Member Info for DeusExMachina

(cont)
ps Still puzzled by hydrants reference to Russia paying Italy's debts - they are actually quite different countries. In any case, I don't think Russia will be flush with cash for a very long time.

LTH will be familiar with most of these links and once again my thanks to Mogger for his research skills. One new announcement regarding K&S - Rockhopper’s lawyers in the OM case - who have just cause to be celebrating their own landmark award.

‘PARIS, April 4, 2022 – Global Arbitration Review has once again selected King & Spalding as the number one international arbitration practice worldwide in its “GAR 30” guide to the world’s leading international arbitration practices.

The ranking was unveiled at the 12th GAR Awards ceremony in Paris. Notably, King & Spalding eclipsed the field in the number of “bet-the-company” and large hearings, with 34 such hearings during the research period. Celebrating more than 130 years of service, King & Spalding is an international law firm that represents a broad array of clients, including half of the Fortune Global 100, with more than 1,200 lawyers in 23 offices in the United States, Europe, the Middle East and Asia’.

https://www.kslaw.com/news-and-insights/king-spalding-named-top-international-arbitration-practice-worldwide

Chambers & Ptns issue Global Ranking tables for all international lawyers. "The firm (K&S) is very experienced at arbitration proceedings. They do their best for the case and have very good relations with the client." Market commentators also note that "it is a very dense and strong firm with significant capacities to deal with massive cases."

Work highlights: Advised Rockhopper on a USD400 million ICSID arbitration against the Government of Italy under the ECT. The matter concerned the governments investments to develop Ombrina Mare, an offshore field containing hydrocarbons.

https://chambers.com/department/king-spalding-llp-international-arbitration-commercial-arbitration-uk-1:2717:11805:1:3635

I am encouraged that K&S chose the Ombrina Mare Arbitration as one of the two cases highlighted in their Chambers profile – out of their extensive portfolio of cases. As did Harbour Litigation – litigation funder for RKH’s ICSID claim – in their Commercial Arbitration brochure. Do not believe that either firm would have chosen to showcase Rockhopper unless they were very certain of a positive outcome.

https://harbourlitigationfunding.com/wp-content/uploads/2020/11/Harbour-Investment-Commercial-Treaty-Arbitration.pdf

Also, the Chambers report mentions a figure of $400m which is very similar to the $450m quoted by Charles River Associates who ‘testified on behalf of Italy in a $450 million ICSID arbitration brought on by Rockhopper Exploration’. Also, both are written in the past tense (‘’Advised’ and ‘Testified’) which suggests to me that this is a ‘done deal’ just awaiting final sign off.

https://www.crai.com/engagements/rockhopper-exploration-plc-rockhopper-italia-s-p-a-and-rockhopper-mediterranean-ltd-v-italian-republic-icsid-case-no-arb-17-14/

DEM

ps Still puzzled by hydrants reference to Russia paying Italy's debts - they are actually quite different c

"If RKH get even 20 million out of the Russian government they should be happy"

Astonished and amazed might be a better description!
No prizes for guessing this posters Point Of Origin.
DEM

Assuming RKH has won - which I do think is very likely – the most difficult part of the Award will be the Quantum. The OM costs to date - including purchase price, rig costs and subsequent decom. will be a known amount. Establishing a fair figure for lost profits is far more complex. I assume the calculation will be based on three elements - estimated future production, how long the well would be productive and what would be the average price of oil over the next N years. Future production and life of well should be reasonably easy to establish based on known reserves etc.

Average price of oil over the next 10-15 years is much more difficult. We know that the oil market is likely to be much 'tighter' in the future with little investment in new fields since 2016, a steady decline in production from existing wells and a Green Lobby growing daily in power and influence.

I have no idea what formulae the experts adopt for this type of calculation but would not be surprised if it is based on a rolling daily average price over the past couple of years or similar. If this is the case, consider the following. In April 2020 the price of Brent was below $25 and remained under $50 for most of that year. We may just be in a situation where every day that passes results in a 'cheap' day for oil from two years ago being replaced by a new norm day at $100+.

Italy may have agreed the deal in principle in 2019 when the oil prices were depressed and then been horrified at its dramatic recovery in 2021/22, which may account for the desperate attempt to derail the case on jurisdiction grounds in December. A calculation based on past prices is becoming increasingly expensive whilst an Award based on future prices will probably be even worse.

IMHO it is impossible to second guess precisely what is causing the 'latest' delay’. As previously discussed, it may well be due to the ‘third’ arbiter dragging his feet over writing his 'Minority Report'. A more nuanced explanation may be that ICSID – like many First Tier Supreme Courts - probably prefers all ‘Landmark’ decisions to be unanimous. Make no mistake – the OM Case is such a decision which will create case law precedent and be quoted in a host of future Energy Charter cases, many of which are waiting to be lodged.

ICSID will much prefer a rock solid unanimous decision on Ombrina Mare rather than an Award diluted by a lengthy Minority Report. (Just imagine if the Ten Commandments had a Minority Report from Satan). So, the delay may be due to ICSID trying to persuade the 'third' arbiter (nominated by RoI) to agree to the Award – perhaps along the lines of ‘if we agree to tweak the formulae to reduce the future lost profits element by X then will you sign off a total award of Y’.

Or to borrow a phrase from the American West of the 1820s – Horse Trading !
DEM

Morning LTT

I agree that NAV or RKH will probably not wish to bring in a third party until just before FID, when the 'big money' will be required and the SL proposition will have all its t's crossed & i's dotted etc. Pro tem, my understanding is that NAV are confident that they can raise funding through their own connections. With respect, I think your second para may perhaps 'slightly' understate how good the Navitas deal may turn out to be. Time will tell.

I will be very interested to see whether Navitas decide to participate in the expected placing by Rockhopper which several posters have speculated to be close. No problem if they don't, but I can think of several compelling reasons why it would make good sense for all parties. (For the avoidance of doubt - I clearly have no inside track on any of this - if I did, I would not be posting).

DEM

(cont.)
"Also, starting in February 2022, in addition to his positions as a director and as Deputy CEO General and in charge of business development, Mr. Wolf will focus on leading the development planning of the Sea project Lion. However, in the coming months Mr. Wolf is expected to relocate to the West Europe, for the purpose of continuing to fulfill its aforesaid role and to promote the development of the partnership's business and in particular for the purpose of leading the development planning of the Lion Sea project. Mr. Wolf's relocation to Western Europe is required for the promotion of the Lion Sea project since most of the suppliers and service providers, the financing bodies and the bodies involved in the development activities required to lead this project are in Western Europe".

The translation from the original Hebrew text is slightly 'garbled' (sorry) but it is quite clear that Navitas are taking the Sea Lion project very seriously indeed with one of their most senior and experienced Executive Directors now in charge:

Chanan Wolf serves as the Deputy CEO of the Navitas Petroleum partnership and his key responsibilities include business development and new ventures. Until January 2022, he managed, in addition to these positions, the activities of the partnership in Houston as CEO of the company's US subsidiary Navitas Petroleum Holdings LLC. Chanan brings his vast experience in international transactions and business development to the partnership’s executive management team. Prior to joining Navitas, Chanan was an independent consultant and held various positions at Ernst & Young including head of M&A and capital markets. During this period he sourced and managed many oil & gas related private and public transactions. Chanan started out his career at the Dutch Central Bank. Chanan holds Doctorates in both Economics and Accounting from the University of Amsterdam.

In Chanan's previous role heading up Navitas in the USA, I assume he was responsible for delivering the $1.8bn funding and successful FID for the massive Shenandoah Project in the Gulf.

https://www.navitaspet.com/executive-committee/?msclkid=b5884cf0a83311ecaa348b87a7170f47

The past couple of years with Brexit, Covid, Storms and now Ukraine reminds us of that famous quote by Lenin: “There are decades where nothing happens and there are weeks when decades happen". I think that after suffering a decade of enforced inactivity in the South Atlantic we may be entering our own period of a few weeks of action, thrills and excitement !

DEM

ps Assuming that Mr Wolf will be based in the UK - I wonder where his office will be ?

I agree with Secret Blueprint that Ombrina Mare - although likely to be in our favour - seems to be governed by a modern day version of Zeno's Paradox. Indeed, to mix my metaphors, if Samuel Beckett's play 'Waiting for Godot' was ever updated it would surely be renamed 'Waiting for Ombrina Mare' ! I rather suspect that the latest delay may be due to the dissenting Arbiter, assuming a 2:1 vote in our favour, exercising his right to submit a Minority Report - presumably in the form of a 500 page illuminated manuscript hand crafted by Italian monks.

Without positive news of an Award from ICSID, Sam will virtually be compelled to announce a 'planned prudent placing' to coincide, more or less, with an announcement regarding Navitas. It would seem to be the optimal moment to raise funds (say £10m ?) to cover any anticipated non-Sea Lion related costs ie anything that will not be covered by the two Pre and Post FID loan arrangements. Whilst it will clearly involve dilution this will hopefully be mitigated by SB's 'tide of exuberance' regarding Navitas. I assume that the anticipated c£45m RKH contribution to the SL Development Costs will be dealt with as a separate 'issue' much nearer to FID - perhaps via a more creative solution. OM will remain as a 'wild card bonus' for the future - as will any residual value in OM itself and Monte Grosso.

The last Rockhopper RNS confirmed that RKH, HBR and NAV are on course for a binding agreement by 31st March 2022, but please remember that neither the Gregorian nor the Julian calendars apply as RKH exists in its own unique time warp. We also know that Sam spent a productive 7-10 days in the FI, meeting with The Governor, Elected Representatives and also the new FIG CEO and senior team. It would be surprising if regulatory approval for the proposed Novation was not discussed. I am very confident that Navitas will commit to Sea Lion and my 'source' is the following announcement released by Navitas to the Tel Aviv Stock Exchange on Feb 1st 2022 and confirmed on March 10th.

The Feb 1st announcement comprised two docs. The first broadly mirrors the RKH RNS - but with some useful clarifications. The second doc contains a very detailed report of a Navitas Partners meeting to confirm the proposed Relocation Package agreed with Mr Chanan Wolf - who sits on the Navitas Executive Committee chaired by Gideon Tadmor. See next post:

DEM

Thanks Latics.
DEM

No.

DEM

I think pre2rcd is correct. The Harbour Energy advert in Penguin News on Feb 25 for a contractor to maintain the (Noble) Temporary Dock Facility – does seem to indicate that HBR, RKH, NAV and FIG have come to an agreement to keep the TDF - certainly for the next few months, maybe a lot longer.

No idea what compromise has been reached between HBR and RKH as regards decom costs – I think HBR probably wanted a clean break from the FI with no ‘legacy’ financial commitments, whereas RKH will no doubt be happy to see this potential bill delayed for a couple of years and/or perhaps shared with NAV.

It is quite possible that RKH & NAV may wish to use the TDF for Sea Lion related berthing etc if the new Stanley Port project is delayed. FIG itself may also need the TDF, as the old Port structure (FIPASS) will have to be removed before the new Port - which will occupy the same footprint - can be completed. This may result in a 'capability gap' of several months.

So, I regard the retention of the TDF as a 'good result'.

One final thought - whilst Argentina may not be ideal neighbours, thank God the Falklands are several thousand miles from Russia or China. In fact their very remoteness and isolation now makes them a compelling investment location IMHO.

DEM

“Disappointingly, poor stakeholder engagement combined with a weak EIS “ Do they mean PMO/RKH engagement with FIG ?

I'm sure you will be relieved to know that the answer to your question is - No.

All major construction projects require a bespoke Environmental Impact Statement (EIS). The Sea Lion Phase 1 Development EIS runs to 1,577 (!) pages and was praised for its extremely detailed coverage of all all relevant aspects. Seems like the New Port EIS prepared by BAM Nuttall was less comprehensive.

Nuttall were bought out in 2020 by the Dutch company Royal BAM Group, one of Europe’s largest construction companies, with a Mkt Cap of £7 billion, 20,000 employees and an excellent reputation.

I'm certain that the new FI Port contract went to BAM Nuttall because they are already implementing the massive five year Antarctic Infrastructure Modernisation (AIM) Programme on behalf of the British Government's 'Natural Environmental Research Centre (NERC)'. The contract covers providing new ports, docking facilities, buildings, air strips etc etc to several of the British Overseas Territories in the South Atlantic and in Antarctica. Value of contract is around £700m for infrastructure and for specialist vessels. The 15m video clip in this link is excellent
https://www.bamnuttall.co.uk/case-study/aimp/

So, I think that BAM Nuttall probably know how to compile an appropriate EIS for projects in environmentally sensitive areas. The opposition appears to be mostly coming from the Green Lobby and the concerns raised by the Planning Committee seem to relate to mostly minor detail – now overruled by ExCo.

Construction of the New Dock is vital for the economic future of the Falklands. FIPASS is around 40 years old and in dire need of replacement by a larger modern structure to service the important fishing industry, the growing Cruise market and for the planned hydrocarbon developments in the NFB.

Another box ticked !
DEM

"I have thought the same, why would anyone keep RKH on board, why not just take them out, however, RKH have been around a long time and Sam has the ear of FIG, so it would be silly to get rid of them IMHO, for now at least".

LTT - I think there are a couple of barriers to any opportunistic take over bid. As far as I am aware, the 'Tax Settlement Deed' is still in force and Rockhopper is obliged to maintain a minimum 20% interest in PL032 and not to make dividends or distributions. Any change of ownership in the company would trigger immediate payment of the tax - currently c£60m. In any case, even if RKH was bought out - FIG could still refuse to transfer the licences to the new owners.

See Note 7 to the 'Notes to the Condensed Consolidated Group Financial Statements for the Six Months ended 30 June 2021'

DEM

Commiserations on your rotten luck in losing money in so many of your equity investments - over £200,000 lost on SOU and £100,000 on ECHO, according to your posts. Really quite embarrassing as you have apparently been working in the O&G sector for over 25 years and currently work for a Super Major. Perhaps Premium Bonds or a Post Office savings account might be a more sensible home for your remaining savings ?

BTW In an earlier post you commented 'I work for an oil and gas super major and the top guys do not get anywhere near MH £500,000 per annum'. I think you will find that most of the 'top guys' in companies like Shell & Exxon are on seven figure salaries - perhaps you work for one of the state owned companies like Gazprom or Rosneft ?

Please clarify which 'Super Major' you work for and in what role, in order that we can derive the maximum benefit from your technical skills and know how ?

From Energy Voice:
It is understood that the decision to step down was Mr Kirk’s, and not pre-planned as part of the creation of Harbour.
Harbour Energy is not expected to replace Phil Kirk in his role.

DEM

Intriguing news this morning from Harbour - wonder if the FI decision had anything to do with Capt Kirk's departure?

Harbour Energy plc
Board Change
2 February 2022

Harbour Energy today announces that Phil Kirk has notified the Board of his intention to step down as Executive Director, President and CEO Europe, with effect from 28 February 2022.

Phil Kirk commented: "It has been an honour to be part of the Harbour Energy story and, as I depart to consider other business opportunities, I am very proud of what we have achieved. Harbour has a clear strategy and focus and, as a shareholder, I look forward to supporting its continued evolution and growth."

Linda Z. Cook, CEO of Harbour Energy, commented: "Phil has been instrumental in the building of Harbour Energy over the past years. I thank him for his dedication to the Company and the UK oil and gas sector and wish him well in his future endeavours."

R. Blair Thomas, Chairman of Harbour Energy, commented: "I have worked with Phil for over 18 years in multiple successful ventures including Harbour Energy, and have admired his entrepreneurial spirit and leadership. On behalf of the Board, I thank him for his many contributions to the Company and wish him all the best for the future."

Thanks for the compliment JPDM.
Much appreciated and valued !
Very good to hear from you once again.
Hope you are keeping well.
DEM

There are three existing port / quay facilities in the Falklands.
FIPASS - due to be removed and replaced with a new port (see next post).
TDF - due to be removed but probably not for 12-18m.
Mare Harbour – the military port which was upgraded and enlarged in 2018 (see next post).

So, whilst we wait for further news, a few background notes & photos which may be of interest. First, the two existing civilian structures.

Falklands Interim Port and Storage System (FIPASS)
FIPASS is a floating steel structure in Stanley Harbour consisting of six pontoon open deck or warehouse barge units and one Ro-Ro pontoon unit, which also serves to connect the barge units by way of steel modular causeway to the shore. The facility offers some 300 metres of berthing space and was constructed and installed by the UK Ministry of Defence in 1984 and was sold to the Falkland Islands Government in January 1988. Some idea of its size can be understood from the photos in the links.

https://www.atlink.co.fk/
https://www.thinkdefence.co.uk/2021/09/a-new-port-at-port-stanley/

Temporary Dock Facility (TDF) aka the ‘Noble Frontier Barge’
The TDF is approx. 250m East of FIPASS and the single barge & causeway is only approx 15% of the total size of FIPASS. It was installed by Trant Engineering at a cost of £4.5m and its dismantling and removal should not be a massive task. I recall that one of the RKH Directors commented that the total cost would be less than £1m and as Harbour will presumably still have to pay 60% of the cost, thanks SB for the reminder – RKH’s contribution could be around £400k.

In reply to one of my questions, Sam said at the Investors Day at Salisbury that he was in discussions with FIG to see if the barge could be dismantled and removed by BAM Nutall at the same time as they dismantle FIPASS in 2023.

In the meantime, for the next 12 months, the barge can still be used by any vessels involved with the Sea Lion development. In fact, as the barge is not in the way of the new port and provides useful extra cover whilst FIPASS is removed – FIG may be happy for it to remain in situ for 2-3 years until the new port is completed in 2024.

If the barge removal takes place after the Farm In is signed with Navitas – I assume the cost will be funded out of the Navitas interest free loan. So, whilst there may be one or two possible ‘worries’ about the Sea Lion project – the future cost of the barge removal is not one of them IMHO. In fact I would regard it as a useful Asset not a liability.

If you type ‘FIPASS Port Stanley’ into the search box of Google Earth Pro – you can zoom into both structures.

DEM

https://www.trant.co.uk/case-studies/international/temporary-dock-facility-falkland-islands

From discussions with Sam Moody and also other Directors since 2017, they have indicated that if the award is c$50m then the Harbour Litigation fee will be c.50%, if the award is c.$100m then the fee will be c. 40%. If the award is c.$150m then the fee will be 35% or less, reducing on a sliding scale. (Caveat: All figures are indicative only and may be more or less).

Rockhopper plc has 458m shares in issue. So every £4.58m net to Rockhopper should add 1p to the share price + whatever value the market places on Sea Lion.

The Harbour Litigation web site details how: ‘We can also purchase prospective claims, judgments or arbitral awards in exchange for an upfront payment. You can remain involved, in which case we can continue to make additional payments to you over time, but you can also withdraw entirely from the case if you prefer’.

Bottom line is providing Rockhopper win the case – it can be monetised at any time. However, RKH would doubtless prefer to stay the course as Harbour will require a large cut.

RKH is a UK listed company, currently debt free, probably with a Mkt Cap of £100m post Award, and a substantial holding in a 500m fully appraised oil field, hopefully to be farmed out to Navitas Petroleum. Surely a modest £10m Bank loan to cover various expected costs over the next year, secured against a £50m ICSID Award – should not be too big an ask.

Alternatively a 20% discounted RI would not be the end of the world.

Ombrina Mare will of course still be owned by Rockhopper and should have a value. It is possible that Prime Minister Mario Draghi may be more inclined to grant a new production licence - probably to an Italian O&G company (possibly Eni) – given the soaring cost of energy to Italian citizens and business.

Also in Italy, Rockhopper still has a 23% working interest in the Monte Grosso field – the operatorship was transferred to Eni in 2016. Monte Grosso has a prospective resource of 200 mmbbls and is claimed to be one of the largest remaining onshore prospects in Western Europe.

DEM

I have also heard the same thing from two separate sources.
When I spoke to his PA last week, she said he was due back - presumably in the office - tomorrow.
DEM

The 2022 Italian presidential election will be held in January 2022. The President of the Republic will be elected by a joint assembly of 1,009 voters composed of the Italian Parliament and regional representatives. The election process will start on 24 January 2022 with the First Ballot. Presumably a result by the end of the week ?

https://en.wikipedia.org/wiki/2022_Italian_presidential_election
Surprisingly, the process seems to be rather complicated - although I don't think any white smoke is involved !

DEM