30 May 2022

Rockhopper Exploration plc
(“Rockhopper”, the “Group” or the “Company”)

Full-Year Results for the Year Ended 31 December 2021

Rockhopper Exploration plc (AIM: RKH), the oil and gas exploration and production company with key interests in the North Falkland Basin, is pleased to announce its audited results for the year ended 31 December 2021.

2021 Highlights

Sea Lion and the Falkland Islands

·  Definitive legally binding documents announced and, post-period, signed with Navitas Petroleum LP (“Navitas”) and Harbour Energy plc (“Harbour”)
o Navitas to acquire 65% interest in, and become Operator of, Rockhopper’s North Falkland Basin licences
o Harbour to exit the Falklands
·  Navitas to fund all of Rockhopper’s Phase 1 Sea Lion project costs* pre FID via 8% loan
·  Navitas to fund two-thirds of Rockhopper’s Sea Lion Phase 1 project costs* from FID to one year after first oil, or project completion if earlier, via interest free loan (for any costs not
met by third party debt financing)

·   Loans repaid from 85% of Rockhopper’s working interest share of Sea Lion Phase1 project cash flows (* This excludes licence costs, taxes, abandonment and decommissioning costs (including the Temporary Dock Facility) and contract termination costs incurred in connection with Harbour withdrawing)

Corporate and Financial

· Administrative expenses at lowest level since pre-Sea Lion discovery – G&A US$3.3 million
·   Cash of US$4.8 million as at 31 December 2021>

Outlook

·   Ombrina Mare Arbitration proceedings formally closed on 25 April 2022 – seeking significant monetary damages
o Tribunal has 120 days after closing to issue its Award, extendable by 60 days
·   Satisfaction of various conditions precedent to the Navitas and Harbour transaction required for deal completion, including various regulatory and other approvals required from the
Falkland Islands Government
·   Navitas to assume operatorship of Sea Lion and strengthen operating capability
·    ·   FID targeted 2023/24

Keith Lough, Chairman of Rockhopper, commented:

We are delighted to have signed legally binding documentation allowing Harbour a clean exit and bringing Navitas into the Falklands. At current oil prices and with an increased focus on security of supply, we believe a responsibly developed Sea Lion presents an exceptional chance to create very significant value for all stakeholders.
We look forward to working closely with Navitas on a lower cost development and associated financing plan for the project. With the Ombrina Mare arbitration result expected later in the year, we hope and believe that 2022 will be the start of a bright new chapter for Rockhopper

Enquiries:

Rockhopper Exploration plc
Sam Moody – Chief Executive Officer
Tel. +44 (0) 20 7390 0234 (via Vigo Consulting)

Canaccord Genuity Limited (NOMAD and Joint Broker)
Henry Fitzgerald-O’Connor/Gordon Hamilton
Tel. +44 (0) 20 7523 8000

Peel Hunt LLP (Joint Broker)
Richard Crichton
Tel. +44 (0) 20 7418 8900

Vigo Consulting
Patrick d’Ancona/Ben Simons/Kendall Hill
Tel. +44 (0) 20 7390 0234

Note regarding financial information disclosure

The financial information set out below does not constitute the Group’s statutory accounts for the year ended 31 December 2021, but is derived from those accounts. References within the document may refer to information in the statutory accounts and these will be sent to shareholders and published on the Company’s website imminently.

Chairman and Chief Executive Officer’s Review

Introduction

2021 saw the build-up to the outbreak of a major conflict in Europe for the first time in decades, with Russia invading Ukraine early in 2022. The most significant impact of the invasion has been and continues to be on the people of Ukraine, for whom Rockhopper’s Board express their support. A consequence of the invasion has been to place an increased focus on energy security of supply and the volume of oil and gas imported from Russia into Europe in particular. At the same time the COVID-19 pandemic continues to cause uncertainty around energy demand with China imposing new lockdowns as cases spike and economic uncertainty continues across the globe. Against this backdrop it is perhaps unsurprising that energy prices have seen material volatility. The price of a barrel of Brent Crude Oil is around $115 as at time of writing, having risen from a low of $21 per barrel in April 2020.

While worldwide moves to reduce GHG emissions and reduce reliance on hydrocarbons continue as we journey through energy transition towards net zero, we believe that responsibly produced oil and gas will continue to form a meaningful part of global energy supply for many years to come.

With a best estimate of over 500 million barrels of recoverable oil (ERCE 2016 report), Sea Lion represents a potentially secure, highly material source of supply for those countries seeking to reduce their dependence on Russian oil. Under Premier Oil plc’s (“Premier”) development concept, based on hundreds of millions of dollars and multiple years of engineering efforts, the series of development phases at Sea Lion were projected to produce in excess of 120,000 barrels per day. At that rate, Sea Lion alone could be capable of replacing a highly material proportion of the oil by volume imported into the UK from Russia, all from a politically stable UK Overseas Dependent Territory. Furthermore, significant UK content is possible within the project and the regulatory regime in the Falklands will ensure the development is undertaken with high regard to ESG issues.

Navitas brings renewed energy and proven financing capability to the project

The most significant news related to Sea Lion is the signing of definitive legally binding documentation relating to the entry of Navitas Petroleum LP (“Navitas”) to the Falklands. Navitas brings a new, dynamic energy to Sea Lion which was significantly delayed following Chrysaor Holdings Limited’s (“Chrysaor”) merger with Premier and the creation of Harbour Energy plc (“Harbour”). Navitas’ senior team’s exceptional ability to raise finance for challenging projects was clearly demonstrated as recently as last year when they successfully secured a US$1bn project financing for the Shenandoah field in the Gulf of Mexico.  In fact, Navitas has raised in excess of $1.4bn of equity and debt since 2017 and as we consider financing to be the main hurdle for Sea Lion’s development, we are particularly pleased to be welcoming them to the basin. Sea Lion will represent Navitas’ largest operated development opportunity, so is highly material to both partners.

Sea Lion

From 2012-2022, we estimate that Premier and Rockhopper spent in excess of US$300m on engineering and other non-drilling work relating to the Sea Lion project. Navitas and Rockhopper plan to build on this very significant bank of knowledge to create a lower cost development, potentially based around a re-deployed FPSO with fewer wells being drilled pre first oil. Given the amount of engineering already done, the timing is likely to be driven largely by interaction with the vendor community, most notably in finding a suitable FPSO, and the time taken to progress the financing.  Having said this, the target is to reach FID in 2023 or 2024 and to then have formal project sanction as early in 2024 as possible.

Rockhopper believes it is possible to materially reduce pre first oil capex from the previously estimated US$1.8bn (assuming a leased FPSO) and overall project capex by taking actions such as reducing the number of wells drilled pre first oil and reducing the number of drill centres.

As part of the transaction, Navitas commissioned Netherland, Sewell & Associates, Inc. (“NSAI”) to produce a resource report which used a different approach to the ERCE 2016 report. NSAI concluded that the 2C for Sea Lion is significantly larger than the 517mmbbls contained in the ERCE report. As this report was not produced for Rockhopper we will continue to refer to the ERCE numbers, but are delighted at this additional third party validation of the potential of the North Falkland Basin and Sea Lion to produce significant quantities of oil.

As Navitas have not formally become Operator and licence holder, they are yet to be in position to have substantive conversations with the contractor community as part of the working up of the new development plan for Sea Lion. That said, Rockhopper’s Board remain confident that the Sea Lion project will continue to benefit from robust economics, particularly at current oil prices. Based on the Premier Oil development from 2019-2020 at a real terms US$75 Brent, Sea Lion phase one only would have a pre-financing project NPV 10 of over US$5bn at first oil. Whilst the lower cost development concept is likely to see a lower number, we believe this demonstrates the enormous potential value represented by Sea Lion for all stakeholders, including the Falkland Islands Government.

Ombrina Mare arbitration

Having commenced proceedings against the Republic of Italy in 2017 and completed the first and second hearings during the course of 2019, the Tribunal confirmed that proceedings had been formally closed on 25 April 2022. Under ICSID Arbitration Rules, the Tribunal has 120 days after closing to issue its Award, extendable by a further 60 days (Rule 46). The 120 days rule means that we should receive the final decision, including the quantum of any award should we be successful, by 22 August 2022, or 22 October 2022 should the extension be required. The Company continues to believe it has strong prospects of recovering significant monetary damages.

Corporate matters

Following eight years at the Company, Stewart MacDonald stepped down from his role as Executive Director and Chief Financial Officer in January 2022. Stewart helped Rockhopper agree what we believe is a positive and exciting framework with Navitas that sees us fully aligned and committed to bringing Sea Lion to production, and the Board wishes him every success in his future career. William Perry, who has been working as Rockhopper’s Financial Controller since 2011, has stepped up to become the Company’s Interim Chief Financial Officer.

Following a series of material cost reduction initiatives, the Company’s G&A is now at its lowest level for over a decade. Decisions have included relocating the office to Salisbury and sub-letting the London office, materially reducing headcount and moving a number of key technical staff to part-time working in order to balance a reduction in cash burn whilst retaining required expertise and specific Sea Lion and Falklands knowledge within the Company.

ESG
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 an environmentally responsible manner.
As noted last year 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 Islands.
Once FID on Sea Lion has been achieved, the Company commits to define measures, report transparently, and mitigate our own emissions as far as practicable.

Outlook

With over 500 million barrels of recoverable oil, Sea Lion continues to represent a development with significant potential value for all stakeholders. Additionally, recent global developments have highlighted the importance of security of supply for energy, and hydrocarbons’ vital role in that.

The Board believes that the addition of Navitas, a committed and aligned partner with recent proven ability to access capital for oil field developments, represents the start of a bright new chapter in the history of Sea Lion, bringing with it a renewed energy and enthusiasm for the project. This new joint venture, along with a strong oil price and changing supply background, provides us with the best possible chance of seeing the project sanctioned.

Finally, we thank the Government and people of the Falkland Islands for their continued support as they move towards commemorating the 40th anniversary of the end of the 1982 conflict.

FINANCIAL REVIEW

OVERVIEW

From a finance perspective, the most significant events in the year include:
·   Announcement by 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
·   Detailed Heads of Terms signed with Navitas and Harbour for Harbour to exit the Falklands and for Navitas to farm-in to 65 per cent interest in the North Falkland Basin assuming operatorship
·   Detailed transaction terms agreed with Premier/Harbour and Navitas in relation to the Sea Lion project(the “Transaction”)
·   Finalisation of the corporate cost reduction programmes previously implemented

Assuming the Transaction completes the arrangements with Navitas ensure that Rockhopper is funded for all pre-sanction costs related to the Sea Lion Phase 1 development (other than licence fees, taxes and project wind down costs). As such, the Group believes the above events materially strengthen the Group’s financial position in the short and medium term and significantly enhance the prospects for a successful project financing for Sea Lion.

RESULTS FOR THE YEAR

For the year ended 31 December 2021, the Group reported revenues of US$0.8 million (2020: US$2.8 million) and loss after tax of US$7.8 million (2020: US$236.5 million). The significant reduction in loss after tax was driven by last year’s results including non-recurring non-cash impairments associated with previously incurred exploration costs in the North Falkland Basin. The decision was made, in line with the operator, to write off historic exploration costs associated with the resources which will not be developed as part of the Sea Lion Phase 1 project.

REVENUE AND COST OF SALES

The Group’s revenues of US$0.8 million (2020: US$2.8 million) during the year relate entirely to the sale of natural gas in the Greater Mediterranean (specifically Italy) region. The reduction in revenues from the comparable period reflects the completion of the disposal of the Group’s Egypt portfolio in February 2020. The Egyptian portfolio made up US$2.1 million of 2020 revenues. Gas was sold at a price linked to the Italian “PSV” (Virtual Exchange Point) gas marker price.

Cash operating costs, excluding depreciation and impairment charges, amounted to US$1.1 million (2020: US$2.1 million). Again, the reduction in operating costs reflects the disposal of the Group’s Egypt portfolio during the prior period.

Revenue and cost of sales are not expected to be material going forward.

OPERATING COSTS

Exploration and evaluation expenses are not material in the year. The reversal of impairment in the year relates to impairments against amounts over accrued in the prior year. As previously mentioned, the prior year expenses was mainly due to the write off of costs relating to areas of the North Falkland Basin which will not be developed as part of the Sea Lion Phase 1 project.

The Group continues to manage corporate costs and has achieved significant reductions in recurring general and administrative (“G&A”) costs over the last five years. In light of the sharp reduction in oil prices experienced in the first half of 2020, initiatives to further reduce corporate costs commenced in May 2020. The full benefit of these cost reduction initiatives were realised in 2021 resulting in G&A costs of US$3.3 million in 2021 (2020: US$4.0 million), excluding non-recurring expenses related to restructuring and acquisitions and divestments.

The foreign exchange gain in the year is US$0.8 million (2020: loss of US$1.4 million). As with last year, this is mainly movements in relation to the tax arising from the Group’s farm-out to Premier in 2012, a GBP£ denominated balance. Finance expense in the year of US$3.5million (2020: US$nil) also relate to adjustments in relation to this tax balance. This balance is discussed further below.

Following the decision in February 2016 by the Italian Ministry of Economic Development not to award the Group a Production Concession covering the Ombrina Mare field, in March 2017 the Group commenced international arbitration proceedings against the Republic of Italy. All of the Group’s costs associated with the arbitration are funded on a non-recourse (“no win – no fee”) basis from a specialist arbitration funder.

CASH MOVEMENTS AND CAPITAL EXPENDITURE

At 31 December 2021, the Group had cash and term deposits of US$4.8 million (31 December 2020: US$11.7 million).

Cash and term deposit movements during the period:

 

US$m

Opening cash balance (31 December 2020)

11.7

Revenues

0.8

Cost of sales

(1.1)

Falkland Islands

(3.2)

Greater Mediterranean

(0.2)

Administrative expenses

(3.3)

Miscellaneous

0.1

Closing cash balance (31 December 2021)

4.8

 

During 2021, the Group paid US$3.2 million in relation to Sea Lion costs. This included the tax liability of US$1.4 million associated with the 2015/16 Falklands drilling campaign accrued for as at the prior year end.

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

IMPAIRMENT OF OIL AND GAS ASSETS

The Sea Lion development remains central to the Group’s plans. Whilst Harbour’s decision to exit the North Falkland Basin was disappointing, the Group is excited at the prospect of bringing in a new industry partner, in Navitas, especially given their experience in financing projects of a similar scale to Sea Lion. As part of the Transaction to bring Navitas onto the licences we are seeking licence extensions from the Falkland Island Government. This should allow the newly formed joint venture to leverage the extensive engineering work carried out to date and pursue a lower upfront cost development. As such it was concluded that there were no current indicators of impairment for Phase 1 of the Sea Lion development.
In the prior year a decision was made, in line with the operator, to write off historic exploration costs associated with the resources which will not be developed as part of the Sea Lion Phase 1 project. This impairment has no impact on the Group’s long-term strategy for multiple phases of development in the North Falkland Basin but instead reflects the limited capital which will be invested outside of the Phase 1 project in the near-term.

MERGERS, ACQUISITIONS AND DISPOSALS

Post year end the Group announced Harbour and Navitas have signed legally binding definitive documentation in relation to Harbour exiting and Navitas entering the North Falkland Basin.

Ultimately the Transaction will align working interests across all the North Falkland Basin petroleum licences – Rockhopper 35% / Navitas 65% – subject to all necessary consents. The Group and Navitas will jointly develop and agree a technical and financing plan to enable the development of the Sea Lion project to achieve first oil on a lower cost and expedited basis post sanction.

Navitas will provide loan funding to the Group to cover;
>(i) the majority of its share of Sea Lion phase one related costs from Transaction completion up to Final Investment Decision (“FID”) through a loan from Navitas with interest charged at 8% per annum (the “Pre-FID Loan”).
(ii)  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 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.

Whilst Transaction completion is still subject to receipt of various agreements, consents and approvals by the Falkland Islands Government , the Group is optimistic that these will be forthcoming.

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 Exploration plc.

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$43.2 million.

Full details of the provisions and undertakings of the Tax Settlement Deed are disclosed in note 18 of these consolidated 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).

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 31 December 2021, the Group had cash resources of US$4.8 million. As at the end of April 2022 the Group had cash resources of $US3.4 million and as well as normal working capital requirements expects a number of non recurring costs in relation to the Transaction. Going forward projected recurring expenditure is around US$4.0 million per year.

Historically, the Group’s largest annual expenditure has related to pre-sanction costs associated with the Sea Lion development. In April 2022, the Group signed definitive documentation to bring Navitas into the North Falkland Basin (the “Transaction”). The Transaction is subject to certain conditions precedent, the most important of which are certain consents from FIG which include, but are not limited to, a two year extension on the Licences being acquired, Navitas being approved as an Operator and certain tax clearances from FIG. Assuming completion, Navitas will provide loan funding to the Group for its share of all Sea Lion pre-sanction costs (other than licence fees, taxes and project wind down costs).

Management believe that the Transaction will complete before the end of the year. Based on previous correspondence with FIG, Management does not believe the Transaction completion would constitute a substantial disposal and therefore will not accelerate the deferred CGT liability related to the 2012 farm out.

Even in the case of Transaction completion Management has determined that the Group will require further funding for working capital and to achieve Sea Lion FID, with FID estimated to be in early 2024. The Group believes that a funding solution is achievable, with options including the issue of equity in addition to the potential award of significant monetary damages with respect to international arbitration proceedings against the Republic of Italy in relation to the Ombrina Mare field which declared closed on the 25 April 2022.  At the time of writing, the final form and availability of funding is yet to be determined. Subject to market conditions we anticipate having raised sufficient funds by the end of Q3 2022.

In the event the Transaction does not complete then as well as working capital requirements it is possible that this could lead to the acceleration of Falkland Island infrastructure decommissioning costs currently estimated at US$4.0million (Group’s net share), for which the Group is not funded.

Accordingly, after making enquiries and considering the risks described above, the Directors have reviewed the Group’s overall position and given their belief, that raising funds will be possible, are of the opinion that the Group is able to operate as a going concern for at least the next twelve months from the date of approval of these financial statements.

Given the Directors’ confidence in their ability to complete a funding solution in the near term, the Directors believe that the Group will be sufficiently funded and believe the use of the going concern basis is appropriate. Nonetheless, for the avoidance of doubt, in the downside scenarios in which either the Transaction does not complete or a funding solution is not completed and in the absence of potential mitigating actions, a material uncertainty exists that may cast significant doubt on the Group’s ability to continue as a going concern. The Consolidated and Parent Company financial statements do not include adjustments that would result if the group was unable to continue as a going concern.

PRINCIPAL RISK AND UNCERTAINTIES

A detailed review of the potential risks and uncertainties which could impact the Group are outlined elsewhere in this Strategic Report. The Group identified its key risks at the end of 2021 as being:

1             oil price volatility;
2             access to capital;>
3             joint venture partner alignment;
4             failure of joint venture partners 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 Group and the Sea Lion project.

CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2021

 

 

Year

ended

31 December 2021

Year

ended

31 December 2020

 

Notes

000

000

Revenue

3

839

2,754

Other cost of sales

(1,141)

(2,109)

Depreciation and impairment of oil and gas assets

(667)

(2,692)

Total cost of sales

4

(1,808)

(4,801)

Gross loss

(969)

(2,047)

Other exploration and evaluation expenses

(398)

(2,431)

Impairment of exploration and evaluation assets

273

(223,280)

Total exploration and evaluation expenses

5

(125)

(225,711)

Non recurring restructuring costs

(614)

Recurring administrative costs

(3,263)

(4,010)

Total administrative expenses

6

(3,263)

(4,624)

Charge for share based payments

9

(824)

(1,840)

Foreign exchange movement

10

789

(1,438)

Results from operating activities and other income

(4,392)

(235,660)

Finance income

11

4

44

Finance expense

11

(3,522)

(819)

Loss before tax

(7,910)

(236,435)

Tax

12

151

(69)

LOSS FOR THE YEAR ATTRIBUTABLE TO THE

EQUITY SHAREHOLDERS OF THE PARENT COMPANY

(7,759)

(236,504)

Loss per share: cents

 

Basic

13

(1.70)

(51.73)

Diluted

13

(1.70)

(51.73)

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

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2021

 

 

Year

 ended

31 December 2021

 

Year

 ended

31 December 2020

 

000

000

Loss for the year

(7,759)

(236,504)

Items that may be reclassified to profit or loss

 

Exchange differences on translation of foreign operations

889

(893)

TOTAL COMPREHENSIVE LOSS FOR THE YEAR

(6,870)

(237,397))

 

The notes on pages 50 to 68 form an integral part of these consolidated financial statements.

 

CONSOLIDATED BALANCE SHEET

AS AT 31 DECEMBER 2021

 

 

31 December

31 December

 

 

2021

2020

 

Notes

000

000

NON CURRENT ASSETS

 

Exploration and evaluation assets

14

249,583

244,349

Property, plant and equipment

15

201

1,420

Finance lease receivable

730

462

CURRENT ASSETS

 

Inventories

310

Other receivables

16

2,074

2,464

Finance lease receivable

288

187

Restricted cash

579

486

Cash and cash equivalents

4,822

11,680

TOTAL ASSETS

258,277

261,358

CURRENT LIABILITIES

 

Other payables

17

2,000

3,790

Lease liability

286

567

NON-CURRENT LIABILITIES

 

Lease liability

842

1,273

Tax payable

18

43,204

40,703

Provisions

19

18,287

15,158

Deferred tax liability

20

39,137

39,300

TOTAL LIABILITIES

103,756

100,791

EQUITY

 

Share capital

21

7,218

7,218

Share premium

22

3,622

3,622

Share based remuneration

22

4,327

5,973

Own shares held in trust

22

(3,342)

(3,342)

Merger reserve

22

74,332

74,332

Foreign currency translation reserve

22

(9,682)

(10,571)

Special reserve

22

175,281

188,028

Retained losses

22

(97,235)

(104,693)

ATTRIBUTABLE TO THE EQUITY SHAREHOLDERS OF THE COMPANY

154,521

160,567

TOTAL LIABILITIES AND EQUITY

258,277

261,358

These financial statements on pages 46 to 68 were approved by the directors and authorised for issue on 27 May 2022 and are signed on their behalf by:

 

Samuel Moody

CHIEF EXECUTIVE OFFICER

Rockhopper Exploration plc

Registered Company number: 05250250

 

The notes on pages 50x to 68 form an integral part of these consolidated financial statements.

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2021

 

 

 

 

 

 

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 2019

7,212

3,547

4,871

(3,371)

74,332

(9,678)

433,766

(114,565)

396,114

Loss for the year

(236,504)

(236,504)

Other comprehensive loss for the year

(893)

(893)

Total comprehensive loss for the year

 

 

 

 

 

 

(893)

 

 

(236,504)

 

(237,397)

Share based payments (see note 9)

1,840

1,840

Share issues in relation to SIP

6

75

(71)

10

Other transfers

(738)

100

(245,738)

246,377

Balance at 31 December 2020

7,218

3,622

5,973

(3,342)

74,332

(10,571)

188,028

(104,693)

160,567

Loss for the year

(7,759)

(7,759)

Other comprehensive profit for the year

889

889

Total comprehensive loss for the year

 

 

 

 

 

 

889

 

 

(7,759)

 

(6,870)

Share based payments (see note 9)

824

824

Other transfers

(2,470)

(12,747)

15,217

Balance at 31 December 2021

7,218

3,622

4,327

(3,342)

74,332

(9,682)

175,281

(97,235)

154,521

 

See note 22 for a description of each of the reserves of the Group.

 

Other transfers relate to amounts transferred from share based remuneration reserve to retained losses in relation to options that have either not vested or lapsed and amounts transferred from special reserve utilised to reduce the amount of losses incurred by the parent company.

 

CONSOLIDATED STATEMENT OF CASHFLOWS

FOR THE YEAR ENDED 31 DECEMBER 2021

 

 

 

Year

 ended

31 December 2021

 

Year

 ended

31 December 2020

 

Notes

000

000

CASH FLOWS FROM OPERATING ACTIVITIES

 

Loss before tax

(7,910)

(236,435)

Adjustments to reconcile net losses to cash:

 

Depreciation

15

1,082

808

Share based payment charge

9

824

1,840

Impairment of oil and gas assets

15

1,114

Impairment reversal of exploration and evaluation assets

14

(273)

223,280

Profit/(loss) on disposal of property, plant and equipment

(156)

4

Finance expense

3,601

816

Foreign exchange

(640)

1,315

Operating cash flows before movements in working capital

(3,472)

(7,282)

Changes in:

 

Inventories

287

1,289

Other receivables

176

1,904

Payables

420

(1,320)

Movement on other provisions

6

(54)

Cash utilised by operating activities

(2,583)

(5,439)

CASH FLOWS FROM INVESTING ACTIVITIES

 

Capitalised expenditure on exploration and evaluation assets

(3,248)

(14,570)

Purchase of property, plant and equipment

(228)

(85)

Disposal of assets held for sale

14,763

Investing cash flows before movements in capital balances

(3,476)

108

Changes in:

 

Restricted cash

(100)

Cash flow from investing activities

(3,576)

108

CASH FLOWS FROM FINANCING ACTIVITIES

 

Share incentive plan

10

Lease liability payments

(587)

(382)

Finance expense

(19)

Cash flow from financing activities

(587)

(391)

Currency translation differences relating to cash and cash equivalents

(112)

179

Net cash flow

(6,746)

(5,722)

Cash and cash equivalents brought forward

11,680

17,223

CASH AND CASH EQUIVALENTS CARRIED FORWARD

4,822

11,680

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021

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 certain exploration licences for the exploration and exploitation of oil and gas in the Falkland Islands. In addition, it has operations in the Greater Mediterranean based in Italy. The registered office of the Company is Warner House, 123 Castle Street, Salisbury, Wiltshire, SP1 3TB.

1.2 STATEMENT OF COMPLIANCE
The consolidated financial statements of the Group have been prepared on a going concern basis in accordance with International Financial Reporting Standards (IFRS) in conformity with the requirements of the Companies Act 2006 and UK-adopted International Accounting Standards. The consolidated financial statements were approved for issue by the board of directors on 27 May 2022 and are subject to approval at the Annual General Meeting of shareholders on 28 June 2022.

1.3 BASIS OF PREPARATION
The results upon which these financial statements have been based were prepared using the accounting policies set out below. These policies have been consistently applied unless otherwise stated.
These consolidated financial statements have been prepared under the historical cost convention with the exception of Share Based Payments which are at fair value.
Items included in the results of each of the Group’s entities are measured in the currency of the primary economic environment in which that entity operates (the “functional currency”). The consolidated financial statements are presented in US Dollars ($), which is Rockhopper Exploration plc’s functional currency.
All values are rounded to the nearest thousand dollars (000) or thousand pounds (£’000), except when otherwise indicated.

1.4 CHANGE IN ACCOUNTING POLICY
Changes in accounting standards

In the current year the following new and revised Standards and Interpretations have been adopted. None of these have a material impact on the Group’s annual results.

Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16: Interest Rate Benchmark Reform (Phase 2)

New accounting pronouncements
At 31 December 2021, the following Standards, Amendments and Interpretations were in issue but not yet effective:

IFRS 17: Insurance contracts, IFRS 10 and IAS 28 (amendments): Sale or contribution of assets between an investor and an associate or joint venture, Amendments to IAS 1: Classification of liabilities, Amendments to IFRS 3: Reference to the Conceptual Framework, Amendments to IAS 16: Property, Plant and Equipment-Proceeds before Intended Use, Amendments to IAS 37: Onerous Contracts – Cost of Fulfilling a Contract, Annual Improvements to IFRS Standards: 2018-2020 Cycle, Amendments to IFRS 1: First-time Adoption of International Financial Reporting Standards, IFRS 9 Financial Instruments, IFRS 16 Leases, and IAS 41 Agriculture, Amendments to IAS 1 and IFRS Practice Statement 2: Disclosure of Accounting Policies, Amendments to IAS 8: Definition of Accounting Estimates, Amendments to IAS 12: Deferred Tax related to Assets and Liabilities arising from a Single Transaction.

The Directors do not expect that the adoption of the above Standards, Amendments and Interpretations will have a material impact on the Financial Statements of the Group in future periods.

1.5 GOING CONCERN

At 31 December 2021, the Group had cash resources of US$4.8 million. As at the end of April 2022 the Group had cash resources of $US3.4 million and as well as normal working capital requirements expects a number of non recurring costs in relation to the Transaction. Going forward projected recurring expenditure is around US$4.0 million per year.

Historically, the Group’s largest annual expenditure has related to pre-sanction costs associated with the Sea Lion development. In April 2022, the Group signed definitive documentation to bring Navitas into the North Falkland Basin (the “Transaction”). The Transaction is subject to certain conditions precedent, the most important of which are certain consents from FIG which include, but are not limited to, a two year extension on the Licences being acquired, Navitas being approved as an Operator and certain tax clearances from FIG. Assuming completion, Navitas will provide loan funding to the Group for its share of all Sea Lion pre-sanction costs (other than licence fees, taxes and project wind down costs).

Management believe that the Transaction will complete before the end of the year. Based on previous correspondence with FIG, Management does not believe the Transaction completion would constitute a substantial disposal and therefore will not accelerate the deferred CGT liability related to the 2012 farm out.

Even in the case of Transaction completion Management has determined that the Group will require further funding for working capital and to achieve Sea Lion FID, with FID estimated to be in early 2024. The Group believes that a funding solution is achievable, with options including the issue of equity in addition to the potential award of significant monetary damages with respect to international arbitration proceedings against the Republic of Italy in relation to the Ombrina Mare field which declared closed on the 25 April 2022. At the time of writing, the final form and availability of funding is yet to be determined. Subject to market conditions we anticipate having raised sufficient funds by the end of Q3 2022.

In the event the Transaction does not complete then as well as working capital requirements it is possible that this could lead to the acceleration of Falkland Island infrastructure decommissioning costs currently estimated at US$4.0 million (Group’s net share), for which the Group is not funded.

Accordingly, after making enquiries and considering the risks described above, the Directors have reviewed the Group’s overall position and given their belief, that raising funds will be possible, are of the opinion that the Group is able to operate as a going concern for at least the next twelve months from the date of approval of these financial statements.

Given the Directors’ confidence in their ability to complete a funding solution in the near term, the Directors believe that the Group will be sufficiently funded and believe the use of the going concern basis is appropriate. Nonetheless, for the avoidance of doubt, in the downside scenarios in which either the Transaction does not complete or a funding solution is not completed and in the absence of potential mitigating actions, a material uncertainty exists that may cast significant doubt on the Group’s ability to continue as a going concern. The Consolidated and Parent Company financial statements do not include adjustments that would result if the group was unable to continue as a going concern.

1.6 SIGNIFICANT ACCOUNTING POLICIES

(A) BASIS OF ACCOUNTING
The Group has identified the accounting policies that are most significant to its business operations and the understanding of its results. These accounting policies are those which involve the most complex or subjective decisions or assessments, and relate to the capitalisation of exploration expenditure. The determination of this is fundamental to the financial results and position and requires management to make a complex judgement based on information and data that may change in future periods.
Since these policies involve the use of assumptions and subjective judgements as to future events and are subject to change, the use of different assumptions or data could produce materially different results. The measurement basis that has been applied in preparing the results is historical cost.
The significant accounting policies adopted in the preparation of the results are set out below.

(B) BASIS OF CONSOLIDATION
The Group financial statements consolidate the financial statements of the Company and its subsidiary undertakings drawn up to 31 December 2021. Subsidiaries are those entities over which the Group has control. Control is achieved where the Group has the power over the subsidiary, is exposed, or has rights to variable returns from the subsidiary and has the ability to use its power to affect its returns. All subsidiaries are 100 per cent owned by the Group and there are no non-controlling interests.
The results of subsidiaries acquired or disposed of during the year are included in the income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries acquired to bring the accounting policies used into line with those used by other members of the Group.
All intercompany balances have been eliminated on consolidation.

(C) SEGMENTAL REPORTING
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker as required by IFRS8 Operating Segments. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the board of directors.
The Group’s operations are made up of three segments, the oil and gas exploration and production activities in the geographical regions of the Falkland Islands and the Greater Mediterranean region as well as its corporate activities centered in the UK.

(D) OIL AND GAS ASSETS
The Group applies the successful efforts method of accounting for exploration and evaluation (“E&E”) costs, having regard to the requirements of IFRS6 – ‘Exploration for and evaluation of mineral resources’.

Exploration and evaluation (“E&E”) expenditure
Expensed exploration & evaluation costs
Expenditure on costs incurred prior to obtaining the legal rights to explore an area, geological and geophysical costs are expensed immediately to the income statement.
Capitalised intangible exploration and evaluation assets
All directly attributable E&E costs are initially capitalised in well, field, prospect, or other specific, cost pools as appropriate, pending determination.

Treatment of intangible E&E assets at conclusion of appraisal activities
Intangible E&E assets related to each cost pool are carried forward until the existence, or otherwise, of commercial reserves have been determined, subject to certain limitations including review for indicators of impairment. If commercial reserves have been discovered, the carrying value, after any impairment loss, of the relevant E&E assets, are then reclassified as development and production assets within property plant and equipment. However, if commercial reserves have not been found, the capitalised costs are charged to expense.

Development and production assets
Development and production assets, classified within property, plant and equipment, are accumulated generally on a field-by-field basis and represent the costs of developing the commercial reserves discovered and bringing them into production, together with the E&E expenditures incurred in finding commercial reserves transferred from intangible E&E assets.

Depreciation of producing assets
The net book values of producing assets are depreciated generally on a field-by-field basis using the unit-of-production method by reference to the ratio of production in the year and the related commercial reserves of the field, taking into account the future development expenditure necessary to bring those reserves into production.

Disposals
Net cash proceeds from any disposal of an intangible E&E asset are initially credited against the previously capitalised costs. Any surplus proceeds are credited to the income statement.

Decommissioning
Provision for decommissioning is recognised in full when the related facilities are installed. The amount recognised is the present value of the estimated future expenditure. A corresponding amount equivalent to the provision is also recognised as part of the cost of the related oil and gas property. This is subsequently depreciated as part of the capital costs of the production facilities. Any change in the present value of the estimated expenditure is dealt with prospectively as an adjustment to the provision and the oil and gas property. The unwinding of the discount is included in finance cost.

(E) LEASES
The Group as lessee
The Group assesses whether a contract is, or contains, a lease, at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases and leases of low value assets

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. Lease payments included in the measurement of the lease liability comprise fixed lease payments The lease liability is presented as a separate line in the consolidated statement of financial position. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.

The Group has not had to remeasure the lease liability (and makes a corresponding adjustment to the related right-of-use asset).

The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment. Right-of-use assets are depreciated over the shorter period of lease term and useful life of the right-of-use asset. The depreciation starts at the commencement date of the lease. The right-of-use assets are presented as a separate line in the notes to the financial statements.

Payment associated with short term leases and leases of low value assets are recognised on a straight-line basis as an expense in profit or loss. Short term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT-equipment and small items of office furniture.

The Group as lessor
The Group enters into lease agreements as a lessor with respect to some sublets on its rented offices. Leases for which the Group is a lessor are classified as a finance lease as the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding in respect of the leases.

(F) CAPITAL COMMITMENTS
Capital commitments include all projects for which specific board approval has been obtained up to the reporting date. Projects still under investigation for which specific board approvals have not yet been obtained are excluded.

(G) FOREIGN CURRENCY TRANSLATION<
Functional and presentation currency:
Items included in the results of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates, the functional currency. The consolidated financial statements are presented in US$ as this best reflects the economic environment of the oil exploration sector in which the Group operates. The Group maintains the financial statements of the parent and subsidiary undertakings in their functional currency. Where applicable, the Group translates subsidiary financial statements into the presentation currency, US$, using the closing rate method for assets and liabilities which are translated at the rate of exchange prevailing at the balance sheet date and rates at the date of transactions for income statement accounts. Differences are taken through the Statement of Comprehensive Income to reserves.

Transactions and balances:
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are expensed in the income statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges.
The year end rates of exchange were:

31 December 2021

31 December 2020

£ : US$

1.35

1.36

€ : US$

1.13

1.23

(H) REVENUE AND INCOME
(i)            Revenue
Revenue arising from the sale of goods is recognised when a performance obligation is satisfied by transferring control over a product or service to a customer, which is typically at the point that title passes, and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods provided in the normal course of business, net of discounts, customs duties and sales taxes.

(ii)           Investment income
Investment income consists of interest receivable for the period. Interest income is recognised as it accrues, taking into account the effective yield on the investment.

(I) NON-DERIVATIVE FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group has become a party to the contractual provisions of the instrument.
i)            Other receivables
Other receivables are initially measured at fair value. They are subsequently measured at amortised cost using the effective interest method, less loss allowance. A provision for impairment is made where there is objective evidence that amounts will not be recovered in accordance with original terms of the agreement. The Group recognises an allowance for expected credit losses for all debt instruments not held at fair value through profit or loss. Expected credit losses are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate.
(ii)           Restricted cash
Restricted cash is disclosed separately on the face of the balance sheet and denoted as restricted when it is not under the exclusive control of the Group. All amounts relate to balances held as security in relation to property leases.
(iii)          Cash and cash equivalents
Cash and cash equivalents comprise instant access bank balances as well as a small amount of cash in hand. They are stated at carrying value which is deemed to be fair value.
(iv)           Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.
(v)            Account and other payables
Account payables are initially recognised at fair value and subsequently at amortised cost using the effective interest method.
(vii) Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

(J) INCOME TAXES AND DEFERRED TAXATION
The current tax expense is based on the taxable profits for the year, after any adjustments in respect of prior years. Tax, including tax relief for losses if applicable, is allocated over profits before tax and amounts charged or credited to reserves as appropriate.

Deferred taxation is recognised in respect of all taxable temporary differences that have originated but not reversed at the balance sheet date where a transaction or events have occurred at that date that will result in an obligation to pay more, or a right to pay less or to receive more, tax, with the exception that deferred tax assets are recognised only to the extent that the directors consider that it is probable that there will be suitable taxable profits from which the future reversal of the underlying temporary differences can be deducted.

Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which temporary differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date.

(K) SHARE BASED REMUNERATION
The Group issues equity settled share based payments to certain employees. Equity settled share based payments are measured at fair value (excluding the effect of non market based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity settled share based payments is expensed on a straight line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest and adjusted for non market based vesting conditions.
Fair value is measured by use of either Binomial or Monte-Carlo simulation. The main assumptions are disclosed in note 9.
Cash settled share based payment transactions result in a liability. Services received and liability incurred are measured initially at fair value of the liability at grant date, and the liability is remeasured each reporting period until settlement. The liability is recognised on a straight line basis over the period that services are rendered.

2 USE OF ESTIMATES, ASSUMPTIONS AND JUDGEMENTS
The Group makes estimates, assumptions and judgements that affect the reported amounts of assets and liabilities. Estimates, assumptions and judgements are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed in the relevant note as is sensitivity analysis as required. The key areas identified and the relevant note are as follows:

Carrying value of intangible exploration and evaluation assets (note 14) – judgements

Tax payable (note 18) – judgements

Decommissioning costs (note 19) – judgement and estimates

3 REVENUE AND SEGMENTAL INFORMATION

 

The Group’s operations are located and managed in three geographically distinct business units; namely the Falkland Islands, the Greater Mediterranean, and Corporate (or UK). Some of the business units currently do not generate any revenue or have any material operating income. The business is only engaged in one business of upstream oil and gas exploration and production.

 

YEAR ENDED 31 DECEMBER 2021

Falkland

Greater

 

 

Islands

Mediterranean

Corporate

Total

000

000

000

000

Revenue

839

839

Cost of sales

(1,808)

(1,808)

Gross profit

(969)

(969)

Exploration and evaluation reverse/(expenses)

608

(589)

(144)

(125)

Restructuring costs

Recurring administrative costs

(823)

(2,440)

(3,263)

Total administrative expenses

(823)

(2,440)

(3,263)

Charge for share based payments

(824)

(824)

Foreign exchange (loss)/gain

680

109

789

Results from operating activities and other income

1,288

(2,381)

(3,299)

(4,392)

Finance income

1

3

4

Finance expense

(3,180)

(285)

(57)

(3,522)

Loss before tax

(1,892)

(2,665)

(3,353)

(7,910)

Tax

151

151

Loss for year

(1,892)

(2,514)

(3,353)

(7,759)

Reporting segments assets

249,211

2,440

6,626

258,277

Reporting segments liabilities

86,341

15,337

2,078

103,756

Depreciation and impairments

(608)

1,117

300

809

 

YEAR ENDED 31 DECEMBER 2020

Falkland

Greater

 

 

Islands

Mediterranean

Corporate

Total

000

000

000

000

Revenue

2,754

2,754

Cost of sales

(4,801)

(4,801)

Gross profit

(2,047)

(2,047)

Exploration and evaluation expenses

(222,593)

(2,312)

(806)

(225,711)

Restructuring costs

(614)

(614)

Recurring administrative costs

(1,096)

(2,914)

(4,010)

Total administrative expenses

(1,096)

(3,528)

(4,624)

Charge for share based payments

(1,840)

(1,840)

Foreign exchange (loss)/gain

(1,537)

78

21

(1,438)

Results from operating activities and other income

(224,130)

(5,377)

(6,153)

(235,660)

Finance income

6

38

44

Finance expense

(305)

(514)

(819)

Loss before tax

(224,130)

(5,676)

(6,629)

(236,435)

Tax

(69)

(69)

Loss for year

(224,130)

(5,745)

(6,629)

(236,504)

Reporting segments assets

243,647

4,643

13,068

261,358

Reporting segments liabilities

79,840

16,301

4,650

100,791

Depreciation and impairments

222,584

1,429

493

224,506

All of the Group’s worldwide sales revenues of oil and gas $839 thousand (2020: $2,754 thousand) arose from contracts to customers. Total revenue relates to revenue from one customer (2020: two customers each exceeding 10 per cent of the Group’s consolidated revenue).

4 COST OF SALES

 

 

Year

 ended

31 December

 2021

 

Year

 ended

31 December 2020

 

000

000

Other cost of sales

1,141

2,109

Impairment of oil and gas assets (see note 15)

1,114

Depreciation of oil and gas assets (see note 15)

667

232

Depreciation and impairment on assets held for sale

1,346

1,808

4,801

5 EXPLORATION AND EVALUATION EXPENSES

 

 

Year

 ended

31 December

 2021

 

Year

 ended

31 December 2020

 

000

000

Allocated from administrative expenses (see note 6)

143

799

Capitalised exploration costs impaired (see note 14)

(273)

223,280

Impairment on assets held for sale

314

Other exploration and evaluation expenses

255

1,318

125

225,711

6 ADMINISTRATIVE EXPENSES

 

 

Year

 ended

31 December

 2021

 

Year

 ended

31 December 2020

 

000

000

Directors’ salaries and fees, including bonuses (see note 7)

1,114

1,090

Other employees’ salaries

930

1,806

National insurance costs

453

483

Pension costs

89

325

Employee benefit costs

45

82

Total staff costs (including group restructuring costs)

2,631

3,786

Amounts reallocated

(751)

(937)

Total staff costs charged to administrative expenses

1,880

2,849

Auditors’ remuneration (see note 8)

161

244

Other professional fees

554

588

Other

867

1,222

Depreciation

149

162

Amounts reallocated

(348)

(441)

3,263

4,624

The average number of full time equivalent staff employed during the year was 9 (2020: 13). As at the year end the Group employed 12 staff, 8 of which were in the UK and 4 in Italy

Amounts reallocated relate to the costs of staff and associated overhead in relation to non administrative tasks. These costs are allocated to exploration and evaluation expenses or capitalised as part of the intangible exploration and evaluation assets as appropriate.

7 DIRECTORS’ REMUNERATION

 

 

Year

 ended

31 December

 2021

 

Year

 ended

31 December 2020

 

000

000

Executive salaries

725

812

Company pension contributions to money purchase schemes & pension cash allowance

117

120

Benefits

8

21

Non-executive fees

272

278

1,122

1,231

The total remuneration of the highest paid director was:

 

 

Year

 ended

31 December

 2021

 

Year

 ended

31 December 2020

 

£’000

£’000

Annual salary

283

341

Money purchase pension schemes

47

51

Benefits

4

7

334

399

Interest in outstanding share options and SARs, by director, are separately disclosed in the directors’ remuneration report.

8 AUDITORS’ REMUNERATION

 

 

Year

 ended

31 December

 2021

 

Year

 ended

31 December 2020

 

000

000

 

 

Fees payable to the Company’s auditors for the audit of the Company’s annual financial statements

135

135

Fees payable to the Company’s auditors and its associates for other services:

 

Audit of the accounts of subsidiaries

26

58

Half year review

33

161

226

Amounts in the current year relate to BDO LLP. Amounts in the prior year related to previous auditor Pricewaterhouse Coopers LLP.

After the completion of the 2019 consolidated financial statements additional audit fees for subsidiaries amounting to $18,000 were incurred. These were included in the results for 2020, but are not included in the analysis above.

9 SHARE BASED PAYMENTS

The charge for share based payments relate to options granted to employees of the Group.

 

 

Year

 ended

31 December

 2021

 

Year

 ended

31 December 2020

 

000

000

Charge for option scheme

257

530

Charge for the long term incentive plan options

567

1,112

Charge for shares issued under the SIP

198

824

1,840

The models and key assumptions used to value each of the grants and hence calculate the above charges are set out below:

Option scheme

A one-off equity option package was implemented during the prior year (the “Option Scheme”) to replace the existing long term incentive plan.  In place of the LTIP scheme, executive directors and senior staff received options to subscribe for Ordinary Shares, exercisable at a price of 6.25 pence per new Ordinary Share (the “Market Price Options). The Market Price Options will vest in equal tranches after three, four and five years’ further continuous employment.

Executive directors and staff in lieu of their contractual notice periods also received options to subscribe for an aggregate new ordinary shares in the capital of the Company (“Ordinary Shares”), exercisable at a price of 1 pence per new Ordinary Share (the “1p Options”).

The options have been valued using a binomial model the key inputs of which are summarised below:

 

Grant date:

19 May 2020

19 May 2020

19 May 2020

19 May 2020

19 May 2020

Vesting date

19 Nov 2020

19 May 2021

19 May 2023

19 May 2024

19 May 2025

Closing share price (pence)

6.25

6.25

6.25

6.25

6.25

Number granted

1,986,972

6,357,616

7,949,997

7,950,000

7,950,003

Weighted average volatility

50.0%

50.0%

50.0%

50.0%

50.0%

Weighted average risk free rate

0.08%

0.07%

0.10%

0.12%

0.14%

Exercise price (pence)

1.00

1.00

6.25

6.25

6.25

Dividend yield

0%

0%

0%

0%

0%

Weighted average volatility has been selected with reference to historic volatility but taking into account exceptionally high volatility in the year preceding the grant of the options.

Generally, in calculating the charge a 100% of staff are assumed to be employed for the vesting period. The departure of an executive director was known pre year end and so the charge was adjusted to reflect this fact even though the options did not lapse until after the year end.

The following movements occurred during the year:

 

 

 

At 31 December

 

At 31 December

Issue date

Vesting date

Expiry date

2020

Lapsed

2021

19 May 2020

19 Nov 2020

18 Nov 2030

1,986,972

1,986,972

19 May 2020

19 May 2021

18 Nov 2030

6,357,616

6,357,616

19 May 2020

19 May 2023

18 Nov 2030

7,949,997

7,949,997

19 May 2020

19 May 2024

18 Nov 2030

7,950,000

7,950,000

19 May 2020

19 May 2025

18 Nov 2030

7,950,003

7,950,003

 

32,194,588

32,194,588

 

Long term incentive plan

LTIP awards vest or become exercisable subject to the satisfaction of a performance condition measured over a three year period (“Performance Period”) determined by the Remuneration Committee at the time of grant. The performance condition used is based on Total Shareholder Return (“TSR”) measured over a three-year period against the TSR of a peer group of at least 9 other oil and gas companies comprising both FTSE 250, larger AIM oil and gas companies and Falkland Islands focused companies (“Peer Group”). The Peer Group for the Awards may be amended by the Remuneration Committee at their sole discretion as appropriate.

Performance measurement for the Awards are based on the average price over the relevant 90 day dealing period measured against the 90 dealing day period three years later. Awards vest on a sliding scale from 35% to 100% for performance in the top two quartiles of the Peer Group. No awards vest for performance in the bottom two quartiles.

The Awards granted on 8 October 2013 and 10 March 2014 have an additional performance condition so that no awards will be exercisable unless the Company’s share price exceeds £1.80 based on an average price over any 90 day dealing period up to 31 March 2023. 

The LTIP has been valued using a Monte Carlo model the key inputs of which are summarised below:

Grant date:

31 July 2019

23 April 2018

16 June 2017

Closing share price

20.75

25.7p

21.25p

Number granted

7,200,000

7,000,000

6,700,000

Weighted average volatility

50.0%

44.4%

53.3%

Weighted average volatility of index

70.0%

64.0%

71.4%

Weighted average risk free rate

0.35%

0.90%

0.18%

Correlation in share price movement with comparator group

5%

13.0%

15.3%

Exercise price

0p

0p

0p

Dividend yield

0%

0%

0%

The following movements occurred during the year:

 

 

At 31 December

 

At 31 December

Issue date

Expiry date

2020

Lapsed

2021

8 October 2013

8 October 2023

546,145

546,145

10 March 2014

10 March 2024

70,391

70,391

16 June 2017

16 June 2027

3,216,000

3,216,000

23 April 2018

23 April 2028

7,000,000

(7,000,000)

31 July 2019*

31 July 2029

7,200,000

7,200,000

18,032,536

11,032,536

* Denotes LTIPs that had not completed the Performance Period and as such were unvested at the year end. After the year end 3,300,001 of the LTIPs vested, with the balance lapsing.

 

Share incentive plan

The Group had in place an HMRC approved Share Incentive Plan (“SIP”). The SIP allowed the Group to award Free Shares to UK employees (including directors) and to award shares to match Partnership Shares purchased by employees, subject to HMRC limits. New share awards under the SIP ended in the prior year.

In the year ended 31 December 2020 the Group issued two Matching Shares for every Partnership Share purchased and made a free award of £35,999 worth of Free Shares to eligible employees.

This resulted in the issue of 195,756 Free Shares and 306,606 SIP scheme matching and partnership shares.

 

31 December

 

2020

The average fair value of the shares awarded (pence)

12

Vesting

100%

Dividend yield

Nil

Lapse due to withdrawals

Nil

 

Share appreciation rights

A share appreciation right (“SAR”) is effectively a share option that is structured from the outset to deliver, on exercise, only the net gain in the form of new ordinary shares that would have been made on the exercise of a market value share option.

On exercise, an option price of 1 pence per ordinary share, being the nominal value of the Company’s ordinary shares, is paid and the relevant awardee will be issued with ordinary shares with a market value at the date of exercise equivalent to the notional gain that the awardee would have made, being the amount by which the aggregate market value of the number of ordinary shares in respect of which the SAR is exercised, exceeds a notional exercise price, equal to the market value of the shares at the time of grant (the “base price”). All SARs have vested and the remuneration committee has discretion to settle the exercise of SARs in cash.

The following movements occurred during the year:

 

 

Exercise price

At 31 Dec

 

At 31 Dec

Issue date

Expiry date

(pence)

2020

Expired

2021

11 January 2011

11 January 2021

372.75

175,048

(175,048)

14 July 2011

14 July 2021

239.75

43,587

(43,587)

16 August 2011

16 August 2021

237.00

17,035

(17,035)

13 December 2011

13 December 2021

240.75

29,594

(29,594)

17 January 2012*

17 January 2022

303.75

244,541

244,541

30 January 2013

30 January 2023

159.00

277,162

277,162

786,967

(265,264)

521,703

* Denotes SARs that lapsed post year end.

 

10 FOREIGN EXCHANGE

 

 

Year

 ended

31 December

 2021

 

Year

 ended

31 December 2020

 

000

000

Foreign exchange gain/(loss) on Falkland Islands tax liability (see note 18)

679

(1,537)

Other foreign exchange movements

110

99

Total net foreign exchange gain/(loss)

789

(1,438)

11 FINANCE INCOME AND EXPENSE

 

 

Year

 ended

31 December

 2021

 

Year

 ended

31 December 2020

 

000

000

Bank and other interest receivable

4

44

Total finance income

Unwinding of discount on Falkland Tax Liability (see note 18)

3,180

Unwinding of discount on decommissioning provisions (see note 19)

274

296

Other

68

523

Total finance expense

3,522

819

12 TAXATION

 

 

Year

 ended

31 December

 2021

 

Year

 ended

31 December 2020

 

000

000

Current tax:

 

Overseas tax

Adjustment in respect of prior years

(10)

Total current tax

(10)

 

Deferred tax:

 

Overseas tax

(151)

79

Total deferred tax (credit)/charge  – note 20

(151)

79

Tax on profit on ordinary activities

(151)

69

 

Loss on ordinary activities before tax

(7,910)

(236,435)

Loss on ordinary activities multiplied at 26% weighted average rate (31 December 2020: 26%)

(2,057)

(61,473)

Effects of:

 

Income and gains not subject to taxation

(248)

Expenditure not deductible for taxation

827

58,812

Depreciation in excess of capital allowances

281

9

IFRS2 Share based remuneration cost

214

478

Losses carried forward

983

2,349

Effect of tax rates in foreign jurisdictions

(156)

Other

(19)

Adjustments in respect of prior years

(10)

Current tax credit for the year

 

The total carried forward losses and carried forward pre trading expenditures potentially available for relief are as follows:

 

 

Year

 ended

31 December

 2021

 

Year

 ended

31 December 2020

 

000

000

UK

77,393

74,762

Falkland Islands

619,400

618,444

Italy

65,202

64,086

 

No deferred tax asset has been recognised in respect of temporary differences arising on losses carried forward, outstanding share options or depreciation in excess of capital allowances due to the uncertainty in the timing of profits and hence future utilisation. Losses carried forward in the Falkland Islands includes amounts held within entities where utilisation of the losses in the future may not be possible.

13 BASIC AND DILUTED LOSS PER SHARE

 

31 December 2021

31 December 2020

 

Number

Number

Shares in issue brought forward

458,482,117

457,979,755

Shares issued

 

– Issued under the SIP

502,362

Shares in issue carried forward

458,482,117

458,482,117

 

Weighted average number of Ordinary Shares in issue

458,482,117

458,289,239

Shares held in Employee Benefit Trust

(3,131,000)

(3,131,000)

Weighted average number of Ordinary Shares for the purposes of basic earnings per share

455,351,117

455,158,239

 

 

000

000

Net loss after tax for purposes of basic and diluted earnings per share

(7,759)

(236,504)

Loss per share – cents

 

Basic

(1.70)

(51.73)

Diluted

(1.70)

(51.73)

 

The weighted average number of Ordinary Shares takes into account those shares which are treated as own shares held in trust. As at the year end the Group had 3,131,000 Ordinary shares held in an Employee Benefit Trust which have been purchased to settle future exercises of options. As the Group is reporting a loss in the year 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.

14 INTANGIBLE EXPLORATION AND EVALUATION ASSETS

 

 

 

Falkland

Greater

 

 

 

 

Islands

Mediterranean

Total

 

 

 

000

000

000

At 31 December 2019

464,639

1,181

465,820

Additions

1,592

147

1,739

Written off to exploration costs

(222,584)

(696)

(223,280)

Foreign exchange movement

70

70

At 31 December 2020

 

 

243,647

702

244,349

Additions

 

 

4,956

54

5,010

Written back/(off) exploration costs

 

 

608

(335)

273

Foreign exchange movement

 

 

(49)

(49)

At 31 December 2021

 

 

249,211

372

249,583

FALKLAND ISLANDS LICENCES

The amounts for intangible exploration and evaluation assets represent active exploration and evaluation projects. These amounts will be written off to the income statement as exploration costs unless commercial reserves are established or the determination process is not completed and there are no indications of impairment in accordance with the Group’s accounting policy.

The additions during the year of $5.0 million relate principally to the Sea Lion development, with the majority of this movement being non-cash and relating to the recognition of a provision for decommissioning Falkland Islands facilities.

Given the quantum of intangible exploration and evaluation assets potential impairment could have a material impact on the financial statements. As such whether there are indicators of impairment is a key judgement. Management looked at a number of factors in making a judgement as to whether there are any indicators of impairment during the year. In particular with regard to the carrying value of the Falkland Islands assets, which relates to the Sea Lion Phase one development these include, but are not limited to;

·      The Transaction is bringing on board a new partner with a track record of funding large offshore developments

·      As part of the Transaction a two year license extension is being sought

·      Whilst inflationary pressures exist increasing potential capital costs, Rockhopper and Navitas plan to use the extensive engineering work already carried out to create a lower cost development with the target to reach FID early 2024

·      Current market conditions, including oil price and security of supply, provide stronger prospects for ultimate sanction of Sea Lion

Management concluded that for these reasons, currently for Phase 1 of the Sea Lion development, there were no indicators of impairment.

In the prior year, management made the judgement that the limited near term capital being invested outside of the Phase 1 project was an indicator of impairment in the subsequent phases of the project. Accordingly a decision was made, in line with the operator, to write off historic exploration costs associated with the resources which will not be developed as part of the Sea Lion Phase 1 project. This impairment has no impact on the Group’s long‐term strategy for multiple phases of development in the North Falkland Basin. This will be re-evaluated when the Phase 1 project has been sanctioned, currently anticipated in 2024, and investment resumes on the Phase 2 project.

15 PROPERTY, PLANT AND EQUIPMENT

 

Oil and gas

Right of use

Other

 

 

assets

assets

assets

Total

 

000

000

000

000

Cost

At 31 December 2019

24,275

1,555

914

26,744

Additions

138

84

222

Foreign exchange

2,006

14

2,020

Disposals

(99)

(99)

At 31 December 2020

26,281

1,693

913

28,887

Additions

228

228

Foreign exchange

(2,006)

(22)

(11)

(2,039)

Disposals

(497)

(497)

Derecognition

(1,264)

(1,264)

At 31 December 2021

24,503

25,315

 

Depreciation and impairment

At 31 December 2019

22,565

300

810

23,675

Charge for the year

232

528

48

808

Impairment

1,114

1,114

Foreign exchange

1,960

5

1,965

Disposals

(95)

(95)

At 31 December 2020

25,871

828

768

27,467

Charge for the year

667

353

62

1,082

Foreign exchange

(2,035)

(15)

(4)

(2,054)

Disposals

(501)

(501)

Derecognition

(880)

(880)

At 31 December 2021

24,503

25,114

 

Net book value at 31 December 2020

410

865

145

1,420

Net book value at 31 December 2021

121

80

201

 

All oil and gas assets relate to the Greater Mediterranean region, specifically producing assets in Italy. Right of use assets relate to rented offices.

16 OTHER RECEIVABLES

 

 

Year

 ended

31 December

 2021

 

Year

 ended

31 December 2020

 

000

000

Current

 

Receivables

478

620

Other

1,596

1,844

2,074

2,464

The carrying value of receivables approximates to fair value. Other receivables includes US$0.7 million related to deferred considerations in relation to the disposal of the Group’s Egyptian business. This is due to be received during 2022.

17 OTHER PAYABLES AND ACCRUALS

 

 

Year

 ended

31 December

 2021

 

Year

 ended

31 December 2020

 

000

000

Accounts payable

608

1,021

Accruals

1,129

2,553

Other creditors

263

216

2,000

3,790

All amounts are expected to be settled within twelve months of the balance sheet date and so the book values and fair values are considered to be the same.

18 TAX PAYABLE

 

 

Year

 ended

31 December

 2021

 

Year

 ended

31 December 2020

 

000

000

Non current tax payable

37,359

40,703

37,359

40,703

 

On the 8 April 2015, the Group agreed binding documentation (“Tax Settlement Deed”) with the Falkland Island Government (“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 is confirmed at £59.6 million and 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 Exploration plc.

The tax liability is a non current liability and as such has been discounted. Management in reviewing the carrying value of the tax liability have had to make key judgements about both the timing of the liability and the discount rate applied.

Management believe the most likely timing of payment is in line with the first royalty payment. Based on previous correspondence with FIG, Management does not believe that the Transactions completion would constitute a substantial disposal and therefore will not accelerate the liability. Currently, therefore, payment is anticipated to be in 5.5 years (2020: 5.0 years).

As at the year end a discount rate of 12% (2020: 15%) has been applied. Management has made the judgement to reduce the discount rate used at the year end due to a number of factors including a reduction in market interest rates of debt issued which in management’s view has a similar risk profile. If the discount rate applied had been increased 2% this would have reduced the liability by $US4.0 million and if the rate had been decreased by 2% this would have increased the liability by $US4.5 million.

The impact of changes to these judgements in the year increased the balance by US$3.2 million (2020: US$nil) and has been treated as a finance expense.

This increase has been offset by a foreign exchange gain of US$0.7 million (2020: US$1.5 million loss) in the year.

19 PROVISIONS

 

Decommissioning

Other

 

 

provision

provisions

 

Year

 ended

31 December

 2021

 

Year

 ended

31 December 2020

 

000

000

000

000

Brought forward

15,067

91

15,158

13,636

Amounts utilized

(54)

Amounts arising in the year

4,000

6

4,006

7

Unwinding of discount

274

274

296

Foreign exchange

(1,144)

(7)

(1,151)

1,273

Carried forward at year end

18,197

90

18,287

15,158

 

The decommissioning provision relates to the Group’s licences in the Greater Mediterranean region as well as facilities in the Falkland Islands. The provision covers both the plug and abandonment of wells drilled as well as removal of facilities and any requisite site restoration.

Amounts arising in the year relate to the Group’s share of the potential costs arising on the removal of facilities in the Falkland Islands. This has been recognised during the year as in managements view it is probable that the facilities will require decommissioning in the future, all be it that currently our expectation is that following appropriate upgrades they will be able to be utilised as part of the Sea Lion development.

Judgements are made are made based on the long term economic environment around appropriate inflation and discount rates to be applied as well as the timing of any future decommissioning. In the Falkland Islands costs are most likely to be in $US or GB£ so management consider the UK economic environment when informing these judgements. In the Greater Mediterranean all assets are in Italy and so costs are likely to be in Euros and as such management consider the Italian as well as the broader Eurozone region to inform these judgements.

Whilst recognising short term inflationary pressures, the Group continues to believe it appropriate to use an inflation rate of 2 per cent (2020: 2 per cent) and a discount rate of 2 per cent (2020: 2 per cent).

Decommissioning costs are uncertain and management’s cost estimates can vary in response to many factors, including changes to the relevant legal requirements, the emergence of new technology or experience at other assets. The expected timing, work scope and amount of expenditure may also change. Therefore, significant estimates and assumptions are made in determining the costs associated with the provision for decommissioning. The estimated decommissioning costs are reviewed annually, and the results of the most recent available review used as a basis for the amounts in the Consolidated Financial Statements. Provision for environmental clean-up and remediation costs is based on current legal and contractual requirements, technology and price levels. However, actual decommissioning costs will ultimately depend upon future market prices for the necessary decommissioning works required which will reflect market conditions at the relevant time.

The estimated costs associated with the decommissioning works are those that are likely to have a material impact on the provision. A 10 per cent increase in these estimates would increase both the provision and the loss in the year by US$1,420 thousand.  Similarly, a 10 per cent reduction in these estimated costs would decrease both the provision and the loss in the year by US$1,420 thousand.

Other provisions include amounts due to employees for accrued holiday and leaving indemnity for staff in Italy, that will become payable when they cease employment.

20 DEFERRED TAX LIABILITY

 

 

Year

 ended

31 December

 2021

 

Year

 ended

31 December 2020

 

000

000

At beginning of period

39,300

39,221

Foreign exchange

(12)

Movement in period

(151)

79

At end of period

39,137

39,300

The deferred tax liability arises due to temporary differences associated with the intangible exploration and evaluation expenditure. The majority of the balance relates to historic expenditure on licences in the Falklands, where the tax rate is 26%, being utilised to minimise the corporation tax due on the consideration received as part of the farm out disposal during 2012.

Total carried forward losses and carried forward pre-trading expenditures available for relief on commencement of trade at 31 December 2021 are disclosed in note 12 Taxation. No deferred tax asset has been recognised in relation to these losses due to uncertainty that future suitable taxable profits will be available against which these losses can be utilised.

21 SHARE CAPITAL

Year ended 31 December 2021

Year ended 31 December 2020

000

Number

000

Number

Authorised, called up, issued and fully paid: Ordinary shares of £0.01 each

7,218

458,482,117

7,218

458,482,117

For details of all movements during the year, see note 13.

22 RESERVES

Set out below is a description of each of the reserves of the Group:

Share premium

Amount subscribed for share capital in excess of its nominal value.

Share based remuneration

The share incentive plan reserve captures the equity related element of the expenses recognised for the issue of options, comprising the cumulative charge to the income statement for IFRS2 charges for share based payments less amounts released to retained earnings upon the exercise of options.

Own shares held in trust

Shares held in trust represent the issue value of shares held on behalf of participants in the SIP by Capita IRG Trustees Limited, the trustee of the SIP as well as shares held by the Employee Benefit Trust which have been purchased to settle future exercises of options.

Merger reserve

The difference between the nominal value and the fair value of shares issued on acquisition of subsidiaries.

Foreign currency translation reserve

Exchange differences arising on consolidating the assets and liabilities of the Group’s subsidiaries are classified as equity and transferred to the Group’s translation reserve.

Special reserve

The reserve is non distributable and was created following cancellation of the share premium account on 4 July 2013. It can be used to reduce the amount of losses incurred by the Parent Company or distributed or used to acquire the share capital of the Company subject to settling all contingent and actual liabilities as at 4 July 2013. Should not all of the contingent and actual liabilities be settled, prior to distribution the Parent Company must either gain permission from the actual or contingent creditors for distribution or set aside in escrow an amount equal to the unsettled actual or contingent liability.

Retained losses

Cumulative net gains and losses recognised in the financial statements.

23 CAPITAL COMMITMENTS

Significant capital expenditure contracted for at the end of the reporting period but not recognised as liabilities is US$0.4million (2020: US$0.4 million) relating to the Group’s intangible exploration and evaluation assets.

24 RELATED PARTY TRANSACTIONS

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed. Subsidiaries are listed in note 3 of the Company financial statements.

The remuneration of directors, who are the key management personnel of the Group, is set out below in aggregate.

In addition there are deferred salary and bonuses amounts that are contingent on future events and as such have not been recorded in the accounts. Further information about the remuneration of individual directors, including deferred salary and bonus amounts, is provided in the Directors’ Remuneration Report on pages 26 to 35.

 

 

 

Year

 ended

31 December

 2021

 

Year

 ended

31 December 2020

 

000

000

Short term employee benefits

1,005

1,111

Pension contributions

117

120

Share based payments

447

873

1,569

2,104

 

 

In the prior year directors purchased the following ordinary shares of £0.01 each in the Company as follows

Date

Number

Price (pence)

Sam Moody

15 January 2020

125,000

19.45

Keith Lough

15 January 2020

80,000

19.24

8 June 2020

148,515

8.08

Stewart MacDonald

15 January 2020

80,000

19.24

Alison Baker

8 June 2020

70,000

8.85

John Summers

8 June 2020

74,229

8.08

25 RISK MANAGEMENT POLICIES

RISK REVIEW

The risks and uncertainties facing the Group are set out in the risk management report. Risks which require further quantification are set out below.

Foreign exchange risks: The Group is exposed to foreign exchange movements on monetary assets and liabilities denominated in currencies other than US$, in particular the tax liability with the Falkland Island Government which is a GB£ denominated balance. In addition a number of the Group’s subsidiaries have a functional currency other than US$, where this is the case the Group has an exposure to foreign exchange differences with differences being taken to reserves.

The Group’s has cash and cash equivalents and restricted cash of US$5.4 million of which US$4.7 million was held in US$ denominations. The Group has expenditure in GB£ and Euro and accepts that to the extent current cash balances in those currencies are not sufficient to meet those expenditures they will need to acquire them. The following table summarises the split of the Group’s assets and liabilities by currency:

Currency denomination of balance

 

$

£

 

 

000

000

000

Assets

31 December 2021

253,975

1,859

2,443

31 December 2020

253,577

3,115

4,666

 

Liabilities

31 December 2021

43,352

45,067

15,337

31 December 2020

41,338

43,152

16,301

 

The following table summarises the impact on the Group’s pre-tax profit and equity of a reasonably possible change in the US$ to GB£ exchange rate and the US$ to euro exchange:

 

Pre tax profit

Total equity

 

+10% US$ rate

increase

-10% US$ rate

decrease

+10% US$ rate

increase

-10% US$ rate

decrease

 

000

000

000

000

US$ against GB£

31 December 2021

(4,321)

4,321

(4,321)

4,321

31 December 2020

(4,004)

4,004

(4,004)

4,004

 

US$ against euro

31 December 2021

(1,289)

1,289

(1,289)

1,289

31 December 2020

(1,164)

1,164

(1,164)

1,164

 

Capital risk management: the Group manages capital to ensure that it is able to continue as a going concern whilst maximising the return to shareholders. The capital structure consists of cash and cash equivalents and equity. The board regularly monitors the future capital requirements of the Group, particularly in respect of its ongoing development programme. Further information can be found in the going concern assessment contained in Note 1.5.

Credit risk; the Group recharges partners and third parties for the provision of services and for the sale of Oil and Gas. Should the companies holding these accounts become insolvent then these funds may be lost or delayed in their release. The amounts classified as receivables as at the 31 December 2021 were $2,306,000 (31 December 2020: $2,079,000). Credit risk relating to the Group’s other financial assets which comprise principally cash and cash equivalents and restricted cash arises from the potential default of counterparties. Investments of cash and deposits are made within credit limits assigned to each counterparty. The risk of loss through counterparty failure is therefore mitigated by the Group splitting its funds across a number of banks, two of which are part owned by the British government.

Interest rate risks; the Group has no debt and so its exposure to interest rates is limited to finance income it receives on cash and term deposits. The Group is not dependent on its finance income and given the current interest rates the risk is not considered to be material.

Liquidity risks;

The Group monitors the liquidity position by preparing cash flow forecasts to ensure sufficient funds are available. Further information can be found in the going concern assessment contained in Note 1.5.

 

Maturity of financial liabilities

The table below analyses the Group’s financial liabilities, which will be settled on a gross basis, into relevant maturity groups based on the remaining period at the balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

 

At 31 December 2021

Within 1 year

2 to 5 years

More than 5 years

Total contractual cashflows

Carrying amount

000

000

000

000

000

Other payables

2,000

2,000

2,000

Lease liability

574

860

1,434

1,128

Tax payable

79,413

79,413

43,204

2,574

860

79,413

82,847

46,532

At 31 December 2020

Within 1 year

2 to 5 years

More than 5 years

Total contractual cashflows

Carrying amount

000

000

000

000

000

Other payables

3,790

3,790

3,790

Lease liability

608

1,473

2,081

1,840

Tax payable

81,867

81,867

40,703

4,398

1,473

81,867

87,738

46,333

The tax payable amounts in the current and prior year relate to amounts as disclosed in note 18.

26 POST BALANCE SHEET EVENTS

On the 19th April 2022 the Group announced that it, Harbour and Navitas have signed legally binding definitive documentation in relation to Harbour exiting and Navitas entering the North Falkland Basin (the “Transaction”).

The Transaction remains subject to completion pending, inter alia, regulatory approvals.

Under the Transaction Navitas will acquire Premier Oil Exploration and Production Limited (“POEPL”), the Company in which Harbour holds all of its Falkland Islands licences. The group and Navitas will seek to align working interests across all their North Falkland Basin petroleum licences – Rockhopper 35% / Navitas 65% – subject to all necessary consents.

The Group and Navitas will jointly develop and agree a technical and financing plan to enable the development of the Sea Lion project to achieve first oil on a lower cost and expedited basis post sanction.

Navitas wil provide loan funding to the Group to cover;

(i) the majority of its share of Sea Lion phase one related costs from Transaction completion up to Final Investment Decision (“FID”) through a loan from Navitas with interest charged at 8% per annum (the “Pre-FID Loan”).

(ii)  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 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.

 

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