Rockhopper Exploration plc
Hilltop Park
Devizes Road
Salisbury
SP3 4UF
Telephone +44 (0)1722 414 419
Mediterranean office:
Via Cornelia, 498
00166 Roma
Italia
Telephone +39 06 62290270
info@rockhopperexploration.co.uk
www.rockhopperexploration.co.uk
@RockhopperExplo
Company Reg. No. 05250250
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Building a well-funded,
full-cycle, exploration
led E&P company
Report and Accounts
for the year ended 31 December 2015
Shareholder information
Glossary
AGM
bbl
bcf
Board
boe
boepd
BOP
bopd
Capex
Company
E&P
EIS
ESA
ExCo
Farm-in
Farm-out
FDP
FEED
FID
FIG
FOGL
FPSO
G&A
Group
GSA
HoA
HSE
IAS
IFRS
JV
kboepd
kbopd
KPI
LoI
LTI
LTIP
MOG
mmbbls
mmboe
mmscfd
mscf
mt
NAV
Premier
PSA
PSC
scm
SIP
spud
STOIIP
TSR
2C
2P
$/US$
WI
Annual General Meeting
barrel
billion cubic feet
the Board of Directors of Rockhopper Exploration plc
barrel(s) of oil equivalent
barrel(s) of oil equivalent per day
blow out preventer
barrel(s) of oil per day
capital expenditure
Rockhopper Exploration PLC
exploration and production
Environmental Impact Statement
Exploration Study Agreement
Executive Committee
to acquire an interest in a licence from another party
to assign an interest in a licence to another party
field development plan
front end engineering and design
Final Investment Decision
Falkland Islands Government
Falkland Oil & Gas Limited
floating production, storage and offtake vessel
General & Administration expenses
The Company and its sunsidiaries
Gas Sales Agreement
Heads of Agreement
health, safety and environment
International Accounting Standard
International Financial Reporting Standard
Joint Venture
thousand barrels of oil equivalent per day
thousand barrels of oil per day
key performance indicator
Letter of Intent
Lost Time Incident
Long Term Incentive Plan
Mediterranean Oil & Gas plc
million barrels
million barrels of oil equivalent
million standard cubic feet per day
thousand standard cubic feet
metric tonne
net asset value
Premier Oil plc
Production Sharing Agreement
Production Sharing Contract
standard cubic metre
Share Incentive Plan
to commence drilling a well
stock-tank oil initially in place
total shareholder return
best estimate of contingent resources
proven plus probable
United States dollar
working interest
Key contacts
Registered address
and head office:
Hilltop Park
Devizes Road
Salisbury
Wiltshire
SP3 4UF
Mediterranean office:
Via Cornelia, 498
00166 Roma
Italia
Solicitors
Ashurst LLP
Broadwalk House
5 Appold Street
London
EC2A 2DA
Principal Bankers
Royal Bank of Scotland plc
36 St Andrew Square
Edinburgh
EH2 2YB
Nomad and joint broker
Canaccord Genuity Limited
88 Wood Street
London
EC2V 7QR
Auditor
KPMG LLP
15 Canada Square
London
E14 5GL
Registrar
Computershare Investor
Services plc
Vintners Place
68 Upper Thames Street
London
EC4V 3BJ
Joint broker
Liberum Capital Limited
Ropemaker Place, Level 12
25 Ropemaker Street
London
EC2Y 9LY
Joint broker
Merrill Lynch International
2 King Edward Street
London
EC1A 1HQ
Concerns and procedures
General emails
info@rockhopperexploration.co.uk
Audit committee emails
rkh@rockhopperexploration.co.uk
Website
www.rockhopperexploration.co.uk
Shareholder concerns:
Should shareholders have concerns which have not been
adequately addressed by the chairman or chief executive,
please contact the chairman of the audit committee at:
rkh@rockhopperexploration.co.uk
Whistle-blowing procedures:
Should employees, consultants, contractors or other
interested parties have concerns which have not been
adequately addressed by the chairman or chief executive,
please contact the chairman of the audit committee at:
rkh@rockhopperexploration.co.uk
Designed and produced by JacksonBone Limited.
Printed in England by Synergy Group.
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
89
Rockhopper Exploration plc (AIM: RKH)
is an oil and gas exploration and production
company with key interests in the North Falkland
Basin and the Greater Mediterranean region.
Strategic Report
2015 highlights
STRATEGIC REPORT
2
3 Rockhopper – the story so far
4 Rockhopper at a glance
6 Objective, strategy and business model
8 Chairman and Chief Executive Officer’s Review
10 Key Performance Indicators (KPIs)
11 Market overview
12 Chief Operating Officer’s Review
18 Chief Financial Officer’s Review
21
22 Principal risks and uncertainties
24 Health, Safety, Environmental and Social Management
Internal controls and risk management
GOVERNANCE
26 Chairman’s Governance Report
28 Board of Directors
30 Corporate Governance Statement
33 Remuneration Report
46 Statutory information
48
Independent auditor’s report to the
members of Rockhopper Exploration plc
ACCOUNTS
Group company financial statements
49 Group income statement
49 Group statement of comprehensive income
50 Group balance sheet
51 Group statement of changes in equity
52 Group cash flow statement
53 Notes to the group financial statements
Parent company financial statements
76 Company balance sheet
77 Company statement of changes in equity
78 Company cash flow statement
79 Notes to the company financial statements
88 Key licence interests as at 1 April 2016
89 Shareholder information
Rockhopper Exploration plc
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
Report & Accounts for the year ended 31 December 2015
1
1
Strategic Report
2015 highlights
> Significant progress in advancing the Sea Lion development
≥ Pre-FEED work for Phase 1 completed
≥ FEED contracts awarded to a set of world class contractors
≥ Modified project scope and cost improvements have enhanced project
economics and lowered break-even oil price
≥ Draft Field Development Plan submitted to the Falkland Islands Government
> Material exploration successes at Zebedee and Isobel Deep
> All-share merger with Falkland Oil & Gas Limited (completed post the year end)
≥ Consolidates Rockhopper’s leading North Falkland Basin acreage position
> Significant production increase achieved in Greater Mediterranean portfolio
≥ Exit 2015 production rate in excess of 700 boepd
≥ Completion of Guendalina side track
≥ First gas achieved at Rockhopper operated Civita field
> Confirmation of Falkland Islands tax deferment
> Balance sheet strength maintained with cash resources
at 31 December 2015 of US$110 million
2
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
Rockhopper – the story so far
Q1 2016
2015
Sea Lion enters FEED
Sea Lion project enters FEED with set of world-
class contractors.
Rockhopper completes merger with Falkland Oil
& Gas following shareholder approval from both
Rockhopper and FOGL shareholders.
2014
2013
Acquisition of MOG
In May, Rockhopper announced a recommended
cash and share offer to acquire AIM listed
Mediterranean Oil & Gas plc. The transaction
completed in August. Through the acquisition
Rockhopper acquired a 2P/2C resource base of
32.5 million barrels of oil equivalent and a portfolio
of production, development, appraisal and
exploration interests in Italy, Malta and France.
In November, and in response to a significant
reduction in the global price for oil, Rockhopper
and Premier announce a lower cost, phased
development concept for Sea Lion.
2012
2011
Farm-Out
In July, Rockhopper announced it had entered
into a farm-out agreement with Premier Oil
plc (“Premier”), whereby Premier acquired a
60% operated interest in Rockhopper’s North
Falkland Basin licences for undiscounted
consideration of c.$1bn (comprising cash,
development carry and exploration carry).
In recognition of Rockhopper’s unrivalled
understanding of the North Falkland Basin,
it was agreed that Rockhopper would retain
the sub-surface lead in relation to future
exploration activities.
Strategic Report
NFB exploration campaign commences
In March, the Eirik Raude rig arrives in the
North Falkland Basin to commence a multi-
well drilling campaign. Exploration successes
at Zebedee and Isobel Deep with multiple oil
discoveries made.
In November, Rockhopper announced the terms
of its all-share merger with Falkland Oil & Gas.
Through the merger with FOGL, Rockhopper
consolidates its leading acreage and resource
position in the North Falkland Basin.
Consolidates interests in NFB acreage
Rockhopper consolidates its interests
in the Falklands through the farm-in to
acreage held by Desire Petroleum. As a
result, Rockhopper increases its interests in
licences PL004a, PL004b and PL004c to 24%.
Sea Lion Appraisal
Following the successful flow test in late 2010
a further eight exploration and appraisal
wells were drilled by Rockhopper across
the complex, six of those being discoveries.
In addition, Rockhopper participated
in a further five non-operated wells.
2010
Pre-2010
Sea Lion Discovery
In February, the Ocean Guardian drilling rig
arrived in Falklands waters to carry out a
multi-well programme on behalf of multiple
operators. In the spring, Rockhopper (as
operator) drilled its first exploration well on
the Sea Lion prospect which resulted in an oil
discovery. The well was successfully flow tested
in September.
Founded in 2004
Rockhopper was founded in 2004 to undertake
an offshore oil exploration programme in the
North Falkland Basin. The Company floated on
AIM in August 2005.
A 3D seismic survey was acquired and
processed during 2007 with interpretation
completed in August 2008.
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
3
Strategic Report
Rockhopper at a glance
Falkland Islands
NORTH FALKLAND BASIN
SEA LION
Falkland Islands
Rockhopper Exploration plc
(AIM: RKH) is an oil and gas
exploration and production
company with key interests
in the North Falkland
Basin and the Greater
Mediterranean region.
STANLEY
SOUTH & EAST
FALKLAND BASIN
0
100
Kilometers
Head Office
London and
Salisbury, UK
Regional Office
Rome, Italy
Falkland Islands
Sea Lion phase 1 (PL032)
≥ 40% working interest
≥ 220 mmbbls gross*
Sea Lion phase 2 (PL032/PL004)
≥ 40-64% working interest†
≥ 300 mmbbls gross*
88 mmbbls net to Rockhopper*
120-192 mmbbls net to Rockhopper*
≥ Targeting FID in mid 2017
≥ First oil anticipated 2020
Phase 3 – Isobel-Elaine (PL004)
≥ 64% working interest
≥ Isobel-Elaine
Complex significantly
de-risked during recent
NFB exploration campaign
* Operator’s estimate
†
Sea Lion phase 2 straddles licences PL032 in which
Rockhopper holds a 40% interest and PL004 in
which Rockhopper holds a 64% interest.
4
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
Strategic Report
Greater Mediterranean
Guendalina
AC 19PI
I
I
T
T
A
A
L
L
Y
Y
AR 81FR
AC 35AG
C
C
R
R
O
O
A
A
Block 9
T
T
I
I
A
A
BOSNIA AND
HERZEGOVINA
BLOCK 9
Ombrina Mare
Civita
Civita
Aglavizza
Ombrina
Mare
Scanzano
Monte
Grosso
Area 3
Oil & gas discovery
Exploration
Production
0
100
Kilometers
Malta
Area 3
≥ 40% working interest
≥ Exploration Study Agreement
extended to end of 2016
Croatia
Block 9
≥ 40% working interest
≥ Signature of PSA expected
during 2016
Italy
Guendalina
≥ 20% working interest
≥ Northern Adriatic production
Ombrina Mare
≥ 100% working interest
≥ Central Adriatic appraisal
Civita
≥ 100% working interest
≥ Onshore gas production
Monte Grosso
≥ 23% working interest
≥ Exploration stage
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
5
Strategic Report
Objective
Building a well-funded, full cycle, exploration led E&P company
Strategy
> Balanced portfolio in core geographical areas
> Maintaining balance sheet strength
> North Falkland Basin (“NFB”)
and Mediterranean & North Africa
> Strong balance sheet – end 2015
cash $110 million
> Building a balanced portfolio across
> Fully funded through Phase 1
the asset life cycle
of Sea Lion via Development Carry
and Standby Loan from Premier
> Estimated revenue of $8-10 million in 2016
> Opportunistically seeking to add low-cost,
low- commitment production and cash flow
Business model
Exploration
≥ High impact multi-well exploration programme successfully executed in North Falkland Basin
≥ > 60 mmbbl discovery at Zebedee
≥ Isobel Deep and Isobel-Elaine re-drill well significantly de-risked potential 500 mmbbl complex
6
Report & Accounts for the year ended 31 December 2015
Strategic Report
> Value accretive exploration
> Leveraging technical skill set
> Focus on proven hydrocarbon basins
> NFB emerging as world class resource
with billion barrel potential
> Exploration opportunities progressing
in Italy, Malta and Croatia
Target
value
accretive
exploration
Maintaining
balance sheet
strength
Creating
value
Balanced
portfolio in core
geographical
areas
Development
≥ Sea Lion project enters FEED with
set of world-class contractors
≥ Draft Field Development Plan
submitted to FIG
≥ First gas achieved at Rockhopper
operated Civita field in Italy
Production
≥ Material production and
revenue increase during
2015 as a result of
Guendalina side track
and first gas at Civita
≥ 2015 exit production in
excess of 700 boepd
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
7
Strategic Report
Chairman and Chief Executive Officer’s Review
Left: Pierre Jungels
Right: Samuel Moody
Chairman’s introduction
2015 has been transformational for your Company –
this year we have consolidated our leading position in
the North Falkland Basin; made a number of material
oil discoveries in the Falklands and progressed the
Sea Lion project into FEED.
Since its foundation in 2004, Rockhopper has evolved
from a fledgling oil explorer to a leading UK listed
independent oil and gas exploration company having
discovered what we believe will likely become over a
billion barrels of recoverable oil in the North Falkland
Basin. With the Company having made such significant
achievements in that period and having seen such
success in the recent drilling programme, it now seems
appropriate to announce my intention to retire from
the Board following the Company’s forthcoming AGM
on 17 May. It has been an immense privilege to serve
as Chairman of your Company over the last 11 years,
originally as Executive Chairman and then, since 2010,
as Non-executive Chairman.
I am delighted that David McManus will succeed me
as Non-executive Chairman. David brings with him
significant oil industry experience and, as a shareholder,
I am confident that David will prove to be an excellent
leader for your Board as Rockhopper continues to
succeed and thrive. He provides superb continuity
having been a non-executive director of your company
for almost six years already.
Combination with Falkland Oil & Gas
consolidates Rockhopper’s leading position
in the North Falkland Basin
Your Board believes the combination of Rockhopper and
Falkland Oil & Gas Limited (“FOGL”), completed in January
2016, will create significant value for shareholders and
allow Rockhopper to have materially more strategic
influence over the future pace and direction of oil and
gas development in the North Falkland Basin.
As a result of the combination, Rockhopper is now the
largest North Falkland Basin licence and discovered
resource holder with a material working interest in
all key North Falkland Basin licences. Our enhanced
interests provide us with a more strategic position in
future farm-out discussions as well as providing us
with a materially greater exposure to the upside in
licence PL004, including the Isobel/Elaine complex
which was significantly de-risked during the 2015/16
exploration campaign.
Our North Falkland Basin exploration campaign
has resulted in significant exploration successes
at Zebedee and Isobel Deep
The Zebedee well has added at least 60 million barrels
of recoverable oil to a Phase 2 development. The Isobel
Deep well, which was the first test of the Isobel/Elaine
fan complex, encountered oil-bearing sandstone at
prognosed depth and opened up a new play in the
previously underexplored southern part of licence PL004.
The Isobel Deep prospect was re-drilled later in the
campaign through the Isobel-Elaine well, which confirmed
the results of the Isobel Deep exploration well and in
addition discovered hydrocarbons in various shallower
sandstones. The results of the Isobel-Elaine well, which
did not penetrate an Oil Water Contact within any of the
sands, indicate that the total oil column established by this
well is likely to be in excess of 480 metres.
Unfortunately, due to material operational issues
experienced with the drilling rig, the rig contract was
terminated in February 2016. As a result, the last well
of the proposed campaign, the Chatham well, was not
drilled in the campaign, though it will likely be drilled as
part of a development drilling programme relating to
the Sea Lion project. Nonetheless, the highly successful
well results achieved during the campaign support
Rockhopper’s view that the North Falkland Basin
has the potential to deliver multiple future phases of
development and a billion barrels of recoverable oil.
8
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
Strategic Report
Sea Lion project progresses to FEED
Significant progress has been made to mature the
development planning for the first phase of Sea
Lion. Pre-FEED work was completed in late 2015
and FEED contracts were awarded to a set of world-
class contractors in early 2016. Technical and cost
improvements and efficiencies have been identified
to enhance significantly the project economics
and lower the break-even oil price. A draft Field
Development Plan has been prepared and submitted
to the Falkland Islands Government.
Revised commercial terms with Premier Oil were
documented in line with the Heads of Agreement
announced in November 2014. As a result, the
joint venture partners now enjoy greater economic
alignment to allow the project to progress.
Under the revised terms, Rockhopper will now access
the full US$48 million Exploration Carry for the
2015/16 campaign with the remaining Development
Carry of US$674 million split equally between Phase
1 (US$337 million) and the balance (US$337 million)
deferred to the subsequent phase of development.
Standby Finance arrangements have been simplified
to a more traditional loan structure of up to
US$750 million. In addition, Rockhopper will pay a
Guarantee Fee to Premier for the provision of parent
company guarantees, as required by contractors,
on Rockhopper’s behalf.
Production growth in the Greater Mediterranean
In our Mediterranean portfolio, whilst we were
disappointed with the recent legislative changes in
Italy, which have hampered our ability to progress
the Ombrina Mare project, we have seen significant
production growth at the Guendalina gas field and
achieved first gas from the Rockhopper operated Civita
gas field. Our interests in Guendalina and Civita are
together estimated to generate gross revenues in the
order of US$8-10 million in 2016 (based on current
gas price, foreign exchange rate and production
projections).
Corporate matters
As a result of the merger with FOGL, we are delighted that
John Martin and Tim Bushell, previously Chairman and
CEO respectively of FOGL, have joined the Rockhopper
board as non-executive directors, effective 18 January 2016.
Your board has previously articulated the ambition to
move Rockhopper to a Premium Listing on the Main
Market of the London Stock Exchange in due course
and discussions with the UK Listing Authority (“UKLA”)
on this matter have been progressed. However, with
the Company’s significant focus on the North Falkland
Basin, it appears unlikely that Rockhopper will meet
the strict criteria required to move to the Premium
List during 2016. Specifically, given our material but
non-operated interest in Sea Lion, Rockhopper is
unable to demonstrate to the satisfaction of the UKLA
a controlling interest in the majority of its assets.
Likewise, our Mediterranean portfolio is seen by the
UKLA as insufficient in scale (relative to our interests in
Sea Lion) to meet the strict spread of assets test. Whilst
a Standard Listing on the Main Market could be pursued
at this time, the Board does not believe that this would
achieve the longer-term benefits being sought. As
circumstances change, the Company will re-engage
with the UKLA regarding eligibility for a Premium
Listing and the Board will re-consider the matter as
appropriate. Our commitment to the highest standards
of corporate governance remains firmly in place.
Outlook
The FEED process for Sea Lion is anticipated to take
approximately 15 months to complete and we expect
further cost reduction opportunities to be pursued
during that time as we move towards a project
sanction decision point in mid-2017. While the spot
price for Brent Crude is around US$40 per barrel
today, the most important factors when considering
the investment economics for large-scale offshore
projects such as Sea Lion, are the long-term oil price
outlook and the cost reductions that can be achieved.
Premier Oil has confirmed its intention to seek an
additional partner ahead of taking project sanction and
Rockhopper will support Premier Oil in this initiative.
Our Greater Mediterranean business has seen a step-
change in production having achieved an exit rate for
2015 of over 700 barrels of oil equivalent per day. We
will continue to pursue opportunities which add low-
cost, value-accretive production to our portfolio whilst
preserving our strong balance sheet.
Dr Pierre Jungels cbe
Chairman
Samuel Moody
Chief Executive Officer
12 April 2016
Retirement of Pierre Jungels
I would like to pay tribute to Pierre, who is standing down at this year’s AGM
having been with Rockhopper for over ten years. Pierre has been an immense
help to all of us and in particular to me personally as we have grown the
company from an idea in 2004 into the full cycle E&P business it is today.
Pierre’s appointment brought genuine industry gravitas to Rockhopper when
it was in its infancy, and under his leadership the company has achieved
many milestones, from its early days when we obtained the old Shell acreage
through the transformational discovery of Sea Lion, and onto the subsequent
successful drilling programmes we undertook.
On Pierre’s watch we have also been active deal doers both in the Falklands
and other regions, with the acquisitions of both MOG and FOGL bringing
additional depth to our resources and significantly our first production. These
achievements are a great reflection on Pierre, who helped set so much of our
direction of travel over the last decade. The greatest compliment I can pay
Pierre is that he leaves us in fantastic shape as a company and we wish him
all the best for his future endeavours.
Sam Moody
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
9
Strategic Report
Key Performance Indicators (KPIs)
KPIs provide a guide of management ability to successfully deliver
against pre-defined strategic objectives.
KPIs for the period ended 31 December 2015 were based around certain short-term targets
designed to ensure the Company achieves its long-term strategy.
For the year ending 31 December 2016, KPIs have again been set based on short-term targets
designed to ensure the Company achieves its long-term strategy.
Definition
Performance
Attainment
Completion of a safe and successful
exploration campaign in the North Falkland
Basin.
Oil discoveries were made in each of the
three wells drilled during the North
Falkland Basin exploration campaign and
the Isobel-Elaine complex was significantly
de-risked.
There have been no HSE incidents.
Fully achieved
Achievement of specific milestones for the
Final Investment Decision on the Sea Lion
Development.
Pre-FEED work completed. Project entered
FEED with a set of world class contractors.
Draft Field Development Plan prepared and
submitted to the FIG.
Fully achieved
New venture activity to enhance the
Company’s portfolio of assets in its strategic
areas of interest.
All share merger with Falkland Oil & Gas
Limited enhanced and consolidated
Rockhopper’s leading position in the
North Falkland Basin.
Partially achieved
2015
KPI #1
KPI #2
KPI #3
KPI #4
Progressing funding alternatives for the
uncarried Sea Lion development costs.
Material reduction in capital costs per barrel
achieved through the pre-FEED work. Further
capital cost per barrel reductions expected.
Preliminary discussions initiated with a range
of commercial banks to test appetite to lend to
the Sea Lion project.
Partially achieved
2016
KPI #1
KPI #2
KPI #3
KPI #4
Definition
Bringing an additional paying partner into the Sea Lion Development Project.
Completion of a Competent Person’s Report that meets specific objectives set by the Board.
Achievement of production related targets.
Achievement of specific milestones for the Final Investment Decision for the Sea Lion Development.
10
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
Strategic Report
Market overview
A summary of the global oil and gas market
Economic overview
≥ Dramatic decline in crude oil prices
≥ Chinese growth continues to cool
≥ Eurozone instability
≥ Moderate growth in the US
Equity markets
≥ Strong equity market performance across
most major indices January to May 2015
≥ Significant correction mid year due to increasing
concerns around the Chinese economy
≥ Investor sentiment for the oil and gas sector
remained muted through the year given
commodity price declines
Oil price
≥ Continued decline in crude oil prices throughout
the year from US$55 per barrel in January 2015
to around US$37 per barrel in December 2015
≥ Driven by oversupply concerns and demand
uncertainty
≥ Oil prices fell further in early January 2016 to
below US$30 per barrel, recovering somewhat
to US$40 per barrel in late March 2016
≥ “Lower for longer” new industry mantra
Industry costs
≥ Reduction in industry costs in line with fall
in commodity prices (with a time lag)
≥ Driven by capital expenditure reductions, project
deferrals and increasing competition between
contractors and suppliers
≥ Further weakness in industry cost structure
expected through 2016
M&A
≥ Weak merger and acquisition market generally
≥ Disconnect between buyers’ and sellers’ oil price
outlook given recent volatility
≥ Corporate transactions dominated by Shell’s
acquisition of BG and Repsol’s acquisition of Talisman
≥ Industry farm-out market limited to select
geographic “hot spots”
≥ Increasing number of financially distressed
situations as oil price weakness persists
Market trends over time
Brent Oil price (monthly average)
IHS CERA Cost Indices
120
100
80
60
40
)
l
b
b
r
e
p
$
S
U
(
t
n
e
r
B
Brent
Brent Futures
250
200
150
100
Capital costs
Operating costs
4
1
r
a
M
5
1
r
a
M
6
1
r
a
M
7
1
r
a
M
8
1
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9
1
r
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0
2
r
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1
2
r
a
M
0
0
0
2
5
0
0
2
0
1
0
2
5
1
0
2
Source: Bloomberg
Source: IHS CERA
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
11
Strategic Report
Chief Operating Officer’s Review
“ Rockhopper is immensely
proud of the results of the
exploration campaign and we
look forward to incorporating
the results of these wells into
our regional data set”
Fiona MacAulay
Following completion of Rockhopper’s merger with
FOGL, Rockhopper is the largest North Falkland
Basin licence holder with a material working
interest in all key licences as well as operatorship
of PL003a, PL003b and PL005.
Sea Lion development significantly de-risked
In January 2016, we were delighted to announce that
the Sea Lion Phase 1 development project had entered
the Front End Engineering and Design (“FEED”)
stage. The Sea Lion Phase 1 development definition
phase was completed in late 2015 and significant
improvements have been identified to enhance overall
project economics in response to the lower oil price
environment. Highlights of the Phase 1 development
include:
• Recoverable resources to be commercialised
increased from 160 mmbbls to approximately
220 mmbbls (operator’s estimate).
• Field peak production increased from
approximately 60,000 to 85,000 bbls per day.
• Field life increased from 15 to 20 years.
• Well count increasing from 14 to 18,
with 13 wells drilled pre-first oil.
• Despite the increase in scope, the estimate of pre-
first oil capex requirement remains at US$1.8 billion,
equivalent to approximately US$8 per barrel –
a 30% reduction in pre-first oil capex per barrel.
Further cost reductions are expected given the
current market environment.
• Significant improvement in project economics for
both partners resulting in a materially lower break-
even oil price for the project.
On the basis of the improved project, a Floating
Production Storage and Offloading (“FPSO”) FEED
contract was entered into with SBM Offshore, with
work anticipated to take between 15 and 18 months
to complete. Subsequently, the FEED contract for
SURF Transport and Installation was entered into with
Subsea7, for Flexibles with National Oilwell Varco and
for the Subsea Production System with One Subsea.
An application has also been made to the Falkland
Islands Government (“FIG”) to extend the licence for
the Sea Lion Discovery Area in PL032.
A draft Field Development Plan (“FDP”) has been
prepared and submitted to FIG.
A project sanction decision point is now targeted for
mid-2017, which if achieved would result in a target first
oil date during 2020. The extensive pre-FEED project
optimisation has enabled the FEED contracts to be fully
matured with a significant impact on future costs.
North Falkland Basin exploration campaign
successfully completed
The North Falkland Basin exploration campaign
commenced in February 2015 using the Eirik Raude rig.
On 2 April 2015, Rockhopper announced the results of
the Zebedee well in PL004b (Rockhopper 64% working
interest following completion of merger with FOGL). The
well discovered 27.9 metres of net oil-bearing reservoir
and 18.5 metres of net gas-bearing reservoir. The well
penetrated multiple targets in the Cretaceous F2 and F3
formations and has added approximately 50 mmbbls of
recoverable resource from the main Zebedee sand alone
with additional significant pay sections in the Hector
and Ninky South fans. Following plug and abandonment
operations at Zebedee, the rig moved to the Isobel
Deep location.
12
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
North Falkland Basin snapshot
Strategic Report
Key highlights
Consolidated acreage position post-merger with FOGL
Over 2,600km2 acreage in North Falkland Basin
Rockhopper
FOGL Combined Group
Operator
Operatorship of PL003a, PL003b and PL005 licences
40% interest in PL032 which contains Phase 1
of Sea Lion Field
64% interest in PL004 which contains the southern extension
of the Sea Lion Field, various satellite discoveries as well as
the Isobel/Elaine complex
PL032
40%
n/a
40%
Premier
PL003a
PL003b
PL004a
PL004b
PL004c
PL005
3%
92.5%
95.5% Rockhopper
3%
57.5%
60.5% Rockhopper
24%
24%
24%
40%
40%
40%
64%
64%
64%
Premier
Premier
Premier
n/a
100%
100% Rockhopper
Phase 1 schematic
Collaborative partnerships with collective cost incentives
Subsea Installation
FPSO
Subsea Production
System
Risers
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
13
Strategic Report
NFB drilling platform
On 28 May 2015, Rockhopper announced an oil discovery
at the Isobel Deep well, located approximately 40km
south of the Sea Lion field in PL004a (Rockhopper 64%
working interest following completion of merger with
FOGL). The Isobel Deep exploration well was drilled
to a depth of 2,527 metres reaching top reservoir on
prognosis. The deepest 24 metres of the well consisted
of oil bearing F3 sands. These sands were at a higher
than expected reservoir pressure and this resulted in
an influx into the well.
Unfortunately, due to material operational issues
experienced with the drilling rig, the rig contract was
terminated in February 2016. As a result, the drilling
of the Chatham well – the final well in campaign – has
been deferred until the Sea Lion pre-development
drilling campaign.
The postponement of the Chatham well has no impact
on the planning or timetable for the Field Development
Plan for the Sea Lion initial phase development.
As a result, whilst it was not possible to acquire wireline
logs over the Isobel Deep reservoir, the presence of
oil bearing sands is considered very positive and these
initial results opened up a new oil play in the southern
part of PL004a.
Following suspension of the Isobel Deep well, the Eirik
Raude rig was transferred to another operator in the
South Falkland Basin. The rig returned to the North
Falkland Basin in November 2015. Agreement was
reached between the joint venture partners and FIG
to replace drilling the Jayne East prospect in PL004c
with a redrill of the Isobel prospect.
On 11 January 2016, Rockhopper announced the results
of the Isobel-Elaine redrill well in PL004a. The well
reached a total depth of 3,014 metres and encountered
a total of five oil bearing fan packages of the F3 system,
with net pay of 27 metres recorded within the Isobel
Deep, Isobel and Emily reservoirs. The well did not
encounter any gas nor did it penetrate an Oil Water
Contact within any of the sands in this location, where
the Isobel Deep reservoir is 350 metres downdip from
the discovery well. The results indicate that the total oil
column established by this well is likely to be in excess
of 480 metres.
As sub-surface lead for exploration, Rockhopper is
immensely proud of the results of the exploration
campaign and we look forward to incorporating the
results of these wells into our regional data set.
The Company has commissioned a Competent
Person’s Report (“CPR”) following the conclusion
of the North Falkland Basin exploration campaign.
The Company expects to release the results of the
CPR during Q2 2016.
In addition, work has progressed on a broader
development strategy for the entire North Falkland
Basin. A Phase 2 development (targeting the remaining
resources in PL032 and the satellite discoveries in
the north of PL004) is now expected to commercialise
approximately 300 million barrels (operator’s estimate).
Phase 3 will develop the Isobel/Elaine fan complex
in the south of PL004.
South Falkland Basin
As a result of the merger with FOGL, Rockhopper now
has material interests in licences to the South and
East of the Falkland Islands. A full technical review
of this acreage will be undertaken during the course
of 2016.
14
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
Greater Mediterranean snapshot
Strategic Report
Italy
Guendalinia
≥ 20% working
interest
≥ Northern
Adriatic
≥ Currently
producing
~580 boepd
≥ Estimated
2016 revenue
~$7.0m
Italy
Ombrina Mare
≥ 100% working
interest
≥ Central
Adriatic
appraisal
≥ Regulatory
process
going forward
unclear
Malta
Area 3
≥ 40% working
interest
≥ Exploration
Study
Agreement
extended to
end of 2016
CROATIA
Adriatic Sea
Italy
Civita
ITALY
Civita
Guendalina
Rimini
Adriatic Sea
ITALY
0
50
Kilometres
Campobasso
0
50
Kilometres
≥ 100% working
interest
≥ Onshore gas
production
≥ Currently
producing
~145 boepd
≥ Estimated
2016 revenue
~$2.0m
Adriatic Sea
Pescara
Ombrina Mare
ITALY
Adriatic Sea
Italy
Monte Grosso
ITALY
Bari
Monte Grosso
Taranto
≥ 23% working
interest
≥ ~250 mmbbl
oil prospect
≥ 23% chance
of success
0
50
Kilometres
Tyrrhenian
Sea
0
100
Kilometres
C
R
O
A
T
CROATIA
I
A
Block 9
Adriatic Sea
Croatia
Block 9
≥ 40% working
interest
≥ Signature of
PSA expected
during 2016
SICILY
Ionian Sea
Mediterranean
Sea
Area 3
ITALY
0
100
MALTA
Kilometres
0
100
Kilometres
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
15
Strategic Report
Staff in London,
Guendalina production
platform (Italy) and NFB
drilling platform
Greater Mediterranean
Through the Company’s acquisition of Mediterranean
Oil & Gas plc in 2014, Rockhopper is focused on building
a second core area in the Greater Mediterranean region
which encompasses Southern Europe and certain
countries of North Africa.
Guendalina, Italy (Rockhopper 20%)
Operated by Eni, the Guendalina gas field located in
the Northern Adriatic, has been in production since
October 2011.
Civita, Italy (Rockhopper 100%)
Operated by Rockhopper, the Civita gas field located
onshore Abruzzo, came into production in November
2015.
The field was commissioned at a rate of 12,500 scm
per day before increasing to a stabilised flow rate of
approximately 25,000 scm per day (approximately
160 boe per day) at the end of November 2015.
At the end of December 2015, the field was producing
approximately 145 boe per day net to Rockhopper.
On 1 September 2015, the Company announced that
operations to undertake a side track well at Guendalina
had begun. The well, which was drilled on time and on
budget, reached a planned total depth of 3,276 metres.
All target horizons within the Pliocene were gas-bearing
and penetrated in an up-dip position with anticipated
reservoir characteristics. Additionally, two deeper gas
levels were encountered and perforated as part of the
dual string completion.
The rig moved off location on 4 November 2015 and
production from the field stabilised at approximately
88,000 scm per day net to Rockhopper (580 boe per day),
representing an increase of 190% from the last reported
rates of approximately 200 boe per day net. At the end of
December 2015, the field was producing approximately
590 boe per day net to Rockhopper.
Ombrina Mare, Italy (Rockhopper 100%)
Operated by Rockhopper, the Ombrina Mare oil and gas
discovery is an appraisal/development project located
in the Central Adriatic, approximately six miles from the
Abruzzo coastline.
In August 2015, the Italian Government announced
that the Environmental Impact Assessment (“EIA”) of
the Ombrina Mare Field Development Plan (including
the ‘Autorizzazione Integrata Ambientale’ (Integrated
Environmental Authorisation) (“AIA”)) had been
approved by both the Minister for the Environment and
by the Ministry of Cultural Heritage. The EIA decree
had been formally gazetted and was awaiting the
approval of the Ministry of Economic Development
as the next step in the process to award the Ombrina
Mare Production Concession.
16
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
Strategic Report
However, in early January 2016, the Italian Parliament
approved the 2016 Budget Law which reintroduced
restrictions on offshore oil and gas activity including
the general ban on exploration and production activity
within 12 nautical miles of the coast of Italy. This restriction
was originally introduced in 2010 and repealed in 2012.
Also in January 2016, the Company was granted a
12 month extension to the suspension of the Ombrina
Mare exploration permit to 31 December 2016.
On 3 February 2016, the Company announced that it had
been informed by the Ministry of Economic Development
that, following the re-introduction of the ban on exploration
and production activity within 12 nautical miles of the coast
of Italy, the Production Concession covering the Ombrina
Mare Field Area would not be awarded.
The Company is now considering its options which
include both a claim for damages and compensation
against the Republic of Italy under international
treaties for the protection of foreign investments,
and in particular the arbitration process provided
for under the Energy Charter Treaty.
Monte Grosso, Italy (Rockhopper 23%)
Operated by Rockhopper, the Monte Grosso oil prospect
is located in the Southern Apennine thrust-fold belt
on trend with Val D’Agri and Tempa Rossa, in the
largest onshore oil production and development area
in Western Europe. Monte Grosso remains one of the
largest undrilled prospects onshore Western Europe.
Rockhopper is in the process of transferring operatorship
of the licence to Eni which is hoped will accelerate the
regulatory and permitting process to enable drilling.
Area 3, Malta (Rockhopper 40%)
A 2D seismic survey was completed in April 2014
and the processing of such seismic was completed
in mid-2015. The seismic has identified a number
of leads of sufficient size to potentially be of interest.
Further technical analysis is currently being conducted
to determine the most appropriate way forward.
The joint venture has received an extension of the
Exploration Study Agreement to December 2016,
at which time a decision will be made on entering
a Production Sharing Contract.
Block 9, Croatia (Rockhopper 40%)
In January 2015, Rockhopper was awarded a 40%
interest in offshore Block 9 in Croatia in partnership
with Eni (60% interest and operator). The block is located
in the relatively shallow water of the prolific Northern
Adriatic gas province and contains the previously
discovered Ksenija accumulation along with the Klaudija
prospect. The anticipated work programme consists of
seismic acquisition, processing and reprocessing during
the first exploration phase (three years) with the drilling
of a well in the second exploration phase (if Rockhopper
elects to proceed to the second phase).
Given the general election in Croatia in November
2015, the signature of a Production Sharing Agreement
(“PSA”) with the Croatian Hydrocarbon Authority has
been delayed. A PSA is now expected to be signed
during 2016.
Fiona MacAulay
Chief Operating Officer
12 April 2016
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
17
Strategic Report
Chief Financial Officer’s Review
“ Rockhopper entered 2016 with
a strong balance sheet and
limited financial commitments.
Capital and operating costs
in the industry continue to
fall as a result of the oil price
and these should benefit
pre-sanction projects, such
as Sea Lion, as we progress
through FEED”
Stewart MacDonald
Overview
During the year, and despite a challenging macro
environment, Rockhopper continued to invest in its
high impact exploration and pre-development activities
in the North Falkland Basin. In addition, Rockhopper
completed an active development programme that
will see the Company benefit from materially higher
production in 2016.
Results for the period
For the year ended 31 December 2015, the Company
reported revenue of US$4 million (2014: US$2 million)
and a profit after tax of US$11 million (2014: US$8 million
loss). The profit after tax in the year arose primarily
due to the one-off accounting treatment associated
with the discounting of the CGT liability arising from
the Company’s 2012 farm-out.
Our balance sheet remains strong with year-end cash
resources of $110 million.
Results summary
$m (unless otherwise specified)
Production (boepd)
Revenue
Profit/(loss) after tax
Cash flow from operating activities
Cash
Net assets
2015
322
4
11
(7)
110
262
2014
272
2
(8)
(11)
200
255
Comparability between the reporting periods is made
difficult due to two factors. Firstly, in 2014 the Group
changed its accounting year end to 31 December
to bring it in line with the majority of its peers. This
resulted in a nine month reporting period in 2014.
Secondly, the acquisition of Mediterranean Oil & Gas plc
was completed in August 2014 and so the revenues and
expenditures associated with the Mediterranean region
in 2014 only reflect the five month period from August to
December. It should also be noted that the Company’s
merger with FOGL completed after the year end and
so the impact of that transaction is not reflected in the
2015 financials.
Revenue
The Group’s revenues of US$4 million (2014: US$2
million) during the period are related entirely to the
sale of natural gas and condensate in Italy. The increase
in revenues from the comparable period reflect the
increased production volumes achieved at Guendalina
and the commencement of production from Civita
despite lower realised commodity prices.
Working interest production averaged 322 barrels of oil
equivalent per day (boepd) in 2015, an increase of 18%
over the prior year (2014: 272 boepd). Working interest
production at the end of December 2015 was in excess
of 700 boepd.
During the year, the Group’s gas was sold under short-
term contract with an average realised price of a0.20
per standard cubic metre (scm) (2014: a0.27 per scm),
equivalent to approximately US$38 per boe.
Operating costs
Cash operating costs, excluding depreciation and
impairment charges, amounted to US$3 million (2014:
US$1 million). The increase in underlying cash operating
costs is principally due to measures undertaken to
increase production and a number of one-off costs
at Guendalina.
18
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
Strategic Report
General and administrative costs, excluding non-
recurring expenses related to acquisitions, amounted
to US$9 million (2014: US$8 million).
Impairment of oil and gas assets
Given the continued decline in oil and gas prices,
Rockhopper has tested the carrying value of our assets
for impairment. Carrying values are compared to the
fair value of the assets based on discounted cash flow
models. Future cash flows were estimated using an
oil price assumption equal to the Brent forward curve
during the period 2016 to 2018, with a long-term price
of US$75/bbl (in “real” terms) thereafter. A post-tax
nominal discount rate of 12.5% was used for the Group’s
Falkland Island assets.
With no cash flow generation expected from Sea Lion
until 2020, the impact of the current low oil price
environment on the value in use calculation is limited.
As such, no impairment arises on the Sea Lion project.
A range of sensitivities have been considered as part
of the impairment testing process. Even in the event
that the Company reduced its long-term oil price
assumption by US$10/bbl or assumed a one year
delay to project sanction, no impairment on Sea Lion
would arise.
The Group recognised write downs of intangible and
tangible oil and gas assets of US$28 million (2014:
US$2 million) primarily related to the Ombrina Mare
project in Italy following a decision by the Ministry of
Economic Development not to award the Production
Concession. The write-down in relation to Ombrina
Mare has been taken without prejudice to the legal
remedies which may be obtained through potential
future legal proceedings against the Republic of Italy
and organs of the Italian State.
Taxation
On the 8 April 2015 the Group agreed binding
documentation (“Tax Settlement Deed”) with the
Falkland Island Government in relation to the tax
arising from the Group’s farm out to Premier.
The Tax Settlement Deed confirms the quantum and
deferment of the outstanding tax liability and is made
under Extra Statutory Concession 16.
As a result of the Tax Settlement Deed the outstanding
tax liability was confirmed at £64.4 million (US$95 million
as at 31 December 2015) and payable on the first royalty
payment date on Sea Lion. Currently the first royalty
payment date is anticipated to occur within six months
of first oil production which itself is estimated to occur in
2020 (assuming Sea Lion project sanction in mid-2017).
As such the tax liability has been reclassified as
non-current and discounted to a year end value of
US$47 million. The effect of this discounting is a tax
credit in the period of US$55 million. The unwinding
of this discount is non-cash and has led to a finance
expense in the period of US$4 million.
The tax liability may be revised downward if the Falkland
Islands’ Commissioner of Taxation is satisfied that either:
(i) the Exploration Carry from Premier is utilised to fund
exploration activities in the Falklands; or (ii) any element
of the Development Carry from Premier becomes
“irrecoverable”. Whilst the Company is entitled to benefit
from the full Exploration Carry from Premier during the
2015/16 campaign, no adjustment in the tax liability has
yet been recorded as this is subject to agreement with
the Falkland Islands’ Commissioner of Taxation.
Cash movements and capital expenditure
At 31 December 2015, the Company had cash resources
of US$110 million (2014: US$200 million) and no debt.
Cash and term deposit movements during the period:
Opening cash resources
North Falkland Basin
Greater Mediterranean
Admin and miscellaneous
$m
200
(68)
(12)
(10)
Closing cash resources (31 December 2015)
110
North Falkland Basin spend of US$68 million relates
primarily to the 2015 drilling campaign, as well as spend
relating to the pre-development activities on Sea Lion.
For a variety of reasons, including the material
operational issues experienced with the drilling rig,
the costs of drilling the Zebedee, Isobel Deep and
Isobel-Elaine wells were above that which was originally
anticipated. Certain costs incurred are the subject of
an ongoing insurance claim the outcome of which is
expected to be known during 2016.
Under the revised commercial terms agreed with
Premier, the Company is entitled to utilise the full
US$48 million of Exploration Carry from Premier during
the 2015/16 exploration campaign, which will result in a
cash saving of approximately US$25 million.
Spend in the Greater Mediterranean largely relates to
the drilling of the side-track well at the Guendalina field
and the development activities at the Group’s onshore
gas project Civita.
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
19
Strategic Report
Acquisitions
The Company announced the US$22 million acquisition
of a portfolio of production and exploration interests in
Egypt from Beach Energy Limited (“Beach Energy”) in
August 2015. Subsequently, the Company was informed
that one of the Abu Sennan joint venture parties has
exercised its right of pre-emption. Discussions continue
with Beach Energy and the joint venture parties to
establish if an amended transaction can be agreed.
In November 2015, the Company announced the terms
of an all share merger with Falkland Oil & Gas Limited
(“FOGL”). The merger completed in January 2016
following approval of both the Rockhopper and FOGL
shareholders.
Under the terms of the merger, shareholders of FOGL
received 0.2993 new Rockhopper shares for each FOGL
share held.
Liquidity, counterparty risk and going concern
The Company monitors its cash position, cash forecasts
and liquidity on a regular basis and takes a conservative
approach to cash management with surplus cash held
on term deposits with a number of major financial
institutions.
The directors have assessed that the cash balance held
provides the Company with adequate headroom over
forecast expenditure for the following 12 months – as
a result, the directors have adopted the going concern
basis of accounting in preparing the annual financial
statements.
Principal risks and uncertainties
A detailed review of the potential risks and uncertainties
which could impact the Company are outlined elsewhere
in this Strategic Report. The Company has identified
its principal risks at the end of 2015 as being:
•
• joint venture partner alignment and funding issues.
Both of which could ultimately create a delay to the
Sea Lion Final Investment Decision.
sustained low oil price; and
Outlook
Rockhopper entered 2016 with a strong balance sheet
and limited financial commitments.
Capital and operating costs in the industry continue to
fall as a result of the oil price and these should benefit
pre-sanction projects, such as Sea Lion, as we progress
through FEED. Our revised commercial arrangements
with Premier ensure both Rockhopper and Premier
enjoy attractive project economics at oil prices
significantly lower than before.
Through the combination of Development Carry and
Standby Loan, Rockhopper remains fully funded
through the initial phase development of Sea Lion. Initial
engagement with the commercial bank market has been
encouraging as an alternative source of funding to the
Standby Loan from Premier.
Revenues from our Italian assets are estimated to
be in the order of US$8-10 million in 2016 (based on
current gas price, foreign exchange rate and production
projections), with minimal capital investment expected in
the year within the Greater Mediterranean portfolio.
Taking into account the expected residual costs of the
North Falkland Basin exploration campaign and the
Company’s continued investment in Sea Lion FEED
activities, preliminary estimates of the Company’s
cash balance at 31 December 2016 are in the range
of US$70-80 million. The year-end 2016 preliminary
cash estimate is subject to the outcome of a number
of material items including exploration drilling cost
audits, disputes and insurance claims – the outcomes
of which should be known during 2016.
Stewart MacDonald
Chief Financial Officer
12 April 2016
20
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
Internal controls and risk management
Strategic Report
Internal Controls
> The Board is responsible for establishing and maintaining the system of internal controls
which has been in place throughout 2015.
Rockhopper Board
Ongoing review and control
There is ongoing review of the risks and controls in place
to mitigate these risks by the Audit & Risk Committee.
Executive Committee
Audit & Risk Committee
Senior Management
Process
Review and confirmation
Identification and mitigation
≥ Risks and mitigation validated
with the Executive Committee
and presented to Audit & Risk
Committee for review
≥ Review and confirmation
≥ Identify key risks and develop
by the Board
mitigation actions
The directors are responsible for the group’s
system of internal control and for reviewing its
effectiveness. The group’s system of internal
control is designed to manage rather than eliminate
the risk of failure to achieve the group’s business
objectives and therefore provides reasonable,
rather than absolute, assurance against material
misstatement or loss.
The group operates a series of controls to meet its
needs. The group receives reports from the external
auditor concerning the system of internal control and
any material control weaknesses. The board considers
that there is no necessity at the present time to establish
an independent internal audit function given the current
size and complexity of the business.
The process of monitoring and updating internal controls
and procedures continues throughout the year and a risk
management process is in place. Existing processes and
practices are reviewed to ensure that risks are effectively
managed around a sound internal control structure.
A fundamental element of the internal control structure
involves the identification and documentation of
significant risks, the likelihood of those risks occurring,
their potential impact and the plans for managing and
mitigating each of those risks. These assessments are
reviewed by the board. The plans are discussed, updated
and reviewed at each board meeting, and any matters
arising from internal reviews or external audit are also
considered.
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
21
Strategic Report
Principal risks and uncertainties
Description
Impact
Mitigants
Recent changes and ongoing initiatives
Strategic risks
Sea Lion Final Investment
Decision delayed due to low
oil price outlook, project costs
or partner funding issues
• Increased costs
• Delay in future cash flow
• Reduced value creation
• Loss of investor confidence
• Active engagement with the operator and
regulators to establish constructive and
trusted working relationships
• Active participation in technical meetings
to challenge, influence and/or support
partners to establish a cohesive JV view
and decision making
• Active support to operator in its objective of
introducing another partner into the JV
• Project entered FEED with set of world
class contractors in January 2016
• Commercial arrangements between the
Company and the operator revised to
ensure greater alignment
• Company to support operator during its
farm-out process
Concentration risk through
focus on the North Falkland
Basin
• Over-reliance on a single operating region
• Changes in operating, sovereign, political
or fiscal matters could have a material
impact on the Company’s operations
• Diversify portfolio through asset additions
outside of the North Falkland Basin
• Continued pursuit of low-cost, low-
commitment, value-accretive acquisitions
in the Greater Mediterranean region to add
production and cash flow
• Acquisition of Mediterranean Oil & Gas plc
in August 2014
• The proposed acquisition of a portfolio
of production and exploration assets in
Egypt from Beach Energy was announced
in August 2015. The transaction was
subsequently pre-empted by an existing JV
partner. Discussions with Beach continue
Poor execution of M&A activity • Reduced liquidity and balance sheet
strength
• Value loss
• Experienced Board oversees and approves
all M&A decisions
• Established processes in place to ensure
that an appropriate level of technical,
commercial, financial, tax and legal due
diligence is performed on every opportunity
assessed
• Merger with Falkland Oil & Gas Limited
(“FOGL”) completed in January 2016
• Continued pursuit of selective and value
accretive M&A opportunities
The sovereignty of the
Falkland Islands is disputed
• Physical aggression is not expected
• The British Government has issued strong
• Certain service providers and financial
institutions may choose not to provide
services for fear of the impact an
association may have on their business
in Argentina
rebuttals to the Argentine claims
• The Company is in regular contact with the
Foreign & Commonwealth Office
• Recent change of government in Argentina
is expected to mitigate impact given
apparent desire to build open international
relations
Operational risks
The Company no longer
operates its significant
interests and is therefore
reliant on JV operators for
asset performance
• Cost and schedule overruns
• Poor performance of assets
• HSE performance
The North Falkland Basin is
remote and at the end of a
long supply chain
• Cost and schedule overruns
• Ability to secure certain contractors
The assumptions used
to estimate hydrocarbon
resources may prove incorrect
or inaccurate
• Exploration and appraisal efforts may
target ultimately uncommercial volumes
of hydrocarbons
• Actively engage with all JV partners to
establish trusted working relationships
• Active participation in technical meetings to
challenge, apply influence and/or support
partners to establish a cohesive JV view
and decision making
• Following award of FEED on the Sea Lion
project, a Management Board comprising
key project managers from each of the
JV partners and contractors has been
established to oversee the FEED process.
Rockhopper’s General Manager for the
Falkland Islands will attend
• Additionally a higher level Project Board
comprising Executive Director level
personnel from the JV partners and key
contractors will meet regularly
• Active co-operation with operators in
the South Falkland Basin to achieve
operational and cost synergies through rig
and infrastructure sharing
• Supply chain well understood given history
• Rig and other sharing arrangements used
in the 2015/16 exploration campaign to
share equipment and services between
operators in the North and South Falkland
Basins
of operations in the basin
• The Company has commissioned a
Competent Persons Report (“CPR”) to
undertake an independent assessment
of the Company’s reserves and resources
• The CPR is expected to be published in
Q2 2016
• The Company employs qualified and
experienced technical personnel
• External consultants are regularly
commissioned to support technical
evaluations or provide independent
assessments
• A prudent range of possible outcomes
are considered within the planning and
budgeting process – current development
scenario planning for Sea Lion
conservatively assumes the presence of a
gas cap
• Analysis of commerciality thresholds
is inherent in exploration planning and
licence acquisition analysis
22
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
Strategic Report
Description
Impact
Mitigants
Recent changes and ongoing initiatives
Financial risks
Insufficient liquidity and
funding capacity
• Uncertain financial outcome
• Inability to meet financial obligations
• Short-term and long-term cash forecasts
are reported to the Board on a regular
basis
• The Company has no debt
• Through the 2012 farm-out and subsequent
revisions, Rockhopper secured a $337
million Development Carry for the initial
phase of development of Sea Lion, a
$337 million Development Carry for the
subsequent phase of development of Sea
Lion, $48 million Exploration Carry and
a $750 million Standby Loan facility from
Premier Oil
• Agreement reached to defer tax liability
associated with 2012 farm-out
• Under the revised commercial
arrangements with Premier, Rockhopper
now entitled to access the full $48 million
Exploration Carry for the 2015/16 campaign
• Active engagement with commercial bank
market to secure funding for the uncarried
portion of Sea Lion development costs on
more attractive (cost and flexibility) terms
compared with the Standby Loan available
from Premier
• Agreement reached with FIG as to quantum
and timing of tax payment – tax deferred
until the first royalty payment date on Sea
Lion – currently anticipated in 2020
Uncertainty of fiscal regime
and regulatory requirements
• Schedule risk
• Loss of value
• Uncertain financial outcome
• Regular engagement with regulators
• Legal agreements in place to protect
interests
• Seek appropriate legal and tax advice
• Participation, in conjunction with other
operators in the Falkland Islands, in recent
FIG Tax consultation exercise
• Continued participation in consultation with
FIG in relation to optimal approach to oil
export
Joint venture partner
misalignment or failure by
joint venture partners to fund
their financial obligations
• Increased costs, inefficiencies or delays
• Potential failure to meet financial and
operational obligations
• In extreme, potential loss of licence
interests
• Partner selection is a critical component
of any investment decision
• Joint Operating Agreements and other
commercial arrangements provide legal
protections in the event joint venture
partners fail to meet their obligations
• Active engagement with joint venture
partners to ensure alignment
• Ongoing monitoring and regular review of
the Company’s financial exposure to joint
venture partner credit risk
Uncertainty and volatility of
commodity prices
• Impact on expected future revenues
• Contingency built into planning and
• Oil prices decline significantly in 2015
and cash flow
• Impact on capital and operating costs
• Impact on future debt capacity
budgeting process to allow for downside
movements in commodity prices (and
expected impact on costs)
• The Company may consider it appropriate
in the future to hedge a proportion of its
production, particularly if the Company is
reliant on such production to service debt
• As a result, industry and service costs have
reduced and, through the Sea Lion FEED
process, it is anticipated that further costs
reductions can be achieved
Health, safety and environmental risks
Health, safety and
environmental incidents
• Serious injury or death
• Environmental impacts
• Loss of reputation
• Regulatory penalties
• Regular review of HSE policies and
procedures to ensure full compliance
with industry “best practice” as well as all
appropriate international and local rules
and regulations
• Ongoing initiatives to ensure partner
and contractor compliance with
Rockhopper HSE Policy
Organisational risks
Staff recruitment,
development and retention
• Disruption to business
• Training and development opportunities
• Loss of key knowledge and experience
are considered for all staff
• Executive directors and senior staff have
notice period of between 6 and 12 months
to ensure sufficient time to handover
responsibilities in the event of a departure
• Succession planning considered regularly
at Board level
• New EU drilling and operational directives
were introduced in January 2016
• The Company has incorporated these
new requirements, including proposed
ISO 16530 compliance for all well integrity
life cycle phases
• In addition, the Company has recently
updated its risk assessment procedure
• The Company operated Civita gas project
is the first oil & gas development in Italy
to implement these revised requirements
and fulfil the enhanced risk assessment
authorisation process
• A short-term succession plan is in place for
executive directors and key staff members
• Consideration is being given to implement
an all employee share scheme
• The Remuneration Committee regularly
evaluates compensation and incentivisation
schemes to ensure they remain competitive
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
23
Strategic Report
Health, Safety, Environmental and Social Management
Rockhopper’s strategy is to explore, appraise and
develop its operated and non operated acreage
both safely and responsibly. The two key elements
of this strategy involve maintaining high standards of
Health, Safety and Environmental (HSE) protection
throughout its operations and communicating clearly
with its stakeholders, both operational and within the
local community.
Local community school,
Stanley, Falkland Islands
HSE ManaGEMEnt
SyStEM
Health and Safety
Environment
Business conduct
Employees
Local communities
Maintaining high standards of Health, Safety and
Environmental (HSE) protection. This is achieved
through:
• Strong leadership and clearly defined responsibilities
and accountabilities for HSE at all levels of the
organisation;
• Selection of competent personnel to manage
activities;
• Compliance with regulatory and other applicable
requirements, or where regulations do not exist,
application of industry standards;
• Identifying, assessing and managing HSE risks
and preventing pollution;
• Developing specific HSE plans for each
operational project;
• Selecting competent contractors and ensuring
that they are effectively managed;
• Preparing and testing response plans to ensure that
any incident can be quickly and efficiently controlled,
reported and investigated to prevent recurrence;
• Continual improvement of HSE performance through
monitoring, regular reporting and periodic audits;
and
• Periodic management reviews to identify and
implement improvements to our HSE systems.
This policy is implemented through our HSE
Management System, which has been prepared to
be consistent with international standards for HSE
management including ISO14001 and ISO18001.
Our HSE Management System is used to guide all our
activities and will not be compromised by other business
priorities.
Application of the HSE Management System will
include preparation of detailed Environmental Impact
Statements (“EISs”) for all of the Group’s activities.
The preparation of the EIA includes consultation with
interested parties and the local Government as well as
public meetings to present findings and obtain feedback
from the local community.
For our non operated ventures one of our key roles is
to seek to ensure (wherever possible) that the operator
maintains high standards of HSE protection in line with
our management systems.
Operational stakeholders
Where we have operating responsibility all contractors
are selected taking into account their skills, experience
and HSE performance. There is a contractor selection
and management section in the HSE management
system and we are closely involved in day-to-day
operations and closely monitor contractor performance.
Local community stakeholders
The Falkland Islands has a population of approximately
3,000 people and each member is considered a
stakeholder in the Group’s strategy. We recognise that
a key element in maintaining stakeholder support is
regular communication at all levels. Our primary point of
contact is the Falkland Islands Government Department
for Mineral Resources and since inception we have had
good communication with all of the team there. Since
the start of operations, we have increasingly liaised with
other government departments, such as the Secretariat
and the Tax Office as well as the Governor.
Approval of Strategic Report
This Strategic Report was approved by the directors
and signed on their behalf on 12 April 2016 by:
Samuel Moody
Chief Executive Officer
24
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
Governance
Strategic Report
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
25
Governance
Chairman’s Governance Report
The board’s corporate governance policy is to apply
best practice and to adhere to the 2014 UK Corporate
Governance Code (the “Code”) applicable to FTSE
350 companies as far as practicable given the size of
the Company. However, the Company is an AIM listed
company and is not therefore required to comply with
any provision in the Code for so long as it remains on AIM.
Further details are given below of how the Company
addresses the principles set out in the Code. The audit
and risk committee undertakes an annual review of the
Company’s compliance with the Code and identifies areas
where compliance could be strengthened and agrees
appropriate courses of action.
Pierre Jungels cbe
The Board
The board’s structure and composition complies with the
provisions of the Code. The board currently consists of three
executive and seven non-executive directors including the
chairman, six of whom are independent. T P Bushell and
J E Martin were appointed as non-executive directors on
18 January 2016 following the merger with Falkland Oil and
Gas Limited. The chairman will retire at the 2016 annual
general meeting and will be replaced by David McManus
an independent non-executive director.
How your Board works
The board has a qualified company secretary and all
directors have access to her for advice and services.
R J Peters was the senior independent director for the
financial period under review. The Company’s website
contains an email contact for K G Lough, chairman of the
audit & risk committee, should shareholders have concerns
which have not been adequately addressed by the chairman
or chief executive officer. The email address is also
disclosed at the back of these accounts.
The board meets regularly throughout each financial
year and there is a schedule of matters reserved for its
approval ensuring that it exercises control over the Group’s
strategy, key financial and compliance issues and significant
operational and management matters. These include
capital structure, communication with shareholders,
board and senior management appointments and major
contracts. Executive management has a number of
financial and operational responsibilities delegated to
it. These include day-to-day operation of the business,
implementation of health & safety measures, contract
negotiation and liaison with the regulator and shareholders.
From time to time sub-committees of the board are
established to approve the detail of matters tabled at full
board meetings. The company secretary ensures that
Shareholders
Board of Directors
Ongoing dialogue
Day-to-day running of Rockhopper
Chief Executive Officer
Integrity of financial
information and
internal controls
Executive Committee
Various Committees
Board
composition
and
succession
Nomination
Committee
Findings and
recommendations in
relation to financial reporting
External
Auditors
Risk & Audit
Committee
Remuneration
Committee
Framework and individual
Director packages
26
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
the board and its committees are supplied with papers of
sufficient quality to enable them to consider matters in good
time for meetings and to discharge their duties properly.
A clearly defined organisational structure exists, with lines
of responsibility and delegation of authority to executive
management and board approved defined roles for the
chairman and chief executive officer.
The board supports directors who wish to receive ongoing
training and education relating to their duties. It makes
available independent legal advice, at the Group’s expense,
when necessary.
Each year an internal performance evaluation of the board
and its committees is undertaken. The performance
appraisal consists of a questionnaire. Comments are tabled
at a board meeting and actions agreed. The appraisal of
the chairman’s performance is coordinated by the senior
independent director with the assistance of the company
secretary. An external board performance evaluation is to
be undertaken during the course of 2016.
The board’s chairman, P J Jungels, was independent
upon appointment. For an initial period, P J Jungels was
executive chairman and during that time he was awarded
share options. Effective 30 September 2010 he became non-
executive chairman and his share options have since been
exercised in full. The board considers five of the other non-
executive directors, D McManus, R J Peters, K G Lough,
J E Martin and A J Summers to be independent. T P Bushell
does not meet the independence criteria in the Code due
to his previous executive position at Falkland Oil and Gas
Limited and his short-term consultancy arrangement with
the Company in respect of the integration of the business of
Falkland Oil and Gas Limited. Other than any shareholdings
in the Company and fees, the non-executives have no
financial interests in the Company or business relationships
that would interfere with their independent judgement.
The chairman meets regularly with the non-executive
directors without management present and in the forum
of the nomination committee.
The appointment of directors is a formal process
involving all members of the board which considers the
recommendations of the nomination committee.
The notice period for all executive directors is 12 months.
The board believes that this is reasonable and appropriate
for the size of the Group and is in line with market practice.
All directors stand for re-election at the annual general
meeting.
Board diversity
Board composition
International experience
Governance
Directors
• Executive
Non-executive
Non-executive director tenure
< 3 years
3-6 years
57%
28%
6-9 years
—
> 9 years
15%
“ The Group is committed to maintaining high standards of corporate governance
to ensure that it is managed with openness, honesty and transparency.”
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
27
Governance
Board of Directors
Dr Pierre Jungels cbe
Chairman
Samuel Moody
Chief Executive Officer
Stewart MacDonald
Chief Financial Officer
Fiona MacAulay
Chief Operating Officer
Robert Peters
Senior Independent
Director
Dr Jungels, a certified
engineer with a PhD from
CALTECH, was CEO of
Enterprise Oil Plc, from 1996
to 2001 and prior to that
was MD of Exploration and
Production for BG Plc in 1995
and worked for 23 years with
Petrofina SA including eight
years on the main board.
He was twice President of
the Institute of Petroleum,
from 1987 to 1989 and 2002
to 2003.
Sam is a co-founder of
Rockhopper and has been
responsible for building and
managing the group from its
formation in early 2004. He
previously worked in several
roles within the financial
sector, including positions
at AXA Equity & Law
Investment Management
and St Paul’s Investment
Management.
Prior to joining Rockhopper,
Stewart was a Director in
Rothschild’s global oil and
gas group and spent 12
years advising clients in the
sector on a range of M&A
transactions as well as debt
and equity financings.
Fiona is a geologist with over
25 years of experience in the oil
and gas industry including time
at Mobil, Amerada Hess and
BG. She joined Rockhopper in
2010 immediately following the
Sea Lion discovery and was an
integral member of the senior
team which managed the
appraisal of the Sea Lion field
and discovered the Casper,
Casper South and Beverley
fields.
Bob is a solicitor with a long
career in industry and legal
practice. He joined Imperial
Chemical Industry PLC’s
group legal department in
1975 and became Deputy
Group General Counsel
in 1993 until 2000 when
he joined Mayer Brown as
Corporate Partner. During
the 1980s he was a director
and counsel of ICI’s E&P
business.
Age:
72
Appointed to board:
February 2005
Meetings attended:
12/12
Committee membership:
Nomination
External appointments:
Director: Baker Hughes Inc.
Chairman: Velocys plc
46
35
52
68
February 2005
March 2014
March 2013
September 2010
12/12
—
—
12/12
—
—
12/12
—
11/12
Audit & Risk
Remuneration
Nomination
President Elect:
American Association of
Petroleum Geologists Europe
—
28
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
Governance
David McManus
Non-Executive
Director
Keith Lough
Non-Executive
Director
John Summers
Non-Executive
Director
Tim Bushell
Non-Executive
Director
John Martin
Non-Executive
Director
David is a petroleum
engineer with a degree from
Heriott Watt University with
over 35 years experience in
the Oil and Gas industry, with
Shell, Ultramar, ARCO and
BG group.
Keith has over 30 years
experience in the natural
resources sector in both
senior finance and general
management roles with
LASMO, Petrokazakhstan,
British Energy and Hutton
Energy. He was also a
founder shareholder and
CEO of unconventional gas
explorer Composite Energy
Limited.
Dr John Summers is a
geologist with degrees from
the University of Liverpool.
He worked for British Gas/
BG Group plc for 29 years
holding a variety of roles
from Exploration Manager,
Vice President Exploration,
Chief Geologist, General
Manager Technology and
Performance and VP New
Ventures.
John has more than 30 years’
experience in international
banking in the oil and gas
industry. He worked at
ABN Amro for 26 years
specialising in the oil and
gas sector after which he
joined Standard Chartered
Bank where he was a Senior
Managing Director in the
Oil & Gas group. He was
previously a Non-Executive
Director of Total Upstream
UK Limited and Chairman of
Falkland Oil and Gas Limited.
Tim is a qualified geologist
with more than 30 years’
experience in the oil and
gas industry. He worked at
Ultramar, British Gas and
Schlumberger and was
with Lasmo for 10 years
where his roles included
General Manager of its South
Atlantic business unit which
participated in the drilling
campaign in the North
Falkland Basin in 1998. Tim
was Managing Director,
Norway at Paladin Resources
plc from 2001 until joining
Falkland and Gas Limited
in 2006 where he was Chief
Executive Officer.
62
57
60
58
66
September 2010
January 2014
February 2014
January 2016
January 2016
12/12
11/12
11/12
—
—
Remuneration
Nomination
Director:
Hess Corporation
Costain plc
Chairman:
FLEX LNG
Audit & Risk
Remuneration
Nomination
Audit & Risk
Nomination
Nomination
Audit & Risk
Nomination
—
Director:
Cairn Energy plc
Gulf Keystone Petroleum Ltd
UK Gas and Electricity
Markets Authority
Director:
Core Energy AS
Director:
Bowleven plc
Senior Vice President:
World Petroleum Council
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
29
Governance
Corporate Governance Statement
Audit & Risk, Remuneration and Nomination
Committees
Audit & risk, remuneration and nomination committees,
with formally delegated duties and responsibilities,
operate under the chairmanship of K G Lough,
D McManus and P J Jungels respectively. The terms
of reference of the committees reflect the provisions
of the Code where relevant and can be found on the
Company’s website.
The nomination committee comprises all the non-
executive directors with the chief executive officer
attending by invitation. The make up of the committee
complies with the Code.
The audit & risk committee comprises K G Lough,
J E Martin, R J Peters and A J Summers, with other
directors attending from time to time by invitation as
observers. The make up of the committee complies
with the Code.
The remuneration committee comprises D McManus,
K G Lough and R J Peters, with other directors attending
from time to time by invitation as observers. The make
up of the committee complies with the Code.
Keith Lough
Audit and Risk Committee
Chairman
Audit & Risk Committee
The members of the audit & risk committee are K G
Lough as chairman, J E Martin, R J Peters and A J
Summers. The board considers the members of the audit
& risk committee to be independent and is satisfied that
at least one member of the audit & risk committee, K G
Lough, has recent and relevant financial experience.
The external auditor, the Chief Financial Officer and Chief
Accountant are invited to meetings with observer status.
The core terms of reference of the audit & risk
committee include reviewing and reporting to the board
on matters relating to:
• the audit plans of the external auditor;
• the Group’s overall framework for internal control
over financial reporting and for other internal
controls;
• the Group’s overall framework for risk management;
and
• the accounting policies and practices of the Group;
and
• the annual and periodic financial reporting carried
out by the Group.
The audit & risk committee is responsible for notifying
the board of any significant concerns that the external
auditor may have arising from their audit work; any
matters that may materially affect or impair the
independence of the external auditor; any significant
deficiencies or material weaknesses in the design or
operation of the Group’s internal controls; and any
serious issues of non-compliance. No such concerns
were identified during the financial period.
The audit & risk committee recommends to the board
the appointment of the external auditor, subject to the
approval of the Company’s shareholders at a general
meeting. Shareholders in a general meeting authorise the
directors to fix the remuneration of the external auditor.
The audit & risk committee has established procedures
for receiving and handling complaints concerning
accounting or audit matters. The audit & risk committee
maintains policies and procedures for the approval of
all audit services and permitted non-audit services
undertaken by the external auditor, the principal
purpose of which is to ensure that the independence
of the external auditor is not impaired.
In general, the external auditor will only be used for
audit, audit related and tax compliance services. Other
services need specific authorisation from the audit &
risk committee. The only non-audit services provided
during the period were in relation to tax compliance and
review of the half-yearly report. The status of all services
being provided by the external auditor are monitored
and the Company is satisfied that there were no conflicts
during the financial period.
30
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
David McManus
Remuneration Committee
Chairman
Governance
Remuneration Committee
The principal role of the remuneration committee is
to consider, on behalf of the board, the remuneration
(including compensation payments when they apply) of
executive directors and the chairman, the fees of the
chairman being subject to board approval. In addition
the remuneration committee sets the broad framework
and reviews the recommendations of the chief executive
officer for salary adjustments and bonus payments
for all other members of staff including the company
secretary. It also administers and makes awards under
the Long Term Incentive Plan (LTIP) and Share Incentive
Plan (SIP). Further detail of the responsibilities of the
remuneration committee is given in the directors’
remuneration report.
The board considers the members of the remuneration
committee to be independent. The members are
D McManus as chairman and R J Peters and K G Lough.
The chairman and T P Bushell attend meetings as invitees.
The committee met five times during the financial
period. Details of the matters discussed are given in
the directors’ remuneration report.
Director
D McManus – Chairman
KG Lough
R J Peters
P J Jungels
Total meetings during year
† Invitee.
Remuneration committee
meetings attended
5
5
4
†4
5
The audit & risk committee was satisfied throughout the
financial period that the objectivity and independence
of the external auditor were not in any way impaired by
the nature of the non-audit work undertaken, the level
of non-audit fees charged for such work nor any other
factors.
The audit & risk committee’s terms of reference are
available on the Company’s website and on request from
the company secretary. The audit & risk committee held
three formal meetings during the period and informal
discussions were also held both with, and without,
management present. The committee met with the
external auditors without management present.
Following each audit & risk committee meeting, the
chairman of the audit & risk committee reported to the
board on the principal matters covered at the meeting.
During the year, the issues considered by the audit &
risk committee included:
• Group financial disclosures and accounting matters;
• reports of the external auditor concerning its audit
and review of the financial statements of the Group
and the status of follow-up actions with management;
• effectiveness of the Group’s system of internal
controls and its risk monitoring and management;
• Group corporate structure;
• systems and processes that management
has developed pertaining to risk identification,
classification and mitigation including disaster
recovery;
• compliance with the Code;
• implications of a move to the Main Market;
• whistleblowing procedures and shareholder
concerns;
• Falkland Islands fiscal regime including capital gains
tax; and
• external auditor’s audit and non-audit fees.
During the period, the committee reviewed its own
performance and the appropriateness of its terms of
reference. It concluded that, having considered the size
and complexity of the business, the terms of reference
were appropriate and that performance was satisfactory.
Director
K G Lough – Chairman
R J Peters
A J Summers
S MacDonald
P J Jungels
Total meetings during year
† Invitee.
Audit & risk committee
meetings attended
3
3
3
†3
†1
3
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
31
Governance
Pierre Jungels
Nomination Committee
Chairman
Nomination Committee
The nomination committee’s role is to consider
Board member succession, review the structure and
composition of the Board and its committees and identify
and make recommendations for any new appointments
of directors to the board. Any decisions relating to
the appointment of directors are made by the entire
board based on the merits of the candidates and the
relevance of their background and experience, measured
against objective criteria, with care taken to ensure
that appointees have enough time to devote to the job.
Rockhopper is committed to appointing, retaining and
developing an experienced team which can effectively
manage the Company’s objectives and deliver its
strategy. The board recognises the benefits of diversity
and the nomination committee has regard to this when
considering succession planning.
The committee is chaired by the chairman of the board,
P J Jungels, with all the non-executive directors as its
members. The board considers K G Lough,
D McManus, J E Martin, R J Peters and A J Summers
to be independent, hence a majority of the committee is
considered to be independent.
The nomination committee met twice during the
financial year and the matters which were considered
included:
• board performance evaluation process and results;
• succession planning for the executive directors and
senior management team; and
• board committee constitution.
Shareholder relationships
During the year the executive directors met with
shareholders and the investment community. This
included formal road shows and presentations, one-
to-one meetings, analyst briefings and press interviews.
The chief executive officer regularly briefs the board
on these contacts and relays the views expressed.
In addition, copies of analyst research reports, press
reports and industry articles are circulated to all
directors. The Company’s website is updated regularly
with external presentations and corporate updates.
Going concern
At 31 December 2015 the Group had available
resources of $110 million. In addition the Group’s
main development, Sea Lion, is fully funded through a
combination of Development Carries and a loan facility
from the operator.
It is for these reasons that the board is of the opinion,
at the time of approving the financial statements, that
the Group and Company has adequate resources to
continue in operational existence for the foreseeable
future, being at least twelve months from the date of
approval of the financial statements. Therefore the board
has adopted the going concern basis in preparation of
the financial statements.
32
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
Governance
Remuneration policy
This part of the Report sets out the remuneration policy
for the Company. The policy for the executive directors
is determined by the Committee and the Committee
approves any adjustments to salary and bonus awards.
The Committee also sets the parameters for the
remuneration packages of senior and support staff
including the company secretary. Authority is delegated
to the chief executive officer to implement salary
adjustments and make bonus awards for staff within the
agreed parameters. The proposals of the chief executive
officer in this regard are reviewed by the Chairman of
the Committee to ensure that they are in line with the
parameters set down by the Committee. The Committee
decides on all awards under the Company’s Long Term
Incentive Plan (‘LTIP’) and approves the operation of the
Company’s Share Incentive Plan (‘SIP’).
The aim of the Committee is to ensure that the
remuneration packages are sufficiently competitive to
attract, retain and motivate individuals of the quality
required to achieve the objectives of the Group and
thereby enhance shareholder value. The Committee
also aims to ensure that all employees receive rewards
that fairly reflect their seniority, level of work and
contribution to the Company.
Executive Director Policy
The summary of the remuneration policy for the
executive directors is set out later in this report.
Full details of the remuneration packages are given
in the Report on Remuneration.
Remuneration Report
Annual statement
Dear Shareholder
On behalf of the Board, I am pleased to present the
Directors’ Remuneration Report (‘Report’) for the
year ended 31 December 2015. The Report has been
prepared largely in compliance with the requirements of
Schedule 8 of the Large and Medium-sized Companies
and Group Regulations 2013 where deemed appropriate
given the size and structure of the Company. In the
event that the Company had pursued a move to the Main
Market of the London Stock Exchange, the Report would
have been put forward for a shareholder vote. In the
light of the Board’s decision to defer a move to the Main
Market of the London Stock Exchange (as explained in
the Chairman and Chief Executive Officer’s Review). The
Committee does not propose that the Report should
be subject to shareholder vote. The Committee has
however considered feedback from shareholders in
relation to the Report and has expanded the disclosures.
The Report is divided into two sections:
• The Policy report which sets out the current
Remuneration Policy.
• The Annual Report on Remuneration which sets
out details of the operation of the Remuneration
Committee and details of the directors’ remuneration
packages for the year ended 31 December 2015. It
also sets out details of the implementation of the
Executive Director Policy for the year ending 31
December 2016.
The Committee aims to ensure that remuneration
is linked to the performance of the Company and
believes that the Long Term Incentive Plan, which is
based on total shareholder return measured against
an appropriate peer group of companies, ensures that
management is aligned with shareholders in respect
of the share incentive element of their remuneration
packages. The Committee is satisfied that the outcomes
in respect of the incentives and remuneration during the
financial year under review are appropriate.
In respect of the current financial period, the Committee
does not propose any changes to the Remuneration
Policy which is laid out on the following pages. The
Committee will ensure that the Company’s remuneration
policy and practices are kept under review to ensure that
they remain appropriate for the Company at its stage
of development and that they do not encourage any
unnecessary risk taking by the executive team.
On behalf of the Board I would like to thank shareholders
for their continuing support.
Yours sincerely
David McManus
Remuneration Committee Chairman
12 April 2016
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
33
Governance
Salary
Purpose and link to strategy
Operation
Opportunity
To provide an appropriate salary level to support retention and recruitment of executive directors and
ensure that executive directors are appropriately rewarded in relation to their role and responsibilities.
This is reviewed annually on 1 January with regard to average industry increases, each executive’s
role and responsibilities and salary adjustments across the Company.
Salary increases will be awarded taking into account the outcome of the performance review and
relative salary differentials across the executive team.
Salary increases will usually be in line with increases awarded to other employees but the Committee
may make additional adjustments where there has been a change in role or responsibilities or to
reflect a gap in market positioning.
Performance metrics
Not applicable for base salaries.
Benefits
Purpose and link to strategy
Operation
Opportunity
To provide a competitive and comprehensive range of benefits to assist in the attracting and retaining
the calibre of executive directors required for delivery of corporate and strategic objectives.
The benefits package for executive directors includes private medical insurance, critical illness,
income protection and life assurance cover. Benefits are administered internally and a review of
providers and prices is conducted every two years to ensure that the level of rates and cover remains
competitive.
The benefits package is set at a level that the Committee considers is appropriate for the Company’s
size.
The value of benefits will vary each year according to the cost of provision.
Performance metrics
Not applicable for benefits package.
Pension
Purpose and link to strategy
To provide an appropriate level of pension contribution for directors whilst minimising the
administrative burden for the Company.
Operation
Opportunity
Contributions are made to a private or group personal pension plan.
An annual contribution equal to 10 per cent of salary.
Performance metrics
Not applicable for pension contributions.
Annual bonus
Purpose and link to strategy
To reward the achievement of annual corporate and individual targets.
Operation
Objectives are set as early as possible in the financial year.
The executive directors are treated as a team in respect of target setting. This policy is reviewed
annually to ensure that it remains appropriate.
The bonuses are paid in cash after the end of the financial year to which they relate.
Opportunity
The maximum annual bonus award is 100% of salary.
The bonus is non-contractual and is discretionary.
Performance metrics
The targets for the executive directors comprise the corporate, strategic and financial objectives
agreed by the Board.
The Committee uses its judgement to decide the extent to which the objectives have been achieved
and will have regard to overall Company performance when agreeing the bonus payments.
The Committee considers whether operations were completed to acceptable HSE standards and
considers whether there were any HSE incidents when considering the level of bonus payments.
34
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
Long Term Incentive Plan (LTIP)
Purpose and link to strategy
To support alignment with shareholders through the use of Total Shareholder Return (‘TSR’)
measured against a peer group as the performance target for awards under the LTIP.
Governance
Operation
The LTIP was approved by shareholders in 2013. Since its introduction, no further awards of
share appreciation rights have been made under the Company’s Employee Share Option Scheme
(‘Scheme’).
The Committee makes annual awards of free shares in the form of nil cost options or a conditional
right to acquire shares which vest after three years subject to the extent that the performance targets
attached to the awards have been achieved.
Awards will usually be granted within a period of 42 days from the release of the annual financial
results and will be calculated using the market value of the shares at the date of grant.
The LTIP performance period will be three years and the commencement date of the performance
period is at the discretion of the Committee.
Malus provisions exist so that the awards may be reduced or further conditions imposed in the case
of financial misstatement, the misleading of shareholders or management/the Board regarding
technical or financial performance, serious misconduct or conduct that results in a serious loss to the
Company.
The Committee has discretion to amend the size and constitution of the peer group to ensure that it
remains an appropriate comparator group and to reflect any corporate deals.
The Company has an employee benefit trust which can purchase shares in the market and/or
subscribe for shares to satisfy the exercise/vesting of awards under the LTIP.
Opportunity
The maximum annual award is 200% of salary.
Performance metrics
Performance measurement will be TSR measured against a peer group based on an average price
over a 90 day dealing period to be agreed by the Committee measured against the average 90 day
dealing period up to the end of the three year performance period.
Awards vest on a sliding scale from 35% up to 100% for performance between the median and highest
performing stock. In respect of the LTIP awards made to S J Moody and S MacDonald in 2014, 133%
and 116% of awards will vest for first and second peer group ranking respectively. Having regard
to industry conditions, the Committee exercised its discretion to vary the additional performance
condition attached to the LTIP awards granted in October 2013 and March 2014 so that the period for
achievement of the £1.80 hurdle rate required for the awards to vest is extended to 31 March 2023.
At the same time the Committee has varied the vesting conditions for existing LTIP awards so that
no awards will vest for performance in the bottom two quartiles.
The Committee has discretion to scale back the percentage of awards that will vest if it considers that
this is appropriate having regard to underlying Company performance.
Share Incentive Plan (SIP)
Purpose and link to strategy
To encourage share ownership in Rockhopper.
Operation
Opportunity
A tax-advantaged scheme under which employees (including executive directors) can elect to make
contributions from gross salary for the purchase of Rockhopper shares which are then matched by
the Company at a ratio agreed by the Committee at the beginning of each tax year. The Committee can
also decide to make an award of ‘free’ shares up to legislative limits in any one tax year. The shares
need to be held for a term of five years to obtain the full tax benefit of the SIP. There is a qualification
period of three months from joining before employees are eligible to participate.
Since the implementation of the SIP the Committee has approved its operation up to the maximum
permissible limits so that employees receive two ‘matching’ shares for every one ‘partnership’
share purchased and an annual award of free shares at or below HMRC limits. Directors and senior
employees have on occasion been precluded from participating where the Company has been in a
close period at the time of the awards.
Performance metrics
Not applicable for the SIP.
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
35
Governance
Cash Incentive Plan (CIP) for Chief Operating Officer (‘COO’)
Purpose and link to strategy
To act as a retention incentive to the COO whom the Board have identified as a key contributor to
delivery of the Company’s objectives.
To reflect the additional responsibilities on her promotion to the role of COO.
Operation
An exceptional one-off award of 312,849 shares was made to the COO on 23 December 2013.
The award was made on the same basis as the 2013 LTIP awards (see the Directors’ Remuneration
Report for the year ended 31 March 2014).
Opportunity
The award is a one-off award based on 200% of salary.
Performance metrics
As for the 2013 LTIP awards with the exception of the £1.80 hurdle rate (as described in the LTIP
section of the Executive Director Policy section of the Report) which has been removed since the end
of the financial period. The hurdle rate has been removed on condition that the proceeds from the
vesting of the CIP award, after deductions for income tax and national insurance contributions, are
re-invested in Rockhopper shares to be held for a minimum of three years.
Further details on the policy
Performance measurement
Annual bonus – the annual bonus is based on a range of objectives that the Board have agreed are key to progressing and delivering the
Company’s strategy. These can be operational, strategic and financial. Performance targets are designed to be stretching but achievable
having regard to the Company’s strategic priorities and external factors such as the activities of joint venture partners and the economic
environment.
LTIP – the LTIP ensures alignment with shareholders being based on relative Total Shareholder Return measured against a peer group
of other oil and gas companies comprising FTSE 250, larger AIM oil and gas and Falkland Island oil and gas companies. The Committee
has determined that the minimum number of companies in the peer group will be nine but intends to increase the size of the peer group
for future LTIP awards to reduce the impact of corporate activity on the size and structure of the peer group. The Committee will also have
regard to the underlying performance of the Company when confirming the vesting of LTIP awards to ensure that the impact of external
factors is taken into consideration where appropriate.
Remuneration policy for other employees and consultation
The Company’s policy for all employees is to provide remuneration packages that reward them fairly for their contribution and role within
the Company.
All employees are entitled to receive the full range of Company benefits but with different qualifying periods and levels of cover depending
on seniority. All employees are eligible to receive an annual bonus based on performance against individual targets which are cascaded
down from the corporate targets. The maximum level of bonus is 100% of salary but this will only be awarded in exceptional circumstances
and where underlying Company performance is strong.
All employees are eligible to participate in the SIP. The Committee has stated that the LTIP will be used for executive directors and senior
staff. This ensures that an element of remuneration is deliverable through a scheme that aligns participants with shareholders.
The Company does not consult with employees on the effectiveness and appropriateness of the policy but, in considering individual salary
increases, the Committee does have regard to an employee’s location and to salary increases across the Company.
Recruitment
In the case of recruiting a new executive director, the Committee can use all the existing components of remuneration as set out in the
policy table.
The salary of a new appointee will be determined by reference to the experience and skills of the individual, market data, internal relativities
and the candidate’s current remuneration. New appointees may be entitled to receive the full range of Company benefits on joining and, if
the Committee considers it appropriate, a relocation allowance and an annual contribution of up to 10% of base salary to the group personal
pension plan. The new appointee will also be eligible to participate in the Company’s SIP after a qualifying period.
36
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
Governance
In relation to any elements of variable pay, the Committee will take the following approach:
Component
Approach
Maximum annual opportunity
Annual Bonus
LTIP
The annual bonus would operate as outlined in the Policy for existing
executive directors. The relevant maximum will be pro-rated to reflect
the period of employment over the year. Consideration will be given to
the appropriate performance targets at the time of joining.
The LTIP would operate as outlined in the policy for existing directors.
An award may be granted on joining subject to the Company being in an
open dealing period. The Committee would retain discretion to decide
on the scale, performance period and performance targets attaching to
any award.
100% of base salary in any financial year
200% of base salary in any financial year
In the case of an external hire, the Committee may deem it appropriate to ‘buy-out’ incentive or benefit arrangements which the new
appointee would have to forfeit on leaving their previous employer. The Committee would consider the potential value of the arrangement
being forfeited and wherever possible would use the existing components of the Company’s remuneration structure to compensate the
incoming director. The value of any buy-out arrangements would be capped at no higher, on recruitment, than the awards or benefits which
the individual forfeited on leaving their previous employer. In the case of an internal hire, the new appointee may retain awards made to
him/her under arrangements entered into prior to appointment to the Board even if such awards are not within the directors’ remuneration
policy as outlined in the policy table.
Service contracts, exit payments and change of control provisions
The executive directors have rolling term service agreements with the Company. Details of the directors’ service contracts and appointment
dates are as follows:
Executive Directors
S J Moody
S MacDonald
F M MacAulay
Appointment date
Original contract
Revised contract
21 February 2005
8 August 2005
8 March 2011
10 March 2014
27 March 2014
15 March 2013
10 January 2011
—
—
The directors’ service contracts are available to view at the Company’s registered office and prior to each Annual General Meeting at the
venue for the meeting.
The notice period for the executive directors is 12 months’ notice in writing by either party. The Company has the right to make a payment
in lieu of notice of 12 months’ salary and the fair value of any benefits. There is no entitlement to payment for any accrued holiday where a
payment in lieu of notice is made. The Committee will consider termination payments on a case-by-case basis. It will consider the terms of
the director’s contract and the circumstances of the termination and might consider making an ex gratia payment where the circumstances
and/or a director’s contribution to the Company justifies this. If an ex gratia payment is to be made, the Committee will ensure that it is
satisfied that it is in the best interests of the Company to make such a payment and that there is no “reward for failure”.
The Committee also has discretion to settle any other amounts which it considers are reasonably due to the director such as where the
parties agree to enter into a settlement agreement and the individual is required to seek independent legal advice. The Committee can
approve new contractual arrangements with a departing director covering matters such as confidentiality or restrictive covenants and/or
consultancy arrangements where it believes this is in the best interests of the Company.
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
37
Governance
Treatment of incentives for leavers
In relation to annual bonuses, a bonus payment will not usually be made if the director is under notice at the bonus payment date or has
already left. In the event of a change of control, the Committee retains the right to declare a bonus in respect of the part of the year worked
prior to the change of control becoming effective.
In relation to awards granted under the LTIP, awards will generally lapse on the date of cessation of employment except in certain ‘good
leaver’ circumstances which are generally defined as retirement, ill-health, disability, death, redundancy, transfer or sale of the employing
company or any other circumstances at the discretion of the Committee. In these circumstances any unvested award will usually continue
and vest on the normal vesting date. The Committee will decide the extent to which the unvested award will vest taking into account (i) the
period of time that has elapsed since the start of the performance period and (ii) the extent to which any performance target is satisfied at
the date the director ceases to be employed by the Company. Final treatment is subject to the Committee’s discretion.
In relation to options and share appreciation rights (SARs) granted under the Company’s Employee Share Option Scheme, both options
and SARs will generally lapse on the date of cessation of employment except in certain ‘good leaver’ circumstances which are generally
defined as retirement, ill-health, disability, death, redundancy, transfer or sale of the employing company or any other circumstances at the
discretion of the Committee. In the case of death, the option shall be exercisable immediately for a period of one year from the date of death.
In other good leaver circumstances any option or SAR will be exercisable for a period of six months from the date of cessation, subject to: (i)
the period of time that has elapsed since the start of the performance period; and (ii) the extent to which any performance target is satisfied
at the date the director ceases to be employed by the Company. Where the Committee exercises its discretion to allow a leaver to be a good
leaver, the Committee may also determine both the proportion of the option that may be exercised and the period during which the option is
exercised.
In the event of termination of employment or a change of control, shares held under the SIP will be dealt with in accordance with the SIP
rules. The Committee does not have any discretion in relation to the operation of the SIP.
External appointments
Executive directors are permitted to engage in other activities and businesses outside the Group provided that there is no risk of conflict
with their executive duties and subject to full Board disclosure.
38
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
Governance
Non-Executive Director Policy
The Company’s Articles of Association provide that the Board can determine the level of fees to be paid to the non-executive directors within
limits set by the shareholders. This is currently set at an aggregate of £500,000 per annum. The Policy for the Chairman and non-executive
directors is as follows:
Fees
Purpose and link to strategy
To provide a competitive level of fee which will attract and retain high calibre directors with the
range of skills and experience required to support the executive directors and assist the Company in
delivering its objectives.
Operation
The fees for the Chairman and non-executive directors are determined by the Board as a whole with
directors absenting from discussions regarding their own remuneration.
The Board has regard to level of fees paid to the non-executive directors of other similar sized
companies and the time commitment and responsibilities of the role.
Neither the Chairman nor the non-executive directors participate in any of the Company’s share
schemes.
Opportunity
The current annual fees are:
Chairman: £140,000
Non-executive director basic fee: £40,000
Committee Chairmanship: £10,000
Senior Independent Director: £5,000
The fee levels will be reviewed on a periodic basis with reference to the time commitment of the role and
fee levels in comparative companies.
No benefits or other remuneration are provided.
Performance metrics
Not applicable to non-executive directors.
Recruitment
The Committee will follow the non-executive director remuneration policy as set out above in relation to the appointment of a new non-
executive director.
Terms of appointment
The non-executive directors do not have service contracts but have been appointed for terms of three years from 30 September 2013 or
their date of appointment if later. The appointment can be terminated at any time by either party giving one month’s notice to the other.
Details of appointment are set out below:
Director
P J Jungels (Chairman)
D McManus
R J Peters
K G Lough
A J Summers
T P Bushell
J E Martin
Appointment date
Original engagement letter
Revised engagement letter
21 February 2005
8 August 2005
29 October 2013
30 September 2010
30 November 2010
29 October 2013
30 September 2010
30 November 2010
29 October 2013
14 January 2014
14 January 2014
1 February 2014
3 February 2014
18 January 2016
18 January 2016
18 January 2016
18 January 2016
—
—
—
—
Directors are subject to annual re-election by shareholders at the Annual General Meeting in accordance with the 2014 UK Corporate
Governance Code and each director is subject to election by shareholders at the first Annual General Meeting following their appointment.
The directors’ letters of appointment are available to view at the Company’s registered office and prior to each Annual General Meeting at
the venue for the meeting.
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
39
Governance
Report on Remuneration
Remuneration Committee membership and meetings
As at 31 December 2015, the Committee comprised three independent non-executive directors. The Committee met five times during the
financial period. The members of the Committee during the year and as at the year end and their attendance are summarised below:
Committee member
D McManus – Committee Chairman
K G Lough
R J Peters
Meeting attendance
5/5
5/5
4/5
During the financial period, the Committee’s main areas of activity included:
• Confirming the salary adjustments for 2015 and bonus awards for the period ended 31 December 2014.
• Setting the targets for the bonus awards for the bonus scheme for the forthcoming financial year.
• Approving the Directors’ Remuneration Report for the period ended 31 December 2014.
• Approving the 2015 LTIP awards and reviewing the constitution of the peer group.
• Overseeing the operation of the Employee Benefit Trust including the use of the EBT to purchase exercised share options.
• Approving the annual implementation of the SIP.
• Considering the Company’s recruitment plans.
• Considering the implementation of a minimum shareholding requirement for executive directors.
The company secretary acted as secretary to the Committee and provided advice in relation to the operation and implementation of
incentive schemes and remuneration packages. The Chairman of the Board attended Committee meetings as appropriate.
The Board considers that the membership of the Committee is compliant with the 2014 UK Corporate Governance Code. No individual is
involved in determining their own remuneration.
External advice
The Committee received advice from Addleshaw Goddard in relation to the operation of the share schemes and the operation of the EBT.
The Committee considers that the advice it received during the financial period was objective and independent.
Total Remuneration
The table below reports a single figure for total remuneration for each executive director:
Salary
£’000
Taxable benefits
£’000
Annual bonus
£’000
Long-term
Incentives
£’000
Pension
£’000
SIP awards
£’000
Total
£’000
Nine
Year months
ended
31 Dec
2014
ended
31 Dec
2015
Nine
Year months
ended
31 Dec
2014
ended
31 Dec
2015
Nine
Year months
ended
31 Dec
2014
ended
31 Dec
2015
Nine
Year months
ended
31 Dec
2014
ended
31 Dec
2015
Nine
Year months
ended
31 Dec
2014
ended
31 Dec
2015
Nine
Year months
ended
31 Dec
2014
ended
31 Dec
2015
Nine
Year months
ended
31 Dec
2014
ended
31 Dec
2015
362.1 266.3
317.8 232.5
297.0 202.5
2.9
3.0
2.0
2.2 253.5 221.9 318.8(1) 213.6 36.2
2.9 222.4 193.8 —
— 31.8
1.4 207.9 168.8 —
— 29.7
26.6
23.3
20.3
6.6
6.6
6.6
2.7 980.1 733.3
2.7 581.6 455.2
2.5 543.2 395.5
S J Moody
F M MacAulay
S MacDonald
(1) This amount represents the gross proceeds on the exercise of share options in April 2015. S J Moody and P J Jungels elected to sell sufficient shares from the exercise of options
to discharge the cost of exercise and tax and national insurance obligations where due. The balance of the shares were retained by S J Moody and P J Jungels. The share option
held by P J Jungels had been granted to him when he was Executive Chairman.
40
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
Governance
The table below reports a single figure for total remuneration for each non-executive director:
Base fee
£’000
Additional fees
£’000
Long term incentives
£’000
Year ended
ended
31 December
2015
Nine months
ended
Year ended
ended
31 December 31 December
2015
2014
Nine months
ended
Year ended
ended
31 December 31 December
2015
2014
Nine months
ended
Year ended
ended
31 December 31 December
2015
2014
P J Jungels
R J Peters
D McManus
K G Lough
A J Summers
140.0
105.0
40.0
40.0
40.0
40.0
30.0
30.0
30.0
30.0
—
5.0
10.0
10.0
—
—
3.8
7.5
7.5
—
318.8(1)
—
—
—
—
—
—
—
—
—
458.8
45.0
50.0
50.0
40.0
Total
£’000
Nine months
ended
31 December
2014
105
33.8
37.5
37.5
30.0
(1) This amount represents the gross proceeds on the exercise of share options in April 2015. S J Moody and P J Jungels elected to sell sufficient shares from the exercise of options
to discharge the cost of exercise and tax and national insurance obligations where due. The balance of the shares were retained by S J Moody and P J Jungels. The share option
held by P J Jungels had been granted to him when he was Executive Chairman.
R J Peters is Senior Independent Director.
D McManus is Chairman of the Remuneration Committee.
K G Lough is Chairman of the Audit & Risk Committee.
No fees were paid to non-executive directors for membership of a committee or for attending committee meetings. Additional fees were
payable of £5,000 for acting as Senior Independent Director and £10,000 as Chairman of the Audit and Risk Committee and Remuneration
Committee. The Chairman of the Company does not receive any additional fees for chairing the Nomination Committee.
Additional information in respect of single figure table of remuneration for nine months ended 31 December 2015
Annual bonus
In respect of the financial period, the Committee agreed that the executive director annual bonus opportunity would be up to 100 per cent of
base salary and that the executive directors would be treated as a team for the purpose of objective setting. The following objectives were
agreed for the financial year, each of which had an equal weighting:
• Completion of a safe and successful exploration campaign in the North Falkland Basin.
• Achievement of specific milestones for the Final Investment Decision for the Sea Lion Development.
• New venture activity to enhance the Company’s portfolio of assets in its strategic areas of interest.
• Progressing funding alternatives for the uncarried Sea Lion Development costs.
The Committee agreed the extent to which the targets had been achieved in respect of the year ended 31 December 2015:
(i) Completion of a safe and successful exploration campaign in the North Falkland Basin: Contingent resources in excess of 75mmbls
had been discovered with no HSE issues arising. The Committee agreed that this target had been achieved in full.
(ii) Achievement of specific milestones for the Final Investment Decision on the Sea Lion Development: The FEED contract for the FPSO
provider had been awarded on 12th January 2016 and the SURF FEED contract was awarded in February 2016. The Field Development
Plan had been submitted to FIG. The Committee agreed that this target had been achieved in full.
(iii) New venture activity to enhance the Company’s portfolio of assets in its strategic areas of interest: The merger with Falkland Oil and
Gas Limited had completed in January 2016. The acquisition of Beach Petroleum (Egypt) Pty Limited had not completed due to the
exercise of pre-emption rights by one of Beach’s partners. The Committee agreed that this target had been partially achieved.
(iv) Progressing funding alternatives for the uncarried Sea Lion development costs – indicative support for reserve based lending had been
received from various banks. Considerable work had been done on the CPR but it had not yet been completed due to delays in the
drilling programme. Further work to complete the CPR would be required in 2016. The Committee agreed that this target had been
partially achieved.
The Committee recognised the considerable progress that had been achieved against the 2015 corporate targets and agreed that it was
appropriate to award a bonus of 70% of basic salary to each of the executive directors. The Committee also agreed that the executive
directors should continue to be treated as a team for the purpose of bonus awards and that each of them should receive the same
percentage bonus.
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
41
Governance
Annual bonuses were paid in cash and were as follows:
Director
S J Moody
F M MacAulay
S MacDonald
Bonus as % of salary
70.0
70.0
70.0
Cash £
253,470
222,425
207,900
LTIP awards granted during the financial year
The table below summarises the LTIP awards granted to executive directors during the financial year in accordance with the policy.
Director
S J Moody
F MacAulay
S MacDonald
Basis of award
(% of base
salary)
150
150
150
Date of grant
13 April 2015
13 April 2015
13 April 2015
Share price
at date of
grant
£0.635
£0.635
£0.635
Number of
shares over which
LTIP option
awarded
855,354
750,591
701,575
Exercise
price
—
—
—
Maximum
number of
shares that
may vest
855,354
750,591
701,575
Face value
of award (1)
£543,150
£476,625
£445,500
(1) The face value of the awards is calculated using the share price at the date of grant. The actual value of the awards to participants will be dependent on the percentage of the
award that vests and the share price at the date of exercise.
The key features of the 2015 LTIP awards are as follows:
• Awards are in the form of nil cost options.
• Performance will be measured over the three year period to 31 March 2018.
• Performance measurement is based on the average price over the 90 day dealing period to 31 March 2018 measured against the 90 day
dealing period up to 31 March 2015.
• Performance is based on Total Shareholder Return (‘TSR’) measured against an original peer group of 10 other oil and gas companies
comprising EnQuest, Salamander Energy, Amerisur Resources, Providence Resources, Ithaca Energy, Petroceltic International, Faroe
Petroleum, Bowleven, Borders & Southern and Falkland Oil and Gas. The Committee has discretion to amend the size and constitution of
the peer group to ensure that it remains appropriate and has agreed to introduce Premier Oil and Hurricane Energy as replacements for
Falkland Oil and Gas Limited which merged with the Company in January 2016 and Salamander Energy plc which was acquired by Ophir
Energy Plc in March 2015.
• Awards will vest on a sliding scale from 35% up to a maximum of 100% for performance in the top two quartiles with no awards vesting
for performance in the bottom two quartiles.
Implementation of executive director remuneration policy for 2016
Base salaries
As part of the annual remuneration review, the Committee considered industry and general economic conditions in the UK and had regard
to current market practice in relation to salary adjustments. In the light of this review, the Committee agreed that no salary increases
should be awarded for 2016.
Annual bonus
For 2016, the executive director annual bonus opportunity is up to 100 per cent of base salary. The Committee has agreed that the executive
directors will be treated as a team for the purpose of objective setting and has agreed the following objectives for the financial year ending
31 December 2016:
• Bringing an additional paying partner into the Sea Lion Development Project.
• Completion of a Competent Person’s Report that meets specific objectives set by the Board.
• Achievement of production related targets.
• Achievement of specific milestones for the Final Investment Decision for the Sea Lion Development.
42
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
Governance
Long Term Incentive Plan
The Committee intends to grant LTIP awards in 2016 in line with the Policy. The Committee will consider the appropriate performance
period and quantum at the time of the awards. It is intended that the performance condition will remain as TSR measured against a peer
group. The Committee intends to increase the size and structure of the peer group for the 2016 LTIP awards.
Benefits, pension contributions and share plans
The executive directors will receive the range of Company benefits, pension contributions and participation in the SIP in line with the policy.
Implementation of non-executive remuneration Policy for 2016
Non-executive director fees (excluding the Chairman) were last increased in 2014 and no further review is scheduled. The Chairman and
non-executive director fees are set out in the table below:
Role
Chairman
Other non-executive directors
Type of fee
Total fee
Basic fee
Chairman of Remuneration and Audit & Risk Committees
Senior Independent Director
Statement of directors’ shareholdings
The table below summarises the interests in shares including those held in the SIP of the directors in office at the year end:
From 1 April 2014
£140,000
£40,000
£10,000
£5,000
P J Jungels
S J Moody
F M MacAulay
S MacDonald
R J Peters
D McManus
K G Lough
A J Summers
At 31 December 2015
Ordinary 1p shares
At 31 December 2014
Ordinary 1p shares
1,394,817
2,022,556
50,853
23,846
14,287
132,803
— —
— —
1,117,644
1,742,260
34,085
6,643
14,287
132,803
The Committee has agreed that the executive directors should be encouraged to build up a stake of Rockhopper shares equivalent to
one times salary in the case of FM MacAulay and S MacDonald and two times salary in the case of S J Moody over a five year period. It is
intended that this should be achieved through the retention of any vested LTIP awards and Share Appreciation Rights awarded under the
Employee Share Option Scheme and that there should be no requirement for directors to purchase shares on the open market.
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
43
Governance
Outstanding awards under the LTIP, Employee Share Option Scheme and Cash Incentive Plan
(a) LTIP
Director
S J Moody
F MacAulay
S MacDonald
Date of
Awards
held at
Awards Market price
held at
at date
of award
Performance
period
Earliest
vesting
date
grant
31 Dec 2014
Granted
Lapsed
Vested
31 Dec 2015
08.10.13
508,007
13.10.14
665,625
—
—
13.04.15
—
855,354
08.10.13
312,849
13.10.14
775,000
—
—
13.04.15
—
750,591
10.03.14
201,117
13.10.14
506,250
—
—
13.04.15
701,575
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
508,007
£1.3425 01.04.13-31.03.16
31.03.16
665,625
£0.7600 01.10.14-30.09.17
30.09.17
855,534
£0.6350 01.04.15-31.03.18
31.03.18
312,849
£1.3425 01.04.13-31.03.16
31.03.16
775,000
£0.7600 01.10.14-30.09.17
30.09.17
750,591
£0.6350 01.04.15-31.03.18
31.03.18
201,117
£1.1525 01.04.13-31.03.16
31.03.16
506,250
£0.7600 01.10.14-30.09.17
30.09.17
701,575
£0.6350 01.04.15-31.03.18
31.03.18
(b) Share options
The share options outstanding as at 31 December 2015 and held by individuals who were directors during the year are:
Director
P J Jungels
S J Moody
Date of grant
08.08.05
08.08.05
Awards held at
31 December 2014
1,500,000
1,500,000
3,000,000
Exercised during
the year
1,500,000
1,500,000
3,000,000
Awards held at
31 December 2015
—
—
—
Exercise price
£
0.42
0.42
(c) Share appreciation rights
The share appreciation rights outstanding as at 31 December 2015 and held by individuals who were directors during the year ended 31
December 2015 are:
Director
SJ Moody
F M MacAulay
Awards held at
Exercised during
Lapsed during
Awards held at
Exercise price
Date of grant
31 December 2014
the period
the period
31 December 2015
11.01.11
17.01.12
30.01.13
11.01.11
17.01.12
30.01.13
76,056
77,777
91,077
15,929
22,505
49,086
332,430
—
—
—
—
—
—
—
—
—
—
—
—
—
—
76,056
77,777
91,077
15,929
22,505
49,086
332,430
Pence
372.75
303.75
159.00
372.75
303.75
159.00
(d) Cash Incentive Plan
The award was made on the same basis as the 2013 LTIP awards in relation to performance measurement and conditions. Since the
end of the year the Committee has agreed to remove the £1.80 hurdle rate on condition that the net proceeds from the vesting of the
CIP award are re-invested in Rockhopper shares to be held for a minimum of three years. Details of the award are as follows:
Director
F M MacAulay
Date of grant
23.12.13
Number of
notional shares
awarded
312,849
Market price
at date of
award
Performance
period
£1.3425 01.04.13-31.03.16
Earliest vesting
date
31.03.16
44
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
Governance
Share price movements during year ended 31 December 2015
The mid market closing price of the Company’s shares as at 31 December 2015 was 27.75 pence (31 December 2014: 65.75 pence).
The range of the trading price of the Company’s shares during the year was between 83.00 pence and 24.00 pence.
Executive director external appointments
None of the executive directors have any external directorships for which they are paid a fee.
By order of the Board
D McManus
Chairman of the Remuneration Committee
12 April 2016
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
45
Governance
Statutory information
Principal activity
The principal activity of the Group is the exploration and exploitation
of its oil and gas acreage. Group strategy is to explore, appraise,
develop and manage production from its acreage both safely and
responsibly.
Political and charitable contributions
The Group made no charitable donations (period ended
31 December 2014: £nil) and no political donations (period ended
31 December 2014: £nil) during the period.
Results and dividends
The trading results for the period, and the Group’s financial
position at the end of the period are shown in the attached financial
statements. The directors have not recommended a dividend for the
year (period ended 31 December 2014: £nil).
Key performance indicators “KPIs”
See page 10 for more details.
Substantial shareholders
At 23 March 2016 the Company had been notified of the following
interests of three percent or more of the Company’s voting rights.
Shareholder/Fund manager
UBS Investment Bank
Carlson Capital
FMR LLC & FIL Ltd (Fidelity)
Majedie Asset Management
Royal London Asset Management
Odey Asset Management
Credit Suisse
Number of
shares
33,227,447
24,911,045
23,840,431
20,044,687
17,758,583
14,808,732
14,292,898
Percentage
of issued
share capital
7.28%
5.46%
5.22%
4.39%
3.89%
3.25%
3.13%
Directors
The present members of the board are as listed in the board of
directors section. The interests of the directors in office at the period
end in the share capital of the Company are shown in the directors’
remuneration report along with details of their service contracts and
terms of appointment.
Post balance sheet events
Particulars of important events affecting the Group since the
financial year end are set out in note 30.
Principal risks and uncertainties
Information relating to the principal risks and uncertainties facing
the Group is set out in the Risk Management report section of the
Strategic report and note 31.
Related party transactions
Related party transactions are disclosed in note 28.
Financial instruments
For the period under review the Group held no financial instruments,
outside of cash and receivables. Financial risk management policies
are disclosed in note 31.
Creditor payment policy
The Group does not follow any specific code or standard on payment
practice. However, it is the policy of the Group to ensure that all of its
suppliers of goods and services are paid promptly and in accordance
with contractual and legal obligations. Average creditor days for the
period were 10 days (period ended 31 December 2014: 46 days), on
the basis of accounts payable as a percentage of amounts invoiced
during the period.
Qualifying indemnity provisions
The Company has entered into separate indemnity deeds with each
director containing qualifying indemnity provisions, as defined at
section 236 of the Companies Act 2006, under which the Company
has agreed to indemnify them in respect of certain liabilities which
may attach to them as a director or as a former director of the
Company. At the date of this directors’ report indemnity deeds
containing qualifying indemnity provisions are in force for all of the
Company’s directors. The Company has also issued an indemnity
to directors and the company secretary in respect of any personal
liability to Falkland Islands tax by the Company or its subsidiaries.
Directors’ and Officers’ insurance
The Group maintained directors’ and officers’ liability insurance
cover throughout the period. The directors are also able to obtain
independent legal advice at the expense of the Group, as necessary,
in their capacity as directors.
Employees
The Group had 39 employees at the year end, three of whom are
directors. As at 31 March 2016 the number of staff had reduced to
33 following a review of staffing levels. The Group seeks to employ
people on the basis of merit and ability to perform the required
roles. The Group does not discriminate on any grounds including
race, gender, religion, age, nationality or sexual orientation.
Environment
The Group’s operations are, and will be, subject to environmental
regulation (with regular environmental impact assessments and
evaluation of operations required before any permits are granted
to the Group) in the jurisdiction in which it operates. Although the
Group intends to be in compliance with all applicable environmental
laws and regulations, there are certain risks inherent to its activities,
such as accidental spills, leakages or other circumstances, that
could subject the Group to extensive liability. Further, the Group
may fail to obtain the required approval from the relevant authorities
necessary for it to undertake activities which are likely to impact the
environment. The Group is unable to predict the effect of additional
environmental laws and regulations which may be adopted in
the future, including whether any such laws or regulations would
materially increase the Group’s cost of doing business or affect its
operations in any area.
46
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
Governance
Statement of Directors’ responsibilities in respect of the strategic
report, the Directors’ report and the financial statements
The directors are responsible for preparing the Strategic Report,
the Directors’ Report and the Group and Parent Company financial
statements in accordance with applicable law and regulations.
The directors are responsible for the maintenance and integrity of
the corporate and financial information included on the Company’s
website. Legislation in the UK governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Jan Davies
Company Secretary
12 April 2016
Company law requires the directors to prepare Group and Parent
Company financial statements for each financial year. As required
by the AIM Rules of the London Stock Exchange they are required to
prepare the Group financial statements in accordance with IFRSs as
adopted by the EU and applicable law and have elected to prepare
the parent company financial statements in accordance with UK
Accounting Standards and applicable law (UK Generally Accepted
Accounting Practice), including FRS101 Reduced Disclosure
Framework.
Under company law the directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and Parent Company and of
their profit or loss for that period. In preparing each of the Group and
Parent Company financial statements, the directors are required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and estimates that are reasonable and
prudent;
• for the Group financial statements, state whether they have been
prepared in accordance with IFRSs as adopted by the EU;
• for the parent company financial statements, state whether
applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the
financial statements; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and the
Parent Company will continue in business.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the parent company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the parent company and enable them to
ensure that its financial statements comply with the Companies Act
2006. They have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Group and to
prevent and detect fraud and other irregularities.
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
47
Governance
Independent auditor’s report
to the members of Rockhopper Exploration plc
Opinion on other matters prescribed by the Companies Act 2006
In our opinion the information given in the Strategic Report and
the Directors’ Report for the financial year for which the financial
statements are prepared is consistent with the financial statements.
Based solely on the work required to be undertaken in the course of
the audit of the financial statements and from reading the Strategic
report and the Directors’ report:
• we have not identified material misstatements in those reports;
and
• in our opinion, those reports have been prepared in accordance
with the Companies Act 2006.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where
the Companies Act 2006 requires us to report to you if, in our
opinion:
• adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the parent company financial statements are not in agreement
with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by
law are not made; or
• we have not received all the information and explanations
we require for our audit.
Lynton Richmond (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London
E14 5GL
12 April 2016
We have audited the financial statements of Rockhopper Exploration
Plc for the year ended 31 December 2015 set out on pages 49 to
87. The financial reporting framework that has been applied in
the preparation of the Group financial statements is applicable
law and International Financial Reporting Standards (IFRSs) as
adopted by the EU. The financial reporting framework that has
been applied in the preparation of the parent company financial
statements is applicable law and UK Accounting Standards (UK
Generally Accepted Accounting Practice), including FRS101 Reduced
Disclosure Framework.
This report is made solely to the company’s members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
company’s members those matters we are required to state to them
in an auditor’s report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company’s members, as a
body, for our audit work, for this report, or for the opinions we have
formed.
Respective responsibilities of Directors and Auditor
As explained more fully in the Directors’ Responsibilities Statement
set out on page 47, the directors are responsible for the preparation
of the financial statements and for being satisfied that they give
a true and fair view. Our responsibility is to audit, and express an
opinion on, the financial statements in accordance with applicable
law and International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board’s
Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is
provided on the Financial Reporting Council’s website at
www.frc.org.uk/auditscopeukprivate.
Opinion on financial statements
In our opinion:
• the financial statements give a true and fair view of the state
of the Group’s and of the parent company’s affairs as at
31 December 2015 and of the group’s profit for the year then ended;
• the group financial statements have been properly prepared in
accordance with IFRSs as adopted by the EU;
• the parent company financial statements have been properly
prepared in accordance with UK Generally Accepted Accounting
Practice; and
• the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
48
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
Group income statement
for the year ended 31 December 2015
Revenue
Other cost of sales
Depreciation and impairment of oil and gas assets
Total cost of sales
Gross loss
Exploration and evaluation expenses
Costs in relation to acquisition
Other administrative costs
Total administrative expenses
Charge for share based payments
Foreign exchange movement
Results from operating activities
Finance income
Finance expense
Loss before tax
Tax
Profit/(loss) for the year attributable to the equity shareholders of the parent company
Profit/(loss) per share: cents
Basic
Diluted
All operating income and operating gains and losses relate to continuing activities.
Group statement of comprehensive income
for the year ended 31 December 2015
Profit/(loss) for the period
Exchange differences on translation of foreign operations
Accounts
Year ended
31 December
2015
$’000
Notes
Nine months
ended
31 December
2014
$’000
3,966
(2,951)
(8,098)
(11,049)
(7,083)
(22,934)
(1,544)
(9,351)
1,910
(554)
(3,416)
(3,970)
(2,060)
(1,782)
(1,899)
(8,134)
(10,895)
(10,033)
(1,937)
1,927
(40,922)
975
(4,750)
(44,697)
55,395
10,698
3.65
3.64
(672)
6,516
(8,031)
657
(209)
(7,583)
(5)
(7,588)
(2.63)
(2.63)
4
5
6
9
10
11
11
12
13
13
Year ended
31 December
2015
$’000
10,698
(4,943)
Nine months
ended
31 December
2014
$’000
(7,588)
(4,217)
Total comprehensive profit/(loss) for the period
5,755
(11,805)
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
49
Accounts
Group balance sheet
as at 31 December 2015
Non-current assets
Exploration and evaluation assets
Property, plant and equipment
Goodwill
Other receivables
Current assets
Inventories
Other receivables
Restricted cash
Term deposits
Cash and cash equivalents
Total assets
Current liabilities
Other payables
Tax payable
Non-current liabilities
Tax payable
Provisions
Deferred tax liability
Total liabilities
Equity
Share capital
Share premium
Share based remuneration
Own shares held in trust
Merger reserve
Foreign currency translation reserve
Special reserve
Retained losses
Attributable to the equity shareholders of the company
Total liabilities and equity
31 December
2015
$’000
31 December
2014
$’000
Notes
14
15
16
17
17
18
19
20
21
21
22
23
24
25
25
25
25
25
25
25
256,658
204,164
12,637
9,803
—
1,670
6,199
2,192
60,000
50,434
399,593
30,457
9
47,405 —
20,343
39,145
12,146
10,940
566
2,188
4,681
1,384
100,000
99,726
435,795
19,358
100,439
21,816
39,144
137,359
180,757
4,910
2,995
5,491
(3,513)
11,112
(9,160)
4,854
662
4,960
(628)
11,112
(4,217)
472,967
536,976
(222,568)
(298,681)
262,234
399,593
255,038
435,795
These financial statements were approved by the directors and authorised for issue on 12 April 2016 and are signed on their behalf by:
Stewart MacDonald
Chief Financial Officer
50
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
Group statement of changes in equity
for the year ended 31 December 2015
Share
capital
$’000
Share
premium
$’000
Share based
remuneration
$’000
Shares held
in trust
$’000
Merger
reserve
$’000
Foreign
currency
translation
reserve
$’000
Special
reserve
$’000
Retained
losses
$’000
Total
equity
$’000
Balance at 31 March 2014
4,711
170
4,597
(354)
(243)
4,123
541,964
(300,513) 254,455
Accounts
Total comprehensive loss for the period
Acquisition of subsidiary
Share based payments
Share issues in relation to SIP
Exercise of share options
Purchase of own shares
Other transfers
—
127
—
1
15
—
—
—
—
—
77
—
—
672
—
415
(309)
—
—
—
—
—
—
—
(49)
—
(225)
—
11,355
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(4,123)
(4,988)
9,111
—
—
—
309
—
11,482
672
29
430
(225)
—
—
(4,217)
(7,588)
(11,805)
Balance at 31 December 2014
4,854
662
4,960
(628)
11,112
(4,217) 536,976
(298,681) 255,038
Total comprehensive income for the year
Share based payments
Share issues in relation to SIP
Exercise of share options
Purchase of own shares
Other transfers
—
—
3
53
—
—
—
—
186
—
1,937
—
—
—
(152)
2,147
(1,406)
—
—
—
—
—
(2,733)
—
—
—
—
—
—
—
(4,943)
—
—
—
—
—
—
—
—
—
—
10,698
—
—
5,755
1,937
37
1,406
2,200
—
(2,733)
(64,009)
64,009
—
Balance at 31 December 2015
4,910
2,995
5,491
(3,513)
11,112
(9,160) 472,967
(222,568) 262,234
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
51
Accounts
Group cash flow statement
for the year ended 31 December 2015
Cash flows from operating activities
Net loss before tax
Adjustments to reconcile net losses to cash:
Depreciation
Impairment on property, plant and equipment
Share based payment charge
Exploration impairment expenses
Loss on disposal of property, plant and equipment
Finance expense
Finance income
Foreign exchange
Operating cash flows before movements in working capital
Changes in:
Inventories
Other receivables
Payables
Movement on other provisions
Cash utilised by operating activities
Cash flows from investing activities
Capitalised expenditure on exploration and evaluation assets
Purchase of property, plant and equipment
Acquisition of subsidiary
Interest
Investing cash flows before movements in capital balances
Changes in:
Restricted cash
Term deposits
Cash flow by investing activities
Cash flows from financing activities
Share options exercised
Share incentive plan
Purchase of own shares
Finance expense
Cash flow from financing activities
Currency translation differences relating to cash and cash equivalents
Net cash flow
Cash and cash equivalents brought forward
Cash and cash equivalents carried forward
Year ended
31 December
2015
$’000
Notes
Nine months
ended
31 December
2014
$’000
(44,697)
(7,583)
15
15
9
14
10
29
2,744
5,649
1,937
22,335
12 3
4,742
(800)
(1,921)
(9,999)
291
(981)
3,765
68 8
2,186
1,465
672
258
208
(470)
(6,349)
(9,610)
495
1,682
(3,812)
(6,856)
(11,237)
(70,661)
(10,258)
—
617
(10,150)
(1,111)
(24,037)
673
(80,302)
(34,625)
(826)
40,000
(41,128)
2,200
37
(2,733)
(18)
(514)
(794)
(48,498)
99,726
50,434
(953)
85,000
49,422
430
29
(225)
(20)
214
(1,155)
38,399
62,482
99,726
52
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
Accounts
Notes to the group financial statements
for the year ended 31 December 2015
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 certain exploration licences granted in 2004 and 2005 for
the exploration and exploitation of oil and gas in the Falkland Islands. In 2014, it diversified its portfolio through the acquisition of an
exploration and production company with operations principally based in Italy. The registered office of the Company is Hilltop Park,
Devizes Road, Salisbury, SP3 4UF.
1.2 Statement of compliance
The consolidated financial statements are prepared in compliance with International Financial Reporting Standards (IFRS) as adopted
by the European Union and applied in accordance with UK company law. The consolidated financial statements were approved for issue
by the board of directors on 12 April 2016 and are subject to approval at the Annual General Meeting of shareholders on 17 May 2016.
1.3 Basis of preparation
The results upon which these financial statements have been based were prepared using the accounting policies set out below.
These policies have been consistently applied unless otherwise stated.
These consolidated financial statements have been prepared under the historical cost convention except, as set out in the accounting
policies below, where certain items are included at fair value.
Items included in the results of each of the Group’s entities are measured in the currency of the primary economic environment in
which that entity operates (the “functional currency”). The functional currency of the Mediterranean business unit is euros. All other
members of the Group have a functional currency of US$.
All values are rounded to the nearest thousand dollars ($’000) or thousand pounds (£’000), except when otherwise indicated.
1.4 Change in accounting policy
Changes in accounting standards
In the current year new and revised standards, amendments and interpretations were effective and are applicable to the consolidated
financial statements of the Group but did not affect amounts reported in these financial statements.
At the date of authorisation of this report the following standards and interpretations, which have not been applied in this report,
were in issue but not yet effective:
– Annual improvements to IFRSs 2012-2014 cycle;
–
IFRS9 Financial Instruments;
– Amendments to IFRS11 Accounting for Acquisitions of Interests in Joint Operations;
–
–
IFRS15 Revenue from Contracts with customers;
IFRS16 Leases; and
– Amendments to IAS16 and IAS38 Clarification of Acceptable Methods of Depreciation and Amortisation.
Management does not believe that the application of these standards will have a material impact on the financial statements.
1.5 Going concern
At 31 December 2015, the Group had available cash and term deposits of $110 million. In addition the first phase of the Group’s main
development, Sea Lion, is fully funded through a combination of Development Carries and a loan facility from the operator.
It is for these reasons that the board is of the opinion, at the time of approving the financial statements, that the Group and Company has
adequate resources to continue in operational existence for the foreseeable future, being at least twelve months from the date of approval
of the financial statements. For this reason, the board has adopted the going concern basis in preparation of the financial statements.
1.6 Significant accounting policies
(A) Basis of Accounting
The Group has identified the accounting policies that are most significant to its business operations and the understanding of its
results. These accounting policies are those which involve the most complex or subjective decisions or assessments, and relate to the
capitalisation of exploration expenditure. The determination of this is fundamental to the financial results and position and requires
management to make a complex judgment based on information and data that may change in future periods.
Since these policies involve the use of assumptions and subjective judgments as to future events and are subject to change, the use of
different assumptions or data could produce materially different results. The measurement basis that has been applied in preparing
the results is historical cost with the exception of financial assets, which are held at fair value.
The significant accounting policies adopted in the preparation of the results are set out below.
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
53
Accounts
Notes to the group financial statements continued
for the year ended 31 December 2015
1. Accounting policies continued
1.6 Significant accounting policies continued
(B) Basis of consolidation
The consolidated financial statements include the results of Rockhopper Exploration plc and its subsidiary undertakings to the Balance
Sheet date. Where subsidiaries follow differing accounting policies from those of the Group, those accounting policies have been
adjusted to align with those of the Group. Inter-company balances and transactions between Group companies are eliminated on
consolidation, though foreign exchange differences arising on inter-company balances between subsidiaries with differing functional
currencies are not offset.
(C) Segmental reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker as
required by IFRS8 Operating Segments. The chief operating decision maker, who is responsible for allocating resources and assessing
performance of the operating segments, has been identified as the board of directors.
The Group’s operations are made up of three segments, the oil and gas exploration activities in the geographical regions of the Falkland
Islands and the Greater Mediterranean region as well as its corporate activities centered in the UK.
(D) Oil and Gas Assets
The Group applies the successful efforts method of accounting for exploration and evaluation (“E&E”) costs, having regard to the
requirements of IFRS6 – ‘Exploration for and evaluation of mineral resources’.
Exploration and evaluation (“E&E”) expenditure
Expensed exploration & evaluation costs
Expenditure on costs incurred prior to obtaining the legal rights to explore an area, geological and geophysical costs are expensed
immediately to the income statement.
Capitalised intangible exploration and evaluation assets
All directly attributable E&E costs are initially capitalised in well, field, prospect, or other specific, cost pools as appropriate, pending
determination.
Treatment of intangible E&E assets at conclusion of appraisal activities
Intangible E&E assets related to each cost pool are carried forward until the existence, or otherwise, of commercial reserves have
been determined, subject to certain limitations including review for indications of impairment. If commercial reserves have been
discovered, the carrying value, after any impairment loss, of the relevant E&E assets, are then reclassified as development and
production assets within property plant and equipment. However, if commercial reserves have not been found, the capitalised costs
are charged to expense.
The Group’s definition of commercial reserves for such purpose is proved and probable reserves on an entitlement basis. Proved
and probable reserves are the estimated quantities of crude oil, natural gas and natural gas liquids which geological, geophysical
and engineering data demonstrate with a specified degree of certainty (see below) to be recoverable in future years from known
reservoirs and which are considered commercially producible. There should be a 50% statistical probability that the actual quantity of
recoverable reserves will be more than the amount estimated as proved and probable. The equivalent statistical probabilities for the
proven component of proved and probable reserves are 90%.
Such reserves may be considered commercially producible if management has the intention of developing and producing them and
such intention is based upon:
–
–
–
–
a reasonable assessment of the future economics of such production;
a reasonable expectation that there is a market for all or substantially all the expected hydrocarbon production;
evidence that the necessary production, transmission and transportation facilities are available or can be made available; and
the making of a final investment decision.
54
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
Accounts
1. Accounting policies continued
1.6 Significant accounting policies continued
Furthermore:
(i)
Reserves may only be considered proved and probable if producibility is supported by either actual production or a conclusive
formation test. The area of reservoir considered proved includes: (a) that portion delineated by drilling and defined by gas-oil and/
or oil-water contacts, if any, or both; and (b) the immediately adjoining portions not yet drilled, but which can be reasonably judged
as economically productive on the basis of available geophysical, geological and engineering data. In the absence of information on
fluid contacts, the lowest known structural occurrence of hydrocarbons controls the lower proved limit of the reservoir.
(ii)
Reserves which can be produced economically through application of improved recovery techniques (such as fluid injection) are
only included in the proved and probable classification when successful testing by a pilot project, the operation of an installed
programme in the reservoir, or other reasonable evidence (such as, experience of the same techniques on similar reservoirs or
reservoir simulation studies) provides support for the engineering analysis on which the project or programme was based.
Development and production assets
Development and production assets, classified within property, plant and equipment, are accumulated generally on a field-by-field
basis and represent the costs of developing the commercial reserves discovered and bringing them into production, together with the
E&E expenditures incurred in finding commercial reserves transferred from intangible E&E assets.
Depreciation of producing assets
The net book values of producing assets are depreciated generally on a field-by-field basis using the unit-of-production method
by reference to the ratio of production in the year and the related commercial reserves of the field, taking into account the future
development expenditure necessary to bring those reserves into production.
Disposals
Net cash proceeds from any disposal of an intangible E&E asset are initially credited against the previously capitalised costs. Any
surplus proceeds are credited to the income statement.
Decommissioning
Provision for decommissioning is recognised in full when the related facilities are installed. The amount recognised is the present
value of the estimated future expenditure. A corresponding amount equivalent to the provision is also recognised as part of the cost of
the related oil and gas property. This is subsequently depreciated as part of the capital costs of the production facilities. Any change
in the present value of the estimated expenditure is dealt with prospectively as an adjustment to the provision and the oil and gas
property. The unwinding of the discount is included in finance cost.
(E) Capital commitments
Capital commitments include all projects for which specific board approval has been obtained up to the reporting date. Projects still
under investigation for which specific board approvals have not yet been obtained are excluded.
(F) Foreign currency translation
Functional and presentation currency
Items included in the results of each of the Group’s entities are measured using the currency of the primary economic environment in
which the entity operates, the functional currency. The consolidated financial statements are presented in US$ as this best reflects the
economic environment of the oil exploration sector in which the Group operates. The Group maintains the accounts of the parent and
subsidiary undertakings in their functional currency. Where applicable, the Group translates subsidiary accounts into the presentation
currency, US$, using the closing rate method for assets and liabilities which are translated at the rate of exchange prevailing at the
balance sheet date and rates at the date of transactions for income statement accounts. Differences are taken directly to reserves.
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year
end exchange rates of monetary assets and liabilities denominated in foreign currencies are capitalised in the income statement,
except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges.
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
55
Accounts
Notes to the group financial statements continued
for the year ended 31 December 2015
1. Accounting policies continued
1.6 Significant accounting policies continued
(F) Foreign currency translation continued
The period end rates of exchange actually used were:
£ : US$
a : US$
(G) Revenue and income
(i) Revenue
31 December 2015
31 December 2014
1.48
1.09
1.56
1.22
Revenue arising from the sale of goods is recognized when the significant risks and rewards of ownership have passed to the
buyer, which is typically at the point that title passes, and the revenue can be reliably measured. Revenue is measured at the
fair value of the consideration received or receivable and represents amounts receivable for goods provided in the normal
course of business, net of discounts, customs duties and sales taxes.
(ii)
Investment income
Investment income consists of interest receivable for the period. Interest income is recognised as it accrues, taking into
account the effective yield on the investment.
(H) Non-derivative financial instruments
Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group has become a party to the
contractual provisions of the instrument.
(i) Other receivables
Other receivables are classified as loans and receivables and are initially recognised at fair value. They are subsequently
measured at their amortised cost using the effective interest method less any provision for impairment. A provision for
impairment is made where there is objective evidence that amounts will not be recovered in accordance with original terms
of the agreement. A provision for impairment is established when the carrying value of the receivable exceeds the present
value of the future cash flow discounted using the original effective interest rate. The carrying value of the receivable is
reduced through the use of an allowance account and any impairment loss is recognised in the income statement.
(ii) Term deposits
Term deposits are disclosed separately on the face of the balance sheet when their term is greater than three months
and they are unbreakable.
(iii) Restricted cash
Restricted cash is disclosed separately on the face of the balance sheet and denoted as restricted when it is not under the
exclusive control of the Group.
(iv) Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and at bank and other short-term deposits held by the Group including
breakable and unbreakable deposits with terms of less than three months and breakable term deposits of greater terms than
three months where amounts can be accessed within three months without material loss. They are stated at carrying value
which is deemed to be fair value.
(v) Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered
into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its
liabilities.
(vi) Account and other payables
Account payables are initially recognised at fair value and subsequently at amortised cost using the effective interest method.
(vii) Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
56
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
Accounts
1. Accounting policies continued
1.6 Significant accounting policies continued
Income taxes and deferred taxation
(I)
The current tax expense is based on the taxable profits for the period, after any adjustments in respect of prior years. Tax, including
tax relief for losses if applicable, is allocated over profits before tax and amounts charged or credited to reserves as appropriate.
Deferred taxation is recognised in respect of all taxable temporary differences that have originated but not reversed at the balance
sheet date where a transaction or events have occurred at that date that will result in an obligation to pay more, or a right to pay less
or to receive more, tax, with the exception that deferred tax assets are recognised only to the extent that the directors consider that
it is probable that there will be suitable taxable profits from which the future reversal of the underlying temporary differences can be
deducted.
Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which temporary
differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date.
(J) Share based remuneration
The Group issues equity settled share based payments to certain employees. Equity settled share based payments are measured at
fair value (excluding the effect of non market based vesting conditions) at the date of grant. The fair value determined at the grant date
of the equity settled share based payments is expensed on a straight line basis over the vesting period, based on the Group’s estimate
of shares that will eventually vest and adjusted for non market based vesting conditions.
Fair value is measured by use of either Binomial or Monte-Carlo simulation. The main assumptions are disclosed in note 9.
Cash settled share based payment transactions result in a liability. Services received and liability incurred are measured initially at
fair value of the liability at grant date, and the liability is remeasured each reporting period until settlement. The liability is recognised
on a straight line basis over the period that services are rendered.
2. Use of estimates, assumptions and judgements
The Group makes estimates, assumptions and judgements that affect the reported amounts of assets and liabilities. Estimates,
assumptions and judgements are continually evaluated and based on historical experience and other factors, including expectations of
future events that are believed to be reasonable under the circumstances.
The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are
discussed below.
Carrying value of intangible exploration and evaluation assets (note 14) and property, plant and equipment (note 15)
The amounts for intangible exploration and evaluation assets represent active exploration and evaluation projects. These amounts
will be written off to the income statement as exploration costs unless commercial reserves are established or the determination
process is not completed and there are indications of impairment in accordance with the Group’s accounting policy.
In addition for assets under evaluation where discoveries have been made, such as Sea Lion, and property plant and equipment
assets their carrying value is checked by reference to the net present value of future cashflows which requires key assumptions
and estimates in relation to: commodity prices that are based on forward curves for a number of years and the long-term corporate
economic assumptions thereafter, discount rates that are adjusted to reflect risks specific to individual assets, the quantum of
commercial reserves and the associated production and cost profiles. Future development costs are estimated taking into account
the level of development required to produce the reserves by reference to operators, where applicable, and internal engineers.
Carrying value of goodwill (note 16)
Following the acquisition of Mediterranean Oil & Gas plc during 2014, Rockhopper recognised goodwill in line with the requirements
of IFRS3- Business Combinations. Management performs annual impairment tests on the carrying value of goodwill. The calculation
of the recoverable amount is based on the likely future economic benefits of the exploration and evaluation assets in the acquired
portfolio and is based on estimated value of the potential and actual discoveries as noted above.
Decommissioning costs (note 22)
Decommissioning costs are uncertain and cost estimates can vary in response to many factors, including changes to the relevant
legal requirements, the emergence of new technology or experience at other assets. The expected timing, work scope and amount
of expenditure may also change. Therefore significant estimates and assumptions are made in determining the provision for
decommissioning. The estimated decommissioning costs are reviewed annually by an external expert and the results of the most
recent available review used as a basis for the amounts in the Financial Statements. Provision for environmental clean-up and
remediation costs is based on current legal and contractual requirements, technology and price levels.
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
57
Accounts
Notes to the group financial statements continued
for the year ended 31 December 2015
3. Revenue and segmental information
Year ended 31 December 2015
Revenue
Cost of sales
Gross loss
Exploration and evaluation expenses
Costs in relation to acquisition
Other administrative costs
Total administrative expenses
Charge for share based payments
Foreign exchange movement
Results from operating activities
Finance income
Finance expense
Loss before tax
Tax
Gain/(loss) for period
Reporting segments assets
Reporting segments liabilities
Depreciation
Nine months ended 31 December 2014
Revenue
Cost of sales
Gross loss
Exploration and evaluation expenses
Costs in relation to acquisition
Other administrative costs
Total administrative expenses
Charge for share based payments
Foreign exchange movement
Results from operating activities
Finance income
Finance expense
Gain/(Loss) before tax
Tax
Gain/(loss) for period
Reporting segments assets
Reporting segments liabilities
Depreciation
Falkland
Islands
$’000
Greater
Mediterranean
$’000
Corporate
$’000
Total
$’000
—
—
—
(52)
—
—
—
—
1,990
1,938
—
(4,354)
(2,416)
55,391
52,975
251,424
86,542
—
3,966
(11,049)
(7,083)
(22,382)
—
(1,943)
(1,943)
—
196
—
—
—
(500)
(1,544)
(7,408)
(8,952)
(1,937)
(259)
(31,212)
(11,648)
—
(396)
975
—
(31,608)
(10,673)
4
—
(31,604)
(10,673)
37,687
25,978
2,468
110,482
24,839
276
3,966
(11,049)
(7,083)
(22,934)
(1,544)
(9,351)
(10,895)
(1,937)
1,927
(40,922)
975
(4,750)
(44,697)
55,395
10,698
399,593
137,359
2,744
Falkland
Islands
$’000
Greater
Mediterranean
$’000
Corporate
$’000
Total
$’000
—
—
—
(295)
—
(128)
(128)
—
6,617
6,194
—
—
6,194
—
6,194
175,504
139,576
—
1,910
(3,970)
(2,060)
(885)
—
(1,511)
(1,511)
—
153
(4,303)
1
(209)
(4,511)
(5)
(4,516)
62,589
24,836
1,968
—
—
—
(602)
(1,899)
(6,495)
(8,394)
(672)
(254)
(9,922)
656
—
(9,266)
—
(9,266)
197,702
16,345
218
1,910
(3,970)
(2,060)
(1,782)
(1,899)
(8,134)
(10,033)
(672)
6,516
(8,031)
657
(209)
(7,583)
(5)
(7,588)
435,795
180,757
2,186
58
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
4. Cost of sales
Cost of sales
Depreciation of oil and gas assets
Impairment of oil and gas assets
5. Exploration and evaluation expenses
Allocated from administrative expenses (see note 6)
Capitalised exploration costs impaired (see note 14)
Other exploration and evaluation expenses
Amounts recharged to partners
6. Administrative expenses
Directors’ salaries and fees, including bonuses (see note 7)
Other employees’ salaries
National insurance costs
Pension costs
Employee benefit costs
Total staff costs
Amounts reallocated
Total staff costs charged to administrative expenses
Auditor’s remuneration (see note 8)
Other professional fees
Other
Depreciation
Amounts reallocated
Accounts
Nine months
ended
31 December
2014
$’000
554
1,951
1,465
3,970
Nine months
ended
31 December
2014
$’000
1,060
258
967
(503)
1,782
Year ended
31 December
2015
$’000
2,951
2,449
5,649
11,049
Year ended
31 December
2015
$’000
310
22,335
318
(29)
22,934
Year ended
31 December
2015
$’000
Nine months
ended
31 December
2014
$’000
3,008
3,975
1,377
455
180
8,995
(4,438)
4,557
293
3,506
3,185
352
(998)
2,473
3,078
925
283
219
6,978
(2,057)
4,921
256
3,268
1,975
235
(622)
10,895
10,033
The average number of staff employed during the period was 39 (nine months ended 31 December 2014: 29). The relative increase between
periods reflecting the fact that the Mediterranean Oil & Gas plc acquisition was completed half way through the previous period. As at 31 March
2016 the number of staff employed has reduced to 33 following a review of staffing levels.
Amounts reallocated relate to the costs of staff and associated overhead in relation to non administrative tasks. These costs are allocated to
exploration and evaluation expenses or capitalised as part of the intangible exploration and evaluation assets as appropriate.
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
59
Accounts
Notes to the group financial statements continued
for the year ended 31 December 2015
7. Directors’ remuneration
Executive salaries
Executive bonuses
Company pension contributions to money purchase schemes
Benefits
Non-executive fees
Gain on exercise of share options
Year ended
31 December
2015
$’000
1,497
1,013
150
33
498
946
Nine months
ended
31 December
2014
$’000
1,158
912
116
22
403
336
4,137
2,947
Gain on exercise of share options during the period relates to the exercise by two Directors of the Company of 3,000,000 shares in the
Company at an exercise price of 42 pence per share. In the prior period it related to the exercise by a Director of the Company of 425,000
shares in the Company at an exercise price of 10 pence per share. The options were due to expire during the year.
The total remuneration of the highest paid director was:
Annual salary
Bonuses
Money purchase pension schemes
Benefits
Gain on exercise of share options
Year ended
31 December
2015
£
362,100
253,470
36,210
7,069
318,750
977,599
Nine months
ended
31 December
2014
£
266,250
221,875
26,625
2,172
213,563
730,485
Interest in outstanding share options and SARs, by director, are separately disclosed in the directors’ remuneration report.
8. Auditor’s remuneration
KPMG LLP
Fees payable to the company’s auditor for the audit of the company’s annual financial statements
Fees payable to the company’s auditor and its associates for other services:
Audit of the accounts of subsidiaries
Other services pursuant to legislation
Tax compliance services
Year ended
31 December
2015
$’000
Nine months
ended
31 December
2014
$’000
152
82
48
11 6
293
153
62
35
256
60
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
9. Share based payments
The charge for share based payments relate to options granted to employees of the Group.
Charge for the long term incentive plan options granted on 8 October 2013
Charge for the long term incentive plan options granted on 10 March 2014
Charge for the long term incentive plan options granted on 13 October 2014
Charge for the long term incentive plan options granted on 13 April 2015
Charge for shares issued under the SIP throughout the period
Accounts
Year ended
31 December
2015
$’000
Nine months
ended
31 December
2014
$’000
504
58
740
494 —
141
1,937
366
46
164
96
672
The models and key assumptions used to value each of the grants and hence calculate the above charges are set out below:
Long term incentive plan
During 2013 a long term incentive plan (“LTIP”) was approved by shareholders. The LTIP is operated and administered by the Remuneration
Committee. During the year a number of LTIP awards (“Awards”), structured as nil cost options, were granted to executive directors and
senior staff.
LTIP awards will generally only vest or become exercisable subject to the satisfaction of a performance condition measured over a three
year period (“Performance Period”) determined by the Remuneration Committee at the time of grant. The performance conditions must
contain objective conditions, which must be related to the underlying financial performance of the Company. The current performance
condition used is based on Total Shareholder Return (“TSR”) measured over a three-year period against the TSR of a peer group of at least
9 other oil and gas companies comprising both FTSE 250, larger AIM oil and gas companies and Falkland Islands focused companies
(“Peer Group”). The Peer Group for the Awards may be amended by the Remuneration Committee at their sole discretion as appropriate.
Performance measurement for the Awards are based on the average price over the relevant 90 day dealing period measured against
the 90 dealing day period three years later. Awards will typically vest on a sliding scale from 35% to 100% for performance in the top two
quartiles of the Peer Group. Certain awards have an escalator applied which means that they vest in excess of 100% if the Company is
the top or second highest performer in the Peer Group. No awards will vest for performance in the bottom two quartiles.
The Awards granted on 8 October 2013 and 10 March 2014 had an additional performance condition so that no awards would vest if
the Company’s share price did not exceed £1.80 based on the average price over the 90 day dealing period up to 31 March 2016. The
Remuneration Committee has exercised its discretion to vary the performance condition so that the period for achievement of the £1.80
hurdle rate is extended to 31 March 2023. As a result, any LTIP awards that would have vested on 31 March 2016 will not vest and be
exercisable unless the Company’s share price exceeds £1.80 based on an average price over any 90 day dealing period up to 31 March 2023.
At the same time, the Remuneration Committee agreed to remove its discretion to allow vesting for performance in the third quartile for all
existing and future LTIP awards.
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
61
Accounts
Notes to the group financial statements continued
for the year ended 31 December 2015
9. Share based payments continued
The LTIP has been valued using a Monte Carlo model the key inputs of which are summarised below
Grant date:
Closing share price
Minimum exercise/base price
Escalation applied for being best of peer group
Escalation applied for being second of peer group
Number granted
Weighted average volatility
Weighted average volatility of index
Weighted average risk free rate
44.5%
55.8%
0.70%
Correlation in share price movement with comparator group
33.5%
Exercise price
Dividend yield
The following movements occurred during the period:
Issue date
Expiry date
8 October 2013
8 October 2023
10 March 2014
10 March 2024
13 October 2014
13 October 2024
13 April 2015
13 April 2025
0p
0%
At 31 December
2014
1,757,786
201,117
3,446,331
—
5,405,234
13 Apr 2015
13 Oct 14
13 Oct 14
10 Mar 14
8 Oct 13
64p
N/A
N/A
N/A
76p
N/A
N/A
N/A
76p
N/A
33%
29%
115p
180p
N/A
N/A
131p
180p
N/A
N/A
4,111,838
1,063,750
2,382,581
201,117
1,757,786
36.5%
42.2%
1.27%
32.0%
0p
0%
36.5%
42.2%
1.27%
32.0%
0p
0%
60.1%
62.0%
0.30%
49.0%
0p
0%
60.1%
62.0%
0.30%
49.0%
0p
0%
Issued
Lapsed
—
—
—
4,111,838
4,111,838
(197,368)
—
—
—
(197,368)
At 31 December
2015
1,560,418
201,117
3,446,331
4,111,838
9,319,704
Share incentive plan
The Group has in place an HMRC approved Share Incentive Plan (“SIP”). The SIP allows the Group to award Free Shares to UK employees
(including directors) and to award shares to match Partnership Shares purchased by employees, subject to HMRC limits.
Throughout this and the prior period the Group issued two Matching Shares for every Partnership Share purchased.
In the year the Group made a free award of £3,000 worth of Free Shares to eligible employees. Due to the change in period end in the prior
period the Group did not make a Free Share award in that period.
This resulted in 92,277 (Period ended 31 December 2014: nil) Free Shares and 99,456 (Period ended 31 December 2014: 35,861) Matching
Shares being issued under the SIP in the period.
The average fair value of the shares awarded (pence)
Vesting
Dividend yield
Lapse due to withdrawals
The fair value of the shares awarded will be spread over the expected vesting period.
31 December
2015
31 December
2014
52
100%
Nil
Nil
118
100%
Nil
Nil
62
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
Accounts
9. Share based payments continued
Share appreciation rights
A share appreciation right (“SAR”) is effectively a share option that is structured from the outset to deliver, on exercise, only the net gain
in the form of new ordinary shares that would have been made on the exercise of a market value share option.
No consideration is payable on the grant of a SAR. On exercise, an option price of 1 pence per ordinary share, being the nominal value of
the Company’s ordinary shares, is paid and the relevant awardee will be issued with ordinary shares with a market value at the date of
exercise equivalent to the notional gain that the awardee would have made, being the amount by which the aggregate market value of
the number of ordinary shares in respect of which the SAR is exercised, exceeds a notional exercise price, equal to the market value of
the shares at the time of grant (the “base price”). The remuneration committee has discretion to settle the exercise of SARs in cash.
The following movements occurred during the period on SARs:
Issue date
Expiry date
22 November 2008
22 November 2018
3 July 2009
11 January 2011
14 July 2011
16 August 2011
3 July 2019
11 January 2021
14 July 2021
16 August 2021
13 December 2011
13 December 2021
17 January 2012
30 January 2013
17 January 2022
30 January 2023
Exercise price
(pence)
At 31 December
2014
Lapsed
Exercised
At 31 December
2015
19.25
30.87
372.75
239.75
237.00
240.75
303.75
159.00
355,844
103,368
212,641
43,587
17,035
29,594
291,531
366,931
1,420,531
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
355,844
103,368
212,641
43,587
17,035
29,594
291,531
366,931
1,420,531
Options
The following movements occurred during the period on options:
Issue date
Expiry date
Exercise price
(pence)
At 31 December
2014
Exercised
Lapsed
At 31 December
2015
10 May 2005
8 August 2005
9 May 2015
7 August 2015
10.00
42.00
15,840
(7,920)
3,525,000
(3,525,000)
3,540,840
(3,532,920)
(7,920)
—
(7,920)
—
—
—
The weighted average price of the options exercised was 41.9 pence.
10. Foreign exchange
Foreign exchange gain on Falkland Islands tax liability
Foreign exchange loss on term deposits, cash and restricted cash
Foreign exchange on operating activities
Total foreign exchange gain
Year ended
31 December
2015
$’000
Nine months
ended
31 December
2014
$’000
1,990
(69)
1,921
6
1,927
6,617
(268)
6,349
167
6,516
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
63
Accounts
Notes to the group financial statements continued
for the year ended 31 December 2015
11. Finance income and expense
Bank and other interest receivable
Total finance income
Unwinding of discount on provisions
Unwinding of discount on long term tax liability
Other
Total finance expense
12. Taxation
Current tax:
Overseas tax
Adjustment in respect of prior years
Total current tax
Deferred tax:
Overseas tax
Total deferred tax – note 23
Tax on profit on ordinary activities
Loss on ordinary activities before tax
Loss on ordinary activities multiplied at 26.0% weighted average rate (31 December 2014: 26%)
Effects of:
Income and gains not subject to taxation
Expenditure not deductible for taxation
Depreciation in excess of capital allowances
IFRS2 Share based remuneration cost
Losses carried forward
Effect of tax rates in foreign jurisdictions
Adjustments in respect of prior years
Other
Tax (credit)/charge for the year
Year ended
31 December
2015
$’000
Nine months
ended
31 December
2014
$’000
975
975
378
4,347 —
25
4,750
657
657
188
21
209
Year ended
31 December
2015
$’000
Nine months
ended
31 December
2014
$’000
9
(55,405)
(55,396)
1 7
1 7
(55,395) 5
(44,697)
(11,621)
17
(19)
(2)
(7,583)
(1,972)
—
(928)
10,365 —
(597)
174
2,537
(539) —
(55,405)
(309)
(55,395) 5
(217)
70
3,278
(19)
(207)
64
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
Accounts
12. Taxation continued
On the 8 April 2015 the Group agreed binding documentation (“Tax Settlement Deed”) with the Falkland Island Government (“FIG”) in
relation to the tax arising from the Group’s farm out to Premier Oil plc (“Premier”). As such the Group is able to defer this tax liability
under Extra Statutory Concession 16. As it is deferred, the liability has been reclassified as non-current and discounted. The adjustment
in respect of prior years is mainly due to the impact of this discounting. Additional information is given in Note 21 Tax payable.
The total carried forward losses and carried forward pre trading expenditures available for relief on commencement of trade are as
follows:
UK
Falkland Island
Italy
Year ended
31 December
2015
$’000
53,161
127,388
19,917
Nine months
ended
31 December
2014
$’000
45,929
53,415
7,313
No deferred tax asset has been recognised in respect of temporary differences arising on losses carried forward, outstanding share
options or depreciation in excess of capital allowances due to the uncertainty in the timing of profits and hence future utilisation.
13. Basic and diluted loss per share
Shares in issue brought forward
Shares issued
– Issued in relation to acquisitions
– Issued in relation to share options
– Issued under the SIP
Shares in issue carried forward
31 December
2015
Number
31 December
2014
Number
292,805,453
284,316,698
—
7,481,816
3,532,920
241,461
950,000
56,939
296,579,834
292,805,453
Weighted average number of Ordinary Shares for the purposes of basic earnings/(loss) per share
293,442,707
288,646,881
Effects of dilutive potential Ordinary shares
Contingently issuable shares – prior periods anti-dilutive
Net profit/(loss) after tax for purposes of basic and diluted earnings per share
Earnings/(loss) per share – cents
Basic
Diluted
321,330 —
293,764,037
288,646,881
$’000
$’000
10,698
(7,588)
3.65
3.64
(2.63)
(2.63)
The average market value of the Company’s shares for the purpose of calculating the dilutive effect of share options was on quoted market
prices for the year during which the options were outstanding.
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
65
Accounts
Notes to the group financial statements continued
for the year ended 31 December 2015
14. Intangible exploration and evaluation assets
As at 31 March 2014
Acquisitions
Additions
Written off to exploration costs
Foreign exchange movement
As at 31 December 2014
Additions
Written off to exploration costs
Foreign exchange movement
As at 31 December 2015
Falkland
Islands
$’000
153,656
—
21,848
—
—
175,504
75,920
—
—
Greater
Mediterranean
$’000
Total
$’000
—
153,656
30,288
1,542
(258)
(2,912)
28,660
2,577
(22,335)
(3,668)
30,288
23,390
(258)
(2,912)
204,164
78,497
(22,335)
(3,668)
251,424
5,234
256,658
Falkland Islands licences
The additions during the period relate to $60.9 million of costs for the exploration campaign in the North Falkland Basin including the
exploration successes at Zebedee and Isobel Deep. $15.0 million relates to the Sea Lion development.
The carrying value of Sea Lion, a discovered asset still under evaluation was checked for impairment by reference to a discounted cashflow
model. The key inputs to this model were a 2016 real terms oil price of $75/bbl, a post-tax discount rate of 12.5% and utilising the operator’s
current estimates of capital and operating costs and production profiles.
Sensitivity analysis was performed by, in turn, reducing oil price by $10/bbl, reducing production by 10%, introducing a one year delay,
increasing capital expenditure by 10% and increasing operating expenditure by 10%. None of these sensitivities would have led to an
impairment charge in the year.
Greater Mediterranean licences
The additions during the period predominantly relate to work on the Italian and Maltese licence interests.
Amounts written off to exploration costs relate almost entirely to the impairment of the carrying value of costs in relation to the exploration
permit which covers the Ombrina Mare Field Area. The Italian Parliament approved the 2016 Budget Law which reintroduces restrictions on
offshore oil and gas activity including the general ban on exploration and production activity within 12 nautical miles of the coast of Italy. The
Budget Law came into force on 1 January 2016 and directly affects the Ombrina Mare Field Area.
The Group was also informed by the Ministry of Economic Development that, following the re-introduction of the ban, the Production
Concession covering the Ombrina Mare Field Area will not be awarded. This is despite the Ombrina Mare project having completed all the
required technical and environmental authorisations.
The Group retains its interest in the exploration permit covering the Ombrina Mare Field Area. An extension to the suspension of the
Ombrina Mare exploration permit was recently granted to 31 December 2016.
The Group is now considering its options which include both a claim for damages and compensation against the Republic of Italy under
International Treaties for the protection of foreign investments, and in particular the arbitration process provided for under the Energy
Charter Treaty but given the legal position a decision to impair the asset has been made.
The write-off in relation to Ombrina Mare has been taken without prejudice to the legal remedies that may be obtained through potential
future legal proceedings against the Republic of Italy and organs of the Italian State.
66
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
15. Property, plant and equipment
Cost brought forward
Acquisitions
Additions
Foreign exchange
Disposals
Cost carried forward
Oil and gas
assets
$’000
14,413
—
10,513
(1,681)
—
23,245
Accumulated depreciation brought forward
(3,245)
Current year depreciation charge
Impairment
Foreign exchange
Disposals
(2,449)
(5,649)
135
—
Other
assets
$’000
31 December
2015
$’000
Oil and gas
assets
$’000
1,990
16,403
—
60
(22)
(383)
1,645
(1,012)
(295)
—
2
260
—
10,573
(1,703)
(383)
24,890
(4,257)
(2,744)
(5,649)
137
260
—
15,324
558
(1,469)
—
14,413
—
(1,951)
(1,465)
171
—
Other
assets
$’000
1,139
339
554
(32)
(10)
1,990
(786)
(235)
—
1
8
Accounts
31 December
2014
$’000
1,139
15,663
1,112
(1,501)
(10)
16,403
(786)
(2,186)
(1,465)
172
8
Depreciation carried forward
(11,208)
(1,045)
(12,253)
(3,245)
(1,012)
(4,257)
Net book value brought forward
Net book value carried forward
11,168
12,037
978
600
12,146
12,637
—
11,168
353
978
353
12,146
All oil and gas property plant and equipment assets relate to the Greater Mediterranean region.
Additions in the period relate to the cost of side track operations on the Guendalina production asset and the Civita development asset
which commenced production in November 2015.
The impairment charge in the current period relates to production assets in the Greater Mediterranean. The impairment charge of
US$5.6 million (2014: $1.5 million) was calculated by comparing the future discounted cash flows expected to be derived from production
of commercial reserves (the value in use being the recoverable amount) against the carrying value of the asset. The future cash flows were
estimated using a realised gas price assumption equal to existing contracts in place and relevant forward curve in 2016 and 2017, and
a0.25/sm3 in 2016 real terms thereafter and were discounted using a post-tax rate of 10%. Assumptions involved in the impairment
measurement include estimates of commercial reserves and production volumes, future oil and gas prices and the level and timing of
expenditures, all of which are inherently uncertain. The cause of the impairment charge being recognised in the period is mainly driven by a
reduction in the short term realised gas price assumption.
16. Goodwill
As at 31 December 2014
Foreign exchange movement
As at 31 December 2015
Greater
Mediterranean
$’000
10,940
(1,137)
9,803
Total
$’000
10,940
(1,137)
9,803
Goodwill relates to the corporate acquisition of Mediterranean Oil & Gas plc (“MOG”) during the period ended 31 December 2014. This goodwill is
fully allocated to the Greater Mediterranean operating segment and arises due to the difference between the fair value of the net assets and the
consideration transferred and relates to the portfolio of intangible exploration and appraisal assets, which together have the optionality and potential
to provide value in excess of this fair value as well as the strategic premium associated with a significant presence in a new region. The functional
currency of MOG is euros. As such the goodwill is also expressed in the same functional currency and subject to retranslation at each reporting
period end. The reduction in the period of $1,137,000 (nine months ended 31 December 2014: $1,134,000) is entirely due to this foreign currency
difference. None of the goodwill recognised is expected to be deductible for tax purposes.
The Group tests goodwill annually for impairment or more frequently if there are indicators goodwill might be impaired. The recoverable
amounts are determined by reference to value in use calculations. Future cashflows are estimated using long term realised gas price of
a0.25/sm3 and realised oil price of $75/bbl in 2016 real terms and were discounted using a post-tax rate of 10%. Assumptions involved in
the impairment measurement include estimates of commercial reserves and production volumes, future oil and gas prices and the level
and timing of expenditures, all of which are inherently uncertain.
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
67
Accounts
Notes to the group financial statements continued
for the year ended 31 December 2015
17. Other receivables
Non-current
Other
Current
Receivables
Prepayments
Accrued interest
Income tax
Other
The carrying value of receivables approximates to fair value.
The accrued interest relates to unexpired fixed term deposits held at the year end.
18. Restricted cash
Charged accounts
Other amounts including in relation to exploration license applications
31 December
2015
$’000
31 December
2014
$’000
—
—
566
566
1,104
2,194
391
349
77
4,278
6,199
291
166
256
1,774
4,681
31 December
2015
$’000
31 December
2014
$’000
874
1,318
2,192
898
486
1,384
The charged accounts relate to a collateral account at Royal Bank of Scotland plc, to support the credit risk to the bank stemming from any
forward currency purchases by the Group, and the rent deposit for the offices leased by the Group.
19. Term deposits
Maturing after the period end:
Within three months
Three to six months
Six to nine month
Nine months to one year
31 December
2015
$’000
31 December
2014
$’000
30,000
10,000
10,000
10,000
60,000
25,000
20,000
25,000
30,000
100,000
Term deposits are disclosed separately on the face of the balance sheet when their term is greater than three months and they are
unbreakable.
68
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
20. Other payables and accruals
Accounts payable
Accruals
Other creditors
Accounts
31 December
2015
$’000
31 December
2014
$’000
2,377
25,390
2,690
30,457
2,318
15,869
1,171
19,358
All amounts are expected to be settled within twelve months of the balance sheet date and so the book values and fair values are considered
to be the same.
21. Tax payable
Current tax payable
Non current tax payable
31 December
2015
$’000
31 December
2014
$’000
9
100,439
47,405 —
47,414
100,439
On the 8 April 2015, the Group agreed binding documentation (“Tax Settlement Deed”) with the Falkland Island Government (“FIG”) in
relation to the tax arising from the Group’s farm out to Premier Oil plc (“Premier”).
The Tax Settlement Deed confirms the quantum and deferment of the outstanding tax liability and is made under Extra Statutory
Concession 16.
As a result of the Tax Settlement Deed the outstanding tax liability was confirmed at £64.4 million and payable on the first royalty payment
date on Sea Lion. Currently the first royalty payment date anticipated to occur within six months of first oil production which itself is
estimated to occur in late 2020 (assuming Sea Lion project sanction in mid-2017). As such the tax liability has been reclassified as non-
current and discounted at 15%. The effect of this discounting is a tax credit in the period of $55.4 million. The remaining movements in
the tax liability since the 31 December 2014 are the unwinding of the aforementioned discount of $4.3 million and a $2.0 million foreign
exchange gain. Management are considering strategies to migrate currency risk in relation to this balance.
The tax liability may be revised downward if the Falkland Islands’ Commissioner of Taxation is satisfied that either (i) the Exploration Carry
from Premier is utilised to fund exploration activities or (ii) any element of the Development Carry from Premier becomes “irrecoverable”.
Whilst the benefit of some of the Exploration Carry has been received from Premier during the current campaign and under the revised
commercial arrangements, documented in January 2016, means that the full $48.0 million will be accessed, no adjustment in the tax
liability has been made as this is still subject to agreement with the Falkland Islands’ Commissioner of Taxation.
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
69
Accounts
Notes to the group financial statements continued
for the year ended 31 December 2015
22. Provisions
Brought forward
Acquisitions
Amounts utilized
Amounts arising in the period
Change in estimate
Unwinding of discount
Foreign exchange
Carried forward at period end
Abandonment
provision
$’000
21,520
—
—
—
382
393
(2,236)
20,059
Other
provisions
$’000
31 December
2015
$’000
31 December
2014
$’000
296
—
(45)
64
—
—
(31)
284
21,816 —
—
(45)
64
382 —
393
(2,267)
23,872
(38)
46
179
(2,243)
20,343
21,816
The abandonment provision relates to the Group’s licences acquired during the prior period in the Greater Mediterranean region. The
provision covers both the plug and abandonment of wells drilled as well as any requisite site restoration. Assumptions, based on the current
economic environment, have been made which management believe are a reasonable basis upon which to estimate the future liability.
These estimates are reviewed regularly to take into account any material changes to the assumptions. However, actual decommissioning
costs will ultimately depend upon future market prices for the necessary decommissioning works required which will reflect market
conditions at the relevant time. Furthermore, the timing of decommissioning is likely to depend on when the fields cease to produce at
economically viable rates. This in turn will depend upon future oil and gas prices, which are inherently uncertain.
Other provisions include amounts due to employees for accrued holiday and for staff in Italy, leaving indemnity, that will become payable
when they cease employment.
23. Deferred tax liability
At beginning of period
Movement in period
At end of period
31 December
2015
$’000
31 December
2014
$’000
39,144
39,137
1 7
39,145
39,144
The deferred tax liability arises due to temporary differences associated with the intangible exploration and evaluation expenditure. The
majority of the balance relates to historic expenditure on licences in the Falklands, where the tax rate is 26%, being utilised to minimise the
corporation tax due on the consideration received as part of the farm out disposal during 2012.
Total carried forward losses and carried forward pre-trading expenditures available for relief on commencement of trade at 31 December
2015 are disclosed in note 12 Taxation. No deferred tax asset has been recognised in relation to these losses due to uncertainty that future
suitable taxable profits will be available against which these losses can be utilized. The potential deferred tax asset at the 31 December
2015 would be $49 million (31 December 2014: $25 million).
24. Share capital
Called up, issued and fully paid: Ordinary shares of £0.01 each
4,910
296,579,834
4,854
292,805,453
For details of all movements during the year, see note 13.
31 December 2015
31 December 2014
$’000
Number
$’000
Number
70
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
Accounts
25. Reserves
Set out below is a description of each of the reserves of the Group:
Share premium
Amount subscribed for share capital in excess of its nominal value.
Share based remuneration
The share incentive plan reserve captures the equity related element of the expenses recognised for the issue
of options, comprising the cumulative charge to the income statement for IFRS2 charges for share based
payments less amounts released to retained earnings upon the exercise of options.
Own shares held in trust
Shares held in trust represent the issue value of shares held on behalf of participants in the SIP by Capita
IRG Trustees Limited, the trustee of the SIP as well as shares held by the Employee Benefit Trust which have
been purchased to settle future exercises of options.
Merger reserve
The difference between the nominal value and the fair value of shares issued on acquisition of subsidiaries.
Foreign currency
translation reserve
Exchange differences arising on consolidating the assets and liabilities of the Group’s subsidiaries are
classified as equity and transferred to the Group’s translation reserve.
Special reserve
The reserve is non distributable and was created following cancellation of the share premium account on
4 July 2013. It can be used to reduce the amount of losses incurred by the parent company or distributed or
used to acquire the share capital of the Company subject to settling all contingent and actual liabilities as at
4 July 2013. Should not all of the contingent and actual liabilities be settled, prior to distribution the parent
company must either gain permission from the actual or contingent creditors for distribution or set aside in
escrow an amount equal to the unsettled actual or contingent liability.
Retained losses
Cumulative net gains and losses recognised in the financial statements.
26. Lease commitments
The future aggregate minimum lease payments under non-cancellable operating leases in respect of land and buildings were as follows:
Total committed within 1 year
Total committed between 1 and 5 years
31 December
2015
$’000
31 December
2014
$’000
1,258
2,951
4,209
979
2,461
3,440
27. Capital commitments
Capital commitments represent the Group’s share of expected costs in relation to its interests in joint ventures net of any carry
arrangements that are in force.
During the prior period the Group committed to a multi-year work plan and budget in relation to the four well Falkland Island exploration
campaign. Expected costs for the completion of the campaign in 2016 are forecast to be $31 million and are expected to be fully satisfied
by the balance of the exploration carry and insurance proceeds.
The Group also committed to fund its share of pre sanction costs on Sea Lion. The Group’s share of the gross approved development budget
for the calendar year ending 31 December 2016 is $20 million.
In addition, the Group has approved a capital work plan and budget commitments of less than a1 million in relation to its portfolio of assets
in the Greater Mediterranean region.
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
71
Accounts
Notes to the group financial statements continued
for the year ended 31 December 2015
28. Related party transactions
The remuneration of directors, who are the key management personnel of the Group, is set out below in aggregate. Further information about
the remuneration of individual directors is provided in the Directors’ Remuneration Report on pages 33 to 45.
Short term employee benefits
Pension contributions
Other long term employee benefits
Share based payments
Year ended
31 December
2015
$’000
Nine months
ended
31 December
2014
$’000
3,041
150
946
1,013
5,150
2,495
116
336
346
3,293
Other long term employee benefits relate to the gain on exercise of share options during the current and previous period. Additional details
are disclosed in note 7 Directors’ remuneration.
The Company was notified that directors of the Company exercised options over shares in the Company during the year. In addition a former
director of the Company also exercised options. The options were due to expire during the year and were exercised during one of the few
remaining open periods prior to their expiry. The directors and former director elected to sell shares to discharge the cost of exercise and
their tax and national insurance obligations (where applicable). These shares were purchased by the Rockhopper Employee Benefit Trust
(the “EBT”) which was established in 2013 for the purpose of holding shares to satisfy future exercises of options and vesting of awards
under the Company’s Long Term Incentive Plan. The shares were acquired by the EBT by way of an off market purchase at the closing share
price on the date prior to exercise. The remaining shares were retained.
Year ended 31 December 15
Sam Moody
Pierre Jungels
Former director
Nine months ended 31 December 14
Sam Moody
Number of
shares subject
to option
Exercise price
Shares sold
to EBT
EBT share
purchase price
Shares retained
1,500,000
42 pence
1,236,472
63.25 pence
1,500,000
42 pence
1,222,827
63.25 pence
525,000
42 pence
434,565
63.25 pence
263,528
277,173
90,435
Number of
shares subject
to option
Exercise price
Shares sold
to EBT
EBT share
purchase price
Shares retained
425,000
10 pence
237,136
60.25 pence
187,864
72
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
Accounts
29. Acquisition of subsidiaries
In August 2014, Rockhopper completed the acquisition of the entire issued share capital of Mediterranean Oil & Gas Plc (“MOG”).
The transaction has been accounted for by the purchase method of accounting with an effective date of 11 August 2014 being the date
on which the Group gained control of MOG. Information in respect of the assets and liabilities acquired and the fair value allocation to
the MOG assets in accordance with the provisions of “IFRS3 – Business Combinations” has been determined and is as follows:
Intangible exploration and appraisal assets
Property, plant and equipment
Long term other receivables
Inventories
Trade and other receivables
Restricted cash
Trade and other payables
Long-term provisions
Net identifiable assets and liabilities
Goodwill
Satisfied by:
Cash ($35,700,000 less $11,663,000 of cash acquired)
Equity instruments (7,481,816 ordinary shares)
Total consideration
Recognised values
on acquisition
$’000
30,288
15,663
625
2,683
4,634
268
(6,845)
(23,872)
23,444
12,074
24,037
11,481
35,518
The fair value of equity instruments has been determined by reference to the closing share price on the trading day immediately prior to
the completion of the acquisition.
30. Post balance sheet events
Acquisition of Falkland Oil and Gas Limited
In January 2016 Rockhopper completed the acquisition of the entire issued share capital Falkland Oil and Gas Limited (“FOGL”).
The boards of Rockhopper and FOGL believe that a combination of the Rockhopper and FOGL Groups (together, the “Combined Group”)
represents a significant value opportunity arising from the combination of their highly complementary portfolios. Specifically, the
Combined Group is expected to:
•
be the largest North Falkland Basin licence and discovered resource holder with a material working interest in all key licences;
• have enhanced prospects of progressing the Sea Lion project through final investment decision;
• have greater exposure to exploration and appraisal upside potential; and
•
benefit from enhanced scale and capabilities creating value in the current market environment.
Under the terms of the agreement announced on 24 November 2015, shareholders of FOGL received 0.2993 shares of the Company per
FOGL share. The fair value of consideration is summarised below, with equity instruments being determined by reference to the closing
share price on the trading day immediately prior to the completion of the acquisition.
Equity instruments (159,684,668 ordinary shares)
Less cash acquired
Net consideration
$’000
65,499
(5,312)
60,187
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
73
Accounts
Notes to the group financial statements continued
for the year ended 31 December 2015
30. Post balance sheet events continued
The transaction will be accounted for by the purchase method of accounting once the initial accounting for the business combination has
been completed. Work is ongoing to confirm the values to be reflected in respect of assets and liabilities including internal and external
review of technical information in relation to the exploration licences, the outcome of insurance claims and external audit of liabilities
arising from the Humpback well. As such information in respect of the assets and liabilities acquired and the fair value allocation to the
Falkland Oil and Gas Limited assets in accordance with the provisions of “IFRS3 – Business Combinations” has not been determined.
The outcomes of these work streams will be progressed by the time the half year results to 30 June 2016 are published.
Ombrina Mare Project
On the 6 January 2016 the Group announced that the Italian Parliament approved the 2016 Budget Law which reintroduces restrictions
on offshore oil and gas activity including the general ban on exploration and production activity within 12 nautical miles of the coast of
Italy. The Budget Law came into force on 1 January 2016 and directly affects the Ombrina Mare Field Area.
On 3 February 2016 the Group announced that it had also been informed by the Ministry of Economic Development that, following the
re-introduction of the ban, the Production Concession covering the Ombrina Mare Field Area will not be awarded. This is despite the
Ombrina Mare project having completed all the required technical and environmental authorisations.
The Company retains its interest in the exploration permit covering the Ombrina Mare Field Area. An extension to the suspension
of the Ombrina Mare exploration permit was recently granted to 31 December 2016.
The Company is now considering its options which include both a claim for damages and compensation against the Republic of Italy
under International Treaties for the protection of foreign investments, and in particular the arbitration process provided for under the
Energy Charter Treaty.
Rig contract cancellation
On 12 February 2016 the Group announced that Premier Oil, on behalf of the Joint Venture, has served a notice to terminate the rig
contract with Ocean Rig UDW (“Ocean Rig”) with immediate effect. The notice to terminate follows a number of operational issues
with the Eirik Raude rig. As a result, the drilling of the Chatham well – the final well in current campaign – will now be deferred until
the Sea Lion pre-development drilling campaign.
The postponement of the Chatham well has no impact on the planning or timetable for the Field Development Plan for the Sea Lion
initial phase development.
31. Risk management policies
Risk review
The risks and uncertainties facing the Group are set out in the risk management report. Risks which require further quantification are
set out below.
Foreign exchange risks: The Group’s functional currency is US$ and as such the Group is exposed to foreign exchange movements
on monetary assets and liabilities denominated in other currencies, in particular the CGT liability with the Falkland Island Government
which is a GB£ denominated balance. In addition a number of the Group’s subsidiaries have a functional currency other than US$,
where this is the case the Group has an exposure to foreign exchange differences with differences being taken to reserves.
The following table summarises the split of the Group’s assets and liabilities by currency:
Currency denomination of balance
Assets
31 December 2015
31 December 2014
Liabilities
31 December 2015
31 December 2014
$
$’000
£
$’000
a
$’000
346,295
364,475
60,585
52,368
15,546
9,087
52,262
104,361
37,752
62,233
24,512
24,028
74
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
Accounts
31. Risk management policies continued
The following table summarises the impact on the Group’s pre-tax profit and equity of a reasonably possible change in the US$ to GB£
exchange rate and the US$ to euro exchange:
US$ against GB£
31 December 2015
31 December 2014
US$ against euro
31 December 2015
31 December 2014
Pre tax profit
Total equity
+10% US$ rate
increase
$’000
–10% US$ rate
decrease
$’000
+10% US$ rate
increase
$’000
–10% US$ rate
decrease
$’000
(3,672)
(9,504)
(126)
(32)
3,672
9,504
126
32
(3,672)
(9,504)
1,198
3,828
3,672
9,504
(1,198)
(3,828)
Capital risk management: the Group manages capital to ensure that it is able to continue as a going concern whilst maximising the
return to shareholders. The capital structure consists of cash and cash equivalents and equity. The board regularly monitors the future
capital requirements of the Group, particularly in respect of its ongoing development programme.
Credit risk: the Group recharges partners and third parties for the provision of services. Should the company holding these accounts
become insolvent then these funds may be lost or delayed in their release. The amounts classified as receivables as at the 31 December
2015 were $1,104,000 (31 December 2014: $2,194,000). These amounts were fully settled after the period end.
Interest rate risks: the Group has no debt and so its exposure to interest rates is limited to finance income it receives on cash and term
deposits. The Group is not dependent on its finance income and given the current interest rates the risk is not considered to be material.
Liquidity risks: the Group makes limited use of term deposits where the amounts placed on deposit cannot be accessed prior to their
maturity date. The amounts applicable at the 31 December 2015 were $60,000,000 (31 December 2014: $100,000,000) and are disclosed in
the counter-party risk table below.
Counter-party risk: rather than keep all its funds with one bank, the Group splits its funds across a number of banks, two of which are part
owned by the British government.
Barclays plc
Lloyds
Standard Chartered plc
Investec
Total term deposits
RBS plc
Barclays plc
Lloyds TSB plc
Deutsche Bank
Intesa San Paolo
Others
Total cash and cash equivalents
Total term deposits and cash and cash equivalents
31 December
2015
$’000
31 December
2014
$’000
40,000 —
10,000
—
10,000
60,000
32,246
61
13,784
1,539
1,789
15
20,000
30,000
50,000
100,000
89,235
15
5,088
2,805
1,233
1,350
50,434
99,726
110,434
199,726
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
75
Accounts
Parent company financial statements – company balance sheet
As at 31 December 2015
Non current assets
Property, plant and equipment
Investments
Current assets
Other receivables
Restricted cash
Term deposits
Cash and cash equivalents
Total assets
Current liabilities
Other payables
Total liabilities
Equity
Share capital
Share premium
Share based remuneration
Own shares held in trust
Merger reserve
Foreign currency translation reserve
Special reserve
Retained losses
31 December
2015
$’000
31 December
2014
$’000
Notes
31 March
2014
$’000
2
3
4
5
6
11
11
11
11
11
11
11
433
2,100
674
47,180
353
—
405,431
332,213
310,151
1,974
60,000
47,106
898
100,000
94,406
309
185,000
62,482
517,044
575,371
558,295
22,839
22,839
4,910
2,995
5,491
(3,513)
11,355
—
17,192
17,192
4,854
662
4,960
(628)
11,355
—
472,967
536,976
—
—
3,084
3,084
4,711
170
4,597
(354)
—
4,123
541,964
—
Attributable to the equity shareholders of the company
494,205
558,179
555,211
Total liabilities and equity
517,044
575,371
558,295
These financial statements were approved by the directors and authorised for issue on 12 April 2016 and are signed on their behalf by:
Stewart MacDonald
Chief Financial Officer
Registered Company number: 05250250
76
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
Company statement of changes in equity
for the year ended 31 December 2015
Share
capital
$’000
Share
premium
$’000
Share based
remuneration
$’000
Shares held
in trust
$’000
Merger
reserve
$’000
Currency
translation
reserve
$’000
Special
reserve
$’000
Retained
losses
$’000
Total
Equity
$’000
Accounts
Balance at 31 March 2014
4,711
170
4,597
(354)
Total comprehensive loss
for the period
Acquisition of subsidiary
Share based payments
Share issues in relation to SIP
Exercise of share options
Purchase of own shares
Other transfers
—
126
—
2
15
—
—
—
—
—
77
—
—
672
—
415
(309)
—
—
—
—
—
—
—
(49)
—
(225)
—
—
—
11,355
—
—
—
—
—
4,123
541,964
—
555,211
—
—
—
—
—
—
—
—
—
—
—
—
(9,420)
(9,420)
—
—
—
309
—
11,481
672
30
430
(225)
—
(4,123)
(4,988)
9,111
At 31 December 2014
4,854
662
4,960
(628)
11,355
—
536,976
—
558,179
Total comprehensive loss
for the year
Share based payments
Share issues in relation to SIP
Exercise of share options
Purchase of own shares
Other transfers
—
—
3
53
—
—
—
—
186
—
1,937
—
—
—
(152)
2,147
(1,406)
—
—
—
—
—
(2,733)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(65,415)
(65,415)
—
—
1,937
37
1,406
2,200
—
(2,733)
(64,009)
64,009
—
Balance at 31 December 2015
4,910
2,995
5,491
(3,513)
11,355
—
472,967
—
494,205
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
77
Accounts
Company cash flow statement
for the year ended 31 December 2015
Cash flows from operating activities
Net loss before tax
Adjustments to reconcile net losses to cash:
Depreciation
Impairment of investments and provisions against group balances
Share based payment charge
Loss on disposal of property, plant and equipment
Interest
Foreign exchange
Year ended
31 December
2015
$’000
Notes
Nine months
ended
31 December
2014
$’000
(65,415)
(9,420)
276
54,736 —
1,937
12 —
(800)
209
218
672
(470)
203
Operating cash flows before movements in working capital
(9,045)
(8,797)
Changes in:
Other receivables
Payables
Cash utilised by operating activities
Cash flows from investing activities
Purchase of equipment
Acquisition of subsidiary
Interest
Investing cash flows before movements in capital balances
Changes in:
Subsidiary loan balances
Restricted cash
Term deposits
Cash flow from investing activities
Cash flows from financing activities
Share options exercised
Share incentive plan
Purchase of own shares
Cash flow from financing activities
Currency translation differences relating to cash and cash equivalents
Net cash flow
Cash and cash equivalents brought forward
Cash and cash equivalents carried forward
938 5
990
868
(7,117)
(7,924)
(47)
—
617
570
(78,972)
(1,044)
40,000
(39,446)
2,200
37
(2,733)
(496)
(241)
(47,059)
94,406
47,106
(539)
(35,700)
673
(35,566)
(9,030)
(735)
85,000
39,669
430
29
(225)
234
(55)
31,979
62,482
94,406
78
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
Accounts
Notes to the company financial statements
for the year ended 31 December 2015
1. Accounting policies
Company and its operations
Rockhopper Exploration plc, ‘the Company’, a public limited company quoted on AIM, incorporated and domiciled in the United Kingdom
(‘UK’), holds, through its subsidiaries, certain exploration licences granted in 2004 and 2005 for the exploration and exploitation of oil
and gas in the Falkland Islands. In 2014, it diversified its portfolio through the acquisition of an exploration and production company with
operations principally based in Italy. The registered office of the Company is Hilltop Park, Devizes Road, Salisbury, SP3 4UF.
Authorisation of financial statements and statement of compliance with financial reporting standard 101 reduced disclosure framework
(FRS101)
The financial statements of Rockhopper Exploration plc. for the year ended 31 December 2015 were approved and signed by the group
chief financial officer on 12 April 2016 having been duly authorized to do so by the board of directors. The Company meets the definition
of a qualifying entity under Financial Reporting Standard 100 (FRS100) issued by the Financial Reporting Council. Accordingly, these
financial statements were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (FRS101) and
in accordance with the provisions of the Companies Act 2006. The amendments to FRS101 (2014/15 cycle) issued in July 2015 and effective
immediately have been applied. The material measurement or recognition adjustments on the adoption of FRS101 are disclosed along with
further information in Note 14.
In these financial statements, the Company has not applied for the exemptions available under FRS101.
Basis of accounting
These financial statements are prepared on a going concern basis. The financial statements have been prepared under the historical
cost convention. Historical cost is generally based on the fair value of the consideration given in exchange for the assets. As permitted by
Section 408 of the Companies Act 2006, the profit and loss account of the Company is not presented as part of these financial statements.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these financial
statements and in preparing an opening FRS101 balance sheet at 31 March 2014 for the purposes of the transition to FRS101.
All values are rounded to the nearest thousand dollars ($’000), except where otherwise indicated.
At the date of authorisation of this report the following standards and interpretations, which have not been applied in this report, were in
issue but not yet effective.
— Annual improvements to IFRS, 2012-2014 cycle,
—
IFRS9 Financial Instruments
Management does not believe that the application of these standards will have a material impact on the financial statements.
Going concern
At 31 December 2015, the Group had available resources of $110 million. In addition the Group’s main development, Sea Lion, is fully funded
through a combination of Development Carries and a loan facility from the operator.
It is for these reasons that the board is of the opinion, at the time of approving the financial statements, that the Group and Company has
adequate resources to continue in operational existence for the foreseeable future, being at least twelve months from the date of approval
of the financial statements. For this reason, the board has adopted the going concern basis in preparation of the financial statements.
Share based payment
The Company issues equity settled share based payments to certain employees. Equity settled share based payments are measured at
fair value (excluding the effect of non market based vesting conditions) at the date of grant The fair value determined at the grant date of
the equity settled share based payments is expensed on a straight line basis over the vesting period, based on the Company’s estimate of
shares that will eventually vest and adjusted for non market based vesting conditions.
Fair value is measured by use of either Binomial or Monte-Carlo simulation.
Cash settled share based payment transactions result in a liability. Services received and liability incurred are measured initially at fair value
of the liability at grant date, and the liability is remeasured each reporting period until settlement. The liability is recognised on a straight
line basis over the period that services are rendered.
Investments
The investments in the subsidiary undertakings are included in the Company financial statements at cost. The Company assesses investments
for impairment whenever events or changes in circumstances indicate that the carrying value of investment may not be recoverable. If any
such indication of impairment exists, the Company makes an estimate of its recoverable amount. Where the carrying amount of an investment
exceeds its recoverable amount, the investment is considered impaired and is written down to its recoverable amount.
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
79
Accounts
Notes to the company financial statements continued
for the year ended 31 December 2015
1. Accounting policies continued
Income taxes and deferred taxation
The current tax expense is based on the taxable profits for the period, after any adjustments in respect of prior years. Tax, including tax
relief for losses if applicable, is allocated over profits before tax and amounts charged or credited to reserves as appropriate.
Deferred taxation is recognised in respect of all taxable temporary differences that have originated but not reversed at the balance sheet
date where a transaction or events have occurred at that date that will result in an obligation to pay more, or a right to pay less or to receive
more, tax, with the exception that deferred tax assets are recognised only to the extent that the directors consider that it is probable that
there will be suitable taxable profits from which the future reversal of the underlying temporary differences can be deducted.
Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which temporary differences
reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date.
Foreign currencies
The functional and presentation currency of the Company is US$.
Transactions denominated in foreign currencies are translated at the exchange rate ruling at the transaction date. Monetary assets and
liabilities denominated in foreign currencies are translated into dollars at the exchange rates ruling at the balance sheet date and any
differences thereon are included in the income statement.
The period end rates of exchange actually used were:
£ : US$
a : US$
31 December 2015
31 December 2014
31 March 2014
1.48
1.09
1.56
1.2
1.66
1.38
Property, plant and equipment
Tangible fixed assets are stated at cost less depreciation. Depreciation is provided at rates calculated to write off the cost less estimated
residual value of each asset evenly over its expected useful life as follows:
Office equipment
Leasehold improvements
Over 3 years
Over 5 years
Non-derivative financial instruments
Financial assets and financial liabilities are recognised on the Company’s balance sheet when the Company has become a party to the
contractual provisions of the instrument.
(i) Other receivables
Other receivables are classified as loans and receivables and are initially recognised at fair value. They are subsequently measured at
their amortised cost using the effective interest method less any provision for impairment. A provision for impairment is made where
there is objective evidence that amounts will not be recovered in accordance with original terms of the agreement. A provision for
impairment is established when the carrying value of the receivable exceeds the present value of the future cash flow discounted using
the original effective interest rate. The carrying value of the receivable is reduced through the use of an allowance account and any
impairment loss is recognised in the income statement.
(ii) Term deposits
Term deposits are disclosed separately on the face of the balance sheet when their term is greater than three months and they are
unbreakable.
(iii) Restricted cash
Restricted cash is disclosed separately on the face of the balance sheet and denoted as restricted when it is not under the exclusive
control of the Group.
(iv) Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and at bank and other short-term deposits held by the Group including breakable
and unbreakable deposits with terms of less than three months and breakable term deposits of greater terms than three months
where amounts can be accessed within three months without material loss. They are stated at carrying value which is deemed to be
fair value.
80
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
Accounts
1. Accounting policies continued
(v) Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into.
An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.
(vi) Trade payables
Trade payables are initially recognised at fair value and subsequently at amortised cost using the effective interest method.
(vii) Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Leasing
Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease. Benefits received
and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term.
2. Property, plant and equipment
Cost brought forward
Additions
Disposals
Cost carried forward
Accumulated depreciation brought forward
Depreciation charge
Disposals
Accumulated depreciation carried forward
Net book value brought forward
Net book value carried forward
31 December
2015
$’000
31 December
2014
$’000
1,673
47
(272)
1,448
(999)
(276)
260 5
(1,015)
674
433
1,139
539
(5)
1,673
(786)
(218)
(999)
353
674
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
81
Accounts
Notes to the company financial statements continued
for the year ended 31 December 2015
3.
Investments
Cost brought forward
Additions
Cost carried forward
Amounts provided brought forward
Impairments
Amounts provided brought forward
Net book value brought forward
Net book value carried forward
31 December
2015
$’000
31 December
2014
$’000
47,600
—
47,600
420
47,180
47,600
(420)
(420)
(45,080) —
(45,500)
(420)
47,180 —
2,100
47,180
All amounts relate to subsidiary undertakings. Additions during the prior period relate to the acquisition of 100% of the ordinary issued
share capital of Mediterranean Oil & Gas Plc. See note 29 of the Group accounts for full details of the acquisition. Impairment during
the year reflects the impairments of intangible and tangible assets held by subsidiaries. Additional disclosure on these impairments are
included in note 14 and note 15 of the Group accounts.
Details of the investments at the period end were as follows:
Company
Rockhopper Resources Limited
Rockhopper Exploration (Oil) Limited
Rockhopper Exploration (Hydrocarbons) Limited
Rockhopper Exploration (Petrochemicals) Limited
Rockhopper Exploration (Oil) Limited
Rockhopper Mediterranean Limited
Rockhopper Civita Limited
Rockhopper Italia SpA
Melita Exploration Company Limited
Malta Oil Pty. Limited
4. Other receivables
Incorporated
England & Wales
England & Wales
England & Wales
England & Wales
Falkland Islands
England & Wales
England & Wales
Italy
Malta
Australia
Receivables
Prepayments
Accrued interest
Other
Group undertakings
Class of
share
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Percentage
held
%
100
100
100
100
100
100
100
100
100
100
31 December
2015
$’000
31 December
2014
$’000
31 March
2014
$’000
—
293
349
327
1,130
198
166
230
819
416
369
328
404,462
330,489
308,219
405,431
332,213
310,151
Amounts with Group undertakings are subject to loan agreements, repayable on demand and interest free. Amounts with Group
undertakings are net of provisions of $12,408,000 (31 December 2014: $2,752,000).
82
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
5. Other payables
Trade creditors
Group undertakings
Other creditors
Accruals
6. Share capital
Shares in issue brought forward
Shares issued
– Issued in relation to acquisitions
– Issued in relation to share options
– Issued under the SIP
Shares in issue carried forward
Accounts
31 December
2015
$’000
31 December
2014
$’000
1,090
—
264
21,485
22,839
1,462
847
264
14,619
17,192
31 March
2014
$’000
1,363
—
—
1,721
3,084
31 December
2015
Number
31 December
2014
Number
292,805,453
284,316,698
—
7,481,816
3,532,920
241,461
950,000
56,939
296,579,834
292,805,453
Called up, issued and fully paid: Ordinary shares of £0.01 each
4,910
296,579,834
4,854
292,805,453
31 December 2015
31 December 2014
$’000
Number
$’000
Number
7. Salaries and directors’ remuneration
Salaries and fees
National insurance costs
Pension costs
Employee benefit costs
Average number of employees
Year ended
31 December
2015
$’000
Period ended
31 December
2014
$’000
5,441
4,360
843
285
108
18
663
222
92
17
Disclosures in relation to directors’ remuneration are given on a consolidated basis in the directors’ report and note 7 of the Group accounts.
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
83
Accounts
Notes to the company financial statements continued
for the year ended 31 December 2015
8. Auditor’s remuneration
Note 8 of the Group accounts provides details of the remuneration of the Company’s auditor on a Group basis.
9. Share based payments
Note 9 of the Group accounts provides details of share based payments of the Group. The amounts disclosed are the same as those of
the Company.
10. Capital and reserves
For description of each of the reserves of the Company please see Note 25 of the Group accounts.
11. Financial Commitments
The future aggregate minimum lease payments under non-cancellable operating leases in respect of land and buildings were as
follows:
Total committed within 1 year
Total committed between 1 and 5 years
12. Post balance sheet events
See note 30 within the Group accounts.
31 December
2015
$’000
31 December
2014
$’000
604
1,678
2,282
687
2,168
2,855
13. Related parties
During the year the Company provided funding and services to its subsidiaries totalling $78,972,000 (Nine months ended 31 December
2014: $9,030,000). Balances owed by and to subsidiaries are disclosed in aggregate in note 4 and note 5.
Note 28 of the Group accounts provides details on remuneration of key management personnel of the Group. The amounts disclosed are
the same as those of the Company.
14. Explanation of transition to FRS101
For all periods up to and including the period ended 31 December 2014, the Company prepared its financial statements in accordance
with United Kingdom generally accepted accounting practice (UK GAAP). These financial statements, for the year ended 31 December
2015, are the first the Company has prepared in accordance with FRS101.
Comparative information included in these financial statements has also been prepared in accordance with FRS101 and the significant
accounting policies described in Note 1.
On transition to FRS101, the Company has applied the requirements of paragraphs 6-33 of IFRS1 ‘First-time adoption of International
Financial Reporting Standards’ (IFRS1).
In preparing these financial statements, the Company has started from an opening balance sheet as at 1 April 2014, the Company’s date of
transition to FRS101, and made those changes in accounting policies and other restatements required for the first time adoption of FRS101.
84
Report & Accounts for the year ended 31 December 2015
Rockhopper Exploration plc
14. Explanation of transition to FRS101 continued
Non current assets
Property, plant and equipment
Investments
Current assets
Other receivables
Restricted cash
Term deposits
Cash and cash equivalents
Total assets
Current liabilities
Other payables
Total liabilities
Equity
Share capital
Share premium
Share based remuneration
Own shares held in trust
Merger reserve
Foreign currency translation reserve
Special reserve
Retained losses
Accounts
FRS101
$’000
674
47,180
332,213
898
100,000
94,406
31 March 2014
UK GAAP
and FRS101
$’000
353
—
UK GAAP
$’000
674
35,825
310,151
332,213
309
898
185,000
100,000
62,482
94,406
31 December 2014
Effect of transition
To FRS101
$’000
—
11,355
—
—
—
—
558,295
564,116
11,355
575,371
3,084
3,084
4,711
170
4,597
(354)
—
4,123
17,192
17,192
4,854
662
4,960
(628)
—
—
541,964
536,976
—
—
—
—
—
—
—
—
11,355
—
—
—
11,355
11,355
17,192
17,192
4,854
662
4,960
(628)
11,355
—
536,976
—
558,179
575,371
Attributable to the equity shareholders of the company
555,211
546,824
Total liabilities and equity
558,295
564,116
Effect of transition to FRS101
The addition to investments in the period to 31 December 2014 related to the acquisition of the entire issued share capital of Mediterranean
Oil & Gas Plc. The consideration paid was a combination of cash and newly issued shares in the Company. Under previous UK GAAP,
merger relief was applied and the shares issued were accounted for at nominal value. Under FRS101 merger relief can no longer be taken
and the investment in Mediterranean Oil & Gas Plc have to be recorded at fair value and as such the investment additions in the prior period
are $11,355,000 higher than had been recognised under previous UK GAAP leading to the creation of a Merger Reserve. See note 29 of the
Group accounts for full details of the acquisition of Mediterranean Oil & Gas Plc.
There have been no other affects from the transition to FRS101 on the reported financial position and financial performance.
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
85
Notes to the company financial statements continued
for the year ended 31 December 2015
15. Risk Management Policies
Risk Review
The risks and uncertainties facing the Company are set out in the risk management report. Risks which require further quantification are
set out below.
Foreign exchange risks: The Company’s functional currency is US$ and as such the Company is exposed to foreign exchange movements
on monetary assets and liabilities denominated in other currencies. In addition a number of the Company’s subsidiaries have a functional
currency other than US$, where this is the case the Company has an exposure to foreign exchange differences potentially impacting the
carrying value of investments with differences being taken to reserves.
The following table summarises the split of the Company’s assets and liabilities by currency:
Currency denomination of balance
Assets
31 December 2015
31 December 2014
Liabilities
31 December 2015
31 December 2014
$
$’000
£
$’000
501,422
566,640
15,546
8,173
18,790
13,270
4,049
3,922
a
$’000
76
558
—
—
The following table summarises the impact on the Company’s pre-tax profit and equity of a reasonably possible change in the US$ to GB£
exchange rate and the US$ to euro exchange:
Pre tax profit
Total equity
+10% US$ rate
increase
$’000
-10% US$ rate
decrease
$’000
+10% US$ rate
increase
$’000
-10% US$ rate
decrease
$’000
1,150
425
(1,150)
(425)
1,150
425
(1,150)
(425)
8
56
(8)
(56)
8
56
(8)
(56)
US$ against GB£
31 December 2015
31 December 2014
US$ against euro
31 December 2015
31 December 2014
86
Report & Accounts for the year ended 31 December 2015Rockhopper Exploration plcAccounts
15. Risk Management Policies continued
Capital risk management; the Company manages capital to ensure that it is able to continue as a going concern whilst maximising the
return to shareholders. The capital structure consists of cash and cash equivalents and equity. The board regularly monitors the future
capital requirements of the Company and Group, particularly in respect of its ongoing development programme.
Credit risk; the Company recharges partners and third parties for the provision of services. Should the company holding these accounts
become insolvent then these funds may be lost or delayed in their release. The amounts classified as receivables as at the 31 December
2015 were $nil (31 December 2014: $1,130,000). In addition the Company provides funding and services to subsidiary companies. These
receivables are supported by the assets held by the various subsidiary companies and the expected cashflows from these assets. Should
these assets not be monetised as expected then some or all of these funds may be lost or delayed in their release. The amounts classified
as receivables, net of provisions, as at the 31 December 2015 were $404,462,000 (31 December 2014: $330,489,000).
Interest rate risks; the Company has no debt and so its exposure to interest rates is limited to finance income it receives on cash and term
deposits. The Company is not dependent on its finance income and given the current interest rates the risk is not considered to be material.
Liquidity risks; the Company makes limited use of term deposits where the amounts placed on deposit cannot be accessed prior to their
maturity date. The amounts applicable at the 31 December 2015 were $60.0 million (31 December 2014: $100.0million) and are disclosed in
the counter-party risk table below.
Counter-party risk; rather than keep all its funds with one bank, the Company splits its funds across a number of banks, two of which are
part owned by the British government.
Barclays plc
Lloyds
Standard Chartered plc
Investec
Total term deposits
RBS plc
Barclays plc
Lloyds TSB plc
Others
Total cash and cash equivalents
Total term deposits and cash and cash equivalents
31 Dec 15
$’000
31 Dec 14
$’000
40,000 —
10,000
—
10,000
60,000
33,246
61
13,784
15
47,106
107,106
20,000
30,000
50,000
100,000
89,235
15
5,088
1,350
99,726
199,726
87
Report & Accounts for the year ended 31 December 2015 Rockhopper Exploration plc Accounts
Key licence interests as at 1 April 2016
Falkland Islands
North Falkland Basin
Licence
PL003a
PL003b
PL004a
PL004b
PL004c
PL005
PL032
PL033
South Falkland Basin
Licence
PL010–PL016
PL025–PL029
PL031
Operator
Rockhopper working
interest %
Field/Discovery
Rockhopper
Rockhopper
Premier Oil
Premier Oil
Premier Oil
Rockhopper
Premier Oil
95.50
60.50
—
—
64.00
Isobel Deep
64.00
64.00
100.00
Beverley
Casper South
Zebedee
—
—
40.00 Casper North
Sea Lion
Premier Oil
40.00
—
Operator
Rockhopper working
interest %
Field/Discovery
Noble Energy
Noble Energy
Noble Energy
52.50*
40.00
40.00
—
—
—
* Rockhopper’s interest in licences PL010 – PL012 and PL016 is 20% below the APX-150 sands (which were located approximately 4,750 metres depth in the Humpback well).
Greater Mediterranean
Italy
Licence
A.C35.AG
A.C19.PI
A.R81.FR
B.R269.GC
Serra San Bernardo (Monte Gross)
Aglavizza
# Operatorship of the Serra San Bernardo licence is in the process of being transferred to Eni.
Malta
Licence
Area 3
Croatia
Licence
Block 9 †
† Subject to signature of PSA expected during 2016.
88
Operator
Rockhopper working
interest %
Eni
Eni
Eni
20.00
15.00
15.00
Field/Discovery
Guendalina
—
—
Rockhopper
Rockhopper#
Rockhopper
100.00 Ombrina Mare
22.89
100.00
—
Civita
Operator
Rockhopper working
interest %
Field/Discovery
Cairn Energy
40.00
—
Operator
Rockhopper working
interest %
Field/Discovery
Eni
40.00
—
Report & Accounts for the year ended 31 December 2015Rockhopper Exploration plcAccounts
Shareholder information
Glossary
AGM
bbl
bcf
Board
boe
boepd
BOP
bopd
Capex
Company
E&P
EIS
ESA
ExCo
Farm-in
Farm-out
FDP
FEED
FID
FIG
FOGL
FPSO
G&A
Group
GSA
HoA
HSE
IAS
IFRS
JV
kboepd
kbopd
KPI
LoI
LTI
LTIP
MOG
mmbbls
mmboe
mmscfd
mscf
mt
NAV
Premier
PSA
PSC
scm
SIP
spud
STOIIP
TSR
2C
2P
$/US$
WI
Annual General Meeting
barrel
billion cubic feet
the Board of Directors of Rockhopper Exploration plc
barrel(s) of oil equivalent
barrel(s) of oil equivalent per day
blow out preventer
barrel(s) of oil per day
capital expenditure
Rockhopper Exploration PLC
exploration and production
Environmental Impact Statement
Exploration Study Agreement
Executive Committee
to acquire an interest in a licence from another party
to assign an interest in a licence to another party
field development plan
front end engineering and design
Final Investment Decision
Falkland Islands Government
Falkland Oil & Gas Limited
floating production, storage and offtake vessel
General & Administration expenses
The Company and its sunsidiaries
Gas Sales Agreement
Heads of Agreement
health, safety and environment
International Accounting Standard
International Financial Reporting Standard
Joint Venture
thousand barrels of oil equivalent per day
thousand barrels of oil per day
key performance indicator
Letter of Intent
Lost Time Incident
Long Term Incentive Plan
Mediterranean Oil & Gas plc
million barrels
million barrels of oil equivalent
million standard cubic feet per day
thousand standard cubic feet
metric tonne
net asset value
Premier Oil plc
Production Sharing Agreement
Production Sharing Contract
standard cubic metre
Share Incentive Plan
to commence drilling a well
stock-tank oil initially in place
total shareholder return
best estimate of contingent resources
proven plus probable
United States dollar
working interest
Key contacts
Registered address
and head office:
Hilltop Park
Devizes Road
Salisbury
Wiltshire
SP3 4UF
Mediterranean office:
Via Cornelia, 498
00166 Roma
Italia
Solicitors
Ashurst LLP
Broadwalk House
5 Appold Street
London
EC2A 2DA
Principal Bankers
Royal Bank of Scotland plc
36 St Andrew Square
Edinburgh
EH2 2YB
Nomad and joint broker
Canaccord Genuity Limited
88 Wood Street
London
EC2V 7QR
Auditor
KPMG LLP
15 Canada Square
London
E14 5GL
Registrar
Computershare Investor
Services plc
Vintners Place
68 Upper Thames Street
London
EC4V 3BJ
Joint broker
Liberum Capital Limited
Ropemaker Place, Level 12
25 Ropemaker Street
London
EC2Y 9LY
Joint broker
Merrill Lynch International
2 King Edward Street
London
EC1A 1HQ
Concerns and procedures
General emails
info@rockhopperexploration.co.uk
Audit committee emails
rkh@rockhopperexploration.co.uk
Website
www.rockhopperexploration.co.uk
Shareholder concerns:
Should shareholders have concerns which have not been
adequately addressed by the chairman or chief executive,
please contact the chairman of the audit committee at:
rkh@rockhopperexploration.co.uk
Whistle-blowing procedures:
Should employees, consultants, contractors or other
interested parties have concerns which have not been
adequately addressed by the chairman or chief executive,
please contact the chairman of the audit committee at:
rkh@rockhopperexploration.co.uk
Designed and produced by JacksonBone Limited.
Printed in England by Synergy Group.
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2015
89
Rockhopper Exploration plc
Hilltop Park
Devizes Road
Salisbury
SP3 4UF
Telephone +44 (0)1722 414 419
Mediterranean office:
Via Cornelia, 498
00166 Roma
Italia
Telephone +39 06 62290270
info@rockhopperexploration.co.uk
www.rockhopperexploration.co.uk
@RockhopperExplo
Company Reg. No. 05250250
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Building a well-funded,
full-cycle, exploration
led E&P company
Report and Accounts
for the year ended 31 December 2015