26 September 2024
Rockhopper Exploration plc
("Rockhopper", the "Group" or the "Company")
Half-Year Results for the Six Months Ended 30 June 2024
Rockhopper Exploration plc (AIM: RKH), the oil and gas company with key interests in the North Falkland Basin ("NFB"), announces its unaudited results for the six months ended 30 June 2024 ("H1 2024").
YEAR TO DATE HIGHLIGHTS
Sea Lion and North Falkland Basin
· Rockhopper holds 35% working interest
· Rockhopper benefits from pre and post Final Investment Decision ("FID") loan from the operator Navitas Petroleum Development and Production Limited 1 ("Navitas" or "Operator")
· Independent Resource Report commissioned by Navitas2
o Sea Lion initial development targeting 312mmbbls via two drilling campaigns
o Sea Lion total 2C resource base 791mmbbls
o Plateau production up to 55 kbbls/d for prolonged period of eight years
o Life of field costs US$25/bbls
o NPV 10 of first 312 mmbbls development > US$4bn gross to the JV pre tax post Falkland Islands Government royalty at US$77 Brent
· Environmental Impact Statement ("EIS") public consultation period completed
Ombrina Mare Arbitration Award (the "Award")
· Transaction to monetise the Award completed
· First Tranche payment received - €19m retained by Rockhopper
· Annulment hearing with ICSID convened ad hoc committee (the "Committee") completed
· Post hearing submissions completed
· Cost submissions made to Committee (by Rockhopper and Italy)
· No formal timetable for outcome, hopeful a decision is possible by year end 2024
Balance Sheet
· Balance sheet strengthened following completion of Award monetisation
· Period end cash balance US$27.8m
· Cost control maintained
Outlook
· Strong balance sheet
· Work continues on securing all permissions required to launch Sea Lion financing, including EIS and licence extension
· Ombrina Mare annulment, hopeful a decision is possible by year end 2024
Samuel Moody, CEO, commented:
"Rockhopper is in its strongest position for some time. Monetisation of the Award delivers increased financial flexibility and allows the Company to focus on progressing Sea Lion to sanction, which remains our core focus. We also welcome the news, announced on 24th September, of a new general co-operation agreement between the Falklands and Argentina.
"I would like to thank our team for their continued commitment to driving progress at Rockhopper and our shareholders for their continued support at this exciting time for the Group."
1 Navitas is the legal entity that holds and operates Sea Lion and our other NFB licences. The company's ultimate and controlling parent is Navitas Petroleum LP, a limited partnership established and registered in Israel and listed on the Tel Aviv Stock Exchange.
2 Rockhopper is not an addressee and has not been party to the production of the 2024 NSAI Independent Report. The 2024 NSAI Independent Report has been produced to PRMS standards. The last independent resource report commissioned directly by Rockhopper was the ERCE 2016 Report which had an estimated 2C value of 517 MMbbls. See RNS dated 22 January 2024.
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/Charlie Hammond
Tel. +44 (0) 20 7523 8000
Peel Hunt LLP (Joint Broker)
Richard Crichton/Georgia Langoulant
Tel. +44 (0) 20 7418 8900
Vigo Consulting
Patrick d'Ancona/Ben Simons/Fiona Hetherington
Tel. +44 (0) 20 7390 0234
CHAIRMAN AND CHIEF EXECUTIVE OFFICER'S REVIEW
Introduction
Rockhopper's strategy is to create value for all our stakeholders through the safe and responsible development of our assets in the NFB. The Company has been operating offshore the Falkland Islands since 2004 and discovered the Sea Lion oilfield in 2010. We are a long term partner of the Falkland Islands Government ("FIG") and our aim has always been to support the rights of the Falkland Islanders to develop their natural resources.
Sea Lion project
Our view remains unchanged: the Sea Lion oil field and its associated follow on potential within the NFB, represents a hugely important and valuable strategic asset for the Falkland Islands, the UK and all of our stakeholders. Since replacing Harbour Energy in 2022, Navitas, the field's operator, has increased resources while reducing costs, resulting in a field with highly attractive and robust economics.
An independent report, commissioned by Navitas, confirms that the first 312mmbbls of the total 791mmbbls of the field (on a 2C basis) has a gross NPV 10 of over US$4bn on a pre tax, post FIG royalty at US$77 Brent. The life of field cash breakeven is currently estimated to be US$25/bbl making the project financially attractive at a range of commodity prices.
An updated Environmental Impact Statement was submitted to FIG in July 2024 and the statutory public consultation period has now concluded. The next step will be for FIG to consider the responses provided by the Operator. Simultaneously we are engaged with FIG on licence extensions, prior to their expiry in November 2024.
We continue to engage with the Operator as they look to secure a financing package for Sea Lion phase 1 and work towards FID. We will inform the market as and when we receive material updates from the Operator, including associated timing, in this regard.
Ombrina Mare
As announced on 24 August 2022, the arbitration panel unanimously held that Italy breached its obligations under the Energy Charter Treaty and awarded Rockhopper compensation of approximately €190 million plus interest and EURIBOR + 4% compounded annually from 29 January 2016 until the time of payment (except for the four month period immediately following the date of the Award).
Having announced a transaction to monetise the Award in December 2023 (the "Monetisation"), the Monetisation completed in June 2024 and Rockhopper received the first payment of €19 million that month. All of Rockhopper's costs associated with the Award from the date of signature in December 2023 are covered by the new funder ("Specialist Fund").
A hearing was held in Madrid in April 2024 as part of Italy's request to have the Award annulled following which post hearing submissions were made in response to questions raised by the Committee. Additionally, during September 2024 submissions detailing costs incurred both by Rockhopper and Italy were made to the Committee.
Whilst there is no formal timetable, we continue to be hopeful that a decision is possible before the end of 2024 but otherwise expected in H1 2025.
Corporate matters
Following completion of the Monetisation, our balance sheet is the strongest it has been for some time, and we ended the period with approximately US$27.8 million in cash and term deposits.
We maintain a small core team with unparalleled historic knowledge of the Sea Lion field and its associated Falkland Islands oil and gas operations.
Environmental, Social and Governance ("ESG")
ESG and Corporate Responsibility continue to be a key focus for Rockhopper. As an oil and gas exploration and production business, our role is to discover and produce hydrocarbons in an environmentally responsible manner, supporting energy requirements during the energy transition.
As noted previously, 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 Falkland Islands.
Once FID on Sea Lion has been achieved, the Company commits to defining measures, reporting transparently, and mitigating our own emissions as far as practicable.
Outlook
The completion of the Award Monetisation puts our balance sheet in the best position it has been for a number of years and we now await the outcome of the annulment request from Italy.
Meanwhile, Navitas continues to progress our core asset, Sea Lion, having not only completed the EIS public consultation period but also developed the field development plan to a highly advanced stage. We continue to believe that our 35% interest in the field and all associated upside represents a potentially hugely valuable asset.
In addition, we continue to focus on ways in which we can strengthen and protect the Company's balance sheet.
As a result, the coming 12 months could see some of the most exciting developments at the Company for some considerable time.
FINANCIAL REVIEW
Results for the period
For the period ended 30 June 2024, the Group reported a profit after tax of US$16.5 million (H1 2023: loss of US$2.6 million).
The Monetisation
From a financial perspective the main event during the period was the completion of the Monetisation. This has resulted in an after tax profit contribution of US$18.7 million in the period.
On completion of the Monetisation, the Group received the Tranche 1 payment of €19 million. Whilst legally Rockhopper has retained the legal and beneficial ownership of the Award, accounting follows the substance of the transaction which is akin to a disposal. As such this Tranche 1 payment has been recorded as other income and expenses of US$20.6 million.
No income has been recorded for the Tranche 2 and Tranche 3 payments as they are contingent on future events, in particular, successfully contesting the attempted annulment of the Award
Revenue and cost of sales
The Group's production ceased during 2022, as such there were no revenues in the period (H1 2023: US$nil). Even though there has been no revenue in the period there are costs associated with maintaining the various production concessions whilst potential options for additional development are investigated.
Operating activities
The decrease in Administrative expenses ("G&A") for the period to US$1.5million (H1 2023: US$2.1 million) almost entirely relates to legal fees associated with the Ombrina Mare Arbitration. Since the end of 2023 the cost associated with the Arbitration have been borne by the Specialist Fund.
Previously the Group made the decision to use existing resources to fund all legal costs arising from contesting the request by Italy for annulment whilst it explores all funding possibilities. In the prior period, costs were incurred contesting Italy's request for a stay of enforcement as well as initial fees drafting the Group's counter memorial on annulment itself. Excluding these, G&A costs have remained flat.
The foreign exchange loss in the period is US$0.3 million (H1 2023: gain of US$0.6 million). These mainly arise on GBP and Euro denominated cash and term deposit balances in both the current and prior period.
Finance expenses in the period of US$0.2 million (H1 2023: $US0.7 million) relate to the unwinding of discounts on provisions. The previous period finance expense included US$0.5 million from fair valuing of derivative financial liabilities. This related to warrants issued as part of the placing in 2022 and were all exercised or lapsed in the prior year.
Cash movements and capital expenditure
At 30 June 2024, the Group had cash and term deposits of US$27.8 million (31 December 2023: US$8.0 million).
Cash and term deposit movements during the period:
| | US$m |
| Opening cash and term deposit balance (31 December 2023) | 8.0 |
| Cost of sales | (0.3) |
| Falkland Islands | (0.8) |
| Administrative expenses | (1.6) |
| Proceeds of warrants | 2.1 |
| Ombrina Mare Award monetisation | 20.6 |
| Miscellaneous | (0.2) |
| Closing cash and term deposit balance (30 June 2024) | 27.8 |
Miscellaneous includes foreign exchange, interest and movements in working capital during the period.
Oil and gas assets
The Sea Lion development remains central to the Group's plans and the additions in the period of US$9.2 million almost entirely relate to this project. The majority of these costs are covered through a loan from Navitas and are included in other payables. As part of the transaction to bring Navitas onto the licences, Navitas agreed to provide loan funding to the Group to cover the majority of its share of Sea Lion phase one related costs from Transaction completion, in September 2022, up to FID and has interest charged at 8% per annum (the "Pre-FID Loan"). Subject to a positive FID, Navitas will provide a second 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.
Taxation
The charge in the period of US$1.9 million relates to the estimate of tax due on the first Tranche of proceeds from the monetisation of the Ombrina Mare Arbitration Award.
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 30 June 2024, the Group had cash resources of US$27.8 million. Historically, the Group's largest annual expenditure has related to pre-sanction costs associated with the Sea Lion development. The Group benefits from loan funding for its share of all Sea Lion pre-sanction costs (other than licence fees and taxes).
The Group has prepared the financial statements on the basis that it will continue to operate as a going concern. The Directors consider that there are no material uncertainties that may cast significant doubt over this assumption. They have formed a judgement that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, and not less than 12 months from the end of the reporting period.
Principal risk and uncertainties
A detailed review of the potential risks and uncertainties which could impact the Group are outlined in the Strategic Report of the Group's annual consolidated financial statements. The Group identified its key risks at the end of 2023 as being:
· oil price volatility;
· availability and access to capital;
· joint venture partner alignment; and
· failure of joint venture partners to secure the requisite funding to allow a Sea Lion Final Investment Decision
CONDENSED CONSOLIDATED income statement
for the six months ended 30 June 2024
| | | Six months | Six months |
| | | Ended | Ended |
| | | 30 June | 30 June |
| | | 2024 | 2023 |
| | | Unaudited | Unaudited |
| | Notes | $'000 | $'000 |
| | |
| |
| Revenue | | - | - |
| Cost of sales | | (275) | (378) |
| Gross loss | | (275) | (378) |
| Exploration and evaluation expenses | | - | (3) |
| Administrative expenses | | (1,553) | (2,132) |
| Charge for share based payments | | (40) | (70) |
| Foreign exchange movement | | (279) | 586 |
| Results from operating activities | | (2,147) | (1,997) |
| Other income and expenses | 2 | 20,556 | - |
| Finance income | | 173 | 128 |
| Finance expense | | (200) | (739) |
| Profit/(loss) before tax | | 18,382 | (2,608) |
| Tax | 3 | (1,882) | - |
| PROFIT/(Loss) for the period attributable to the equity shareholders of the parent company | | 16,500 | (2,608) |
| | |
| |
| Profit/(loss) per share attributable to the equity shareholders of the parent company: cents | |
| |
| Basic | 4 | 2.57 | (0.44) |
| Diluted | 4 | 2.53 | (0.44) |
CONDENSED CONSOLIDATED statement of comprehensive income
for the six months ended 30 June 2024
| | | Six months | Six months |
| | | Ended | Ended |
| | | 30 June | 30 June |
| | | 2024 | 2023 |
| | | Unaudited | Unaudited |
| | Notes | $'000 | $'000 |
| Profit/(loss) for the period | | 16,500 | (2,608) |
| Exchange differences on translation of foreign operations | | 468 | (615) |
| TOTAL COMPREHENSIVE PROFIT/(LOSS) FOR THE period | | 16,968 | (3,223) |
CONDENSED CONSOLIDATED balance sheet
as at 30 June 2024
| | | As at | As at | |
| | | 30 June | 31 December | |
| | | 2024 | 2023 | |
| | | Unaudited | Audited | |
| | Notes | $'000 | $'000 | |
| NON CURRENT Assets |
|
| | |
| Exploration and evaluation assets | 5 | 266,488 | 257,228 | |
| Property, plant and equipment | | 21 | 29 | |
| CURRENT Assets | |
| | |
| Other receivables | | 936 | 1,241 | |
| Finance lease receivable | | - | 235 | |
| Restricted cash | | 494 | 529 | |
| Term deposits | | 7,006 | 4,501 | |
| Cash and cash equivalents | | 20,842 | 3,487 | |
| Total assets | | 295,787 | 267,250 | |
| CURRENT Liabilities |
|
| | |
| Other payables | | 15,115 | 7,716 | |
| Tax payable | 3 | 1,882 | - | |
| Derivative financial liabilities | | - | 450 | |
| Lease liability | | - | 246 | |
| NON-CURRENT Liabilities |
|
| | |
| Tax payable | 3 | - | - | |
| Provisions | | 19,862 | 20,121 | |
| Deferred tax liability | | 39,137 | 39,137 | |
| Total liabilities | | 75,996 | 67,130 | |
| Equity |
|
| | |
| Share capital | | 9,455 | 9,196 | |
| Share premium | | 12,585 | 10,181 | |
| Share based remuneration | | 2,149 | 2,109 | |
| Owns shares held in trust | | (1,320) | (1,320) | |
| Merger reserve | | 78,208 | 78,208 | |
| Foreign currency translation reserve | | (8,033) | (8,501) | |
| Special reserve | | 175,281 | 175,281 | |
| Retained losses | | (48,534) | (65,034) | |
| Attributable to the equity shareholders of the company | | 219,791 | 200,120 | |
| Total liabilities and equity | | 295,787 | 267,250 | |
These condensed consolidated interim financial statements were approved by the directors and authorised for issue on 25 September 2024 and are signed on their behalf by:
Samuel Moody
Chief Executive Officer
UNAUDITED CONDENSED CONSOLIDATED statement of changes in equity
for the six months ended 30 June 2024
|
|
|
|
|
|
| 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 2023 | 9,196 | 10,181 | 2,109 | (1,320) | 78,208 | (8,501) | 175,281 | (65,034) | 200,120 |
| Profit for the period | - | - | - | - | - | - | - | 16,500 | 16,500 |
| Other comprehensive profit for the year | - | - | - | - | - | 468 | - | - | 468 |
| Total comprehensive profit for the year |
- |
- |
- |
- |
- |
468 |
- |
16,500 |
16,968 |
| Shares issues (net of expenses) | 259 | 2,404 | - | - | - | - | - | - | 2,663 |
| Share based payments | - | - | 40 | - | - | - | - | - | 40 |
| Other transfers | - | - | - | - | - | - | - | - | - |
| Balance at 30 June 2024 | 9,455 | 12,585 | 2,149 | (1,320) | 78,208 | (8,033) | 175,281 | (48,534) | 219,791 |
for the six months ended 30 June 2023
|
|
|
|
|
|
| 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 2022 | 8,771 | 6,518 | 1,492 | (1,494) | 78,208 | (7,999) | 175,281 | (60,310) | 200,467 |
| Loss for the period | - | - | - | - | - | - | - | (2,608) | (2,608) |
| Other comprehensive loss for the year | - | - | - | - | - | (615) | - | - | (615) |
| Total comprehensive loss for the year |
- |
- |
- |
- |
- |
(615) |
- |
(2,608) |
(3,223) |
| Shares issues (net of expenses) | 32 | 252 | - | - | - | - | - | - | 284 |
| Share based payments | - | - | 570 | - | - | - | - | - | 570 |
| Other transfers | - | - | - | 174 | - | - | - | (174) | - |
| Balance at 30 June 2023 | 8,803 | 6,770 | 2,062 | (1,320) | 78,208 | (8,614) | 175,281 | (63,092) | 198,098 |
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 30 JUNE 2024
| | | Six months | Six months |
| | | Ended | Ended |
| | | 30 June | 30 June |
| | | 2024 | 2023 |
| | |
| |
| | | Unaudited | Unaudited |
| | Notes | $'000 | $'000 |
| Cash flows from operating activities | | | |
| Net profit/(loss) before tax | | 18,382 | (2,608) |
| Adjustments to reconcile net losses to cash: | | | |
| Depreciation | | 8 | 32 |
| Share based payment charge | | 40 | 70 |
| Finance expense | | 195 | 735 |
| Finance income | | - | (1) |
| Foreign exchange | | (111) | (637) |
| Operating cash flows before movements in working capital | | 18,514 | (2,409) |
| Changes in: | | | |
| Other receivables | | 267 | (103) |
| Payables | | (502) | (405) |
| Provisions | | - | (45) |
| Cashflow from operating activities | | 18,279 | (2,962) |
|
| | | |
| Cash Flows from investing activities | | | |
| Capitalised expenditure on exploration and evaluation assets | | (766) | (680) |
| Investing activities before movements in capital balances | | (766) | (680) |
| Changes in: | | | |
| Term deposits | | (2,532) | 3,478 |
| Cash flow from investing activities | | (3,298) | 2,798 |
|
| | | |
| Cash flows from financing activities | | | |
| Net proceeds of share placing and subscription | | - | - |
| Exercise of warrants | | 2,109 | 284 |
| Net lease payments | | (11) | (10) |
| Cash flow from financing activities | | 2,098 | 274 |
| | | | |
| Currency translation differences relating to cash and cash equivalents | | 276 | 28 |
| Net cash flow | | 17,079 | 110 |
| Cash and cash equivalents brought forward | | 3,487 | 1,059 |
| Cash and cash equivalents carried forward | | 20,842 | 1,197 |
Notes to the condensed CONSOLIDATED group financial statements
for the six months ended 30 June 2024
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 interests in the Falkland Islands and the Greater Mediterranean. The Company's registered office address is Warner House, 123 Castle Street, Salisbury, SP1 3TB.
The interim condensed consolidated financial statements for the six months ended 30 June 2024 were authorised for issue in accordance with a resolution of the directors on 25 September 2024.
1.2 Statement of compliance and basis of preparation
The interim condensed consolidated financial statements have been prepared in accordance with the measurement principles of UK adopted International Accounting Standards.
Accounting policies are consistent with those adopted in the last statutory financial statements of Rockhopper Exploration plc. The information as of 31 December 2023 has been extracted from the audited financial statements of Rockhopper Exploration plc for the year ended 31 December 2023. These interim condensed consolidated financial statements do not constitute statutory financial statements under the Companies Act 2006. The information for the year ended 31 December 2023 shown in this report does not constitute statutory accounts for that year as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor has reported on those accounts. Their report was unqualified, did include an emphasis of matter but did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
There has been no impact on the Group of any new standards, amendments or interpretations that have become effective in the period. The Group has not early adopted any new standards, amendments or interpretations.
1.3 Going concern
The Group has prepared the financial statements on the basis that it will continue to operate as a going concern. Given the receipt of funds from the Specialist Fund in relation to the Monetisation the Directors consider that there are no material uncertainties that may cast significant doubt over this assumption. They have formed a judgement that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, and not less than 12 months from the end of the reporting period.
1.4 Period end exchange rates
The period end rates of exchange actually used were:
| | 30 June 2024 | 30 June 2023 | 31 December 2023 |
| £ : US$ | 1.26 | 1.27 | 1.27 |
| € : US$ | 1.07 | 1.09 | 1.10 |
2 Other income and expenses
In August 2022, pursuant to an ICSID arbitration which commenced in 2017, Rockhopper was awarded approximately €190 million plus interest and costs following a unanimous decision by the ICSID appointed arbitral Tribunal that Italy had breached its obligations under the Energy Charter Treaty (the "Award").
Rockhopper submitted a letter to the Italian Republic in September 2022 formally requesting payment of €247 million, representing the Award amount plus accrued interest from 29 January 2016 to 23 August 2022 and costs. Interest was paused for four months following the date of the Award (being 23 August 2022) and is now accruing at EURIBOR + 4% which Rockhopper estimates at between €1.25 million and €1.5 million per calendar month. Interest compounds annually.
As announced, Italy requested that this Award be annulled in October 2022. When Italy applied for the Award to be annulled, a provisional Stay of Enforcement was automatically put in place by ICSID pursuant to the ICSID Convention and Arbitration Rules.
On 20 December 2023, Rockhopper announced its entry into a funded participation agreement (the "Agreement") with a regulated specialist fund with over US$4bn of investments under management that has experience in investing in legal assets (the "Specialist Fund") to monetise its Award.
In line with the terms of the Agreement, the Specialist Fund will make cash payments to Rockhopper in up to three tranches:
Having satisfied all precedent conditions on 21 June 2024, Rockhopper received €19 million of the €45 million Tranche 1 payment. As previously disclosed, Rockhopper entered into a litigation funding agreement in 2017 under which all costs relating to the Arbitration from commencement to the rendering of the Award were paid on its behalf by a separate specialist arbitration funder (the "Original Arbitration Funder"). That agreement entitles the Original Arbitration Funder to a proportion of any proceeds from the Award or any monetisation of the Award. The balance of €26 million has gone to Original Arbitration Funder in order to fully discharge the Company of all of its liabilities under the agreement with the Original Arbitration Funder.
The €19 million has been treated as other income and expenses, as whilst Rockhopper retains legal and beneficial ownership of the Award the substance of the transaction is a disposal of the Award.
No income was recognised in relation to the Tranche 2 and Tranche 3 payments as they are contingent upon future events. The terms of these Tranches are described below.
Tranche 2 - Additional contingent payment of €65 million upon a successful annulment outcome. Should the Award be partially annulled and the quantum reduced as a result, then Tranche 2 will be reduced such that the amounts under Tranche 1 and Tranche 2 shall be adjusted downward on a pro-rata basis. For example, if the quantum of the Award is reduced by 20%, then the amounts under Tranche 1 and Tranche 2 shall be reduced by 20%. For the avoidance of doubt, the amounts under Tranche 1 and Tranche 2 shall not reduce below €45m in any circumstance.
Tranche 3 - Potential payment of 20% on recovery of amounts in excess of 200% of the Specialist Fund's total investment including costs.
As previously disclosed, success fees of approximately €4 million are owed to Rockhopper's legal representatives if Rockhopper win the claim, meaning liability is established and Italy is required to pay more than a nominal sum in damages (either by way of award or settlement in an amount equal to or more than €25 million).
3 Tax payable
| | | Six months ended | Six months ended |
| | | 30 June | 31 December |
| | | 2024 | 2023 |
| | | $'000 | $'000 |
| | | Unaudited | Unaudited |
| Current tax payable | | 1,882 | - |
| Non current tax payable | | - | - |
| | | 1,882 | - |
Current tax payable relates to tax arising in the period on the Tranche 1 proceeds as disclosed in Note 2.
On the 8 April 2015, the Group agreed binding documentation ("Tax Settlement Deed") with FIG in relation to the tax arising from the Group's 2012 farm out. The Tax Settlement Deed confirms the quantum and deferment of the outstanding tax liability and is made under Extra Statutory Concession 16. The Tax Settlement Deed also states that the Group is entitled to make adjustment to the outstanding tax liability if and to the extent that the Commissioner is satisfied that any part of the Development Carry becomes irrecoverable.
In September 2022 the transaction enabling Harbour Energy plc to exit and Navitas to enter the NFB completed. Under the transaction the balance of Development Carry, approximately US$670 million, has become irrecoverable.
Due to the irrecoverable Development Carry in the Group's judgment no further amounts are due on the Group's 2012 farm-out. Given the highly material nature of this judgment professional advice has been sought to confirm that it is probable that the Group is entitled to adjust the outstanding tax liability for the Development Carry that has become irrecoverable. As such, in the prior year, the Group derecognised the tax liability to measure it at the most likely amount it will be settled for, US$nil. We understand that FIG still believe that the £59.6 million still to be due. We are currently engaged with FIG to resolve this matter.
Should it be proven that there is no entitlement to adjustment under the Tax Settlement Deed then the outstanding tax liability would be £59.6 million and still 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 NFB; or (iii) a change of control of Rockhopper Exploration plc. In this improbable instance Management believes the most likely timing of payment is in line with the first royalty payment. Based on correspondence with FIG, Management does not believe that the farmout constitutes a substantial disposal and therefore would not have accelerated the £59.6 million liability should it be shown to still be payable.
Separately we have submitted tax returns in relation to the farm out to Navitas that occurred immediately after their acquisition, from Harbour Energy plc of the company that holds the North Falkland's Basin licences. The consideration for this transaction was the provision of loan funding to the Group to cover the majority of its share of Sea Lion phase 1 related costs from transaction completion up to FID through a loan from Navitas with interest charged at 8% per annum (the "Pre-FID Loan"). 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 1 development costs (for any costs not met by third party debt financing). Whilst we continue to engage with FIG on the value of this consideration, we are confident that we have sufficient losses to ensure no tax liability will arise.
4 Basic and diluted loss per share
| | Six months | Six months |
| | ended | ended |
| | 30 June | 30 June |
| | 2024 | 2023 |
| | Number | Number |
| | Unaudited | Unaudited |
| Shares in issue brought forward | 620,229,436 | 586,485,319 |
| Shares issued |
| |
| - Issued | 20,349,328 | 2,532,064 |
| Shares in issue carried forward | 640,578,764 | 589,017,383 |
| |
| |
| Weighted average of Ordinary Shares | 644,485,599 | 593,539,285 |
| Shares held in Employee Benefit Trust | (1,304,500) | (1,304,500) |
| Weighted average number of Ordinary Shares for the purposes of basic earnings per share | 643,181,099 | 592,234,785 |
| Effects of |
| |
| Share options | 8,058,678 | n/a |
| Weighted average number of Ordinary Shares for the purposes of diluted earnings per share |
651,239,777 |
592,234,785 |
| |
| |
| $'000 | $'000 | $'000 |
| Net profit/(loss) after tax for purposes of basic and diluted earnings per share |
16,500 |
(2,608) |
| Earnings per share - cents |
| |
| Basic | 2.57 | (0.44) |
| Diluted | 2.53 | (0.44) |
Shares issued in the period all relate to the exercise of the warrants.
The weighted average number of Ordinary Shares takes into account those shares which are treated as own shares held in trust. As at the period end the Group had 1,304,500 Ordinary shares held in an Employee Benefit Trust which have been purchased to settle future exercises of options. It also takes into account those employee options ("LTIPs") which have vested and have a nil exercise cost as in substance these are similar to a vested ordinary share, and the entity will receive no further substantive consideration when the option is exercised. As at the period end the Group had 5,553,501 such LTIPs.
As the Group is reporting a loss in the prior period 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.
At the period end, the Group had the following unexercised options in issue.
| | | Six months |
| | | ended |
| | | 30 June |
| | | 2024 |
| | | Number |
| | | Unaudited |
| Vested: | |
|
| Long term incentive plan | | 5,553,501 |
| Share options | | 16,880,982 |
| | |
|
| Unvested: | |
|
| Share options | | 9,616,669 |
5 Intangible exploration and evaluation assets
During the period there were US$9.2 million (2023: US$2.0 million) of additions. These mainly relate to the Sea Lion Development as does the balance carried forward. The majority of these costs are covered through a loan from Navitas and are included in other payables.
At 30 June 2024, the Group reviewed its intangible exploration/appraisal assets for indicators of impairment, with no indicators of impairment being identified. No impairment tests were therefore performed.
Licences expire at the end of 2024. A license extension has been requested across all the licences. Whilst there is no guarantee this will be granted historically the Falkland Islands Government have been supportive and Management believe that an extension will be received.
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