Farm-out agreement signed with Premier Oil plc

RNS Number : 5015H

Rockhopper Exploration plc

12 July 2012

 

12 July 2012

Rockhopper Exploration plc
("Rockhopper" or the "Company")

Farm-out agreement signed with Premier Oil plc

Rockhopper, the North Falkland Basin oil and gas company, is pleased to announce that it has entered into a conditional farm-out agreement with Premier Oil plc ("Premier"), regarding the Company's interests in its petroleum licences in the North Falkland Basin (the "Transaction").

Highlights of the Transaction

·     Premier to acquire 60 per cent. of Rockhopper's interests in its North Falkland Basin licences

o  US$231 million upfront cash payment on completion of transaction

o  US$722 million Sea Lion development carry (net to Rockhopper)

o  US$48 million exploration carry (net to Rockhopper)

·     Premier to provide standby financing arrangement at Rockhopper's election to cover any additional development capex beyond the development carry of US$722 million

·     Premier to become operator of the Sea Lion development

·     Area of Mutual Interest ("AMI") for future co-operation in the North Falkland Basin and analogous plays in South Africa, Namibia and Southern Mozambique

·     Rockhopper to take sub-surface lead on exploration activities

The Rockhopper Board believes the Transaction with Premier delivers on its key objectives:

·     Rockhopper will be fully funded on its share of the Sea Lion development through the development carry and standby financing arrangement provided by Premier - with the option to secure third party financing in place of the standby financing arrangement, if Rockhopper so chooses

·     Rockhopper gains an aligned and experienced partner and operator in Premier with significant experience in analogous operating environments and developments utilising FPSOs

·     Rockhopper retains significant exposure to the upside in the North Falkland Basin through its residual 40 per cent. interest

·     Significant exploration upside through the AMI together with the exploration carry of US$120 million (US$48 million net to Rockhopper)

·     Strong balance sheet to actively pursue future growth opportunities

Details of the Transaction

·     Premier has agreed to farm into 60 per cent. of Rockhopper's interests in its licences (being PL023, PL024, PL032, PL033, PL003 and PL004, thereafter the "Licences") in the North Falkland Basin including the Sea Lion development and adjacent discoveries, Casper and Casper South ("Development Area")

·     Premier will assume operatorship of the Sea Lion development, located in licences PL032 and PL004b

·     Premier has agreed to pay Rockhopper an upfront cash consideration of US$231 million, payable on completion of the Transaction ("Completion")

·     Premier has committed to carry Rockhopper's portion of development costs in relation to the Development Area up to the first US$1.8 billion of gross capital expenditure (US$722 million net to Rockhopper) (the "Development Carry")

·     Rockhopper has the option to fund any further development costs beyond the Development Carry through an arrangement with Premier described below (the "Standby Financing Arrangement"). Alternatively, Rockhopper can independently source third party financing for this portion of development costs if it so chooses

·     Premier and Rockhopper have agreed to undertake a front end engineering and design study to optimise the Development Area, targeting submission of the final development plan by H1 2014 with a view to bringing the Development Area onstream in H1 2017

·     On Completion, Premier and Rockhopper will also enter into the AMI agreement in relation to future joint exploration activities in the North Falkland Basin and certain areas of offshore Southern Africa containing analogous plays to Sea Lion (Namibia, South Africa and Southern Mozambique)

·     Premier has agreed to fund the first US$120 million gross expenditure (US$48 million net to Rockhopper) related to further exploration activities on the Licences or in the AMI area (the "Exploration Carry")

·     Rockhopper to take sub-surface lead on all exploration activities in the AMI area, thereby leveraging the Company's existing knowledge and expertise gained in the North Falkland Basin

Details of the Standby Financing Arrangement

Premier will make available to Rockhopper an optional standby financing facility. In the event that Rockhopper chooses to draw down on this facility, Premier will take an enhanced share of entitlement production and cash flows from the Sea Lion and related fields. The enhanced share will continue until Premier has realised a 15 per cent. post tax Internal Rate of Return ("IRR") on its investment (defined as Premier's working interest share of capital expenditure plus the amount of the drawn standby financing facility).  Thereafter, cash flows will be shared pro-rata to equity interests. If costs exceed the approved development project budget by more than 10 per cent., the entitlement production share due to Premier will be adjusted to deliver a reduced 12 per cent. IRR on incremental funds drawn by Rockhopper from the standby financing facility to fund the project overrun costs.

Information on Premier

Premier has interests in eight countries around the world and operates in three core areas: the North Sea, Asia and Middle East/Africa/Pakistan. As at 31 December 2011, Premier had net 2P reserves and a 2C resource base of 527 mmboe. Average production net to Premier for 2011 was 40,420 boepd with a medium term net production target of 100,000 boepd.

Premier is a world-class operator with significant experience with FPSO developments including the producing Chim Sáo field, located offshore Vietnam, West Natuna in Indonesia, as well as the Balmoral development in the North Sea.

Completion and Approvals

The proposed acquisition is expected to complete in September 2012 after satisfaction of customary closing conditions (including the approval of the Falkland Islands Government).

The Transaction is subject to capital gains tax in the Falkland Islands.

Sam Moody, Chief Executive of Rockhopper, commented:

"I am delighted that we have been able to secure such a high quality partner for our work in moving the Sea Lion development forward - Premier have an outstanding track record in developing and running producing assets and also have significant international experience. This is an excellent transaction for the company and its shareholders. It helps crystallise the value of our discoveries in the North Falkland Basin area centred on the Sea Lion field, as well as providing the funds to examine further the remaining potential of our acreage in the region. The transaction also presents the opportunity to pursue other exploration prospects in countries where there are geological similarities to the Falkland Islands and where our sub-surface skill sets can potentially create additional value. We are very much looking forward to beginning our work with Premier."

Presentation and Conference Call

A conference call with analysts is scheduled for 8.00 a.m. (London time) today. A presentation by Rockhopper will be made available on the website (www.rockhopperexploration.co.uk).

Enquiries:

Rockhopper Exploration plc	Tel. [phone]
Sam Moody - Chief Executive Peter Dixon-Clarke - Finance Director	(via M: Communications)
Canaccord Genuity (Nomad and Joint Broker)	[phone]
Robert Finlay / Henry Fitzgerald-O'Connor
Bank of America Merrill Lynch (Joint Broker and Financial Adviser)	[phone]
Julian Mylchreest / Paul Wheeler / Paul Frankfurt
Rothschild (Financial Adviser)	+ 44 (0)20 7280 5000
Neeve Billis / Stewart MacDonald
M: Communications	[phone]
Patrick d'Ancona / Ben Simons

Merrill Lynch International ("Bank of America Merrill Lynch"), a subsidiary of Bank of America Corporation, is acting exclusively for Rockhopper in connection with the Transaction and for no one else and will not be responsible to anyone other than Rockhopper for providing the protections afforded to its clients or for providing advice in relation to the Transaction.

N M Rothschild & Sons ("Rothschild"), is acting exclusively for Rockhopper in connection with the Transaction and for no one else and will not be responsible to anyone other than Rockhopper for providing the protections afforded to its clients or for providing advice in relation to the Transaction.

Notes to Editors:

Rockhopper was established in February 2004 with a strategy to invest in and carry out an offshore oil exploration programme to the north of the Falkland Islands. The Company floated on AIM in August 2005 and holds a 100 per cent. interest in four offshore production licences: PL023, PL024, PL032 and PL033 which cover approximately 3,800 sq. km. Rockhopper has further interests in licences PL003, PL004a (7.5 per cent. interest in both) and PL004c (25 per cent. interest), which are operated by Desire Petroleum plc. Additionally, the Company has a significant interest in licence PL004b which contains the extension to the Sea Lion Field as well as the Beverley, Casper and Casper South discoveries, where it holds operatorship and an aggregate 60 per cent. interest.

An extensive work programme has been carried out over a number of years on the licences operated by Rockhopper. This has included 2D and 3D seismic and controlled source electromagnetic mapping. In February 2010, the Ocean Guardian drilling rig arrived in Falkland waters to carry out a multi-well drilling campaign. Rockhopper drilled an exploration well on Sea Lion during April and May 2010, the result of which was the first oil discovery and Contingent Resource in the North Falkland Basin. The Sea Lion discovery was successfully tested during September 2010 and June 2011 and was the first oil to flow to surface in Falkland Islands waters. Rockhopper's drilling campaign lasted from 16 April 2010 to 8 January 2012 and resulted in seven successful wells of the ten drilled, with three oil discoveries, three gas discoveries, multiple successful Sea Lion appraisal wells and a successful appraisal well on Casper.

Rockhopper Exploration plc www.rockhopperexploration.co.uk

 

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