at the Company for some considerable time.

 

 

 

FINANCIAL REVIEW

 

Results for the period

 

For the period ended 30 June 2024, the Group reported a profit after tax of US$16.5 million (H1 2023: loss of US$2.6 million).

 

The Monetisation

 

From a financial perspective the main event during the period was the completion of the Monetisation. This has resulted in an after tax profit contribution of US$18.7 million in the period.

 

On completion of the Monetisation, the Group received the Tranche 1 payment of €19 million. Whilst legally Rockhopper has retained the legal and beneficial ownership of the Award, accounting follows the substance of the transaction which is akin to a disposal. As such this Tranche 1 payment has been recorded as other income and expenses of US$20.6 million.

 

No income has been recorded for the Tranche 2 and Tranche 3 payments as they are contingent on future events, in particular, successfully contesting the attempted annulment of the Award

 

Revenue and cost of sales

 

The Group's production ceased during 2022, as such there were no revenues in the period (H1 2023: US$nil). Even though there has been no revenue in the period there are costs associated with maintaining the various production concessions whilst potential options for additional development are investigated.

 

Operating activities

 

The decrease in Administrative expenses ("G&A") for the period to US$1.5million (H1 2023: US$2.1 million) almost entirely relates to legal fees associated with the Ombrina Mare Arbitration. Since the end of 2023 the cost associated with the Arbitration have been borne by the Specialist Fund.

 

Previously the Group made the decision to use existing resources to fund all legal costs arising from contesting the request by Italy for annulment whilst it explores all funding possibilities. In the prior period, costs were incurred contesting Italy's request for a stay of enforcement as well as initial fees drafting the Group's counter memorial on annulment itself. Excluding these, G&A costs have remained flat.

The foreign exchange loss in the period is US$0.3 million (H1 2023: gain of US$0.6 million). These mainly arise on GBP and Euro denominated cash and term deposit balances in both the current and prior period.

Finance expenses in the period of US$0.2 million (H1 2023: $US0.7 million) relate to the unwinding of discounts on provisions. The previous period finance expense included US$0.5 million from fair valuing of derivative financial liabilities. This related to warrants issued as part of the placing in 2022 and were all exercised or lapsed in the prior year.

 

Cash movements and capital expenditure

 

At 30 June 2024, the Group had cash and term deposits of US$27.8 million (31 December 2023: US$8.0 million).

 

Cash and term deposit movements during the period:

	US$m
Opening cash and term deposit balance (31 December 2023)	8.0
Cost of sales	(0.3)
Falkland Islands	(0.8)
Administrative expenses	(1.6)
Proceeds of warrants	2.1
Ombrina Mare Award monetisation	20.6
Miscellaneous	(0.2)
Closing cash and term deposit balance (30 June 2024)	27.8

 

Miscellaneous includes foreign exchange, interest and movements in working capital during the period.

 

Oil and gas assets

 

The Sea Lion development remains central to the Group's plans and the additions in the period of US$9.2 million almost entirely relate to this project. The majority of these costs are covered through a loan from Navitas and are included in other payables. As part of the transaction to bring Navitas onto the licences, Navitas agreed to provide loan funding to the Group to cover the majority of its share of Sea Lion phase one related costs from Transaction completion, in September 2022, up to FID and has interest charged at 8% per annum (the "Pre-FID Loan"). Subject to a positive FID, Navitas will provide a second 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

 

The charge in the period of US$1.9 million relates to the estimate of tax due on the first Tranche of proceeds from the monetisation of the Ombrina Mare Arbitration Award.

 

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 30 June 2024, the Group had cash resources of US$27.8 million. Historically, the Group's largest annual expenditure has related to pre-sanction costs associated with the Sea Lion development. The Group benefits from loan funding for its share of all Sea Lion pre-sanction costs (other than licence fees and taxes).

 

The Group has prepared the financial statements on the basis that it will continue to operate as a going concern. The Directors consider that there are no material uncertainties that may cast significant doubt over this assumption. They have formed a judgement that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, and not less than 12 months from the end of the reporting period.

 

Principal risk and uncertainties

 

A detailed review of the potential risks and uncertainties which could impact the Group are outlined in the Strategic Report of the Group's annual consolidated financial statements. The Group identified its key risks at the end of 2023 as being:

 

·    oil price volatility;

·    availability and access to capital;

·    joint venture partner alignment; and

·    failure of joint venture partners to secure the requisite funding to allow a Sea Lion Final Investment Decision

 

 

CONDENSED CONSOLIDATED income statement

for the six months ended 30 June 2024

		Six months	Six months
		Ended	Ended
		30 June	30 June
		2024	2023
		Unaudited	Unaudited
	Notes	$'000	$'000
Revenue		-	-
Cost of sales		(275)	(378)
Gross loss		(275)	(378)
Exploration and evaluation expenses		-	(3)
Administrative expenses		(1,553)	(2,132)
Charge for share based payments		(40)	(70)
Foreign exchange movement		(279)	586
Results from operating activities		(2,147)	(1,997)
Other income and expenses	2	20,556	-
Finance income		173	128
Finance expense		(200)	(739)
Profit/(loss) before tax		18,382	(2,608)
Tax	3	(1,882)	-
PROFIT/(Loss) for the period attributable to the equity shareholders of the parent company		16,500	(2,608)
Profit/(loss) per share attributable to the equity shareholders of the parent company: cents
Basic	4	2.57	(0.44)
Diluted	4	2.53	(0.44)

 

CONDENSED CONSOLIDATED statement of comprehensive income

for the six months ended 30 June 2024

		Six months	Six months
		Ended	Ended
		30 June	30 June
		2024	2023
		Unaudited	Unaudited
	Notes	$'000	$'000
Profit/(loss) for the period		16,500	(2,608)
Exchange differences on translation of foreign operations		468	(615)
TOTAL COMPREHENSIVE PROFIT/(LOSS) FOR THE period		16,968	(3,223)

 

CONDENSED CONSOLIDATED balance sheet

as at 30 June 2024

			As at	As at
			30 June	31 December
			2024	2023
			Unaudited	Audited
	Notes		$'000	$'000
NON CURRENT Assets
Exploration and evaluation assets	5		266,488	257,228
Property, plant and equipment			21	29
CURRENT Assets
Other receivables			936	1,241
Finance lease receivable			-	235
Restricted cash			494	529
Term deposits			7,006	4,501
Cash and cash equivalents			20,842	3,487
Total assets			295,787	267,250
CURRENT Liabilities
Other payables			15,115	7,716
Tax payable		3	1,882	-
Derivative financial liabilities			-	450
Lease liability			-	246
NON-CURRENT Liabilities
Tax payable		3	-	-
Provisions			19,862	20,121
Deferred tax liability			39,137	39,137
Total liabilities			75,996	67,130
Equity
Share capital			9,455	9,196
Share premium			12,585	10,181
Share based remuneration			2,149	2,109
Owns shares held in trust			(1,320)	(1,320)
Merger reserve			78,208	78,208
Foreign currency translation reserve			(8,033)	(8,501)
Special reserve			175,281	175,281
Retained losses			(48,534)	(65,034)
Attributable to the equity shareholders of the company			219,791	200,120
Total liabilities and equity			295,787	267,250

 

These condensed consolidated interim financial statements were approved by the directors and authorised for issue on 25 September 2024 and are signed on their behalf by:

 

Samuel Moody

Chief Executive Officer

UNAUDITED CONDENSED CONSOLIDATED statement of changes in equity

for the six months ended 30 June 2024

						Foreign
				Shares		currency
	Share	Share	Share based	held	Merger	translation	Special	Retained	Total
	capital	Premium	remuneration	in trust	reserve	reserve	reserve	losses	Equity
	$'000	$'000	$'000	$'000	$'000	$'000	$'000	$'000	$'000
Balance at 31 December 2023	9,196	10,181	2,109	(1,320)	78,208	(8,501)	175,281	(65,034)	200,120
Profit for the period	-	-	-	-	-	-	-	16,500	16,500
Other comprehensive profit for the year	-	-	-	-	-	468	-	-	468
Total comprehensive profit for the year	-	-	-	-	-	468	-	16,500	16,968
Shares issues (net of expenses)	259	2,404	-	-	-	-	-	-	2,663
Share based payments	-	-	40	-	-	-	-	-	40
Other transfers	-	-	-	-	-	-	-	-	-
Balance at 30 June 2024	9,455	12,585	2,149	(1,320)	78,208	(8,033)	175,281	(48,534)	219,791

 

for the six months ended 30 June 2023

						Foreign
				Shares		currency
	Share	Share	Share based	held	Merger	translation	Special	Retained	Total
	capital	Premium	remuneration	in trust	reserve	reserve	reserve	losses	Equity
	$'000	$'000	$'000	$'000	$'000	$'000	$'000	$'000	$'000
Balance at 31 December 2022	8,771	6,518	1,492	(1,494)	78,208	(7,999)	175,281	(60,310)	200,467
Loss for the period	-	-	-	-	-	-	-	(2,608)	(2,608)
Other comprehensive loss for the year	-	-	-	-	-	(615)	-	-	(615)
Total comprehensive loss for the year	-	-	-	-	-	(615)	-	(2,608)	(3,223)
Shares issues (net of expenses)	32	252	-	-	-	-	-	-	284
Share based payments	-	-	570	-	-	-	-	-	570
Other transfers	-	-	-	174	-	-	-	(174)	-
Balance at 30 June 2023	8,803	6,770	2,062	(1,320)	78,208	(8,614)	175,281	(63,092)	198,098

 

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

FOR THE SIX MONTHS ENDED 30 JUNE 2024

 

		Six months	Six months
		Ended	Ended
		30 June	30 June
		2024	2023
		Unaudited	Unaudited
	Notes	$'000	$'000
Cash flows from operating activities
Net profit/(loss) before tax		18,382	(2,608)
Adjustments to reconcile net losses to cash:
Depreciation		8	32
Share based payment charge		40	70
Finance expense		195	735
Finance income		-	(1)
Foreign exchange		(111)	(637)
Operating cash flows before movements in working capital		18,514	(2,409)
Changes in:
Other receivables		267	(103)
Payables		(502)	(405)
Provisions		-	(45)
Cashflow from operating activities		18,279	(2,962)
Cash Flows from investing activities
Capitalised expenditure on exploration and evaluation assets		(766)	(680)
Investing activities before movements in capital balances		(766)	(680)
Changes in:
Term deposits		(2,532)	3,478
Cash flow from investing activities		(3,298)	2,798
Cash flows from financing activities
Net proceeds of share placing and subscription		-	-
Exercise of warrants		2,109	284
Net lease payments		(11)	(10)
Cash flow from financing activities		2,098	274
Currency translation differences relating to cash and cash equivalents		276	28
Net cash flow		17,079	110
Cash and cash equivalents brought forward		3,487	1,059
Cash and cash equivalents carried forward		20,842	1,197

 

Notes to the condensed CONSOLIDATED group financial statements

for the six months ended 30 June 2024

 

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 interests in the Falkland Islands and the Greater Mediterranean. The Company's registered office address is Warner House, 123 Castle Street, Salisbury, SP1 3TB.

 

The interim condensed consolidated financial statements for the six months ended 30 June 2024 were authorised for issue in accordance with a resolution of the directors on 25 September 2024.

 

1.2 Statement of compliance and basis of preparation

 

The interim condensed consolidated financial statements have been prepared in accordance with the measurement principles of UK adopted International Accounting Standards.

 

Accounting policies are consistent with those adopted in the last statutory financial statements of Rockhopper Exploration plc. The information as of 31 December 2023 has been extracted from the audited financial statements of Rockhopper Exploration plc for the year ended 31 December 2023. These interim condensed consolidated financial statements do not constitute statutory financial statements under the Companies Act 2006. The information for the year ended 31 December 2023 shown in this report does not constitute statutory accounts for that year as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor has reported on those accounts. Their report was unqualified, did include an emphasis of matter but did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

 

There has been no impact on the Group of any new standards, amendments or interpretations that have become effective in the period. The Group has not early adopted any new standards, amendments or interpretations.

 

1.3 Going concern

 

The Group has prepared the financial statements on the basis that it will continue to operate as a going concern. Given the receipt of funds from the Specialist Fund in relation to the Monetisation the Directors consider that there are no material uncertainties that may cast significant doubt over this assumption. They have formed a judgement that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, and not less than 12 months from the end of the reporting period.

 

1.4 Period end exchange rates

 

The period end rates of exchange actually used were:

 

	30 June 2024	30 June 2023	31 December 2023
£ : US$	1.26	1.27	1.27
€ : US$	1.07	1.09	1.10

 

2      Other income and expenses

 

In August 2022, pursuant to an ICSID arbitration which commenced in 2017, Rockhopper was awarded approximately €190 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 €247 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 €1.25 million and €1.5 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.

 

On 20 December 2023, Rockhopper announced its entry into a funded participation agreement (the "Agreement") with a regulated specialist fund with over US$4bn of investments under management that has experience in investing in legal assets (the "Specialist Fund") to monetise its Award.

 

In line with the terms of the Agreement, the Specialist Fund will make cash payments to Rockhopper in up to three tranches:

 

Having satisfied all precedent conditions on 21 June 2024, Rockhopper received €19 million of the €45 million Tranche 1 payment. As previously disclosed, Rockhopper entered into a litigation funding agreement in 2017 under which all costs relating to the Arbitration from commencement to the rendering of the Award were paid on its behalf by a separate specialist arbitration funder (the "Original Arbitration Funder"). That agreement entitles the Original Arbitration Funder to a proportion of any proceeds from the Award or any monetisation of the Award. The balance of €26 million has gone to Original Arbitration Funder in order to fully discharge the Company of all of its liabilities under the agreement with the Original Arbitration Funder.

 

The €19 million has been treated as other income and expenses, as whilst Rockhopper retains legal and beneficial ownership of the Award the substance of the transaction is a disposal of the Award.

 

No income was recognised in relation to the Tranche 2 and Tranche 3 payments as they are contingent upon future events. The terms of these Tranches are described below.

 

Tranche 2 - Additional contingent payment of €65 million upon a successful annulment outcome. Should the Award be partially annulled and the quantum reduced as a result, then Tranche 2 will be reduced such that the amounts under Tranche 1 and Tranche 2 shall be adjusted downward on a pro-rata basis. For example, if the quantum of the Award is reduced by 20%, then the amounts under Tranche 1 and Tranche 2 shall be reduced by 20%. For the avoidance of doubt, the amounts under Tranche 1 and Tranche 2 shall not reduce below €45m in any circumstance.

 

Tranche 3 - Potential payment of 20% on recovery of amounts in excess of 200% of the Specialist Fund's total investment including costs.

 

As previously disclosed, success fees of approximately €4 million are owed to Rockhopper's legal representatives if Rockhopper win the claim, meaning liability is established and Italy is required to pay more than a nominal sum in damages (either by way of award or settlement in an amount equal to or more than €25 million).

 

 

3 Tax payable

		Six months ended	Six months ended
		30 June	31 December
		2024	2023
		$'000	$'000
		Unaudited	Unaudited
Current tax payable		1,882	-
Non current tax payable		-	-
		1,882	-

 

Current tax payable relates to tax arising in the period on the Tranche 1 proceeds as disclosed in Note 2.

 

On the 8 April 2015, the Group agreed binding documentation ("Tax Settlement Deed") with FIG in relation to the tax arising from the Group's 2012 farm out. 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.

 

In September 2022 the transaction enabling Harbour Energy plc to exit and Navitas to enter the NFB completed. Under the transaction the balance of Development Carry, approximately US$670 million, has become irrecoverable.

 

Due to the irrecoverable Development Carry in the Group's judgment no further amounts are due on the Group's 2012 farm-out. Given the highly material nature of this judgment professional advice has been sought to confirm that it is probable that the Group is entitled to adjust the outstanding tax liability for the Development Carry that has become irrecoverable. As such, in the prior year, the Group derecognised the tax liability to measure it at the most likely amount it will be settled for, US$nil. We understand that FIG still believe that the £59.6 million still to be due. We are currently engaged with FIG to resolve this matter.

 

Should it be proven that there is no entitlement to adjustment under the Tax Settlement Deed then the outstanding tax liability would be £59.6 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 NFB; or (iii) a change of control of Rockhopper Exploration plc. In this improbable instance Management believes the most likely timing of payment is in line with the first royalty payment. Based on correspondence with FIG, Management does not believe that the farmout constitutes a substantial disposal and therefore would not have accelerated the £59.6 million liability should it be shown to still be payable.

 

Separately we have submitted tax returns in relation to the farm out to Navitas that occurred immediately after their acquisition, from Harbour Energy plc of the company that holds the North Falkland's Basin licences. The consideration for this transaction was the provision of loan funding to the Group to cover the majority of its share of Sea Lion phase 1 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 1 development costs (for any costs not met by third party debt financing). Whilst we continue to engage with FIG on the value of this consideration, we are confident that we have sufficient losses to ensure no tax liability will arise.

 

4 Basic and diluted loss per share

 

	Six months	Six months
	ended	ended
	30 June	30 June
	2024	2023
	Number	Number
	Unaudited	Unaudited
Shares in issue brought forward	620,229,436	586,485,319
Shares issued
- Issued	20,349,328	2,532,064
Shares in issue carried forward	640,578,764	589,017,383
Weighted average of Ordinary Shares	644,485,599	593,539,285
Shares held in Employee Benefit Trust	(1,304,500)	(1,304,500)
Weighted average number of Ordinary Shares for the purposes of basic earnings per share	643,181,099	592,234,785
Effects of
Share options	8,058,678	n/a
Weighted average number of Ordinary Shares for the purposes of diluted earnings per share	651,239,777	592,234,785
$'000	$'000	$'000
Net profit/(loss) after tax for purposes of basic and diluted earnings per share	16,500	(2,608)
Earnings per share - cents
Basic	2.57	(0.44)
Diluted	2.53	(0.44)

 

Shares issued in the period all relate to the exercise of the warrants.

 

The weighted average number of Ordinary Shares takes into account those shares which are treated as own shares held in trust. As at the period end the Group had 1,304,500 Ordinary shares held in an Employee Benefit Trust which have been purchased to settle future exercises of options. It also takes into account those employee options ("LTIPs") which have vested and have a nil exercise cost as in substance these are similar to a vested ordinary share, and the entity will receive no further substantive consideration when the option is exercised. As at the period end the Group had 5,553,501 such LTIPs.

 

As the Group is reporting a loss in the prior period 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.

 

At the period end, the Group had the following unexercised options in issue.

 

		Six months
		ended
		30 June
		2024
		Number
		Unaudited
Vested:
Long term incentive plan		5,553,501
Share options		16,880,982
Unvested:
Share options		9,616,669

 

5 Intangible exploration and evaluation assets

 

During the period there were US$9.2 million (2023: US$2.0 million) of additions. These mainly relate to the Sea Lion Development as does the balance carried forward. The majority of these costs are covered through a loan from Navitas and are included in other payables.

 

At 30 June 2024, the Group reviewed its intangible exploration/appraisal assets for indicators of impairment, with no indicators of impairment being identified. No impairment tests were therefore performed.

 

Licences expire at the end of 2024. A license extension has been requested across all the licences. Whilst there is no guarantee this will be granted historically the Falkland Islands Government have been supportive and Management believe that an extension will be received.

 

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IR FFFIIAFIEFIS