Annual Results for the year ended 31 December 2015

RNS Number : 9965U

Rockhopper Exploration plc

13 April 2016

 

Rockhopper Exploration plc

("Rockhopper" or the "Company")

Annual Results for the year ended 31 December 2015

Rockhopper Exploration plc (AIM: RKH), the oil and gas exploration and production company with key interests in the North Falkland Basin and Greater Mediterranean region, is pleased to announce its results for the year ended 31 December 2015.

Highlights

·     Significant progress in advancing the Sea Lion development

o  Pre-FEED work for Phase 1 completed

o  FEED contracts awarded to a set of world class contractors

o  Modified project scope and cost improvements have enhanced project economics and lowered the break-even oil price

o  Draft Field Development Plan submitted to the Falkland Islands Government

·     Material exploration successes at Zebedee and Isobel Deep

·     All-share merger with Falkland Oil & Gas Limited ("FOGL"), completed post the year end,

o  Consolidates Rockhopper's leading North Falkland Basin acreage position

·     Significant production increase achieved in Greater Mediterranean portfolio

o  Exit 2015 production rate in excess of 700 boepd

o  Completion of Guendalina side track

o  First gas achieved at the Rockhopper operated Civita field

·     Confirmation of Falkland Islands tax deferment

·     Balance sheet strength maintained with cash resources at 31 December 2015 of US$110 million

Pierre Jungels, Chairman of Rockhopper, commented:

"2015 has been transformational for your Company. Through our merger with Falkland Oil & Gas we have consolidated our leading acreage and resource position in the North Falkland Basin. Our exploration campaign has achieved significant success with multiple oil discoveries at Zebedee and Isobel Deep. The potential of the Isobel-Elaine complex, in a previously underexplored part of the basin, has been materially de-risked and supports management's view that the North Falkland Basin could ultimately deliver a billion barrels of recoverable oil. The Sea Lion project has entered FEED - another significant milestone on the path towards project sanction.

Going forward, we anticipate additional cost reduction opportunities being pursued during FEED to further enhance the economics of the Sea Lion project as we move towards a project sanction decision point in mid-2017. Premier Oil has confirmed its intention to seek an additional partner ahead of taking project sanction and Rockhopper will support Premier Oil in this initiative.

Our Greater Mediterranean business has seen a step-change in production having achieved an exit rate for 2015 of over 700 barrels of oil equivalent per day. We will continue to pursue opportunities which add low-cost, value-accretive production to our portfolio whilst preserving our strong balance sheet.

With the Company having made such significant achievements this year, it now seems appropriate to announce my intention to retire from the Board following the Company's forthcoming AGM on 17 May. I am delighted that current non-executive director David McManus will succeed me as Non-executive Chairman."

The Report and Accounts for the year ended 31 December 2015 will be available on the Company's website at www.rockhopperexploration.co.uk in due course. Hard copies will be posted to those shareholders who elected to receive them on 22 April 2016 together with the documentation for the 2016 Annual General Meeting.

Enquiries

Rockhopper Exploration plc

Tel: (via Vigo Communications) - 020 7830 9700

Sam Moody - Chief Executive

Fiona MacAulay - Chief Operating Officer

Stewart MacDonald - Chief Financial Officer

Canaccord Genuity Limited (NOMAD and Joint Broker)

Tel: [phone]

Henry Fitzgerald-O'Connor

Liberum Capital (Joint Broker)

Tel: [phone]

Clayton Bush

Neil Elliot

Vigo Communications

Tel: [phone]

Patrick d'Ancona

Ben Simons

Chairman and Chief Executive Officer's Review

Chairman's introduction

2015 has been transformational for your Company - this year we have consolidated our leading position in the North Falkland Basin; made a number of material oil discoveries in the Falklands and progressed the Sea Lion project into FEED.

Since its foundation in 2004, Rockhopper has evolved from a fledgling oil explorer to a leading UK listed independent oil and gas exploration company having discovered what we believe will likely become over a billion barrels of recoverable oil in the North Falkland Basin. With the Company having made such significant achievements in that period and having seen such success in the recent drilling programme, it now seems appropriate to announce my intention to retire from the Board following the Company's forthcoming AGM on 17 May. It has been an immense privilege to serve as Chairman of your Company over the last 11 years, originally as Executive Chairman and then, since 2010, as Non-executive Chairman.

I am delighted that David McManus will succeed me as Non-executive Chairman. David brings with him significant oil industry experience and, as a shareholder, I am confident that David will prove to be an excellent leader for your Board as Rockhopper continues to succeed and thrive. He provides superb continuity having been a non-executive director of your company for almost six years already.

Combination with Falkland Oil & Gas consolidates Rockhopper's leading position in the North Falkland Basin

Your Board believes the combination of Rockhopper and Falkland Oil & Gas Limited ("FOGL"), completed in January 2016, will create significant value for shareholders and allow Rockhopper to have materially more strategic influence over the future pace and direction of oil and gas development in the North Falkland Basin.

As a result of the combination, Rockhopper is now the largest North Falkland Basin licence and discovered resource holder with a material working interest in all key North Falkland Basin licences. Our enhanced interests provide us with a more strategic position in future farm-out discussions as well as providing us with a materially greater exposure to the upside in licence PL004, including the Isobel/Elaine complex which was significantly de-risked during the 2015/16 exploration campaign.

Our North Falkland Basin exploration campaign has resulted in significant exploration successes at Zebedee and Isobel Deep

The Zebedee well has added at least 60 million barrels of recoverable oil to a Phase 2 development. The Isobel Deep well, which was the first test of the Isobel/Elaine fan complex, encountered oil-bearing sandstone at prognosed depth and opened up a new play in the previously underexplored southern part of licence PL004. The Isobel Deep prospect was re-drilled later in the campaign through the Isobel-Elaine well, which confirmed the results of the Isobel Deep exploration well and in addition discovered hydrocarbons in various shallower sandstones. The results of the Isobel-Elaine well, which did not penetrate an Oil Water Contact within any of the sands, indicate that the total oil column established by this well is likely to be in excess of 480 metres.

Unfortunately, due to material operational issues experienced with the drilling rig, the rig contract was terminated in February 2016. As a result, the last well of the proposed campaign, the Chatham well, was not drilled in the campaign, though it may ultimately be drilled as part of a development drilling programme relating to the Sea Lion project. Nonetheless, the highly successful well results achieved during the campaign support Rockhopper's view that the North Falkland Basin has the potential to deliver multiple future phases of development and a billion barrels of recoverable oil.

Sea Lion project progresses to FEED

Significant progress has been made to mature the development planning for the first phase of Sea Lion. Pre-FEED work was completed in late 2015 and FEED contracts were awarded to a set of world-class contractors in early 2016. Technical and cost improvements and efficiencies have been identified to enhance significantly the project economics and lower the break-even oil price. A draft Field Development Plan has been prepared and submitted to the Falkland Islands Government.

Revised commercial terms with Premier Oil were documented in line with the Heads of Agreement announced in November 2014. As a result, the joint venture partners now enjoy greater economic alignment to allow the project to progress.

Under the revised terms, Rockhopper will now access the full US$48 million Exploration Carry for the 2015/16 campaign with the remaining Development Carry of US$674 million split equally between Phase 1 (US$337 million) and the balance (US$337 million) deferred to the subsequent phase of development. Standby Finance arrangements have been simplified to a more traditional loan structure of up to US$750 million. In addition, Rockhopper will pay a Guarantee Fee to Premier for the provision of parent company guarantees, as required by contractors, on Rockhopper's behalf.

Production growth in the Greater Mediterranean

In our Mediterranean portfolio, whilst we were disappointed with the recent legislative changes in Italy, which have hampered our ability to progress the Ombrina Mare project, we have seen significant production growth at the Guendalina gas field and achieved first gas from the Rockhopper operated Civita gas field. Our interests in Guendalina and Civita are together estimated to generate gross revenues in the order of US$8 - 10 million in 2016 (based on current gas price, foreign exchange rate and production projections).

Corporate matters

As a result of the merger with FOGL, we are delighted that John Martin and Tim Bushell, previously Chairman and CEO respectively of FOGL, have joined the Rockhopper board as non-executive directors, effective 18 January 2016.

Your board has previously articulated the ambition to move Rockhopper to a Premium Listing on the Main Market of the London Stock Exchange in due course and discussions with the UK Listing Authority ("UKLA") on this matter have been progressed. However, with the Company's significant focus on the North Falkland Basin, it appears unlikely that Rockhopper will meet the strict criteria required to move to the Premium List during 2016. Specifically, given our material but non-operated interest in Sea Lion, Rockhopper is unable to demonstrate to the satisfaction of the UKLA a controlling interest in the majority of its assets. Likewise, our Mediterranean portfolio is seen by the UKLA as insufficient in scale (relative to our interests in Sea Lion) to meet the strict spread of assets test. Whilst a Standard Listing on the Main Market could be pursued at this time, the Board does not believe that this would achieve the longer-term benefits being sought. As circumstances change, the Company will re-engage with the UKLA regarding eligibility for a Premium Listing and the Board will re-consider the matter as appropriate. Our commitment to the highest standards of corporate governance remains firmly in place.

Outlook

The FEED process for Sea Lion is anticipated to take approximately 15 months to complete and we expect further cost reduction opportunities to be pursued during that time as we move towards a project sanction decision point in mid-2017. While the spot price for Brent Crude is around US$40 per barrel today, the most important factors when considering the investment economics for large-scale offshore projects such as Sea Lion, are the long-term oil price outlook and the cost reductions that can be achieved.

Premier Oil has confirmed its intention to seek an additional partner ahead of taking project sanction and Rockhopper will support Premier Oil in this initiative.

Our Greater Mediterranean business has seen a step-change in production having achieved an exit rate for 2015 of over 700 barrels of oil equivalent per day. We will continue to pursue opportunities which add low-cost, value-accretive production to our portfolio whilst preserving our strong balance sheet.

Dr Pierre Jungels CBE Chairman

Samuel Moody Chief Executive Officer

12 April 2016

Chief Operating Officer's Review

Following completion of Rockhopper's merger with FOGL, Rockhopper is the largest North Falkland Basin licence holder with a material working interest in all key licences as well as operatorship of PL003a, PL003b and PL005.

Sea Lion development significantly de-risked

In January 2016, we were delighted to announce that the Sea Lion Phase 1 development project had entered the Front End Engineering and Design ("FEED") stage. The Sea Lion Phase 1 development definition phase was completed in late 2015 and significant improvements have been identified to enhance overall project economics in response to the lower oil price environment. Highlights of the Phase 1 development include:

·     Recoverable resources to be commercialised increased from 160 mmbbls to approximately 220 mmbbls (operator's estimate)

·     Field peak production increased from approximately 60,000 to 85,000 bbls per day

·     Field life increased from 15 to 20 years

·     Well count increasing from 14 to 18, with 13 wells drilled pre-first oil

·     Despite the increase in scope, the estimate of pre-first oil capex requirement remains at US$1.8 billion, equivalent to approximately US$8 per barrel - a 30% reduction in pre-first oil capex per barrel. Further cost reductions are expected given the current market environment

·     Significant improvement in project economics for both partners resulting in a materially lower break-even oil price for the project

On the basis of the improved project, a Floating Production Storage and Offloading ("FPSO") FEED contract was entered into with SBM Offshore, with work anticipated to take between 15 and 18 months to complete. Subsequently, the FEED contract for SURF Transport and Installation was entered into with Subsea7, for Flexibles with National Oilwell Varco and for the Subsea Production System with One Subsea.

An application has also been made to the Falkland Islands Government ("FIG") to extend the licence for the Sea Lion Discovery Area in PL032. 

A draft Field Development Plan ("FDP") has been prepared and submitted to FIG. 

A project sanction decision point is now targeted for mid-2017, which if achieved would result in a target first oil date during 2020.  The extensive pre-FEED project optimisation has enabled the FEED contracts to be fully matured with a significant impact on future costs.

North Falkland Basin exploration campaign successfully completed

The North Falkland Basin exploration campaign commenced in February 2015 using the Eirik Raude rig.

On 2 April 2015, Rockhopper announced the results of the Zebedee well in PL004b (Rockhopper 64% working interest following completion of merger with FOGL). The well discovered 27.9 metres of net oil-bearing reservoir and 18.5 metres of net gas-bearing reservoir. The well penetrated multiple targets in the Cretaceous F2 and F3 formations and has added approximately 50 mmbbls of recoverable resource from the main Zebedee sand alone with additional significant pay sections in the Hector and Ninky South fans. Following plug and abandonment operations at Zebedee, the rig moved to the Isobel Deep location.

On 28 May 2015, Rockhopper announced an oil discovery at the Isobel Deep well, located approximately 40km south of the Sea Lion field in PL004a (Rockhopper 64% working interest following completion of merger with FOGL). The Isobel Deep exploration well was drilled to a depth of 2,527 metres reaching top reservoir on prognosis. The deepest 24 metres of the well consisted of oil bearing F3 sands. These sands were at a higher than expected reservoir pressure and this resulted in an influx into the well.

As a result, whilst it was not possible to acquire wireline logs over the Isobel Deep reservoir, the presence of oil bearing sands is considered very positive and these initial results opened up a new oil play in the southern part of PL004a.

Following suspension of the Isobel Deep well, the Eirik Raude rig was transferred to another operator in the South Falkland Basin. The rig returned to the North Falkland Basin in November 2015. Agreement was reached between the joint venture partners and the FIG to replace drilling the Jayne East prospect in PL004c with a re-drill of the Isobel prospect.

On 11 January 2016, Rockhopper announced the results of the Isobel-Elaine re-drill well in PL004a. The well reached a total depth of 3,014 metres and encountered a total of five oil bearing fan packages of the F3 system, with net pay of 27 metres recorded within the Isobel Deep, Isobel and Emily reservoirs. The well did not encounter any gas nor did it penetrate an Oil Water Contact within any of the sands in this location, where the Isobel Deep reservoir is 350 metres downdip from the discovery well. The results indicate that the total oil column established by this well is likely to be in excess of 480 metres.

Unfortunately, due to material operational issues experienced with the drilling rig, the rig contract was terminated in February 2016. As a result, the drilling of the Chatham well - the final well in campaign - has been deferred until the Sea Lion pre-development drilling campaign.

The postponement of the Chatham well has no impact on the planning or timetable for the Field Development Plan for the Sea Lion initial phase development.

As sub-surface lead for exploration, Rockhopper is immensely proud of the results of the exploration campaign and we look forward to incorporating the results of these wells into our regional data set.

The Company has commissioned a Competent Person's Report ("CPR") following the conclusion of the North Falkland Basin exploration campaign. The Company expects to release the results of the CPR during Q2 2016.

In addition, work has progressed on a broader development strategy for the entire North Falkland Basin. A Phase 2 development (targeting the remaining resources in PL032 and the satellite discoveries in the north of PL004) is now expected to commercialise approximately 300 million barrels (operator's estimate). Phase 3 will develop the Isobel/Elaine fan complex in the south of PL004.

South Falkland Basin

As a result of the merger with FOGL, Rockhopper now has material interests in licences to the South and East of the Falkland Islands. A full technical review of this acreage will be undertaken during the course of 2016.

Greater Mediterranean

Through the Company's acquisition of Mediterranean Oil & Gas plc in 2014, Rockhopper is focused on building a second core area in the Greater Mediterranean region which encompasses Southern Europe and certain countries of North Africa.

Guendalina, Italy (Rockhopper 20%)

Operated by Eni, the Guendalina gas field located in the Northern Adriatic, has been in production since October 2011.

On 1 September 2015, the Company announced that operations to undertake a side track well at Guendalina had begun. The well, which was drilled on time and on budget, reached a planned total depth of 3,276m. All target horizons within the Pliocene were gas-bearing and penetrated in an up-dip position with anticipated reservoir characteristics. Additionally, two deeper gas levels were encountered and perforated as part of the dual string completion.

The rig moved off location on 4 November 2015 and production from the field stabilised at approximately 88,000 scm per day net to Rockhopper (580 boe per day), representing an increase of 190% from the last reported rates of approximately 200 boe per day net. At the end of December 2015, the field was producing approximately 590 boe per day net to Rockhopper.

Civita, Italy (Rockhopper 100%)

Operated by Rockhopper, the Civita gas field located onshore Abruzzo, came into production in November 2015.

The field was commissioned at a rate of 12,500 scm per day before increasing to a stabilised flow rate of approximately 25,000 scm per day (approximately 160 boe per day) at the end of November 2015. At the end of December 2015, the field was producing approximately 145 boe per day net to Rockhopper.

Ombrina Mare, Italy (Rockhopper 100%)

Operated by Rockhopper, the Ombrina Mare oil and gas discovery is an appraisal / development project located in the Central Adriatic, approximately 6 miles from the Abruzzo coastline.

In August 2015, the Italian Government announced that the Environmental Impact Assessment ("EIA") of the Ombrina Mare Field Development Plan (including the 'Autorizzazione Integrata Ambientale' (Integrated Environmental Authorisation) ("AIA")) had been approved by both the Minister for the Environment and by the Ministry of Cultural Heritage. The EIA decree had been formally gazetted and was awaiting the approval of the Ministry of Economic Development as the next step in the process to award the Ombrina Mare Production Concession.

However, in early January 2016, the Italian Parliament approved the 2016 Budget Law which reintroduced restrictions on offshore oil and gas activity including the general ban on exploration and production activity within 12 nautical miles of the coast of Italy. This restriction was originally introduced in 2010 and repealed in 2012.

Also in January 2016, the Company was granted a 12 month extension to the suspension of the Ombrina Mare exploration permit to 31 December 2016.

On 3 February 2016, the Company announced that it had been informed by the Ministry of Economic Development that, following the re-introduction of the ban on exploration and production activity within 12 nautical miles of the coast of Italy, the Production Concession covering the Ombrina Mare Field Area would not be awarded.

The Company is now considering its options which include both a claim for damages and compensation against the Republic of Italy under international treaties for the protection of foreign investments, and in particular the arbitration process provided for under the Energy Charter Treaty.

Monte Grosso, Italy (Rockhopper 23%)

Operated by Rockhopper, the Monte Grosso oil prospect is located in the Southern Apennine thrust-fold belt on trend with Val D'Agri and Tempa Rossa, in the largest onshore oil production and development area in Western Europe. Monte Grosso remains one of the largest undrilled prospects onshore Western Europe. Rockhopper is in the process of transferring operatorship of the licence to Eni which is hoped will accelerate the regulatory and permitting process to enable drilling.

Area 3, Malta (Rockhopper 40%)

A 2D seismic survey was completed in April 2014 and the processing of such seismic was completed in mid-2015. The seismic has identified a number of leads of sufficient size to potentially be of interest. Further technical analysis is currently being conducted to determine the most appropriate way forward. The joint venture has received an extension of the Exploration Study Agreement to December 2016, at which time a decision will be made on entering a Production Sharing Contract.

Block 9, Croatia (Rockhopper 40%)

In January 2015, Rockhopper was awarded a 40% interest in offshore Block 9 in Croatia in partnership with Eni (60% interest and operator). The block is located in the relatively shallow water of the prolific Northern Adriatic gas province and contains the previously discovered Ksenija accumulation along with the Klaudija prospect. The anticipated work programme consists of seismic acquisition, processing and re-processing during the first exploration phase (3 years) with the drilling of a well in the second exploration phase (if Rockhopper elects to proceed to the second phase).

Given the general election in Croatia in November 2015, the signature of a Production Sharing Agreement ("PSA") with the Croatian Hydrocarbon Authority has been delayed. A PSA is now expected to be signed during 2016.

Fiona MacAulay

Chief Operating Officer

12 April 2016

Chief Financial Officer's Review

Overview

During the year, and despite a challenging macro environment, Rockhopper continued to invest in its high impact exploration and pre-development activities in the North Falkland Basin. In addition, Rockhopper completed an active development programme that will see the Company benefit from materially higher production in 2016.

Our balance sheet remains strong with year-end cash resources of $110 million.

Results summary

$m (unless otherwise specified)	2015	2014
Production (boepd)	322	272
Revenue	4	2
Profit/(loss) after tax	11	(8)
Cash flow from operating activities	(7)	(11)
Cash	110	200
Net assets	262	255

Comparability between the reporting periods is made difficult due to two factors. Firstly, in 2014 the Group changed its accounting year end to 31 December to bring it in line with the majority of its peers. This resulted in a nine month reporting period in 2014. Secondly, the acquisition of Mediterranean Oil & Gas plc was completed in August 2014 and so the revenues and expenditures associated with the Mediterranean region in 2014 only reflect the 5 month period from August to December. It should also be noted that the Company's merger with FOGL completed after the year end and so the impact of that transaction is not reflected in the 2015 financials.

Results for the period

For the year ended 31 December 2015, the Company reported revenue of US$4 million (2014: US$2 million) and a profit after tax of US$11 million (2014: US$8 million loss). The profit in the year arose primarily as a result of the one-off accounting treatment associated with the deferral of the CGT liability arising from the Company's 2012 farm-out.

Revenue

The Group's revenues of US$4 million (2014: US$2 million) during the period are related entirely to the sale of natural gas and condensate in Italy. The increase in revenues from the comparable period reflect the increased production volumes achieved at Guendalina and the commencement of production from Civita despite lower realised commodity prices.

Working interest production averaged 322 barrels of oil equivalent per day (boepd) in 2015, an increase of 18% over the prior year (2014: 272 boepd). Working interest production at the end of December 2015 was in excess of 700 boepd.

During the year, the Group's gas was sold under short-term contract with an average realised price of €0.20 per standard cubic metre (scm) (2014: €0.27 per scm), equivalent to approximately US$38 per boe.

Operating costs

Cash operating costs, excluding depreciation and impairment charges, amounted to US$3 million (2014: US$1 million). The increase in underlying cash operating costs is principally due to measures undertaken to increase production and a number of one off costs at Guendalina.

General and administrative costs, excluding non-recurring expenses related to acquisitions, amounted to US$9 million (2014: US$8 million).

Impairment of oil and gas assets

Given the continued decline in oil and gas prices, Rockhopper has tested the carrying value of our assets for impairment. Carrying values are compared to the value in use of the assets based on discounted cash flow models. Future cash flows were estimated using an oil price assumption equal to the Brent forward curve during the period 2016 to 2018, with a long-term price of US$75/bbl (in "real" terms) thereafter. A post-tax nominal discount rate of 12.5% was used for the Group's Falkland Island assets.

With no cash flow generation expected from Sea Lion until 2020, the impact of the current low oil price environment on the fair value calculation is limited. As such, no impairment arises on the Sea Lion project. A range of sensitivities have been considered as part of the impairment testing process. Even in the event that the Company reduced its long-term oil price assumption by US$10/bbl or assumed a one year delay to project sanction, no impairment on Sea Lion would arise.

The Group recognised write downs of intangible and tangible oil and gas assets of US$28 million (2014: US$2 million) primarily related to the Ombrina Mare project in Italy following a decision by the Ministry of Economic Development not to award the Production Concession. The write-down in relation to Ombrina Mare has been taken without prejudice to the legal remedies which may be obtained through potential future legal proceedings against the Republic of Italy and organs of the Italian State.

Taxation

On the 8 April 2015 the Group agreed binding documentation ("Tax Settlement Deed") with the Falkland Islands Government 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 (US$95 million as at 31 December 2015) and payable on the first royalty payment date on Sea Lion. Currently the first royalty payment date is anticipated to occur within six months of first oil production which itself is estimated to occur in 2020 (assuming Sea Lion project sanction in mid-2017). As such the tax liability has been reclassified as non-current and discounted to a year end value of US$47 million. The effect of this discounting is a tax credit in the period of US$55 million. The unwinding of this discount is non-cash and has led to a finance expense in the period of US$4 million.

The tax liability may be revised downward if the Falkland Islands' Commissioner of Taxation is satisfied that either (i) the Exploration Carry from Premier is utilised to fund exploration activities in the Falklands or (ii) any element of the Development Carry from Premier becomes "irrecoverable". Whilst the Company is entitled to benefit from the full Exploration Carry from Premier during the 2015/16 campaign, no adjustment in the tax liability has yet been recorded as this is subject to agreement with the Falkland Islands' Commissioner of Taxation.

Cash movements and capital expenditure

At 31 December 2015, the Company had cash resources of US$110 million (2014: US$200 million) and no debt.

Cash and term deposit movements during the period:

	US$m
Opening cash resources	200
North Falkland Basin	(68)
Greater Mediterranean	(12)
Admin and miscellaneous	(10)
Closing cash resources (31 December 2015)	110

North Falkland Basin spend of US$68 million relates primarily to the 2015 drilling campaign, as well as spend relating to the pre-development activities on Sea Lion.

For a variety of reasons, including the material operational issues experienced with the drilling rig, the costs of drilling the Zebedee, Isobel Deep and Isobel-Elaine wells were above that which was originally anticipated. Certain costs incurred are the subject of an ongoing insurance claim the outcome of which is expected to be known during 2016.

Under the revised commercial terms agreed with Premier, the Company is entitled to utilise the full US$48 million of Exploration Carry from Premier during the 2015/16 exploration campaign, which will result in a cash saving of approximately US$25m.

Spend in the Greater Mediterranean largely relates to the drilling of the side-track well at the Guendalina field and the development activities at the Group's onshore gas project Civita.

Acquisitions

The Company announced the US$22 million acquisition of a portfolio of production and exploration interests in Egypt from Beach Energy Limited ("Beach Energy") in August 2015. Subsequently, the Company was informed that one of the Abu Sennan joint venture parties has exercised its right of pre-emption. Discussions continue with Beach Energy and the joint venture parties to establish if an amended transaction can be agreed.

In November 2015, the Company announced the terms of an all share merger with Falkland Oil & Gas Limited. The merger completed in January 2016 following approval of both the Rockhopper and FOGL shareholders.

Under the terms of the merger, shareholders of FOGL received 0.2993 new Rockhopper shares for each FOGL share held.

Liquidity, counterparty risk and going concern

The Company 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.

The directors have assessed that the cash balance held provides the Company with adequate headroom over forecast expenditure for the following 12 months - as a result, the directors have adopted the going concern basis of accounting in preparing the annual financial statements.

Principal risks and uncertainties

A detailed review of the potential risks and uncertainties which could impact the Company are outlined elsewhere in this Strategic Report. The Company has identified its principal risks at the end of 2015 as being:

·     A sustained low oil price

·     Joint venture partner alignment and funding issues

Both of which could ultimately create a delay to the Sea Lion Final Investment Decision.

Outlook

Rockhopper entered 2016 with a strong balance sheet and limited financial commitments.

Capital and operating costs in the industry continue to fall as a result of the oil price and these should benefit pre-sanction projects, such as Sea Lion, as we progress through FEED. Our revised commercial arrangements with Premier ensure both Rockhopper and Premier enjoy attractive project economics at oil prices significantly lower than before.

Through the combination of Development Carry and Standby Loan, Rockhopper remains fully funded through the initial phase development of Sea Lion. Initial engagement with the commercial bank market has been encouraging as an alternative source of funding to the Standby Loan from Premier.

Revenues from our Italian assets are estimated to be in the order of US$8 - 10 million in 2016 (based on current gas price, foreign exchange rate and production projections), with minimal capital investment expected in the year within the Greater Mediterranean portfolio.

Taking into account the expected residual costs of the North Falkland Basin exploration campaign and the Company's continued investment in Sea Lion FEED activities, preliminary estimates of the Company's cash balance at 31 December 2016 are in the range of US$70 - 80 million. The year-end 2016 preliminary cash estimate is subject to the outcome of a number of material items including exploration drilling cost audits, disputes and insurance claims - the outcomes of which should be known during 2016.

Stewart MacDonald

Chief Financial Officer

12 April 2016

Group income statement

for the YEAR ended 31 DeCEMBER 2015

		Year ended 31 Dec 15	Nine Months ended 31 Dec 14
		$'000	$'000
Revenue		3,966	1,910
Other cost of sales		(2,951)	(554)
Depreciation and impairment of oil and gas assets		(8,098)	(3,416)
Total cost of sales		(11,049)	(3,970)
Gross loss		(7,083)	(2,060)
Exploration and evaluation expenses		(22,934)	(1,782)
Costs in relation to acquisition		(1,544)	(1,899)
Other administrative costs		(9,351)	(8,134)
Total administrative expenses		(10,895)	(10,033)
Charge for share based payments		(1,937)	(672)
Foreign exchange movement		1,927	6,516
Results from operating activities		(40,922)	(8,031)
Finance income		975	657
Finance expense		(4,750)	(209)
Loss before tax		(44,697)	(7,583)
Tax		55,395	(5)
PROFIT/(LOSS) FOR THE YEAR ATTRIBUTABLE TO THE EQUITY SHAREHOLDERS OF THE PARENT COMPANY		10,698	(7,588)
Profit/(loss) per share: cents
Basic		3.65	(2.63)
Diluted		3.64	(2.63)

All operating income and operating gains and losses relate to continuing activities.

Group statement of comprehensive income

for the YEAR ended 31 DECEMBER 2015

	Year  ended 31 Dec 15	Nine months ended 31 Dec 14
	$'000	$'000
Profit/(loss) for the period	10,698	(7,588)
Exchange differences on translation of foreign operations	(4,943)	(4,217)
TOTAL COMPREHENSIVE PROFIT/(LOSS) FOR THE PERIOD	5,755	(11,805)

Group balance sheet

as at 31 DECEMBER 2015

		31 Dec	31 Dec
		2015	2014
		$'000	$'000
NON CURRENT ASSETS
Exploration and evaluation assets		256,658	204,164
Property, plant and equipment		12,637	12,146
Goodwill		9,803	10,940
Other receivables		-	566
CURRENT ASSETS
Inventories		1,670	2,188
Other receivables		6,199	4,681
Restricted cash		2,192	1,384
Term deposits		60,000	100,000
Cash and cash equivalents		50,434	99,726
TOTAL ASSETS		399,593	435,795
CURRENT LIABILITIES
Other payables		30,457	19,358
Tax payable		9	100,439
NON-CURRENT LIABILITIES
Tax payable		47,405	-
Provisions		20,343	21,816
Deferred tax liability		39,145	39,144
TOTAL LIABILITIES		137,359	180,757
EQUITY
Share capital		4,910	4,854
Share premium		2,995	662
Share based remuneration		5,491	4,960
Own shares held in trust		(3,513)	(628)
Merger reserve		11,112	11,112
Foreign currency translation reserve		(9,160)	(4,217)
Special reserve		472,967	536,976
Retained losses		(222,568)	(298,681)
ATTRIBUTABLE TO THE EQUITY SHAREHOLDERS OF THE COMPANY		262,234	255,038
TOTAL LIABILITIES AND EQUITY		399,593	435,795

These financial statements were approved by the directors and authorised for issue on 12 April 2016 and are signed on their behalf by:

STEWART MACDONALD

CHIEF FINANCIAL OFFICER

Group statement of changes in equity

for the YEAR ended 31 DECEMBER 2015

						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 March 2014	4,711	170	4,597	(354)	(243)	4,123	541,964	(300,513)	254,455
Total comprehensive loss for the period	-	-	-	-	-	(4,217)	-	(7,588)	(11,805)
Acquisition of subsidiary	127	-	-	-	11,355	-	-	-	11,482
Share based payments	-	-	672	-	-	-	-	-	672
Share issues in relation to SIP	1	77	-	(49)	-	-	-	-	29
Exercise of share options	15	415	(309)	-	-	-	-	309	430
Purchase of own shares	-	-	-	(225)	-	-	-	-	(225)
Other transfers	-	-	-	-	-	(4,123)	(4,988)	9,111	-
Balance at 31 December 2014	4,854	662	4,960	(628)	11,112	(4,217)	536,976	(298,681)	255,038
Total comprehensive income for the year	-	-	-	-	-	(4,943)	-	10,698	5,755
Share based payments	-	-	1,937	-	-	-	-	-	1,937
Share issues in relation to SIP	3	186	-	(152)	-	-	-	-	37
Exercise of share options	53	2,147	(1,406)	-	-	-	-	1,406	2,200
Purchase of own shares	-	-	-	(2,733)	-	-	-	-	(2,733)
Other transfers	-	-	-	-	-	-	(64,009)	64,009	-
Balance at 31 December 2015	4,910	2,995	5,491	(3,513)	11,112	(9,160)	472,967	(222,568)	262,234

Group cash flow statement

for the YEAR ended 31 DECEMBER 2015

		Year  ended 31 Dec 15	Nine Months ended 31 Dec 14
		$'000	$'000
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss before tax		(44,697)	(7,583)
Adjustments to reconcile net losses to cash:
Depreciation		2,744	2,186
Impairment on property, plant and equipment		5,649	1,465
Share based payment charge		1,937	672
Exploration impairment expenses		22,335	258
Loss on disposal of property, plant and equipment		12	3
Finance expense		4,742	208
Finance income		(800)	(470)
Foreign exchange		(1,921)	(6,349)
Operating cash flows before movements in working capital		(9,999)	(9,610)
Changes in:
Inventories		291	495
Other receivables		(981)	1,682
Payables		3,765	(3,812)
Movement on other provisions		68	8
Cash utilised by operating activities		(6,856)	(11,237)
CASH FLOWS FROM INVESTING ACTIVITIES
Capitalised expenditure on exploration and evaluation assets		(70,661)	(10,150)
Purchase of property, plant and equipment		(10,258)	(1,111)
Acquisition of subsidiary		-	(24,037)
Interest		617	673
Investing cash flows before movements in capital balances		(80,302)	(34,625)
Changes in:
Restricted cash		(826)	(953)
Term deposits		40,000	85,000
Cash flow from investing activities		(41,128)	49,422
CASH FLOWS FROM FINANCING ACTIVITIES
Share options exercised		2,200	430
Share incentive plan		37	29
Purchase of own shares		(2,733)	(225)
Finance expense		(18)	(20)
Cash flow from financing activities		(514)	214
Currency translation differences relating to cash and cash equivalents		(794)	(1,155)
Net cash flow		(48,498)	38,399
Cash and cash equivalents brought forward		99,726	62,482
CASH AND CASH EQUIVALENTS CARRIED FORWARD		50,434	99,726

The financial information set out above does not constitute the group's statutory accounts for the year ended 31 December 2015 or the nine months ended 31 December 2014, but is derived from those accounts. Statutory accounts for 31 December 2015 will be sent to shareholders before the 22 April 2016. The auditors have reported on those accounts: their report was unqualified and did not draw attention to any matters by way of emphasis.

 

END

 

 

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