Proposed acquisition of 60 per cent. of Rockhopper Exploration plc's ("Rockhopper") licence interests in the Falkland Islands
Premier today announces that it has agreed to farm-in for 60 per cent. of Rockhopper's licence interests in the Falkland Islands, which includes the Sea Lion development (the "Acquisition"). The initial payment will be $231 million in cash plus an exploration carry of up to $48 million and, subject to field development plan approval, a development carry of up to $722 million. These will be funded from a combination of Premier's existing cash resources, facilities and cash flow from operations. Premier and Rockhopper have also agreed to pursue jointly exploration opportunities in the Falkland Islands and analogous plays in selected areas offshore Southern Africa.
Today, Premier has also released a Trading and Operations update, contained in a separate announcement.
· The Acquisition progresses Premier's strategy of growth through investment in high quality development projects
· The Acquisition leverages Premier's strong operatorship and FPSO development capabilities
· The Acquisition adds approximately 200 mmbbls of discovered 2C resources, together with risked prospective resources of 175 mmboe net to Premier
· The Sea Lion project is an excellent fit with Premier's existing development portfolio. Timing of the Sea Lion development expenditure coincides with Premier's increasing cash flow profile as current developments come on-stream
· Once on-stream, the Sea Lion development is expected to add 50 kbopd of production, net to Premier and significantly increase free cash flow
Commenting on today's announcement, Simon Lockett, Chief Executive, of Premier said:
"We are delighted to have reached this agreement with Rockhopper. Rockhopper has made excellent progress in commercialising the Sea Lion project which offers attractive returns and fits well with Premier's proven operating and development skills. This transaction extends our strong growth profile beyond 2015 and offers both exploration and development upside for our shareholders. We look forward to working closely with Rockhopper and the Falkland Island Government on this very exciting project."
A presentation by Premier management will be webcast today at 9am at www.premier-oil.com
Premier Oil plc Tel: 020 7730 1111
Pelham Bell Pottinger
Gavin Davis Tel: 020 7861 3159/07910 104 660
Henry Lerwill Tel: 020 7861 3169/07894 608 607
Rockhopper is an AIM-quoted company with a market capitalisation of approximately $1.2 billion. Rockhopper owns a number of licences in the Falkland Islands on which it has performed exploration and appraisal activity. Rockhopper drilled the Sea Lion discovery well in April 2010 and went on to drill 9 further wells of which 6 discovered hydrocarbons. Having successfully appraised these discoveries Rockhopper has been seeking a "farm-in" partner for Sea Lion and other developments to bring these resources to commercial production.
Principal terms of the Transaction
Premier has entered into an agreement to acquire 60 per cent. and operatorship of Rockhopper's acreage in the Falkland Islands, which includes the Sea Lion, Casper and Casper South development projects. In return for acquiring 60 per cent. of Rockhopper's current interests, Premier will
· Pay an initial cash sum of $231 million recognising past costs incurred by Rockhopper
· Fund up to $48 million of Rockhopper's share of three exploration wells
· Fund up to $722 million of Rockhopper's development expenditures, subject to approval of the field development plan
In addition, Premier will make available a standby financing facility. In the event that Rockhopper chooses to draw down on this facility, Premier will take an enhanced share of entitlement production and cash flows from the Sea Lion and related fields. The enhanced share will continue until Premier has realised a 15 per cent. post tax internal rate of return (IRR) on its investment (defined as its working interest share of capital expenditure plus the amount of the drawn standby financing facility). Thereafter, cash flows will be shared pro-rata to equity interests. If costs exceed the approved development project budget by more than 10 per cent., the entitlement production share due to Premier will be adjusted to deliver a reduced 12 per cent. IRR on incremental funds drawn by Rockhopper from the standby financing facility to fund the project overrun costs.
Funding of the acquisition
Premier will fund the initial consideration and exploration carry from its existing cash resources. Premier expects to fund the development capital expenditures fully, post approval of the project, from a combination of existing facilities and cash flow from existing operations. Post completion of the acquisition, Premier's balance sheet remains robust with an estimated $1 billion of unused facilities. Premier's announced intention to commence an appropriate dividend payment along with its 2012 results remains unchanged.
The proposed acquisition is expected to complete in September after customary closing conditions (including Falkland Island Government approvals).
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