Rockhopper Exploration PLC (LON:RKH) investors are celebrating an important milestone and potential catalyst in the Falklands as a new partnership agreement has been struck, potentially unlocking the Sea Lion field for development.
In Tuesday’s early deals, Rockhopper shares leapt 4.8p or 32% to trade at 19.8p each.
Israeli oil firm Navitas Petroleum has signed heads of terms for a farm-in deal with project operator Premier Oil PLC (LON:PMO) and Rockhopper which sees the new partner take a 30% stake in the Sea Lion field development project.
Premier Oil acquired a 60% interest in Rockhopper’s Sea Lion discovery and nearby exploration acreage way back in 2012.
Whilst much progress had been made since 2012, the project essentially stalled at pre-sanction for a number of years as the majority stakeholder sought a third partner for field development.
Today’s news of the Navitas deal is therefore a significant and long awaited breakthrough, not least for AIM-quoted Rockhopper which is almost singularly tied to the Falklands project.
Navitas is acquiring 10% from Rockhopper and 20% from Premier. In return the Israeli firm will cover a material portion of Sea Lion’s Phase 1 development costs.
Specifically, Rockhopper today told investors that it will be funded for all pre and post sanction project costs, which are not met by senior debt by Premier and/or Navitas through a combination of carry and loans.
“We will be delighted to welcome Navitas to the Sea Lion project and regard their joining as an important catalyst as well as industry endorsement of Sea Lion's scale (independently audited 2C resources of c.520 mmbbls) and potential,” said Samuel Moody, Rockhopper chief executive.
He added: "Furthermore, we are obviously very pleased to announce that all of our project costs are being covered from the start of 2020 and in the event of a successful sanction that they will continue to be covered through to Phase 1 project completion … while maintaining a very material 30% stake in the Sea Lion project along with additional upside in the PL004a licence containing the Isobel discovery.
“This transaction will therefore materially strengthen the company financially.”
Premier and Navitas will jointly fund all of Rockhopper's Phase 1 project development costs from 1 March 2020 to completion through an interest free loan, which would be repaid from Rockhopper’s working interest share of free cash flow.
The deal also provides that Rockhopper will be carried for US$36mln of Phase 2 development costs, plus funding out of Navitas’s share of production cash flows.
Navitas also receives the option to acquire interests in the Isobel Elaine oil discoveries, exercisable within 8 years. If taken up, Rockhopper would receive US$12mln from Navitas. It is also anticipated that the new partner will join Rockhopper and Premier in the Falklands ‘Area of Mutual Interest’ agreement, signed in 2012.
Moody noted that talks continue with senior lenders for the remainder of Rockhopper’s project financing, and, it is expected that these discussions will be “positively supported” by today’s deal.
The Rockhopper boss added: “"Our arrangements with Navitas are at a detailed non-binding Heads of Terms stage and we look forward to working with them to put in place formal binding documentation in the coming months.”
It is just one of Premier Oil’s big deals being unveiled today. The FTSE 250 oiler has also announced North Sea acquisitions for over US$800mln, picking up two fields from BP and taking an extra 25% of its own Tolmount gas field development project.