Rockhopper Exploration plc (AIM: RKH), the oil and gas exploration and production company with interests in the North Falkland Basin and the Greater Mediterranean region, is pleased to provide the following update on the Sea Lion development.
Timing and Project Highlights
- Pre-FEED work for Phase 1a of the Sea Lion development recently completed
- Project entering FEED with the award of FPSO FEED contract to SBM Offshore (“SBM”)
- Preferred contractors selected for the provision of the various subsea system facilities – subsea FEED contract awards expected during Q1 2016
- Significant technical and cost improvements and efficiencies have been identified to materially enhance overall project economics
- Draft Field Development Plan prepared and submitted to the Falkland Island Government.
Phase 1a development
The Sea Lion Phase 1a development definition phase is complete and significant improvements have been identified to enhance overall project economics in response to the current lower oil price environment. Highlights of the Phase 1a development include:
- Resources to be commercialised increased from 160 mmbbls to 220 mmbbls recoverable
- Field peak production increasing 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$1.8bn, equivalent to approximately US$8 per barrel – a 30% reduction in pre-first oil capex per barrel. Further cost reductions expected given current market environment
- Significant improvement in project economics for both partners resulting in a significantly lower break-even oil price for the project.
FEED award and pathway to FID
On the basis of the improved project, a FPSO Front End Engineering and Design (”FEED”) contract has been entered into with SBM, with work anticipated to take approximately 15 months to complete. It is expected that the remaining FEED contracts, for SURF, SPS and Flexibles, will be awarded during Q1 2016. An application has also been made to 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 the Falkland Island Government (“FIG”).
Final Investment Decision (“FID”) is now targeted for mid 2017 with a target first oil date during 2020. The extensive pre-FEED project optimisation has enabled the FEED contracts to be fully matured with significant impact on future costs.
The Company has commissioned a Competent Person’s Report (“CPR”) to provide an independent assessment of the reserves and resources of the material assets within the Company’s portfolio including the Sea Lion development and following the outcome of the North Falkland Basin exploration campaign. The Company expects to release the results of the CPR during Q2 2016.
Documentation of amendments to commercial arrangements
The joint venture partners have documented the revised commercial arrangements, as outlined in the Company’s announcement of 13 November 2014, in light of the newly improved project and low oil price environment.
- Rockhopper to access the full $48 million Exploration Carry for the 2015/16 drilling campaign
- Rockhopper to contribute 40% of pre sanction costs, currently estimated at $50 million gross ($20 million net to Rockhopper) during 2016
- Rockhopper to retain $337 million Development Carry for the Phase 1a; a further $337 million Development Carry deferred to the subsequent phase of development
- Existing Standby Finance arrangements simplified to a more traditional loan structure of up to $750 million from Premier Oil (‘Premier’). Rockhopper will continue to review alternative funding sources.
In addition, the joint venture partners have further progressed the financial arrangements between them as it relates to the provision of any guarantees required to allow FID to take place.
- Premier to provide parent company guarantees as required by contractors on behalf of Rockhopper prior to and at the point of sanction to allow FID to take place. Rockhopper to pay Premier a Guarantee Fee calculated on basis of a 50:50 share of Phase 1a NPV at project sanction payable post first oil via quarterly payments over the first five years of production
- Based on the 85,000 bbls per day peak production , Rockhopper’s share of projected quarterly gross revenue at oil prices of $65/bbl, $75/bbl and $85/bbl would be approximately $200 million, $230 million and $260 million respectively The quarterly Guarantee Fee is currently set at $15.9 million and was calculated based on the project at November 2014. The parties may agree to adjust the Guarantee Fee should it result in a split of project NPV that is different to 50:50 at project sanction. The agreement of the final Guarantee Fee amount will be required prior to project sanction.
Sam Moody, CEO, commented:
“Today’s announcement provides the Sea Lion project with significant additional technical momentum whilst fully aligning the partners economically. The huge improvements to the project, combined with the award of the FPSO FEED and finalisation of the commercial terms with Premier allows us to keep moving the Sea Lion project towards a sanction point in mid 2017 despite the low oil price environment. We are delighted with the efficiencies the Joint Venture teams have identified and this, combined with the new commercial arrangements, mean that both Rockhopper and Premier now enjoy good project economics at oil prices significantly lower than before.
“The recent discoveries in the Isobel Elaine complex could open a third area of development in the basin and this on top of the already proven resources of Phase 2 should have a very significant impact on the life of field opex costs for Phase 1a.
“With the merger with Falkland Oil & Gas due to complete shortly, this news adds further momentum to activity in the basin as a whole.”
Rockhopper Exploration plc
Tel: (via Vigo Communications) – 020 7016 9571
Sam Moody – Chief Executive
Fiona MacAulay – Chief Operating Officer
Stewart MacDonald – Chief Financial Officer
Canaccord Genuity Limited (NOMAD and Joint Broker)
Tel: 020 7523 8000
Liberum Capital (Joint Broker)
Tel: 020 3100 2227
Tel: 020 7016 9571