RE: The day that £5 per share died for good (but also £0).7 Jan 2020 13:30
From RKH Investor Relations:
They have revised the existing arrangements to create a structure which the company believes will give the project the best chance of success whilst materially strengthening Rockhopper as it progresses through developmental phases. They are not exposed to cost overruns or delays under the new approach. In essence, they are giving up a certain amount of what you could call theoretical value from the prior arrangements in exchange for the benefit of reducing financial risk on overruns/delays and at the same time increasing the ultimate probability of sanction,through the introduction of a partner. It is a question of having a little less of something that is more likely to now take place. The company believes the arrival of Navitas helps unlock Sea Lion by bringing in additional technical and financial capability, simplifying the financial partner arrangements, and lowering risk for Rockhopper. All of these aspects put the company and indeed the project in a better place with more chance of seeing the development realised.
In the context of the previous arrangements, Licences PL032, PL04b and PL04c will now be aligned 40/30/30 (previously PL032 was 40/60 RKH/PMO and the two PL04 licences were 64/36 RKH/PMO). That removes any potential unitisation for Sea Lion and aligns the working interests of the JV group.
In terms of the carries, the previous situation was a $337m carry on Phase 1 with a $318m repayment in the form of a guarantee fee over a five year period, along with a capped loan carrying an interest rate of 15%. There was then a Phase2 carry at $337m.
Between now and sanction there was no carry and Rockhopper was paying 40% of all costs. Those costs have been and could well continue to be material.
Because the carry was fixed and the guarantee fee was fixed, Rockhopper was exposed to cost overruns and in addition the fixed nature of the guarantee fee meant that in the scenario where for any reason there was insufficient free cashflow to repay that fee, the Rockhopper balance sheet could have been put under material pressure post first oil. It is worth noting there is a material spend, mostly on drillex, post first oil.
As detailed in the press releases, all of the above arrangements will be replaced by the below:
•Rockhopper now fully funded from 1 Jan 2020 to 29 Feb 2020 via a carry from Premier and then from 1 March 2020 to project completion (estimated 9-12 months post first oil) via an uncapped interest free loan from Premier and Navitas.
•That means that in return for reducing Rockhopper’s working interest in both phases the company has transferred the financing and cost overrun risk from the start of this year until completion from Rockhopper to the JV partners.
•In addition, they have a new set of contingent payments to Rockhopper of up to $48m on Phase 2 and PL04a should that be developed in the future.
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