Farm-down - tax9 Jan 2020 04:00
Up late and trying to get my head around all of this. In my mind the overall feeling surrounding the farm-out is relief—the prospect of Premier dragging this out, and watching Rockhopper run out of money in the meantime, is gone (assuming of course the farm-out goes ahead). But equally I cannot escape the unavoidable conclusion that this is less a farm-out and more a capitulation—to finally get this thing over the line, Rockhopper have forgiven a whopping $674m in carry finance from Premier (of which more later) and reduced their stake from 40-64% to 30%. There will not be the $15m/quarter guarantee fee that Premier we’re planning to charge, BUT that was actually only introduced in 2016 or so as another sweetner to Premier to move forward the project.
And, on that matter, I’m not impressed with the misleading info being given by the company. The presentation says all the development carry will be covered by an interest-free loan. Not really true, as far as I can tell. According to the press release, only any funding not covered by the senior debt will be covered by the interest-free loan. Rockhopper will assumingly be paying interest on everything else (though I’m checking this with the company). And securing an interest-free loan is not especially impressive either given what was on offer before--go on youtube and you can see Sam moody talking about how the remaining finance not provided by the senior lenders (and contractors) will be covered by Premier in equity (or cash, to use the parlance). Infinitely preferable than debt, we can all agree.
Yet despite this long long list of negatives (and there’s more), like I said, I’m still relieved at the arrival of a new partner. But what will FIG make of all this?? It’s been briefly touched on today, but the tax implications are awful for FIG. Currently it is owed around £60m in tax by Rockhopper in relation to the development carry. More than £20,000 per man, woman and child on the islands. But what of this liability, now that Rockhopper have given up the carry? Is it forgiven?Or will Rockhopper end up paying a massive amount of tax on money they never received? It’s a pretty damned big issue either way.
A final thought: as shareholders, i think it’s time we acted. The board have made the most appalling mess of monetizing this asset, have burnt through some $300m (and a $48m carry) over the past 8 years, and all we have to show for it is a reduced share of Sea Lion, diluted holdings and disengenuous public statements. It is imperative that the CEO is removed at the earliest opportunity, and someone who is both more capable and credible take the helm. As is obvious from the past 8 years, he cannot successfully spend or save money, nor successfully conduct M&A. If or when Rockhopper become a company with serious cash flows, his failures will only be magnified the greater, jeopardizing any share price recovery that we have waited for so long. It’s time for new blood....
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