30 September 2021 

Rockhopper Exploration plc

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

Half-year results for the six months to 30 June 2021

Rockhopper Exploration plc (AIM: RKH), the oil and gas exploration and production company with key interests in the North Falkland Basin, announces its unaudited results for the six months ended 30 June 2021.

Year to date highlights

Sea Lion

·    Announcement by Harbour Energy plc ("Harbour") in September 2021 that the Sea Lion project does not fit its corporate strategy and therefore that it will seek to exit the project and its North Falkland Basin licences

·    Rockhopper to continue to pursue the Sea Lion project with a handover process to commence shortly

·    Discussions ongoing with Navitas Petroleum LP ("Navitas") regarding its potential entry to the Sea Lion project

·    Extension of the Company's North Falkland Basin Petroleum Licences, including the Sea Lion Discovery Area, to 1 November 2022

Corporate and financial

·    Continued focus on corporate costs resulted in reduced administrative expenses - G&A US$1.6 million in H1 2021 (H1 2020: US$2.7 million)

·    Further corporate cost savings implemented post period end

·    Cash resources of US$7.1 million as at 30 June 2021

Outlook

·    Formal exit by Harbour - Rockhopper expects to regain operatorship and 100% working interest in Sea Lion and key North Falkland Basin licences, subject to necessary consents

·    Progress an alternative, lower-cost development scheme for Sea Lion utilising the existing extensive design and engineering work undertaken for the project in recent years

·    Potential farm-out of Sea Lion project to Navitas

·    Outcome awaited in relation to Ombrina Mare arbitration - seeking significant monetary damages

Keith Lough, Chairman of Rockhopper, commented: 

"Harbour Energy's decision not to proceed with Sea Lion is both a disappointment and an opportunity, affording us greater control through our expected regaining of operatorship and a 100% working interest.

"Sea Lion is a world-class oil field with the scale and potential to create very material value for Rockhopper, its partners and the Falkland Islands as a whole.

"Work will continue on a number of fronts over the coming weeks, including: (1) progressing Harbour's orderly exit from the Falklands; (2) advancing plans for an alternative, lower cost, development of Sea Lion; and (3) progressing discussions with Navitas Petroleum around their potential entry to the project."

Enquiries:

Rockhopper Exploration plc

Sam Moody - Chief Executive

Stewart MacDonald - Chief Financial Officer

Tel. +44 (0) 20 7390 0234 (via Vigo Communications)

Canaccord Genuity Limited (NOMAD and Joint Broker)

Henry Fitzgerald-O'Connor/James Asensio

Tel. +44 (0) 20 7523 8000

Peel Hunt LLP (Joint Broker)

Richard Crichton

Tel. +44 (0) 20 7418 8900

Vigo Communications

Patrick d'Ancona/Ben Simons

Tel. +44 (0) 20 7390 0234

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR").

CHAIRMAN AND CHIEF EXECUTIVE OFFICER'S REPORT

Introduction

Rockhopper's strategy is to create value for all our stakeholders through the safe and responsible development of our assets in the North Falkland basin. The Company has been operating offshore the Falkland Islands since 2004 and discovered the world-class Sea Lion oil field in 2010. We are a long-term partner of the Falklands and our aim has always been to support the rights of the Falkland Islanders to develop their natural resources.

Sea Lion development

The recent decision by Harbour Energy plc ("Harbour") that Sea Lion does not fit its strategy and therefore that it will not proceed with the project is a disappointment. Nonetheless, whilst this is a difficult moment for Rockhopper it is also a very real opportunity.

The Sea Lion project (with independently audited 2C resources in excess of 500 million barrels) was discovered and appraised by Rockhopper 100% as Operator. The Company has unrivalled knowledge of Sea Lion and the North Falkland Basin having held the acreage since 2004 and plans to continue to pursue the development of the project.

Work has already commenced on an alternative, lower-cost development scheme utilising the existing extensive design and engineering work undertaken for the project in recent years.

Rockhopper is in discussions with Navitas Petroleum LP ("Navitas") around its potential entry to the Sea Lion project following Harbour's decision not to proceed. In August this year, Navitas and partners raised project financing in excess of US$900 million and have taken final investment decision on the 330 million barrel deep water Shenandoah project in the US Gulf of Mexico, demonstrating their ability to raise capital for large-scale offshore oil developments.

The previously announced Heads of Terms with Harbour and Navitas expires on 30 September 2021 and as a result Harbour will have an initial 90 days to elect how to proceed with their exit. Rockhopper will continue to be funded (excluding licence fees, taxes and project wind down costs) by Harbour during that period under the terms announced on 7 January 2020 and 30 April 2020.

Rockhopper has commenced discussions with Harbour and the Falkland Islands Government ("FIG") to ensure an orderly exit by Harbour from the Falkland Islands.

Ombrina Mare arbitration

Rockhopper commenced international arbitration proceedings against the Republic of Italy in relation to the Ombrina Mare field in March 2017. The hearing took place in early February 2019 in Paris. In June 2019, the Tribunal rejected Italy's request for the suspension of the arbitration and Italy's related intra-EU jurisdictional objections.

Post-hearing briefings were submitted in October and November 2019. The Tribunal confirmed in May 2021 that it anticipated being in a position to render its award in the course of July 2021. In late September 2021, Italy made a request, and the Tribunal agreed, to admit a recent European Court of Justice judgment related to inter-EU Energy Charter Treaty disputes. The Tribunal has requested Rockhopper's legal advisers to respond to the European Court of Justice judgment by 6 October 2021.

Rockhopper continues to believe it has strong prospects of recovering very significant monetary damages - on the basis of lost profits - as a result of the Republic of Italy's breaches of the Energy Charter Treaty. All of Rockhopper's costs associated with the arbitration to date have been funded on a non-recourse ("no win - no fee") basis from a specialist arbitration funder.

With the expectation that the Ombrina Mare arbitration is approaching a conclusion, the Company is considering options to exit its legacy gas interests in Italy.

Corporate Matters

The Group continues to actively manage its corporate costs and has reduced G&A by over 50% over the last five years. During 2020 approximately US$2.0 million of recurring annual corporate costs were identified and removed permanently from the business. G&A costs decreased to US$1.6 million in H1 2021 (H1 2020: US$2.7 million).

Post period end, further actions to preserve the Company's cash position have been agreed, including: 

·    the sub-let of the Company's former London office which is expected to realise additional cash savings in excess of US$1.0 million over the remaining term of the lease;

·    each of the Executive Directors have agreed to defer all of their annual base salaries above £200,000 until the earlier of (1) a positive Ombrina Mare arbitration award; or (2) the execution of a farm-out transaction on Sea Lion. Should neither of these events occur then that portion of salary will be permanently lost. This equates to a further 35% reduction for the CEO and a further 20% reduction for the CFO in addition to the permanent 20% reduction in Executive Director base salaries announced in May 2020;

·    the Chairman has also agreed to defer 25% of his base fee in addition to a 15% permanent voluntary reduction already taken.

Environmental, Social and Governance

ESG, and Corporate Responsibility more generally, continues to be a key focus for Rockhopper.

As an oil and gas exploration and production business our role is to produce hydrocarbons in a safe and environmentally responsible manner. 

The Company will in 2022 (delayed from 2021 due to the recent decision by Harbour to exit the Sea Lion project) be undertaking a review of its broader ESG framework to ensure it remains appropriate to its business and increasing stakeholder interest in this area.  

Outlook

Sea Lion is a world-class oil field with the scale and potential to create very material value for Rockhopper, its partners and the Falkland Islands as a whole.

Work will continue on a number of fronts over the coming weeks, including: (1) progressing Harbour's orderly exit from the Falklands; (2) advancing plans for an alternative, lower cost, development of Sea Lion; and (3) progressing discussions with Navitas around their potential entry to the project. Given the unique characteristics and challenges of progressing an oil field development in the Falklands, an innovative approach to funding will likely be required.

While we can make no guarantees, our expectation, based on communications from the Tribunal in July, is that the Ombrina Mare arbitration is approaching a conclusion, although precise timing remains unclear.

We thank the Falkland Islands government for its continuing support and will continue to work closely with all stakeholders to maximise the chance of unlocking the value within the project long-awaited by all stakeholders.

Keith Lough                        Sam Moody

Chairman                             Chief Executive Officer

FINANCIAL REVIEW

Following the sale of the Company's interests in Egypt (completed February 2020), the Group's sole source of revenue is from the production and sale of limited volumes of natural gas in Italy.

For the period ended 30 June 2021, the Group reported revenues of US$0.3 million and loss after tax of US$3.3 million.

CASH MOVEMENTS AND CAPITAL EXPENDITURE

At 30 June 2021, the Group had cash and term deposits of US$7.1 million (31 December 2020: US$11.7 million).

Cash and term deposit movements during the period:

Falkland Island spend, relating to the period post 1 January 2020, primarily relates to licence fees and internal costs associated with the Sea Lion development. During H1 2021, the Group received and subsequently paid a significantly larger than expected tax liability of US$1.4 million associated with the 2015/16 Falklands drilling campaign. Limited further costs related to the period prior to 1 January 2020 are expected.

Administrative expenses of US$1.6 million include US$0.4 million of corporate and administrative costs directly associated with the Group's legacy interests in Italy.

Miscellaneous includes non-recurring restructuring costs, foreign exchange and movements in working capital during the period.

The previously announced Heads of Terms with Harbour and Navitas expires on 30 September 2021 and as a result Harbour will have an initial 90 days to elect how to proceed with their exit. Rockhopper will continue to be funded (excluding licence fees, taxes and project wind down costs) by Harbour during that period under the terms announced on 7 January 2020 and 30 April 2020.

TAXATION

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

The Tax Settlement Deed confirms the quantum and deferment of the outstanding tax liability and is made under Extra Statutory Concession 16.

As a result of the Tax Settlement Deed, the outstanding tax liability was confirmed at £64.4 million and is 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 North Falkland Basin; or (iii) a change of control of Rockhopper.

During the first half of 2017, as a result of the Group receiving the full Exploration Carry from Premier during the 2015/16 drilling campaign, the Falkland Islands Commissioner of Taxation agreed to reduce the tax liability in line with the terms of the Tax Settlement Deed. As such, the tax liability has been revised downwards to £59.6 million. The outstanding tax liability is classified as non-current and is discounted to a period-end value of US$41.0 million.

Full details of the provisions and undertakings of the Tax Settlement Deed are disclosed in note 7 of these condensed consolidated interim financial statements and these include "creditor protection" provisions including undertakings not to declare dividends or make distributions while the tax liability remains outstanding (in whole or in part).

As a result of the recently announced decision by Harbour to exit the Sea Lion project, Rockhopper has commenced discussions with FIG as to the impact of such a decision on the Group's deferred tax liability.

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, with surplus cash held on term deposits with a number of major financial institutions.

At 30 June 2021, the Group had cash resources of US$7.1 million (unaudited). Following the sale of Rockhopper Egypt Pty Limited in 2020, the Group generates limited revenue and cash flow from the sale of oil or gas.

Historically, the Group's largest annual expenditure has related to pre-sanction costs associated with the Sea Lion development. However, following the announcement by Harbour of its intention to exit the Falklands, the Company will have greater control on the level and timing of future expenditure on the Sea Lion project.

Management has also considered a number of downside scenarios, the most significant being one where decommissioning of certain physical assets (principally the Temporary Dock Facility) in the Falklands is required. The Group would be liable for its 40% share of these costs with no funding support from Harbour and/or Navitas.

Under the base case forecast, the Group will have sufficient financial headroom to meet forecast cash requirements for the 12 months from the date of approval of these consolidated financial statements. However, in the downside scenarios, in the absence of any mitigating actions, the Group may have insufficient funds to meet its forecast cash requirements. Potential mitigating actions, some of which are outside the Group's control, could include collection of arbitration award proceeds, deferral of expenditure or raising additional equity.

Accordingly, after making enquiries and considering the risks described above, the Directors have assessed that the cash balance held provides the Group with adequate headroom over forecasted expenditure for the following 12 months - as a result, the Directors have adopted the going concern basis of accounting in preparing these consolidated financial statements. 

Nonetheless, these conditions indicate the existence of a material uncertainty which may cast significant doubt on the Group's and Company's ability to continue as a going concern. The financial statements do not include the adjustments that would be required if the Group and Company were unable to continue as a going concern.

PRINCIPAL RISK AND UNCERTAINTIES

A detailed review of the potential risks and uncertainties which could impact the Company are outlined in the Strategic Report of the Group's 2020 Annual Report. The Company identified its key risks as being:

·   oil price volatility; 

·   access to capital;

·   insufficient funds to meet commitments;

·   failure to secure joint venture partners for the Sea Lion project; and

·   failure to secure the requisite funding to allow a Sea Lion Final Investment Decision. 

In 2020, the environmental impact of oil and gas extraction (e.g. climate change) was added to the risk register, reflecting the increased focus on ESG issues which could have an adverse impact on investor and lender sentiment towards the Company and the Sea Lion project.

CONDENSED CONSOLIDATED income statement

for the six months ended 30 June 2021

CONDENSED CONSOLIDATED statement of comprehensive income

for the six months ended 30 June 2021

CONDENSED CONSOLIDATED balance sheet

as at 30 June 2021

These condensed consolidated interim financial statements were approved by the directors and authorised for issue on 30 September 2021 and are signed on their behalf by:

Stewart MacDonald

Chief Financial Officer