Rockhopper Exploration plc
Head office:
4th Floor
5 Welbeck Street
London
W1G 9YQ
Rome office:
Via Cornelia, 498
00166 Roma
Italia
Egypt office:
Level 1
6A Road 22
Maadi Sarayat,
Cairo
Egypt
Telephone +44 (0)207 486 1677
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 2016
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.
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Rockhopper Exploration plc
Shareholder information
Glossary
Annual General Meeting
barrel
billion cubic feet
AGM
bbl
bcf
Beach Egypt Beach Petroleum (Egypt) Pty Limited (now Rockhopper Egypt Pty Ltd)
the Board of Directors of Rockhopper Exploration plc
Board
barrel(s) of oil equivalent
boe
barrel(s) of oil equivalent per day
boepd
blow out preventer
BOP
barrel(s) of oil per day
bopd
capital expenditure
Capex
Rockhopper Exploration PLC
Company
exploration and production
E&P
Environmental Impact Statement
EIS
Exploration Study Agreement
ESA
Executive Committee
ExCo
to acquire an interest in a licence from another party
Farm-in
to assign an interest in a licence to another party
Farm-out
field development plan
FDP
front end engineering and design
FEED
Final Investment Decision
FID
Falkland Islands Government
FIG
Falkland Oil & Gas Limited
FOGL
floating production, storage and offtake vessel
FPSO
General & Administration expenses
G&A
The Company and its sunsidiaries
Group
Gas Sales Agreement
GSA
Heads of Agreement
HoA
health, safety and environment
HSE
International Accounting Standard
IAS
International Financial Reporting Standard
IFRS
Joint Venture
JV
thousand barrels of oil equivalent per day
kboepd
thousand barrels of oil per day
kbopd
key performance indicator
KPI
Letter of Intent
LoI
Lost Time Incident
LTI
Long Term Incentive Plan
LTIP
Mediterranean Oil & Gas plc
MOG
million barrels
mmbbls
million barrels of oil equivalent
mmboe
million British thermal units
mmbtu
million standard cubic feet per day
mmscfd
thousand standard cubic feet
mscf
metric tonne
mt
net asset value
NAV
Premier Oil plc
Premier
Production Sharing Agreement
PSA
Production Sharing Contract
PSC
standard cubic metre
scm
Share Incentive Plan
SIP
to commence drilling a well
spud
stock-tank oil initially in place
STOIIP
total shareholder return
TSR
best estimate of contingent resources
2C
proven plus probable
2P
United States dollar
$/US$
working interest
WI
Key contacts
Registered address
and head office:
4th Floor
5 Welbeck Street
London
W1G 9YQ
Mediterranean office:
Via Cornelia, 498
00166 Roma
Italia
Egypt office:
Level 1
6A Road 22
Maadi Sarayat
Cairo
Egypt
NOMAD and broker
Canaccord Genuity Limited
88 Wood Street
London
EC2V 7QR
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
Auditor
KPMG LLP
15 Canada Square
London
E14 5GL
Registrar
Computershare Investor
Services plc
Vintners Place
68 Upper Thames Street
London
EC4V 3BJ
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
Report & Accounts for the year ended 31 December 2016
85
Rockhopper Exploration plc
Strategic Report
STRATEGIC REPORT
2 2016 highlights
Rockhopper – the story so far
4 Rockhopper at a glance
6 Vision 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 Internal controls and risk management
22 Principal risks and uncertainties
26 Health, Safety, Environmental and Social Management
GOVERNANCE
28 Chairman’s Governance Report
30 Board of Directors
32 Corporate Governance Statement
35 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
84 Key licence interests as at 1 April 2017
85 Shareholder information
Report & Accounts for the year ended 31 December 2016
1
Strategic Report
Rockhopper Exploration plc
2016 highlights
> Building a material, full-cycle, exploration-led portfolio:
> Consolidated leading North Falkland Basin acreage position through the all-share
merger with Falkland Oil & Gas Limited (“FOGL”)
> Acquired non-operated production and exploration assets in Egypt from Beach Energy
> Ambition to further grow the Greater Mediterranean asset base
> Maintaining operational resilience based on compelling portfolio economics:
> Material increase in economic production* to 1,350 barrels of oil equivalent per day (“boepd”)
> Cash operating costs in Greater Mediterranean reduced to US$14 per boe
> Sea Lion project economics enhanced with further cost reductions achieved
– Sea Lion life of field costs estimated at US$35 per barrel and project
“break-even” at US$45 per barrel
* Economic production includes production from the effective date (being 1 January 2016) of the acquisition of assets in Egypt.
Rockhopper – the story so far
Q1 2017
2016
Ombrina Mare arbitration commences
Rockhopper commences international arbitration
proceedings, seeking very significant monetary
damages, as a result of the Republic of Italy’s
breaches of the Energy Charter Treaty in relation to
the Ombrina Mare project.
2013
2012
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 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.
Rockhopper acquires non-operated production and
exploration assets in Egypt.
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.
2
2
Report & Accounts for the year ended 31 December 2016
Rockhopper Exploration plc
Strategic Report
> Continued to progress the development of the large scale Sea Lion project:
> FEED contracts for the Sea Lion Phase 1 development awarded to a set
of world-class contractors
> Independent resource audit confirmed 517 mmbbl (2C) and 900 mmbbl (3C) oil resources
(gross), and near-field, low-risk exploration upside of 207 mmbbl (gross, mid case, unrisked)
> Updated draft Field Development Plan and draft Environmental Impact
Statement submitted to Falkland Islands Government
> Protecting financial strength to enable growth:
> Debt-free and fully funded for current commitments
> Strong balance sheet maintained with cash and term deposits of US$81 million
(at 31 December 2016)
> General and Administrative costs expected to be largely covered by existing production
going forward
> Initiated international arbitration to seek significant monetary damages
in relation to Ombrina Mare
2015
2014
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.
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 portfolio of production,
development, appraisal and exploration interests in
Italy, Malta and France.
2011
2010
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.
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.
Report & Accounts for the year ended 31 December 2016
3
3
Strategic Report
Rockhopper Exploration plc
Rockhopper at a glance
Falkland Islands
North Falkland Basin
Sea Lion Phase 1 (PL032)
> 40% working interest
> 220 mmbbls gross*
88 mmbbls net to Rockhopper*
> Targeting FID in mid 2018,
subject to securing funding
Sea Lion Phase 2 (PL032/PL004)
> 40-64% working interest†
> 300 mmbbls gross*
120-192 mmbbls net
to Rockhopper*
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.
PL01
PL032
PL033
Chatham
14/10-3
_
Phase 1
M
14/10-7
14/10-4
M
14/10-1
]
14/10-6
M
Chatham: 14/10-10
14/10-5
14/10-2
M
M
14/10-8
_
14/10-9, 9Z
L
Sea Lion
Complex
PL03a
Beverley East
Phase 2
14/15-4, 4Z
L
L
Zebedee:14/15b-5
Jayne East
PL04b
14/15-2
_
14/15-1, 1Z
W
PL04c
_
14/15-3
120m
100m
80m
60m
40m
20m
0m
0
10
Kilometers
Head Office
London, UK
Regional Offices
Rome, Italy
Cairo, Egypt
Elaine South
Doreen
Lydia
Isobel-Elaine
Complex
Phase 3
Elaine North
Emily
Irene
Isobel
Isobel Deep
Isobel
PL04a
4
Report & Accounts for the year ended 31 December 2016
Rockhopper Exploration plc
Strategic Report
Greater Mediterranean
ITALY
Guendalina
Guendalina
Block 9
Block 9
Ombrina Mare
Civita
Exploration
Production
Discovery
Monte Grosso
Monte Grosso
M e d i t e r r a n e a n S e a
GREECE
ABU
SENNAN
TURKEY
Cairo
Suez
E G Y P T
0
100
200
Kilometers
EL QA’A
PLAIN
R e d
S e a
TUNISIA
Badr El Din 04
Badr El Din 01
Abu El Gharadig NE
Badr El Din 11
Sheiba 181
BW1
Abu Sennan
Guendalina
El Qa’a Plain
El Qa’a Plain
Guendalina
Guendalina
Abu El Gharadig
0
Kilometers
Al Jahraa
300
Al Jahraa-1
!(
Al Jahraa SE-1X
GPY
GPY
Al Jahraa SE
GPT
Abu Sennan
Abu Sennan
Abu Sennan
Abo Senan
GPT SW
0
5
10
Kilometers
Italy
Guendalina
> 20% working interest
> Northern Adriatic production
Ombrina Mare
> 100% working interest
> International arbitration
commenced
Al Ahamadi
LIBYA
!(
ASA-1X
Asa
Western Desert 33
GPZZ-1
!(
GPZZ
!(
Al Ahmadi-1X
!(
El Salmiya-1
El Salmiya
Ash
ASH-1X
!
Western
Desert 33/15
!
Oil well
Abu Sennan Licence
Production lease
Seismic area
Oil field
Gas field
Civita
> 100% working interest
> Onshore gas production
Monte Grosso
> 23% working interest
> Exploration stage
EGYPT
Egypt
Abu Sennan
> 22% working interest
> Western Desert production
Croatia
Block 9
> 40% working interest
> Block awarded in 2015 –
subject to signature of PSA
Report & Accounts for the year ended 31 December 2016
5
Abu Sennan
Strategic Report
Vision
Rockhopper Exploration plc
To build a well-funded, full-cycle, exploration-led E&P company
Strategy
Strategic aim
Delivery in 2016
> Building a balanced portfolio in core areas
> Focus on North Falkland Basin and Greater
Mediterranean
4 Acquisition and integration of exploration
and production assets in Egypt
4 Material increase in economic production*
> Across the full asset life cycle
> Production base to enable growth through
exploration
> Maintaining balance sheet strength
> Prudent balance sheet management
> Partial monetisation of assets to fund development
> Disciplined approach to cost management
> Value accretive exploration
> Leveraging technical skillset
> Focus on proven hydrocarbon basins
> Managed exposure to high-impact opportunities
to 1,350 boepd
4 Year-end cash and term deposits
$81 million; no debt
4 Reduced recurring G&A by 30%
over last two years
4 Independent resources audit confirmed
517 mmbbl (2C) in Sea Lion Complex with
207 mmbbl of near-field exploration upside
* Economic production includes production from the effective date
(being 1 January 2016) of the acquisition of assets in Egypt.
Delivering on strategy
Economic production
(boepd)
Gross Sea Lion
Complex resources
(mmbbl)
Revenue
(US$m)
Net assets
(US$m)
1,350
900
7.4
427
560
517
386
C
2
C
3
C
2
C
3
March
2012
April
2016
322
272
2014
2015
2016
6
255
262
4.0
1.9
2014
2015
2016
2014
2015
2016
Report & Accounts for the year ended 31 December 2016
Rockhopper Exploration plc
Strategic Report
Business model
x p l oration >
E
> Proven basins
> High impact
> Managed exposure
Creating
value
> Right-sized
to fund exploration
<
P
r
o
d
u
ction
nt
v elopme
> Self-funded through
operating cash flows
or partial monetisation
< D e
Report & Accounts for the year ended 31 December 2016
7
Strategic Report
Rockhopper Exploration plc
Chairman and Chief Executive Officer’s Review
Rockhopper’s strategy is to build a well-funded,
full-cycle, exploration-led E&P company.
In 2016, Rockhopper delivered on a number of
operational, corporate and strategic objectives: completing
a highly successful exploration campaign in the Falklands,
progressing the Company’s flag-ship Sea Lion development
into FEED, whilst at the same time adding material
incremental production in the Greater Mediterranean.
Our balance sheet remains strong with no debt, which ensures
we are well placed to take advantage of the opportunities
created by the challenging commodity price environment.
In the Falkland Islands, we have grown our
resource position substantially through
exploration and acquisition
In January 2016, we completed the merger with Falkland
Oil & Gas Limited. The Board believes the combination
of Rockhopper and FOGL will create significant value
for shareholders, not only by positioning Rockhopper as
the largest acreage holder in the North Falkland Basin,
but our enhanced interests provide us with a stronger
strategic position in the future commercialisation of our
world-class Sea Lion project.
Operating Officer’s Review but the Board was particularly
pleased to see the audit confirm oil in place on the Sea Lion
Complex is estimated at more than 1.6 billion barrels gross
with estimated gross recoverable contingent oil resources of
517 mmbbls (2C) and 900 mmbbls (3C).
The impressive results of this campaign and the
subsequent independent resource audit endorse
Rockhopper’s view that the North Falkland Basin has the
potential to deliver multiple future phases of development
and, ultimately, a billion barrels of recoverable oil.
Continued cost optimisation materially reduces
project break-even cost at Sea Lion
In January 2016, the Sea Lion Phase 1 project entered
FEED with a set of world-class contractors. The Phase 1
development aims to commercialise the resources in the
north of the Sea Lion Complex in licence PL032.
The latest estimates of capex to first oil are
US$1.5 billion which, combined with other cost and
efficiency improvements, has resulted in a life-of-field
cost (capex, opex and lease) of approximately US$35 per
barrel. The project “break-even” oil price is approximately
US$45 per barrel (with break-even economics premised on
achieving an ungeared project IRR of 10%).
In February 2016, we concluded our highly successful
North Falkland Basin exploration drilling campaign,
which saw material oil discoveries at each of Zebedee,
Isobel Deep and Isobel Elaine.
A draft Environmental Impact Statement and revised
draft Field Development Plan were submitted to the
Falkland Islands Government (“FIG”) in late 2016.
Following the conclusion of the exploration campaign,
ERC Equipoise Limited (“ERCE”) were appointed to
conduct an independent audit of resources in the North
Falkland Basin. Further details are outlined in the Chief
Rockhopper is an engaged and active participant in the
Sea Lion joint venture providing support and challenge to
Premier Oil plc (“Premier”) across the range of subsurface,
engineering, commercial and financing aspects of the project.
Left: David McManus
Chairman
Right: Samuel Moody
Chief Executive Officer
8
Report & Accounts for the year ended 31 December 2016
Rockhopper Exploration plc
Strategic Report
Having operated in the Falklands for over 12 years
we have unparalleled insights and bring these to bear
as we move the project towards sanction.
In September 2016, the Board noted with interest the
joint statement between the British Government and the
Government of Argentina in relation to closer cooperation
on areas of mutual interest. This announcement is believed
to be the first positive statement made by both countries on
South Atlantic issues since 1999 and sets out a commitment
to work towards removing restrictive measures affecting the
oil and gas and other industries in the Falkland Islands.
Building a second core area in the Greater
Mediterranean
In our Greater Mediterranean portfolio, we have benefitted
from a material increase in production following the
completion of the successful Guendalina side-track and
the Rockhopper operated Civita development in H2
2015. Production further increased in 2016 following the
acquisition of a portfolio of interests in Egypt. Economic
production* in 2016 averaged 1,350 boepd.
Following the decision in February 2016 by the Ministry
of Economic Development not to award the Company a
Production Concession covering the Ombrina Mare field,
in March 2017 the Company commenced international
arbitration proceedings against the Republic of Italy. Based
on legal and other expert opinions, Rockhopper has been
advised that it has strong prospects of recovering very
significant monetary damages as a result of the Republic
of Italy’s breaches of the Energy Charter Treaty. Damages
would be sought on the basis of lost profits, with the
arbitration process expected to take 2-3 years.
Portfolio management and corporate cost
reduction initiatives
Over the last 24 months a corporate cost reduction
program has been implemented across the Group – as a
result, headcount in Italy has reduced to eight (a reduction
of over two-thirds since the acquisition of Mediterranean
Oil & Gas plc in August 2014). Initiatives to streamline
the Group’s UK operations have been achieved by
combining our London and Salisbury staff in a single
office in London. As a result, the Group’s net recurring
general and administrative (“G&A”) cost in 2016
has reduced to US$7.4 million (compared with
US$9.4 million in 2015 and US$10.8 million in 2014†) –
further G&A savings are anticipated in 2017.
Board changes
Following the Company’s AGM in May, Dr Pierre
Jungels retired as Non-executive Chairman having
served as Chairman of the Company for over 10 years.
David McManus, an existing Non-executive Director,
was appointed Non-Executive Chairman following
Pierre’s retirement. We pay tribute to Pierre’s
achievements over that time and offer our sincere
thanks for the leadership provided.
In addition, Robert (Bob) Peters, Senior Independent
Director, retired from the Board effective 31 December
2016. We thank Bob for his significant contribution
and input to Board deliberations over his six years with
the Company. Keith Lough, Non-executive Director
and Chairman of the Audit and Risk Committee, was
appointed Senior Independent Director following Bob
Peters’ retirement.
Outlook
As the technical engineering phase of the Sea Lion FEED
approaches conclusion, focus will shift in 2017 to the
commercial, fiscal and financing elements of the project.
Engagement with FIG on a range of operational, fiscal
and regulatory matters is expected to continue through
H1 2017.
With the spot price for Brent crude fluctuating around
$55 per barrel in early 2017, and the cost efficiencies
realised through the FEED process, the Board is
convinced the economics of the Sea Lion project are
sufficiently robust to be sanctioned in the current
environment, assuming the required capital investment
can be secured.
With that in mind, Premier, Rockhopper’s partner in
the Sea Lion project, has confirmed that, given their
financing position, any final investment decision on
Sea Lion will be subject to the successful conclusion
of a farm-down or alternative financing process.
Given the importance of the Sea Lion project to
Rockhopper and our shareholders, we are dedicated
to investigating every possible means to progress the
development, including assisting Premier in their financing
efforts, actively engaging with a number of oil industry
participants with regard to potential farm-in transactions
and a number of initiatives to further reduce the pre-first
oil capital required to sanction the project. We believe the
completion of the Premier’s refinancing will significantly
enhance the discussions around the funding and resulting
sanction of the Sea Lion development.
As a result of the acquisition of Beach Egypt, combined
with corporate cost savings achieved through the year,
operating cash flows are expected to broadly cover the
Group’s overheads during 2017. The Board believes that this
production and cash flow, when combined with our existing
balance sheet, helps secure the long-term sustainability of
the Company whilst preserving flexibility to further grow
our Greater Mediterranean business in 2017.
David McManus
Non-Executive Chairman Chief Executive Officer
Samuel Moody
10 April 2017
* Economic production
includes production
from the effective date
(being 1 January 2016)
of the acquisition of
Beach Egypt.
† Based on audited results
for the nine month
period to 31 December
2014, pro-rated for a
full year.
Report & Accounts for the year ended 31 December 2016
9
Strategic Report
Rockhopper Exploration plc
Key Performance Indicators (KPIs)
The Board monitors the Company’s progress against
its Key Performance Indicators to assess performance
and delivery against pre-defined strategic objectives.
KPIs have been set based on short-term targets designed
to ensure the Company achieves its long-term strategy.
The Company measures a number of operational and
financial metrics to ascertain performance. In 2016,
Rockhopper continued to deliver on a number of its
key metrics.
2016
KPI #1
Definition
Performance
Attainment
Bringing an additional paying partner
into the Sea Lion development project.
Discussions held with a range of potential
capital providers to establish appetite to
invest in the Sea Lion project.
KPI #2
Completion of a Competent Person’s Report
that meets specific objectives set by the Board.
KPI #3
Achievement of production related targets.
KPI #4
Achievement of specific milestones for the
Final Investment Decision for the Sea Lion
development.
Not achieved
Fully achieved
Partially achieved
Partially achieved
Independent resource audit prepared by
ERC Equipoise announced in May 2016.
Audit confirmed Sea Lion Complex 2C
resources of 517 mmbbl and 3C resources
of 900 mmbbl.
Economic production of 1,350 boepd
achieved during 2016, a material increase
over 2015 levels.
Project entered FEED with a set of world
class contractors.
Draft Field Development Plan prepared
and submitted to the FIG.
Significant cost savings achieved and project
break-even oil price reduced to $45 per barrel.
2017
KPI #1
KPI #2
KPI #3
Definition
Bringing an additional paying partner into the Sea Lion Development project and/
or working closely with the operator to deliver a financing solution to enable the joint
venture to advance project sanction.
Addition of a material new venture that adds substantial production and meets the
Company’s corporate investment criteria.
Preservation of the Company’s cash position.
10
Report & Accounts for the year ended 31 December 2016
Rockhopper Exploration plc
Strategic Report
Industry dynamics
> Early signs of stability in oil prices not yet sufficient
to turn around focus on cost reductions and project
deferrals
> Cost reductions achieved through “across-the-sector”
price cuts – leading to service sector consolidation and in
some cases financial restructuring or insolvency
> Next phase of cost reductions likely to be driven
by efficiencies of design and engineering, industry
standardisation and co-operation around shared
infrastructure
> Industry will continue to focus on capital allocation with
capital employed only on those projects which deliver the
most competitive risk adjusted returns.
Mergers and acquisitions
> Outside of North America mergers and acquisition
activity remained relatively subdued
> Asset recycling remains major theme with Oil Majors
seeking to release capital from legacy/mature/low
growth/low return projects
> Industry farm-out market limited to select geographic
“hot-spots”
> Super Majors increasing focus on gas – BP/Senegal;
Shell/BG; ExxonMobil/Mozambique.
Market overview
Economic and political
> Significant political and economic uncertainty
through 2016 as a result of:
– UK decision to leave the European Union
– US Presidential election
– Eurozone instability
> Sterling weakness and interest rate cut following Brexit
> In Europe, continued easing of monetary policy with a
focus on quantitative easing
> In contrast, the US continues to experience GDP
recovery and declining unemployment leading to
increased confidence and interest rate rises.
Equity market
> Strong UK equity market performance across FTSE
100 and 250
> High volatility following Brexit decision in June with
recovery driven in large part by Sterling weakness
and large-cap exposure to US earnings
> Whilst the FTSE 350 Oil & Gas sector outperformed
the wider market, investor appetite for small and mid –
cap E&P remains muted.
Oil price
> Significant recovery in Brent oil prices through the year
> January 2016 saw lows of below $30 per barrel driven
by oversupply concerns and demand uncertainty
> OPEC and non OPEC supply cuts in H2, the first in
many years, saw Brent re-rate above $50 per barrel
> The balance of demand and supply going forward
remains uncertain with many contributing factors –
on the one hand demand growth in 2017 looks strong
(driven by China and the Far East) on the other,
sustainable US shale production growth could cap
prices in the medium term
> Consensus forecasts for 2017/18 generally sit in the
$50-60 per barrel range.
Liquids demand
Mb/d
Technology-driven supplies
MBDOE
120
100
80
60
40
20
0
Power
Buildings
Industry
Non-combusted
Ships, trains & planes
Trucks (inc SUVs)
Cars (inc. two-wheelers
& other light duty vehicles
20
15
10
5
0
Transport
NGLs
Tight oil
Deepwater
Oil sands
2000
2005
2010
2015
2020
2025
2030
2035
‘10 ‘25 ‘40
‘10 ‘25 ‘40
‘10 ‘25 ‘40
‘10 ‘25 ‘40
Source: BP 2007 Energy Outlook
Source: ExxonMobil Outlook for Energy 2040
Report & Accounts for the year ended 31 December 2016
11
Strategic Report
Rockhopper Exploration plc
Chief Operating Officer’s Review
Sea Lion FEED targets significant
cost reductions
2016 was a year of intense activity following the
commencement of Front End Engineering and Design
(“FEED”) for the Sea Lion Phase 1 development. FEED
contracts were awarded to an aligned partnership of
world-class contractors comprising SBM Offshore for
the FPSO, Subsea 7 for the subsea installation, National
Oilwell Varco for the flexible flowlines and One Subsea
for the subsea production system. The innovative
contractor partnership having been designed to create
collaborative engagement with a view to optimising
the facilities design and installation methodology and
to reduce project costs. In tandem engagement with
drilling and logistics service providers is progressing,
again with a range of innovative commercial and
contractual arrangements being discussed.
The joint venture team of Premier and Rockhopper
have worked collaboratively to support and challenge
the design specifications throughout the FEED process,
leading to significant savings across the project.
Additionally, support from Rockhopper has enabled
a right sizing of the operators project team and a
significant reduction in the project management costs
for 2017.
Cost estimates for field support services, including
supply boats, helicopters and shuttle tankers have seen
a material reduction. As a result, field operating costs for
Sea Lion Phase 1 are now estimated at $15 per barrel,
down from over $20 per barrel, while the total project
breakeven cost has reduced to just below $45 per barrel
from $55 per barrel.
Given the magnitude of resources already discovered
in the North Falkland Basin, a phased approach
to development is being pursued. Phase 1 will
commercialise approximately 220 mmbbls in the north
of PL032 (in which Rockhopper has a 40% working
interest). The Phase 2 development will commercialise
a further 300 mmbbls from the remaining resources in
PL032 and the adjacent resources in PL004 (in which
Rockhopper has a 64% working interest). Subject
to further appraisal drilling, Phase 3 will develop the
resources in the Isobel-Elaine Complex to the south
of PL004.
An application was made to FIG to extend the licence
for the Sea Lion Discovery Area. FIG has confirmed
that an extension to April 2020 has been granted by the
Secretary of State. Additionally, extensions are being
granted to all licences held in the North Falkland Basin
by FIG.
Fiona MacAulay
Chief Operating Officer
Supply base,
Falkland Islands
12
Report & Accounts for the year ended 31 December 2016
Rockhopper Exploration plc
Strategic Report
Success of recent North Falkland Basin
exploration campaign confirmed by
independent resource audit
In February 2016, we concluded the Isobel Elaine well,
the last in our multi-well exploration campaign in the
North Falkland Basin and continued our success in
the role of sub-surface lead for exploration, in which
Rockhopper have had unparalled success in the basin.
Following the success of the exploration campaign,
ERCE were appointed to conduct an independent audit
of the contingent and prospective resources in licences
PL032 and PL004 which was completed in April 2016.
A summary of the resource update is outlined below.
Sea Lion complex
ERCE audit
> Discovered STOIIP 1,667MMstb, 834MMstb net
to RKH (Mid Case)
> Discovered 2C resources 517MMstb oil, 258MMstb
net to RKH
Isobel-Elaine complex
ERCE audit
Utilising the operationally compromised data suite
ERCE audited significant discovered and prospective
STOIIP and resources in the Isobel-Elaine Complex of:
> Discovered STOIIP 277MMstb oil, 177MMstb
net to RKH (Mid Case)
> Discovered STOIIP 832MMstb oil, 532MMstb
net to RKH (High Case)
> Discovered 2C resources for Isobel Deep (F3H Fan)
20MMstb oil, 13MMstb net to RKH
> Prospective STOIIP 282MMstb oil, 180MMstb
net to RKH (Mid Case)
Management estimates
Without the benefit of completed formation pressure
data, management has applied conservative recovery
factors of 25% and 35% respectively for 2C and 3C
resources against audited STOIIP for each of the Emily,
Isobel and Isobel Deep (J) fans:
> Management 2C resources 49MMstb oil, 31MMstb
> Discovered 3C resources 900MMstb oil, 452MMstb
net to RKH
net to RKH
> Management 3C resources 198MMstb oil,
> Total discovered 2C resources including gas
127MMstb net to RKH.
747MMboe, 392MMboe net to RKH
> Total discovered 3C resources including gas
1,462MMboe, 798MMboe net to RKH.
Upside
> ERCE audited near field low risk exploration upside
of 207MMstb, 105MMstb net to RKH (Mid Case,
unrisked)
> Management estimates additional resource upside in
West Flank of 60MMstb if oil-bearing.
Management plus ERCE audited resources
> 2C resources 69MMstb oil, 43MMstb net to RKH
> 3C resources 270MMstb oil, 173MMstb net to RKH
> Prospective (Mid Case) resources 70MMstb,
45MMstb net to RKH
> Prospective (High Case) resources 350MMstb,
224MMstb net to RKH.
Sea Lion development
schematic
Report & Accounts for the year ended 31 December 2016
13
Strategic Report
Rockhopper Exploration plc
North Falkland Basin snapshot
PL01
PL032
PL033
Leading acreage position post acquisition of FOGL
Chatham
_
SL30
Sea Lion
M
M M
M
M
CHATHAM
CHATHAM
]
Casper
L
_
Casper
South East
PL03b
Casper
South West
Beverely
West
L
L
ZEBEDEE
ZEBEDEE
Beverely
East
Jayne East
Ninky South
PL04b
_
Zebedee
_
Hector
W
PL04c
Orca / Ann
Elaine South
Doreen
Elaine North
Lydia
PL03a
Liz
PL05
Emily
ISOBEL 2
ISOBEL 2
Irene
Susan
Isobel
Isobel Deep
ISOBEL DEEP
ISOBEL DEEP
Helen
Rockhopper
FOGL
Combined Group
Operator
PL032
40%
n/a
40%
Premier
PL003a
3%
92.5%
95.5% Rockhopper
PL003b
3%
57.5%
60.5% Rockhopper
PL004a
24%
40%
64%
Premier
PL04a
PL004b
24%
40%
64%
Premier
PL004c
24%
40%
64%
Premier
PL005
n/a
100%
100% Rockhopper
Projected production profile
)
d
p
o
b
m
(
e
t
a
r
l
i
o
y
l
i
a
d
l
a
u
n
n
a
e
g
a
r
e
v
A
160
140
120
100
80
60
40
20
0
Phase 2
Phase 1
0
5
10
Years from first production
15
20
Source: xxxx
10 Kms
14
Report & Accounts for the year ended 31 December 2016
Rockhopper Exploration plc
Strategic Report
Rockhopper was delighted that the audit confirmed
the Company’s net 2C oil contingent resource base in
the North Falkland Basin, as a result of the exploration
campaign and the acquisition of FOGL, had increased
to over 270 million barrels, or over 300 million barrels
including management estimates for the Emily, Isobel
and Isobel Deep J fans.
In the Isobel-Elaine Complex, where data collection
was compromised for operational reasons, ERCE has
evaluated the discovered STOIIP for each of the fans and
attributed contingent resources to the Isobel Deep (F3H)
fan from which significant oil was recovered to surface.
For the other oil-bearing fans (Emily, Isobel and Isobel
Deep J), ERCE believes that recovery factors comparable
to those applied to discoveries could be achieved if an
appraisal programme demonstrates the potential to flow
oil at a rate comparable to wells in these offset discoveries.
For these fans, management has assigned a 25% recovery
factor for the 2C and 35% for the 3C resources.
In addition to the discovered resources, management
believes there are a large number of near field prospects
in the attractive and relatively low risk Isobel/Elaine
appraisal area for which estimates of STOIIP and oil
prospective resources have been made.
South and East Falkland Basin
Through the acquisition of FOGL, Rockhopper
acquired a 52% interest in Noble operated acreage to
the South and East of the Falkland Islands. Following
the results of the Humpback well, Noble Energy
and Edison have given notice to withdraw from this
acreage (although retain an interest in PL001 in
the North Falkland Basin). As a result, Rockhopper
expects to become operator of the South and East
Falkland Basin acreage with a 100% working interest
when the process of assignment is complete. Selective
technical work by the Rockhopper sub-surface team
will continue to establish the remaining prospectivity
on the acreage and a decision on whether to extend the
current phase of the licences will then be made.
Step-change in production in Greater
Mediterranean following acquisition in Egypt
Rockhopper is focused on building a second core area
in the Greater Mediterranean region following its
acquisition of Mediterranean Oil & Gas plc in 2014.
In August 2016, Rockhopper completed the acquisition
of Beach Petroleum (Egypt) Pty Limited (“Beach
Egypt”), as a result acquiring a 22% interest in the
Abu Sennan concession and a 25% interest in the
El Qa’a Plain concession.
Abu Sennan, Egypt (Rockhopper 22%)
Operated by Kuwait Energy, the Abu Sennan
Concession is located in the Abu Gharadig basin in
the Western Desert. The Concession was signed in
June 2007 with first commercial production achieved
during 2012.
During the second half of 2016, both the Al Jahraa
SE-1X exploration well and the ASH-1X ST2
development wells were brought onto production
with additional zones in the wells to be brought into
production at a later date.
A new development lease of c.30 square km was
awarded around the Al Jahraa SE-1X well with EGPC
attributing gross reserves of over 9 mmbbl to the
development area, a material increase to the net
4.5 mmbbl of 2P/2C acquired in August 2016.
The 2017 work programme and budget for the
Abu Sennan Concession sees the drilling of both
an exploration and a development well close to the
Al Jahraa and Al Jahraa SE fields during the first
half of 2017. These wells are aimed at improving the
joint ventures technical understanding of Al Jahraa
SE as well as maintaining production levels
by offsetting natural decline from existing wells
within the Concession.
The Rockhopper sub-surface team have been working
closely with the operator since completion
of the acquisition to both prioritise the large prospect
inventory and to better understand the reservoir
management of the fields already on production.
The exploration well, Al Jahraa-SE2, which is due to
spud shortly, will target the AR-C reservoir in the fault
block immediately to the south of the Al Jahraa SE field
and which has the potential to increase the Al Jahraa SE
field area to the upthrown side of that fault.
On completion of the exploration well, the rig will
move directly to Al Jahraa-9, which is a development
well. This development well targets the AR-C reservoir
at a location deeper than the current deepest oil
penetration at Al Jahraa-4 (no oil water contact has yet
been encountered in the field) thereby aiming to prove
additional reserves. The well also seeks to demonstrate
the connection between the Al Jahraa and Al Jahraa SE
fields through the oil leg. In addition, the operator has
proposed two work-over operations during Q2 2017.
The outcome of operations in H1 2017 on the Abu
Sennan Concession will determine the activities during
the second half of the year.
In addition, the Company expects to receive final
ratification for a 5-year extension to the Abu Sennan
exploration licence in H1 2017. Once approved, the
Company will undertake to participate in at least two
exploration wells over the next 3 years at a commitment
(net to Rockhopper’s 22% working interest) of
approximately US$1.3 million.
Report & Accounts for the year ended 31 December 2016
15
Strategic Report
Rockhopper Exploration plc
Greater Mediterranean snapshot
ITALY
Guendalina
Rimini
Mediterranean Sea
Cairo
Abu Sennan
Italy
Guendalinia
CROATIA
> 20% working
interest
> Northern Adriatic
> 2016 production
410 boepd
Adriatic Sea
0
50
Kilometres
Egypt
Abu Sennan
> 22% working
interest
> Western Desert
> 2016 economic
production 810
boepd
Italy
Civita
Adriatic Sea
Civita
ITALY
Campobasso
0
50
Kilometres
Adriatic Sea
ITALY
Bari
Monte Grosso
Taranto
EGYPT
0
200
Kilometres
Tyrrhenian
Sea
0
100
Kilometres
Adriatic Sea
Pescara
Ombrina Mare
ITALY
Italy
Ombrina Mare
> 100% working
interest
> International
arbitration
commenced
CROATIA
Block 9
Adriatic Sea
ITALY
0
50
Kilometres
0
100
Kilometres
> 100% working
interest
> Onshore gas
production
> 2016 production
130 boepd
Italy
Monte Grosso
> 23% working
interest
> ~250 mmbbl
oil prospect
> 23% chance
of success
Croatia
Block 9
> 40% working
interest
> Block awarded in
2015 – subject to
signature of PSA
16
Report & Accounts for the year ended 31 December 2016
Strategic Report
Rockhopper operated
Civita production site
Rockhopper Exploration plc
Guendalina, Italy (Rockhopper 20%)
Operated by Eni, the Guendalina gas field, located in
the Northern Adriatic, has been in production since
October 2011.
Guendalina has continued to produce to forecast
during 2016 and production over the year averaged
68,000 scm per day net to Rockhopper ( approximately
410 boe per day). Plant availability over the year has been
close to 100% and production from the side track well
in 2015 continues to make a material contribution to
field production.
The Rockhopper team have worked closely with the
operator to look at more efficient and cost effective
methodologies of produced water disposal which should
have a significant reduction on field opex going forward.
Civita, Italy (Rockhopper 100%)
Operated by Rockhopper, the Civita gas field located
onshore Abruzzo, came into production in November
2015.
During 2016, production from the field averaged
approximately 21,000 scm per day (approximately
130 boe per day). Gas compression was successfully
commissioned at the site in December 2016.
Ombrina Mare, Italy (Rockhopper 100%)
Following the decision in February 2016 by the Ministry
of Economic Development not to award the Company
a Production Concession covering the Ombrina Mare
field, a decision was made to plug and abandon (“P&A”)
the existing OM-2 well and remove the tri-pod structure
which had been constructed in 2008 and at that time
intended to form part of the future production facilities
on the field. The P&A operation was successfully
completed without incident in early August 2016 using
the Attwood Beacon rig, taking advantage of depressed
rig rates. The decommissioning and removal of the
tri-pod structure is anticipated to take place during
H2 2017 and a fixed price contract for this work has
been awarded.
Monte Grosso, Italy (Rockhopper 23%)
Operated by Eni, the Serra San Bernado permit which
contains 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 transferred the operatorship of the Serra
San Bernado permit to Eni during 2016. It is hoped that
the transfer of operatorship will accelerate the regulatory
and permitting process to enable drilling.
El Qa’a Plain, Egypt (Rockhopper 25%)
Operated by Dana Petroleum, the El Qa’a Plain
concession is located on the eastern shore of the Gulf
of Suez and contains a number of oil leads identified on
existing 2D seismic data. The concession was signed in
January 2014. Approximately 470 sq km of 3D seismic
plus 35 km of 2D seismic was acquired in early 2016
and is currently being processed. The drilling of an
exploration commitment well is planned in late 2017/
early 2018.
Area 3, Malta (Rockhopper 40%)
In line with Rockhopper’s highly selective approach to
new exploration ventures and following completion of
seismic and geological evaluation work, the Company
has given notice to the operator and the Maltese
regulator that it does not intend to participate in any
extension of the current term of the Area 3 Exploration
Study Agreement which expired in December 2016.
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 award was
made subject to the execution of a Production Sharing
Agreement (“PSA”) with the Croatian Hydrocarbon
Authority (“CHA”). Given the general elections in
Croatia in November 2015 and September 2016,
significant delays have been experienced in the signing of
a PSA with the CHA. Rockhopper is in discussions with
the CHA to understand the status of the Block award
and options going forward.
Fiona MacAulay
Chief Operating Officer
10 April 2017
Report & Accounts for the year ended 31 December 2016
17
Strategic Report
Rockhopper Exploration plc
Chief Financial Officer’s Review
Overview
During 2016, Rockhopper continued to allocate capital
primarily to its world-class assets in the North Falkland
Basin whilst at the same time actively pursuing value-
accretive acquisitions to meet our strategic objectives.
Rockhopper retains its robust financial position despite
the low oil and gas price environment experienced
through much of 2016.
In the North Falkland Basin, we have grown our asset
base through the merger with Falkland Oil & Gas
Limited (“FOGL”) and through exploration drilling on
the Isobel-Elaine complex.
associated with the acquisition of FOGL. Excluding
the impact of the excess fair value over consideration
associated with the FOGL acquisition would have
resulted in a loss after tax in the year of US$14 million.
Revenue
The Group’s revenues of US$7.4 million (2015:
$4.0 million) during the year relate entirely to the sale of
oil and natural gas in the Greater Mediterranean (Egypt
and Italy). The increase in revenues from the comparable
year reflects: (i) the acquisition of production assets in
Egypt, which completed in August 2016; and (ii) the
increase in realised oil and gas prices.
As in 2015, we have seen a step change in production and
revenues compared with the previous year, primarily as a
result of the acquisition of a portfolio of assets in Egypt.
Working interest economic production* averaged
1,350 boepd in 2016, a more than trebling of production
from the prior year (2015: 322 boepd).
Our balance sheet remains strong with year-end cash
and term deposits of US$81 million.
Results summary
$m (unless otherwise specified)
Economic production* (boepd)
Revenue
Profit after tax
Cash flow from operating activities
Cash
Net assets
FY2016
1,350
7
98
(21)
81
427
9 months
2014
FY2015
322
4
11
(7)
110
262
272
2
(8)
(11)
200
255
Results for the period
For the year ended 31 December 2016, the Company
reported revenues of US$7.4 million and a profit after tax
of US$98 million. The profit after tax in the year arose
primarily due to the excess of fair value over consideration
Stewart MacDonald
Chief Financial Officer
During the year, the Group’s gas production in Italy was
sold under short-term contract with an average realised
price of €0.15 per standard cubic metre (scm), equivalent
to US$4.85 per thousand standard cubic feet (“mscf”).
Gas is sold at a price linked to the Italian “PSV” (Virtual
Exchange Point) gas marker price.
In Egypt, all of the Group’s oil and gas production is sold
to the Egyptian General Petroleum Company (“EGPC”).
The average realised price for oil was US$46.2 per barrel,
a small discount to the average Brent price over the same
period. Gas is sold at a fixed price of US$2.65 per mmbtu.
Operating costs
Cash operating costs, excluding depreciation and
impairment charges, amounted to US$4.4 million
(2015: US$3.0 million). The increase in underlying
cash operating costs is principally due to the addition
of Egyptian production. Cash operating costs on a per
barrel of oil equivalent basis reduced from US$25.5 per
boe in 2015 to US$14.4 per boe in 2016.
The Group’s general and administrative (“G&A”) cost,
excluding non-recurring expenses related to acquisitions
and group restructuring, reduced further in 2016 to
US$7.4 million (2015: US$9.4 million) – further G&A
savings are anticipated in 2017.
Impairment of oil and gas assets
Rockhopper has tested the carrying value of our assets
for impairment. Carrying values are compared to the
value in use 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 2017 to 2019, 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.
18
Report & Accounts for the year ended 31 December 2016
Rockhopper Exploration plc
Strategic Report
With no cash flow generation expected from Sea Lion
until 2020 at the earliest, the impact of the Brent forward
curve during the period 2017 to 2019 on the fair value
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 of a $20 per barrel reduction in its long-term
oil price, no impairment on Sea Lion arises. Equally, no
impairment would arise even if the Company assumed
project sanction was delayed by 10 years.
Cash movements and capital expenditure
At 31 December 2016, the Company had cash
resources of US$81.0 million (31 December 2015:
US$110.4 million) and no debt.
Cash and term deposit movements during the period:
US$m
Opening cash balance (31 December 2015)
Revenue
Cost of sales
Falkland Islands (net of insurance proceeds)
Greater Mediterranean
Recurring administration
Acquisition of subsidiaries (FOGL and Beach Egypt)
Other
Closing cash balance (31 December 2016)
110
7
(4)
7
(4)
(7)
(14)
(14)
81
There was a net inflow for the Falkland Islands in
2016 of US$7 million due to (i) insurance proceeds
exceeding outflows that primarily relate to
the 2015/16 drilling campaign, as well as (ii) spend
relating to the pre-development activities on Sea
Lion. For a variety of reasons, the costs of drilling
the Zebedee, Isobel Deep and Isobel-Elaine wells
were higher than originally anticipated. Certain costs
incurred during the North Falkland Basin exploration
campaign were the subject of an insurance claim
which settled in late 2016. In total, US$49 million of
insurance proceeds were received, net to Rockhopper.
Spend on assets in the Greater Mediterranean largely
relates to residual costs associated with the Guendalina
side-track and Civita development in H2 2015 and the
plugging and abandonment of the Ombrina Mare-2
well following the decision earlier in the year by the
Ministry of Economic Development not to award
the Company a Production Concession covering
the Ombrina Mare field. In addition there has been
expenditure on the Abu Sennan production concession
and El Qa’a exploration concession in Egypt.
Other cash outflows include foreign exchange losses,
movements in working capital balances, group
restructuring costs as well as non recurring liabililites
acquired as part of the FOGL acquisition.
Less than 15% of the Group’s cash resources as at mid
June 2016 were held in Sterling and therefore the impact
of the weakness in Sterling:US dollar exchange rates on
the Group’s cash position, following the UK referendum
decision to leave the European Union, was limited.
Mergers, acquisitions and disposals
The merger with Falkland Oil & Gas Limited
completed in January 2016. Through the merger of
FOGL, Rockhopper consolidated its leading North
Falkland Basin acreage position.
Under the terms of the merger, shareholders of FOGL
received 0.2993 new Rockhopper shares for each FOGL
share held.
The transaction has been accounted for by the purchase
method of accounting with an effective date of
18 January 2016 being the date on which the Group
gained control of FOGL. Information in respect of
the assets and liabilities acquired and the fair value
allocation to the FOGL assets in accordance with the
provisions of “IFRS 3 – Business Combinations” has
been determined on a firm basis as follows:
Recognised values on acquisition
Intangible exploration and appraisal assets
Property, plant and equipment
Inventories
Trade and other receivables
Trade and other payables
Net identifiable assets and liabilities
US$m
170.0
0.1
0.2
21.0
(19.2)
172.0
The fair value of the net assets acquired was US$172.0 million
resulting in an excess of fair value over consideration of
US$111.8 million, recorded as a credit in the income statement.
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.
In determining the fair value of the assets, the Directors
acknowledge the inherent subjectivity and wide range of possible
values given the unique nature of the FOGL assets acquired,
a lack of truely comparable transactions and the highly
volatile commodity price environment at the time of acquisition.
The excess of fair value over consideration has arisen
primarily due to the fact that the financial position of
FOGL had deteriorated due to cost overruns at the
Humpback exploration well as well as merger terms
being agreed prior to the Isobel-Elaine well results,
which substantially de-risked the Isobel-Elaine complex.
In April 2016, Rockhopper announced revised terms
for the acquisition of Beach Egypt for cash consideration
of US$11.9 million. The acquisition of Beach Egypt
completed in August 2016.
In September 2016, Rockhopper completed the sale of a
package of non-core assets in Italy including interests in
the Monteardone and Fornovo di Taro fields to a local
company for nominal consideration. As a result of this
transaction, US$1.1 million of provisions related to future
abandonment and decommissioning have been removed
from the balance sheet.
* Economic production
includes production
from the effective date
(being 1 January 2016)
of the acquisition of
Beach Egypt.
Report & Accounts for the year ended 31 December 2016
19
19
Strategic Report
Rockhopper Exploration plc
Taxation
On the 8 April 2015 the Group agreed binding
documentation (“Tax Settlement Deed”) with the Falkland
Islands Government in relation to the tax arising from the
Group’s farm out to Premier Oil plc.
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.
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 is payable
on the earlier of: (i) the first royalty payment date on Sea
Lion; (ii) the date of which Rockhopper disposes of all or
a substantial part of the Company’s remaining licence
interests in the North Falkland Basin; or (iii) a change of
control of Rockhopper Exploration plc.
Due to the movement in the Sterling:US dollar
exchange rate, the outstanding tax liability in US dollar
terms has reduced to US$79 million (31 December 2015:
US$95 million).
The outstanding tax liability is classified as non-current and
discounted to a year end value of US$39 million.
As the Company received the full Exploration Carry
from Premier during the 2015/16 North Falkland Basin
exploration campaign, the Company is entitled under
the terms of the Tax Settlement Deed to request the
outstanding tax liability is reduced by £4.7 million. Such
a request has been made to FIG although no adjustment
in the outstanding tax liability has yet been recorded as
this is subject to agreement with the Falkland Islands’
Commissioner of Taxation.
Full details of the provisions and undertakings of the Tax
Settlement Deed were disclosed in the Company’s 2014
Annual Report but these include “creditor protection”
provisions including undertakings not to declare dividends
or make distributions while the tax liability remains
outstanding (in whole or in part).
* Economic production
includes production from
the effective date (being
1 January 2016) of the
acquisition of Beach
Egypt.
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.
Following the Company’s acquisition of production and
exploration assets in Egypt, the Company is exposed to
potential payment delay from EGPC, which is an issue
common to many upstream companies operating in the
country. As at 31 December 2016, Rockhopper’s EGPC
receivable balance (net of amounts due to Beach Energy)
was $4.2 million. The Company maintains an active
dialogue with EGPC and has seen a material increase
in monthly payments following the year-end. Payments
from EGPC are received in US dollars directly to bank
accounts held in the UK.
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 identified its
principal risks at the end of 2016 as being:
> sustained low oil price;
> joint venture partner alignment and funding issues; both
of which could ultimately create a delay to the Sea Lion
Final Investment Decision.
Outlook
Our balance sheet remains strong with year-end 2016
cash of $81 million. Adjusting the year-end cash position
for Rockhopper’s contribution to anticipated North
Falkland Basin exploration campaign close out costs and
the previously announced settlement with Ocean Rig,
maintains Rockhopper’s adjusted year-end 2016 cash
balance in line with the Company’s previous guidance
of $60-65 million.
Following the completion of the acquisition of Beach Egypt,
revenues from our Greater Mediterranean assets are
estimated to be in excess of US$10 million in 2017 (based
on current commodity prices, foreign exchange rates and
production projections).
2017 development, exploration and abandonment spend
is expected to be approximately US$13 million, of which
US$8 million relates to pre-development activities on
Sea Lion, US$3 million to exploration and development
activities in Egypt and US$2 million to abandonment
costs. The abandonment spend principally relates to the
decommissioning and removal of the Ombrina Mare
tripod – the cost of which Rockhopper will seek to recover
through the recently commenced international arbitration
process the costs of which will be funded on a non-recourse
basis from a specialist arbitration funder.
Rockhopper has been an active acquirer during 2016 as we
seek to take advantage of the current market environment
to grow our business. We have significantly increased
production and cash flow in the Greater Mediterranean
region during 2016 and see further scope to materially
grow that business in the year ahead.
Stewart MacDonald
Chief Financial Officer
10 April 2017
20
Report & Accounts for the year ended 31 December 2016
Rockhopper Exploration plc
Strategic Report
Internal controls and risk management
Internal Controls
> The Board is responsible for establishing and maintaining the system of internal controls
which has been in place throughout 2016.
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
Process
Audit & Risk Committee
Review and confirmation
Senior Management
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 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.
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. However,
an initial internal audit review was conducted during
2016 using an independent third party audit firm.
That review focused on the Group’s financial controls
and encompassed the key financial transaction cycles
including:
> capital projects
> monthly financial reporting
> bank and treasury
> revenue to receivables.
Report & Accounts for the year ended 31 December 2016
21
Strategic Report
Rockhopper Exploration plc
Principal risks and uncertainties
Strategic risks
Description
Impact
Mitigants
Recent changes and ongoing initiatives
Delay in Sea Lion Final Investment Decision due
to low oil price outlook, increased project costs or
partner funding issues
> Increased costs
> Delay in future cash flow
> Reduced value creation
> Loss of investor confidence
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
> Active engagement with the operator and regulators to establish
> Project entered FEED with set of world class contractors in January
constructive and trusted working relationships
2016
> Active participation in technical meetings to challenge, influence
> Commercial arrangements between the Company and the operator
and/or support partners to establish a cohesive JV view and decision
were revised in January 2016 to ensure greater alignment
making
> Draft Field Development Plan and draft Environmental Impact
> Active support to operator in its objective of introducing another
Statement submitted to Falkland Island Government in late 2016
partner/securing alternative funding for the JV
> Company to support operator during its farm-out/alternative
funding process
> Diversify portfolio through asset additions outside of the North
> Acquisition of Mediterranean Oil & Gas plc in August 2014
Falkland Basin
added production, development and exploration assets in Greater
> Continued pursuit of low-cost, low-commitment, value-accretive
Mediterranean region
acquisitions in the Greater Mediterranean region
> Acquisition of Beach Egypt Pty Limited in August 2016 added
production and exploration assets in Egypt
Poor execution of M&A activity
> Reduced liquidity and balance sheet strength
> Value loss
> Experienced Board oversees and approves all M&A decisions
> Merger with Falkland Oil & Gas Limited (“FOGL”) completed in
> Established processes in place to ensure that an appropriate level
January 2016
of technical, commercial, financial, tax and legal due diligence is
> Continued pursuit of selective and value accretive M&A
performed on every opportunity assessed
opportunities
The sovereignty of the Falkland Islands is
disputed
> Open aggression is not expected
> 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
claims
> The Company is in regular contact with the Foreign &
Commonwealth Office
> The British Government has issued strong rebuttals to the Argentine
> Recent change of government in Argentina is expected to mitigate
Operational risks
Description
Reliance on JV operators for asset performance
Impact
> 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
impact
> In September 2016, the British Government and the Government
of Argentina agreed a joint statement on areas of cooperation,
including working towards removing restrictive measures affecting
the oil & gas industry in the Falkland Islands
Recent changes and ongoing initiatives
Mitigants
relationships
> Actively engage with all JV partners to establish trusted working
> Following award of FEED on the Sea Lion project, a Management
Board comprising key project managers from each of the JV
> Active participation in technical meetings to challenge, apply
partners and contractors has been established to oversee the FEED
influence and/or support partners to establish a cohesive JV view
process. Rockhopper’s General Manager for the Falkland Islands
and decision making
attends such meetings
> Active co-operation with operators in the South Falkland Basin to
> Active engagement with FIG and Ministry of Defence to cooperate
achieve operational and cost synergies through rig and infrastructure
and share infrastructure
sharing
> Additional commercial flight route to the Falkland Islands under
> Supply chain well understood given history of operations in the basin
advanced consideration
The assumptions used to estimate hydrocarbon
resources may prove incorrect or inaccurate
> Exploration and appraisal efforts may target ultimately
uncommercial volumes of hydrocarbons
> The Company employs qualified and experienced technical personnel
> In May 2016 the Company announced completion of an
> External consultants are regularly commissioned to support technical
independent audit of the contingent and prospective resources in
evaluations or provide independent assessments
licences PL032 and PL004 in the North Falklands Basin
> 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 2016
Rockhopper Exploration plc
Strategic Report
Strategic risks
Description
Impact
Mitigants
Recent changes and ongoing initiatives
Delay in Sea Lion Final Investment Decision due
> Increased costs
to low oil price outlook, increased project costs or
> Delay in future cash flow
partner funding issues
> Reduced value creation
> Loss of investor confidence
> Active engagement with the operator and regulators to establish
> Project entered FEED with set of world class contractors in January
constructive and trusted working relationships
2016
> Active participation in technical meetings to challenge, influence
> Commercial arrangements between the Company and the operator
and/or support partners to establish a cohesive JV view and decision
making
> Active support to operator in its objective of introducing another
partner/securing alternative funding for the JV
were revised in January 2016 to ensure greater alignment
> Draft Field Development Plan and draft Environmental Impact
Statement submitted to Falkland Island Government in late 2016
> Company to support operator during its farm-out/alternative
funding process
Concentration risk through focus on the North
> Over-reliance on a single operating region
> Diversify portfolio through asset additions outside of the North
> Acquisition of Mediterranean Oil & Gas plc in August 2014
Falkland Basin
> Changes in operating, sovereign, political or fiscal matters
Falkland Basin
could have a material impact on the Company’s operations
> Continued pursuit of low-cost, low-commitment, value-accretive
added production, development and exploration assets in Greater
Mediterranean region
acquisitions in the Greater Mediterranean region
> Acquisition of Beach Egypt Pty Limited in August 2016 added
production and exploration assets in Egypt
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
> Open aggression is not expected
> The British Government has issued strong rebuttals to the Argentine
> Recent change of government in Argentina is expected to mitigate
disputed
> 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
claims
> The Company is in regular contact with the Foreign &
Commonwealth Office
impact
> In September 2016, the British Government and the Government
of Argentina agreed a joint statement on areas of cooperation,
including working towards removing restrictive measures affecting
the oil & gas industry in the Falkland Islands
Operational risks
Description
Impact
Mitigants
Recent changes and ongoing initiatives
Reliance on JV operators for asset performance
> Cost and schedule overruns
> Actively engage with all JV partners to establish trusted working
> Following award of FEED on the Sea Lion project, a Management
> Poor performance of assets
> HSE performance
relationships
> Active participation in technical meetings to challenge, apply
influence and/or support partners to establish a cohesive JV view
and decision making
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
attends such meetings
The North Falkland Basin is remote and at the
> Cost and schedule overruns
end of a long supply chain
> Ability to secure certain contractors
> Active co-operation with operators in the South Falkland Basin to
> Active engagement with FIG and Ministry of Defence to cooperate
achieve operational and cost synergies through rig and infrastructure
sharing
and share infrastructure
> Additional commercial flight route to the Falkland Islands under
> Supply chain well understood given history of operations in the basin
advanced consideration
The assumptions used to estimate hydrocarbon
resources may prove incorrect or inaccurate
> Exploration and appraisal efforts may target ultimately
uncommercial volumes of hydrocarbons
> 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
> In May 2016 the Company announced completion of an
independent audit of the contingent and prospective resources in
licences PL032 and PL004 in the North Falklands Basin
Report & Accounts for the year ended 31 December 2016
23
Strategic Report
Rockhopper Exploration plc
Financial risks
Description
Impact
Mitigants
Recent changes and ongoing initiatives
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
> Under the revised commercial arrangements with Premier,
on a regular basis
> The Company has no debt
Rockhopper accessed the full $48m Exploration Carry during
the 2015/16 campaign
> Through the 2012 farm-out and subsequent revisions, Rockhopper
> Active engagement with commercial bank market to secure
secured a $337 million Development Carry for the initial phase of
funding for the uncarried portion of Sea Lion development costs
development of Sea Lion, a $337 million Development Carry for the
on more attractive (cost and flexibility) terms compared with the
subsequent phase of development of Sea Lion and a $750 million
Standby Loan available from Premier
Standby Loan facility from Premier Oil
> Agreement reached with FIG as to quantum and timing of tax
> Agreement reached to defer tax liability associated with
payment – tax deferred until the first royalty payment date on
2012 farm-out
Sea Lion
Uncertainty of fiscal regime and regulatory
requirements; Sea Lion remains the only
commercial oil discovery declared in the Falkland
Islands
> 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
Failure by JV partners to fund their financial
obligations
> Increased costs
> Potential failure to meet financial and operational
> Partner selection is a critical component of any investment decision
> Active engagement with joint venture partners to ensure alignment
> Joint Operating Agreements and other commercial arrangements
> Ongoing monitoring and regular review of the Company’s financial
obligations
provide legal protections in the event joint venture partners fail to
exposure to joint venture partner credit risk
> In extreme, potential loss of licence interests
meet their obligations
Uncertainty and volatility of commodity prices
> Impact on expected future revenues and cash flow
> Impact on capital and operating costs
> Impact on future debt capacity
> Contingency built into planning and budgeting process to allow for
> Oil price weakness continued through 2016
downside movements in commodity prices (and expected impact on
> As a result, industry and service costs have reduced and, through the
costs)
Sea Lion FEED process, it is anticipated that further costs reductions
Recoverability of receivables and exposure to
foreign exchange
> Uncertainty on timing of receipt and currency
of payments
> The Company may consider it appropriate in the future to hedge a
can be achieved
proportion of its production, particularly if the Company is reliant
on such production to service debt
> Monitor macro-economic environment and lobby through
> Active engagement with EGPC and joint venture partners to
established relationships if required
manage payments and the Company’s foreign currency liquidity
> Active treasury management to minimise funds held in foreign
> Recent macro-economic changes in Egypt have allowed access to
currencies and match with creditor balances
additional IMF funding which should improve government liquidity
> EGPC payments received in US dollars, direct to bank accounts
held in the UK
Health, safety and
environment risks
Description
Impact
Mitigants
Recent changes and ongoing initiatives
Health, safety and environment incidents
> Serious injury or death
> Environmental impacts
> Loss of reputation
> Regulatory penalties
> Regular review of HSE policies and procedures to ensure full
> Changes as a result of recently introduced EU legislation and
compliance with industry “best practice” as well as all appropriate
operational directives were implemented across the Company’s
international and local rules and regulations
operating procedures
> The Company fully fulfilled the enhanced risk assessment
authorisation process ahead of the recent Ombrina Mare well
abandonment
Organisational risks
Description
Impact
Mitigants
Recent changes and ongoing initiatives
Staff recruitment, development and retention
> Disruption to business
> Loss of key knowledge and experience
> Training and development opportunities are considered for all staff
> A short-term succession plan is in place for executive directors and
> Executive directors and senior staff have notice period of between six
key staff members
and 12 months to ensure sufficient time to handover responsibilities
> Consideration is being given to implement an all employee share
in the event of a departure
scheme
> Succession planning considered regularly at Board level
> The Remuneration Committee regularly evaluates compensation
and incentivisation schemes to ensure they remain competitive
24
Report & Accounts for the year ended 31 December 2016
Financial risks
Description
Impact
Mitigants
Recent changes and ongoing initiatives
Insufficient liquidity and funding capacity
> Uncertain financial outcome
> Short-term and long-term cash forecasts are reported to the Board
> Under the revised commercial arrangements with Premier,
Rockhopper Exploration plc
Strategic Report
> Inability to meet financial obligations
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 and a $750 million
Standby Loan facility from Premier Oil
> Agreement reached to defer tax liability associated with
2012 farm-out
> Regular engagement with regulators
> Legal agreements in place to protect interests
> Seek appropriate legal and tax advice
Rockhopper accessed the full $48m Exploration Carry during
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
> 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
Uncertainty of fiscal regime and regulatory
requirements; Sea Lion remains the only
> Schedule risk
> Loss of value
commercial oil discovery declared in the Falkland
> Uncertain financial outcome
Islands
Failure by JV partners to fund their financial
> Increased costs
obligations
> 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 and cash flow
> Impact on capital and operating costs
> Impact on future debt capacity
Recoverability of receivables and exposure to
> Uncertainty on timing of receipt and currency
foreign exchange
of payments
> Contingency built into planning and 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
> Oil price weakness continued through 2016
> 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
> Monitor macro-economic environment and lobby through
> Active engagement with EGPC and joint venture partners to
established relationships if required
> Active treasury management to minimise funds held in foreign
currencies and match with creditor balances
manage payments and the Company’s foreign currency liquidity
> Recent macro-economic changes in Egypt have allowed access to
additional IMF funding which should improve government liquidity
> EGPC payments received in US dollars, direct to bank accounts
held in the UK
Health, safety and
environment risks
Description
Impact
Mitigants
Recent changes and ongoing initiatives
Health, safety and environment incidents
> Serious injury or death
> Environmental impacts
> Loss of reputation
> Regulatory penalties
> Regular review of HSE policies and procedures to ensure full
> Changes as a result of recently introduced EU legislation and
compliance with industry “best practice” as well as all appropriate
international and local rules and regulations
operational directives were implemented across the Company’s
operating procedures
> The Company fully fulfilled the enhanced risk assessment
authorisation process ahead of the recent Ombrina Mare well
abandonment
Organisational risks
Description
Impact
Mitigants
Recent changes and ongoing initiatives
Staff recruitment, development and retention
> Disruption to business
> Loss of key knowledge and experience
> Training and development opportunities are considered for all staff
> Executive directors and senior staff have notice period of between six
and 12 months to ensure sufficient time to handover responsibilities
in the event of a departure
> Succession planning considered regularly at Board level
> The Remuneration Committee regularly evaluates compensation
and incentivisation schemes to ensure they remain competitive
> 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
Report & Accounts for the year ended 31 December 2016
25
Strategic Report
Rockhopper Exploration plc
Health, Safety, Environmental and Social Management
HSE MANAGEMENT
SYSTEM
Health and Safety
Environment
Business conduct
Employees
Local communities
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.
Maintaining high standards of Health, Safety and
Environmental (HSE) protection 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.
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.
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.
In the Greater Mediterranean region we maintain
regular dialogue with various operators, regulators,
local communities and other stakeholders to build
constructive relationships and support.
Approval of Strategic Report
This Strategic Report was approved by the directors and
signed on their behalf on 10 April 2017 by:
Samuel Moody
Chief Executive Officer
26
Report & Accounts for the year ended 31 December 2016
Rockhopper Exploration plc
Governance
Governance
Report & Accounts for the year ended 31 December 2016
27
Governance
Rockhopper Exploration plc
Chairman’s Governance Report
David McManus
Chairman
The Company is an AIM listed company and is not
required to comply with the provisions of the 2016 UK
Corporate Governance Code (the “Code”) applicable
to FTSE 350 companies as long as it remains on AIM.
The Company has not voluntarily adopted the Code
but the board’s corporate governance policy is to
observe the Code provisions as far as practicable given
the size of the Company. The audit & risk committee
undertakes an annual review of the provisions in the
Code and reviews and reports on the Company’s
corporate governance practices in this context.
The Board
The board’s structure and composition complies with the
provisions of the Code. The board currently consists of
three executive and five non-executive directors including
the chairman, four of whom are independent under the
Code definition. There were a number of board changes
during the year:
> T P Bushell and J E Martin were appointed as non-
executive directors on 18th January 2016 following
the merger with Falkland Oil and Gas Limited.
> P J Jungels retired as chairman at the 2016 annual
general meeting and was replaced by D McManus.
> R J Peters retired as non-executive director at the end
of the year.
R J Peters was the senior independent director
throughout 2016 and K G Lough was appointed
as senior independent director following R J Peter’s
retirement. The Group’s website contains an email
contact for K G Lough, who is also 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 has a qualified company secretary and all
directors have access to her for advice and services.
The company secretary ensures that 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.
The board meets regularly throughout each financial
year and there is a schedule of matters reserved for
its approval to ensure that it exercises control over the
Group’s strategy, key financial and compliance issues
and significant operational and management matters.
These include capital structure, risk management,
communication with shareholders, board appointments
and major contracts and commitments. Executive
management is responsible for the day-to-day operation
of the business and has a number of financial and
operational responsibilities delegated to it. From time
to time sub-committees of the board are established
to approve the detail of matters tabled at full board
meetings. The chairman meets regularly with the non-
executive directors without management present and
also in the forum of the nomination committee.
A clearly defined organisational structure exists, with
lines of responsibility and delegation of authority to
executive management. The division of responsibilities
between the chairman and chief executive officer was
approved by the board following the appointment of
the new chairman during the year.
The board supports directors who wish to receive
ongoing training and education relating to their duties.
Independent legal advice is available at the Group’s
expense if necessary.
During 2016, an external performance evaluation of the
board was facilitated with specific focus on the skills set and
structure of the board. The conclusions were considered by
the board. The chairman’s performance was not reviewed
during the year due to the change of chairmanship but
feedback on chairman performance was provided by
individual directors to the external evaluator.
The board’s chairman, D McManus, was independent
upon appointment. Three of the other non-executive
directors, K G Lough, J E Martin and A J Summers
are independent. TP Bushell does not satisfy the
independence criteria in the Code due to his previous
executive position at FOGL and his short-term
consultancy arrangement with the Company in respect
of the integration of the business of FOGL which came
to an end in July 2016. However the board considers
TP Bushell to be independent as he has demonstrated
independence of character and judgement since joining
the board and that there are no circumstances which are
likely to affect, or could appear to affect, his judgement.
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 appointment of
directors is a formal process involving all members of the
board which considers the recommendations of the
nomination committee.
All directors stand for re-election at the annual general
meeting.
28
Report & Accounts for the year ended 31 December 2016
Rockhopper Exploration plc
Governance
How your Board works
Shareholders
Board of Directors
Ongoing dialogue
Day-to-day running of Rockhopper
Chief Executive Officer
Executive Committee
Various Committees
Findings and
recommendations in
relation to financial
reporting
External
Auditors
Risk & Audit
Committee
Remuneration
Committee
Nomination
Committee
Integrity of financial
information and
internal controls
Framework
and individual
Director packages
Board
composition
and succession
Board diversity
Board composition/Nationality
m m m f m m m m
Directors
• Executive
Non-executive
Non-executive director tenure
< 3 years
3-6 years
6-9 years
40%
40%
20%
> 9 years
0
“ The Group is committed to maintaining high standards of corporate governance
to ensure that it is managed with openness, honesty and transparency.”
Report & Accounts for the year ended 31 December 2016
29
Governance
Rockhopper Exploration plc
Board of Directors
David McManus
Chairman
Samuel Moody
Chief Executive Officer
Stewart MacDonald
Chief Financial Officer
Fiona MacAulay
Chief Operating Officer
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, BG Group and Pioneer.
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.
Stewart has 15 years of
energy and corporate finance
experience. 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.
Age:
63
Appointed to board:
September 2010
Meetings attended:
7/7
Committee membership:
Nomination (Chairman)
External appointments:
Chairman:
FLEX LNG
Director:
Hess Corporation
Costain plc
47
36
53
February 2005
March 2014
March 2013
7/7
—
7/7
—
7/7
—
Greenland Gas & Oil Limited
—
President Elect:
American Association of
Petroleum Geologists Europe
30
Report & Accounts for the year ended 31 December 2016
Rockhopper Exploration plc
Governance
Keith Lough
Senior Independent Director
John Summers
Non-Executive Director
Tim Bushell
Non-Executive Director
John Martin
Non-Executive Director
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.
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.
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 Bowleven and Chairman of
Falkland Oil and Gas Limited.
58
61
57
67
January 2014
February 2014
January 2016
January 2016
6/7
7/7
7/7
7/7
Audit & Risk (Chairman)
Remuneration
Nomination
Audit & Risk
Remuneration
Nomination
Audit & Risk
Remuneration (Chairman)
Nomination
Audit & Risk
Remuneration
Nomination
—
Chairman:
Gulf Keystone Petroleum Ltd
Director:
Cairn Energy plc
UK Gas and Electricity Markets
Authority
Director:
Point Resources AS
Petro Matad Limited
Senior Vice President:
World Petroleum Council
Report & Accounts for the year ended 31 December 2016
31
Governance
Rockhopper Exploration plc
Corporate Governance Statement
Keith Lough
Audit & Risk Committee
Chairman
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, T P Bushell and D McManus 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 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 nomination committee comprises the chairman
and all the non-executive directors with the chief
executive officer attending by invitation from time
to time. The make up of the committee complies
with the Code.
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 comprises all the non-
executive directors and the chairman, chief financial
officer, Group financial controller attend as invitees.
The make up of the committee complies with the Code.
The remuneration committee comprises all the non-
executive directors and the chairman attends as an
invitee. The make up of the committee complies with
the Code.
Audit & Risk Committee
The members of the audit & risk committee are K G
Lough as chairman, T P Bushell, J E Martin and A
J Summers. R J Peters retired at the end of the year
and T P Bushell has been appointed to the audit & risk
committee since the year end. The board considers all
the members of the 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 committee constitution is therefore
compliant with the Code.
The external auditor, the chief financial officer and
Group financial controller 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 financial reporting
and internal controls;
> the Group’s overall framework for risk management;
> the accounting policies and practices of the Group;
and
> the annual and periodic financial reporting carried out
by the Group.
The audit & risk committee has established procedures
for receiving and handling complaints concerning
accounting or audit matters. The audit & risk committee
is responsible for the approval of the provision of all audit
services and permitted non-audit services undertaken by
the external auditor.
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
provided by the external auditor are monitored and the
audit and risk committee is satisfied that there were no
conflicts during the financial period. 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 or 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
two 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 the audit & risk committee meetings, the
chairman of the audit & risk committee reported to the
board on the principal matters covered at the meeting.
32
Report & Accounts for the year ended 31 December 2016
Rockhopper Exploration plc
Governance
Tim Bushell
Remuneration Committee
Chairman
Remuneration Committee
The principal role of the remuneration committee is
to consider, on behalf of the board, the remuneration
packages of the executive directors and the chairman’s
fees which are 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 members of the remuneration committee are
T P Bushell as chairman, K G Lough, J E Martin and
A J Summers. During the year, T P Bushell replaced
D McManus as chairman. R J Peters retired at the
end of the year and J E Martin and A J Summers have
been appointed to the remuneration committee since
the year end. The board considers all members of the
remuneration committee to be independent and the
committee constitution is therefore compliant with
the Code.
The committee met four times during the financial
year. Details of the matters discussed are given in the
directors’ remuneration report.
Director
Remuneration committee
meetings attended
D McManus – Chairman until July 2016
T P Bushell – Chairman since July 2016
K G Lough
R J Peters
P J Jungels
J E Martin
A J Summers
Total meetings during year
† Invitee.
4
4
4
4
2†
1†
1†
4
During the year, the issues considered by the audit & risk
committee included:
> Group financial disclosures and accounting matters;
> assumptions and estimates around the fair value
accounting for the acquisition of FOGL
> 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 risk management and the systems and processes
that management has developed pertaining to risk
identification, classification and mitigation including
disaster recovery;
> structure of the finance department;
> corporate governance practice with reference to the
Code;
> whistleblowing procedures and shareholder concerns;
and
> external auditor’s audit and non-audit fees.
Details of the meetings attended during the financial year
were as follows:
Director
K G Lough – Chairman
R J Peters
J E Martin
A J Summers
S MacDonald
D McManus
T P Bushell
Total meetings during year
† Invitee.
Audit & risk committee
meetings attended
2
2
2
2
2†
1†
1†
2
Since the year end, the audit & risk committee has
reviewed its 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.
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.
Report & Accounts for the year ended 31 December 2016
33
33
Governance
Rockhopper Exploration plc
David McManus
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 changes
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 with all
the non-executive directors as its members. The
board considers all the non-executive directors to be
independent and the committee constitution is therefore
compliant with the Code.
There were a number of discussions amongst the non-
executive directors during the year regarding board
constitution and the board evaluation process. The
nomination committee met once during the financial
year to consider the proposed appointment of S J
Moody to the board of Greenland Gas & Oil Limited.
Going concern
At 31 December 2016, the Group had available cash
and term deposits of $81 million. In addition the first
phase of the Group’s main development, Sea Lion,
is fully funded from sanction 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 have 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.
34
Report & Accounts for the year ended 31 December 2016
Rockhopper Exploration plc
Governance
Remuneration Report
Annual statement
On behalf of the Board and Remuneration Committee
(“Committee”), I am pleased to present the Directors’
Remuneration Report (‘Report’) for the year ended 31
December 2016. 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.
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 Committee and
details of the directors’ remuneration packages
for the year ended 31 December 2016. It also
sets out details of the implementation of the
Executive Director Policy for the year ending
31 December 2017.
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’).
Tim Bushell
Remuneration Committee
Chairman
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 below. Full details of the
remuneration packages are given in the Report on
Remuneration:
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 substantial
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.
Yours sincerely
Tim Bushell
Chairman of the Remuneration Committee
10 April 2017
Report & Accounts for the year ended 31 December 2016
35
Governance
Rockhopper Exploration plc
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 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
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.
Executive directors also receive a travel allowance.
Opportunity
The benefits package is set at a level that the Committee considers is appropriate for the Company’s size.
Performance metrics
Not applicable for benefits package.
The value of benefits will vary each year according to the cost of provision.
Pension
Purpose and link to strategy
Operation
To provide an appropriate level of pension contribution for directors whilst minimising
the administrative burden for the Company.
Contributions are made to a private or group personal pension plan. With effect from April 2017,
contributions will be made up to the maximum Annual Allowance of £10,000 with the excess
contribution paid by way of a pension cash allowance which will be subject to deductions for tax
and national insurance.
Opportunity
An annual contribution equal to 12.5% 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 although in exceptional circumstances a
higher bonus award may be made.
Performance metrics
The targets for the executive directors comprise the corporate, strategic and financial objectives
agreed by the Board for the year.
The bonus is non-contractual and is discretionary.
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.
36
Report & Accounts for the year ended 31 December 2016
Rockhopper Exploration plc
Governance
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.
Operation
The LTIP was approved by shareholders in 2013.
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.
The maximum annual award is 200% of salary.
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. No awards will vest for performance below the median. In respect of the
2014 LTIP awards made to S J Moody and S MacDonald, an inflator will be applied for first and
second place peer group ranking. In respect of the 2016 LTIP awards, 133% of awards will vest
conditional on the Company having taken a Final Investment Decision on the Sea Lion Development
by 31 December 2017.
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.
Opportunity
Performance metrics
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 taxable 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.
Report & Accounts for the year ended 31 December 2016
37
Governance
Rockhopper Exploration plc
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 and Falkland Island oil and gas companies. The Committee has
determined that the minimum number of companies in the peer group will be nine. The size of the peer group was increased in 2016 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 although in exceptional circumstances a higher bonus
award may be made.
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 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 12.5% of base salary to
the Group Personal Pension Plan with the balance of any amount over the prevailing maximum annual allowance set by HMRC paid as a
pension cash allowance. The new appointee will also be eligible to participate in the Company’s SIP after a qualifying period.
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.
100% of base salary in any financial year
except in circumstances deemed by the
Committee to be exceptional.
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.
200% of base salary in any financial year.
38
Report & Accounts for the year ended 31 December 2016
Rockhopper Exploration plc
Governance
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
10 March 2014
15 March 2013
8 August 2005
27 March 2014
10 January 2011
8 March 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
satisfy itself 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.
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 share appreciation rights (SARs) granted under the Company’s Employee Share Option Scheme, 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, SARs shall be exercisable immediately for a period of one year from the date of death. In other good leaver
circumstances, SARs will be exercisable for a period of six months from the date of cessation.
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 in these circumstances.
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.
Report & Accounts for the year ended 31 December 2016
39
Governance
Rockhopper Exploration plc
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 the 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: £115,000.
Non-executive director basic fee: £40,000.
Committee Chairmanship: £10,000.
Senior Independent Director: £2,500.
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. The appointment can be
terminated at any time by either party giving one month’s notice to the other. Details of the appointments are set out below:
Director
D McManus
K G Lough
A J Summers
T P Bushell
J E Martin
Appointment date
Original engagement letter
Revised engagement letter
30 September 2010
14 January 2014
1 February 2014
18 January 2016
18 January 2016
30 November 2010
14 January 2014*
3 February 2014*
18 January 2016
18 January 2016
8th July 2016
—
—
* appointments extended for a further three year term by letter agreement dated 1st February 2017
Directors are subject to annual re-election by shareholders at the Annual General Meeting in accordance with the 2016 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.
40
Report & Accounts for the year ended 31 December 2016
Rockhopper Exploration plc
Report on Remuneration
Governance
Remuneration Committee membership and meetings
As at 31 December 2016, the Committee comprised the Committee Chairman and three non-executive directors deemed by the Board
to be independent. R J Peters retired on 31 December 2016 and J E Martin and A J Summers have been appointed as members of the
Committee since the year end. The Committee met four times during the financial year. 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 until July 2016)
T P Bushell (Committee Chairman since July 2016)
K G Lough
R J Peters
Meeting attendance
4/4*
4/4*
4/4
4/4
* D McManus and T P Bushell attended 1 and 3 meetings respectively as invitees.
During the financial year, the Committee’s main areas of activity included:
> Confirming the salary adjustments for 2016, bonus awards for the period ended 31 December 2015
and an interim bonus award for 2016
> Setting the targets for the bonus awards for the bonus scheme for the forthcoming financial year
> Approving the Directors’ Remuneration Report for the year ended 31 December 2015
> Approving the 2016 LTIP awards and reviewing the constitution of the peer group
> Approving the vesting of the 2013 LTIP and Cash Incentive Plan awards
> Overseeing the operation of the Employee Benefit Trust
> Approving the annual implementation of the SIP
> Reviewing the pension arrangements for executive directors following the reduction in the Annual Allowance.
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 2016 UK Corporate Governance Code. No individual
is involved in determining his or her own remuneration.
External advice
The Committee received external legal advice in relation to employment matters and the operation of the share schemes. The Committee
considers that the advice it received during the financial year 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
Pension3
£’000
SIP awards
£’000
Total
£’000
Year
ended
31 Dec
2016
Year
ended
31 Dec
2015
Year
ended
31 Dec
2016
Year
ended
31 Dec
2015
Year
ended
31 Dec
2016
Year
ended
31 Dec
2015
Year
ended
31 Dec
2016
Year
Year
ended
ended
31 Dec 31 Dec
2016
2015
Year
ended
31 Dec
2015
Year
ended
31 Dec
2016
Year
ended
31 Dec
2015
Year
ended
31 Dec
2016
Year
ended
31 Dec
2015
362.1 362.1 14.3
317.8 317.8 13.4
2.0
297.0 297.0
2.9 153.9 253.5 — 318.82 44.6
3.0 166.21 222.4 — — 39.7
2.0 146.31 207.9 — — 37.1
36.2
31.8
29.7
6.6
6.6
6.6
6.6 581.5 980.1
6.6 543.7 581.6
6.6 489.0 543.2
S J Moody
F M MacAulay
S MacDonald
(1) Includes proceeds of vesting of awards under Cash Incentive Plan held by F MacAulay and interim bonus paid to S MacDonald. Net proceeds were re-invested in Company shares.
(2) Represents gross proceeds on exercise of share options in April 2015. Sufficient shares were sold from option exercise to discharge cost of exercise and tax and national insurance obligations
and remaining shares were retained.
(3) Represents pension contributions paid in 2016 for the period from 1 January 2016 to 31 March 2017.
Report & Accounts for the year ended 31 December 2016
41
Governance
Rockhopper Exploration plc
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
Total
£’000
Year ended
31 December
2016
Year ended
31 December
2015
Year ended
31 December
2016
Year ended
31 December
2015
Year ended
31 December
2016
Year ended
31 December
2015
Year ended
31 December
2016
Year ended
31 December
2015
P J Jungels (retired 17 May 2016)
R J Peters
D McManus (appointed as Chairman 17 May 2016)
K G Lough
A J Summers
T P Bushell (appointed 18 January 2016)
J E Martin (appointed 18 January 2016)
65.3
45.0
92.8
50.0
40.0
22.6
38.2
140.0
45.0
50.0
50.0
40.0
—
—
—
—
—
—
—
150.02
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
318.81
—
—
—
—
—
—
65.3
45.0
92.8
50.0
40.0
172.6
38.2
458.8
45.0
50.0
50.0
40.0
—
—
(1) Represents gross proceeds on exercise of share options in April 2015. Sufficient shares were sold from option exercise to discharge cost of exercise and tax and national insurance obligations
and remaining shares were retained.
(2) Represents fees for provision of consultancy services in respect of merger with FOGL No other fees were paid to T P Bushell during the period of the consultancy agreement which terminated
in July 2016.
P Jungels was Chairman of the Company until 17 May 2016.
D McManus was appointed as Chairman of the Company on 17 May 2016 and was Chairman of the Remuneration Committee until
July 2016.
R J Peters was Senior Independent Director until his retirement on 31 December 2016.
K G Lough is Chairman of the Audit & Risk Committee and was appointed as Senior Independent Director in January 2017.
T P Bushell and J E Martin were appointed to the Board on 18 January 2016.
T P Bushell was appointed as Chairman of the Remuneration Committee in July 2016.
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 & Risk and Remuneration
Committees. 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 the year ended 31 December 2016
Annual bonus
In respect of the financial period, the Committee agreed that the executive director annual bonus opportunity would be up to 100% 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:
(i) Bringing an additional paying partner into the Sea Lion Development Project
Farmout discussions had been pursued with a number of parties but, as no deal had been agreed at the year end, the Committee
agreed that this target had not been achieved.
(ii) Completion of a Competent Person’s Report (CPR) that meets specific objectives set by the Board
The CPR had been completed in accordance with criteria laid down by the Board and had raised the technical profile of the Falkland
Islands. The Committee agreed that this target had been achieved in full.
(iii) Achievement of production related targets
The production target for the Company’s existing assets had been achieved and the acquisition of Beach Egypt had brought in
additional production. The Committee agreed that this target had been partially achieved.
(iv) Achievement of specific milestones for the Final Investment Decision (FID) for the Sea Lion Development
There had been further progress towards FID with completion of the project definition for Phase 1 of the Sea Lion Development,
completion of an updated draft Field Development Plan and Budget and good progress on FEED. The Committee agreed that this
target had been achieved but that, as overall progress to FID had not been in line with expectations, this should be recognised in the
percentage of this target that was considered as having been achieved.
The Committee agreed that a final bonus of 42.5% of basic salary should be paid to each of the executive directors in recognition of
the extent to which the 2016 corporate targets had been achieved. An interim bonus had been paid during the year to S MacDonald in
recognition of his work on the acquisition of Beach Egypt.
42
Report & Accounts for the year ended 31 December 2016
Rockhopper Exploration plc
Governance
Bonuses were paid in cash and were as follows:
Director
S J Moody
F M MacAulay
S MacDonald
S MacDonald
2016 Bonus as % of salary
42.50
42.50
42.50
Interim bonus as % of salary
6.75
Cash £
153,893
135,044
126,225
Cash £
20,061
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
Date of grant
Share price
at date of
grant
S J Moody
22 April 2016
£0.3125
F M MacAulay
22 April 2016
£0.3125
S MacDonald
22 April 2016
£0.3125
Number of options
subject to TSR
performance
condition
— see 1 below
(Award as % of salary)
Number of options
subject to TSR
performance
condition
— see 2 below
(Award as % of salary)
1,738,080
(150%)
1,525,200
(150%)
1,425,600
(150%)
579,360
(50%)
508,400
(50%)
475,200
(50%)
Exercise
price
—
—
—
Maximum
number of shares
that may vest
Face value of
maximum award*
2,317,440
£724,200
2,033,600
£635,500
1,900,800
£594,000
* 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.
1. Total shareholder return (‘TSR’) measured against a peer group of 18 companies over a three year period; and
2. TSR measured against a peer group of 18 companies over a three year period and conditional on the Company having taken a Final
Investment Decision on the Sea Lion Development by 31 December 2017.
The key features of the 2016 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 2019.
> Performance measurement is based on the average price over the 90 day dealing period to 31 March 2019 measured against the 90 day
dealing period to 31 March 2016.
> Performance is based on Total Shareholder Return (‘TSR’) measured against an original peer group of 17 other oil and gas companies
comprising EnQuest, Amerisur Resources, Providence Resources, Ithaca Energy, Petroceltic International, Faroe Petroleum, Bowleven,
Borders & Southern, Premier Oil, Hurricane Energy, Sound Energy, Parkmead, IGas Energy, Xcite Energy , Gulf Keystone, Chariot
Oil & Gas and Ophir Energy. The Committee has discretion to amend the size and constitution of the peer group to ensure that it
remains appropriate and to reflect corporate changes. It was subsequently agreed to remove Petroceltic and Xcite Energy from the peer
group following their de-listing during the year.
> 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 2017
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 2017.
Annual bonus
For 2017, the executive director annual bonus opportunity is up to 100% of base salary except in exceptional circumstances where the
Committee has discretion to make a higher award. 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 2017:
> Bringing an additional paying partner into the Sea Lion Development project and/or working closely with the operator to deliver
a financing solution to enable the joint venture to advance project sanction
> Addition of a new material venture that adds substantial production and meets corporate investment criteria
> Preservation of the Company’s cash position.
Report & Accounts for the year ended 31 December 2016
43
Governance
Rockhopper Exploration plc
Long Term Incentive Plan
The Committee intends to grant LTIP awards in 2017 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.
Benefits, pension contributions and share plans
The executive directors will receive the range of Company benefits, pension contribution and allowance and participation in the SIP in line
with the policy.
Implementation of non-executive remuneration policy for 2017
Non-executive director fees (excluding the Chairman) were last increased in 2014 and no further review is scheduled. The fees payable to
the Chairman and for the role of Senior Independent Director have been reduced from those paid to the previous Chairman and Senior
Independent Director. The fees are set out in the table below:
Role
Type of fee
Chairman
Other non-executive directors
Total fee
Basic fee
Chairman of Remuneration and Audit & Risk Committees
Senior Independent Director
From 1 January 2017
£115,000
£40,000
£10,000
£2,500
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:
S J Moody
F M MacAulay
S MacDonald
D McManus
T P Bushell
K G Lough
J E Martin
A J Summers
At 31 December 2016
Ordinary 1p shares
At 31 December 2015
Ordinary 1p shares
2,051,456
129,620
97,971
132,803
103,606
—
91,600
—
2,022,556
50,853
23,846
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 base salary
in the case of F M MacAulay and S MacDonald and two times salary in the case of S J Moody over five year period. It is intended that this should be
achieved through the retention of any vested LTIP awards and Share Appreciation Rights. There is no requirement for directors to purchase shares on the
open market but F M MacAulay and S MacDonald invested the net proceeds of the vested CIP award and net interim 2016 bonus award respectively in
Company shares.
Outstanding awards under the LTIP, Employee Share Option Scheme and Cash Incentive Plan
(a) LTIP
Director
S J Moody
F M MacAulay
S MacDonald
Date of
grant
Awards
held at
31 Dec 2015
Granted
Lapsed
Vested
Awards Market price
at date
held at
of award
31 Dec 2016
Performance
period
Earliest
vesting
date
08.10.13
13.10.14
13.04.15
22.04.16
08.10.13
13.10.14
13.04.15
22.04.16
10.03.14
13.10.14
13.04.15
22.04.16
508,007
665,625(2)
855,354
—
—
—
— 2,317,440
—
—
—
— 2,033,600
—
—
—
— 1,900,800
312,849
775,000
750,591
201,117
506,250(2)
701,575
330,205
—
—
—
203,352
—
—
—
130,186
—
—
—
—
—
—
—
—
177,802(1)
—
—
665,625 £0.8000 01.10.14-30.09.17 30.09.17
855,354 £0.6350 01.04.15-31.03.18 31.03.18
—
— 2,317,440 £0.3125 01.04.16-31.03.19 31.03.19
109,497(1)
—
775,000 £0.8000 01.10.14-30.09.17 30.09.17
—
—
750,591 £0.6350 01.04.15-31.03.18 31.03.18
— 2,033,600 £0.3125 01.04.16-31.03.19 31.03.19
70,391(1)
—
506,250 £0.8000 01.10.14-30.09.17 30.09.17
—
—
701,575 £0.6350 01.04.15-31.03.18 31.03.18
— 1,900,800 £0.3125 01.04.16-31.03.19 31.03.19
—
—
—
—
(1) The 2013 LTIP awards have vested but exercise is subject to Rockhopper’s share price exceeding £1.80 averaged over any 90 dealing period ending no later than 31 March 2023.
(2) An inflator will be applied to the 2014 LTIP awards held by S J Moody and S MacDonald in the event that the Company ranks first or second in the peer group at the end of the performance period.
44
Report & Accounts for the year ended 31 December 2016
Rockhopper Exploration plc
(b) Share options
Governance
As at 31 December 2015 and 31 December 2016 there were no share options held by individuals who were directors during the year ended
31 December 2016.
(c) Share appreciation rights
The share appreciation rights outstanding as at 31 December 2016 and held by individuals who were directors during the year ended
31 December 2016 are:
Director
S J Moody
F M MacAulay
Date of grant
11.01.11
17.01.12
30.01.13
11.01.11
17.01.12
30.01.13
Awards held at
1 January 2016
Exercised during
the year
Lapsed during
the year
Awards held at
31 December 2016
Exercise price
Pence
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
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. The
Committee had agreed to remove the £1.80 hurdle rate on condition that the net proceeds from the vesting of the CIP award were
re-invested in Rockhopper shares to be held for a minimum of three years. The CIP award vested during 2016 and the net proceeds
were invested in Company shares. Details of the award and vesting are as follows:
Director
F M MacAulay
Number of
notional shares
held as at
31 December 2015
312,849
Date of grant
23.12.14
Granted
—
Lapsed
203,352
Vested
109,497
Number of
notional shares
held as at
31 December 2016
—
Share price movements during year ended 31 December 2016
The mid market closing price of the Company’s shares as at 31 December 2016 was 22.75 pence (31 December 2015: 27.75 pence).
The range of the trading price of the Company’s shares during the year was between 39.00 pence and 19.25 pence.
Executive director external appointments
S J Moody was appointed as a non-executive director of Greenland Gas & Oil Limited in January 2017 for which he receives a fee.
None of the other executive directors have any external directorships for which they are paid a fee.
By order of the Board
T P Bushell
Chairman of the Remuneration Committee
10 April 2017
Report & Accounts for the year ended 31 December 2016
45
Governance
Rockhopper Exploration plc
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.
Results and dividends
The trading results for the year, 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 2015: £nil).
Key performance indicators “KPIs”
See page 10 for more details.
Substantial shareholders
At 10 April 2017 the Company had been notified of the following
interests of three percent or more of the Company’s voting rights.
Shareholder/Fund manager
Carlson Capital
UBS Investment Bank
Majedie Asset Management
Odey Asset Management
Credit Suisse
Number of
shares
% of issued
share capital
24,911,045
23,391,253
23,152,016
14,808,732
14,292,898
5.46
5.12
5.06
3.25
3.13
Directors
The present members of the board are as listed in the board of
directors section on page 30. 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.
Political and charitable contributions
The Group made no charitable donations (period ended
31 December 2015: £nil) and no political donations (period ended
31 December 2015: £nil) during the period.
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 20 days (period ended
31 December 2015: 10 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 25 employees at the year end, three of whom are
directors. 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 2016
Rockhopper Exploration plc
Governance
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.
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
10 April 2017
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.
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 FRS 101
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.
Report & Accounts for the year ended 31 December 2016
47
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 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
10 April 2017
We have audited the financial statements of Rockhopper
Exploration Plc for the year ended 31 December 2016 set out on
pages 49 to 83. 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 FRS 101 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 2016 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 2016Rockhopper Exploration plcGovernance Rockhopper Exploration plc
Accounts
Group income statement
for the year ended 31 December 2016
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 and group restructuring
Recurring administrative costs
Total administrative expenses
Excess of fair value over cost
Charge for share based payments
Foreign exchange movement
Results from operating activities and other income
Finance income
Finance expense
Profit/(loss) before tax
Tax
Profit for the year attributable to the equity shareholders of the parent company
Profit 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 2016
Profit for the year
Exchange differences on translation of foreign operations
Total comprehensive profit for the year
Year ended
31 December
2016
$’000
Year ended
31 December
2015
$’000
Notes
7,417
(4,373)
(3,294)
(7,667)
(250)
(8,237)
(2,529)
(7,441)
(9,970)
111,842
(994)
5,679
98,070
307
(333)
98,044
—
98,044
21.98
21.98
3,966
(2,951)
(8,098)
(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
3.65
3.64
4
5
6
29
9
10
11
11
12
13
13
Year ended
31 December
2016
$’000
98,044
192
98,236
Year ended
31 December
2015
$’000
10,698
(4,943)
5,755
Report & Accounts for the year ended 31 December 2016
49
Accounts
Rockhopper Exploration plc
Group balance sheet
as at 31 December 2016
Non-current assets
Exploration and evaluation assets
Property, plant and equipment
Goodwill
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
2016
$’000
31 December
2015
$’000
Notes
14
15
16
17
18
19
20
21
21
22
23
24
25
25
25
25
25
25
25
426,419
256,658
18,025
9,439
1,608
17,184
495
30,000
51,019
12,637
9,803
1,670
6,199
2,192
60,000
50,434
554,189
399,593
34,012
30,457
9
9
39,115
14,914
39,145
47,405
20,343
39,145
127,195
137,359
7,194
3,149
6,251
(3,407)
74,332
(8,968)
462,549
(114,106)
426,994
554,189
4,910
2,995
5,491
(3,513)
11,112
(9,160)
472,967
(222,568)
262,234
399,593
These financial statements were approved by the directors and authorised for issue on 10 April 2017 and are signed on their behalf by:
Stewart MacDonald
Chief Financial Officer
50
Report & Accounts for the year ended 31 December 2016
Rockhopper Exploration plc
Accounts
Group statement of changes in equity
for the year ended 31 December 2016
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 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
—
2,147
(1,406)
—
—
(152)
—
—
—
—
—
(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
Total comprehensive income for the year
Share based payments
Issue of shares
Share issues in relation to SIP
Exercise of share options
Other transfers
—
—
2,278
6
—
—
—
—
—
154
—
—
—
884
—
110
(234)
—
—
—
—
—
—
63,220
(128)
234
—
—
—
—
192
—
—
—
—
—
—
—
—
—
98,044
98,236
—
—
—
—
884
65,498
142
—
—
—
(10,418)
10,418
Balance at 31 December 2016
7,194
3,149
6,251
(3,407)
74,332
(8,968) 462,549
(114,106) 426,994
Report & Accounts for the year ended 31 December 2016
51
Accounts
Rockhopper Exploration plc
Group cash flow statement
for the year ended 31 December 2016
Cash flows from operating activities
Net profit before tax
Adjustments to reconcile net losses to cash:
Depreciation
Loss on impairment on property, plant and equipment
Other non-cash movements
Share based payment charge
Excess fair value over cost
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
Cash proceeds received on North Falkland Basin exploration insurance claim
Capitalised expenditure on exploration and evaluation assets
Purchase of property, plant and equipment
Acquisition of FOGL
Acquisition of Beach Egypt
Interest
Investing cash flows before movements in capital balances
Changes in:
Restricted cash
Term deposits
Cash flow from 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
2016
$’000
Year ended
31 December
2015
$’000
Notes
98,044
(44,697)
15
15
15
9
29
14
10
29
29
4,725
—
(1,205)
994
(111,842)
3,549
139
333
(317)
(6,187)
(11,767)
—
277
(7,962)
(1,748)
(21,200)
45,507
(38,985)
(1,218)
5,312
(18,839)
559
(7,664)
1,689
30,000
24,025
—
31
—
(33)
(2)
(2,238)
2,823
50,434
51,019
2,744
5,649
—
1,937
—
22,335
12
4,742
(800)
(1,921)
(9,999)
291
(981)
3,765
68
(6,856)
—
(70,661)
(10,258)
—
—
617
(80,302)
(826)
40,000
(41,128)
2,200
37
(2,733)
(18)
(514)
(794)
(48,498)
99,726
50,434
52
Report & Accounts for the year ended 31 December 2016
Rockhopper Exploration plc
Accounts
Notes to the group financial statements
for the year ended 31 December 2016
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 into the Greater
Mediterranean through the acquisition of an exploration and production company with operations principally based in Italy and
during 2016 augmented this through the acquisition of exploration and production assets in Egypt. The registered office of the
Company is 4th Floor, 5 Welbeck Street, London, W1G 9YQ.
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 10 April 2017 and are subject to approval at the Annual General Meeting of
shareholders on 16 May 2017.
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”).
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.
–
–
–
IFRS9 Financial Instruments (effective date for annual periods beginning on or after 1 January 2018);
IFRS15 Revenue from Contracts with customers (effective date for annual periods beginning on or after 1 January 2018); and
IFRS16 Leases (effective date for annual periods beginning on or after 1 January 2019);
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 2016, the Group had available cash and term deposits of $81 million. In addition the first phase of the Group’s
main development, Sea Lion, is fully funded from sanction 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.
Report & Accounts for the year ended 31 December 2016
53
53
Accounts
Rockhopper Exploration plc
Notes to the group financial statements continued
for the year ended 31 December 2016
1. Accounting policies continued
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.
(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%.
54
Report & Accounts for the year ended 31 December 2016
Rockhopper Exploration plc
Accounts
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.
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$, using the closing rate method for assets and liabilities which are translated at the rate of exchange
prevailing at the balance sheet date and rates at the date of transactions for income statement accounts. Differences are taken
directly to reserves.
Report & Accounts for the year ended 31 December 2016
55
Accounts
Rockhopper Exploration plc
Notes to the group financial statements continued
for the year ended 31 December 2016
1. Accounting policies continued
1.6 Significant accounting policies continued
(F) Foreign currency translation continued
Transactions and balances:
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year
end exchange rates of monetary assets and liabilities denominated in foreign currencies are capitalised in the income statement,
except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges.
£ : US$
€ : US$
(G) Revenue and income
(i) Revenue
31 December 2016
31 December 2015
1.22
1.05
1.48
1.09
Revenue arising from the sale of goods is recognised 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.
56
Report & Accounts for the year ended 31 December 2016
Rockhopper Exploration plc
Accounts
(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.
(I) 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.
(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.
Report & Accounts for the year ended 31 December 2016
57
Accounts
Rockhopper Exploration plc
Notes to the group financial statements continued
for the year ended 31 December 2016
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 IFRS 3 – Business Combinations. Management performs annual impairment tests on the carrying value of goodwill and the
Greater Mediterranean CGU that the goodwill is attributed to. 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.
Fair value on acquisition (note 29)
Following the acquisition of Falkland Oil and Gas Limited (“FOGL”) assets and liabilities acquired and the fair value allocation
in accordance with the provisions of “IFRS3 – Business Combinations” has been determined. Inherently determining fair values,
particularly of intangible exploration and evaluation assets, is subjective. The valuation was based on the $ per barrel multiples applied
in transactions in the market place involving similar early stage development assets. Not all factors in any particular transaction may be
known and the market provides only a range of possible values. For reasonableness, this fair value was compared and supported by 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.
58
Report & Accounts for the year ended 31 December 2016
Rockhopper Exploration plc
Accounts
3. Revenue and segmental information
Year ended 31 December 2016
Revenue
Cost of sales
Gross loss
Exploration and evaluation expenses
Costs in relation to acquisition and group restructuring
Other administrative costs
Total administrative expenses
Excess of fair value over cost
Charge for share based payments
Foreign exchange movement
Results from operating activities and other income
Finance income
Finance expense
Profit/(loss) before tax
Tax
Profit/(loss) for period
Reporting segments assets
Reporting segments liabilities
Depreciation
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
Falkland
Islands
$’000
Greater
Mediterranean
$’000
—
—
—
(35)
—
—
—
111,842
—
8,292
120,099
—
—
120,099
—
120,099
424,867
77,952
—
7,417
(7,667)
(250)
(7,427)
(1,350)
(2,557)
(3,907)
—
—
27
(11,557)
—
(325)
(11,882)
—
(11,882)
36,369
18,968
4,529
Corporate
$’000
—
—
—
(775)
(1,179)
(4,884)
(6,063)
—
(994)
(2,640)
(10,472)
307
(8)
(10,173)
—
(10,173)
92,953
30,275
196
Total
$’000
7,417
(7,667)
(250)
(8,237)
(2,529)
(7,441)
(9,970)
111,842
(994)
5,679
98,070
307
(333)
98,044
—
98,044
554,189
127,195
4,725
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
(31,212)
—
(396)
(31,608)
4
(31,604)
37,687
25,978
2,468
—
—
—
(500)
(1,544)
(7,408)
(8,952)
(1,937)
(259)
(11,648)
975
—
(10,673)
—
(10,673)
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
Report & Accounts for the year ended 31 December 2016
59
Accounts
Rockhopper Exploration plc
Notes to the group financial statements continued
for the year ended 31 December 2016
4. Cost of sales
Cost of sales
Depreciation of oil and gas assets
Impairment of oil and gas assets
Other non-cash movements
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 (including group restructuring costs)
Amounts reallocated
Total staff costs charged to administrative expenses
Costs in relation to acquisition
Auditor’s remuneration (see note 8)
Other professional fees
Other
Depreciation
Amounts reallocated
Year ended
31 December
2016
$’000
4,373
4,499
—
(1,205)
7,667
Year ended
31 December
2016
$’000
754
3,549
3,957
(23)
8,237
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
2016
$’000
Year ended
31 December
2015
$’000
2,469
3,157
1,098
1,337
333
8,394
(3,375)
5,019
1,179
278
1,832
2,905
283
(1,526)
9,970
3,008
3,975
1,377
455
180
8,995
(4,438)
4,557
1,544
293
1,962
3,185
352
(998)
10,895
The average number of staff employed during the year was 31 (31 December 2015: 39). The relative decrease between years reflects
the restructuring of the Greater Mediterranean operation. As at 31 December 2016 the number of staff employed had reduced to 25
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.
60
Report & Accounts for the year ended 31 December 2016
Rockhopper Exploration plc
Accounts
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
2016
$’000
Year ended
31 December
2015
$’000
1,283
508
139
52
487
—
2,469
1,497
1,013
150
33
498
946
4,137
Gain on exercise of share options during the prior 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. 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
2016
£
362,100
153,900
44,600
14,361
—
574,961
Year ended
31 December
2015
362,100
253,470
36,210
7,069
318,750
977,599
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
Half year review
Tax compliance services
Year ended
31 December
2016
$’000
Year ended
31 December
2015
$’000
148
79
41
10
278
152
82
48
11
293
Report & Accounts for the year ended 31 December 2016
61
Accounts
Rockhopper Exploration plc
Notes to the group financial statements continued
for the year ended 31 December 2016
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
Charge for shares issued under the SIP throughout the period
Year ended
31 December
2016
$’000
934
60
994
Year ended
31 December
2015
$’000
1,796
141
1,937
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 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.
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
22 Apr 2016 13 Apr 2015
64p
N/A
31.5p
N/A
13 Oct 14
76p
N/A
13 Oct 14
76p
N/A
10 Mar 14
115p
180p
8 Oct 13
131p
180p
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
Correlation in share price movement
with comparator group
Exercise price
Dividend yield
N/A
N/A
N/A
33%
N/A
N/A
N/A
10,047,885
60.4%
71.2%
0.58%
N/A
4,111,838
44.5%
55.8%
0.70%
N/A
1,063,750
36.5%
42.2%
1.27%
29%
2,382,581
36.5%
42.2%
1.27%
27.5%
0p
0%
33.5%
0p
0%
32.0%
0p
0%
32.0%
0p
0%
N/A
201,117
60.1%
62.0%
0.30%
49.0%
0p
0%
N/A
1,757,786
60.1%
62.0%
0.30%
49.0%
0p
0%
62
Report & Accounts for the year ended 31 December 2016
Rockhopper Exploration plc
Accounts
The following movements occurred during the year:
Issue date
Expiry date
8 October 2013
10 March 2014
13 October 2014
13 April 2015
22 April 2016
8 October 2023
10 March 2024
13 October 2024
13 April 2025
22 April 2026
At 31 December
2015
1,560,418
201,117
3,446,331
4,111,838
—
Issued
Lapsed
—
—
—
—
10,047,885
(1,014,273)
(130,726)
(404,143)
(383,303)
—
9,319,704
10,047,885
(1,932,445)
At 31 December
2016
546,145
70,391
3,042,188
3,728,535
10,047,885
17,435,144
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 year the Group issued two Matching Shares for every Partnership Share purchased.
In the year the Group made a free award of £50,997 (year ended 31 December 2015 £49,547) worth of Free Shares to eligible
employees.
This resulted in 177,772 (year ended 31 December 2015:92,277) Free Shares and 216,778 (year ended 31 December 2015:99,456)
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
31 December
2016
31 December
2015
29
100%
Nil
Nil
52
100%
Nil
Nil
The fair value of the shares awarded will be spread over the expected vesting period.
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
Exercise price
(pence)
At 31 December
2015
Exercised
Lapsed
22 November 2008
3 July 2009
11 January 2011
14 July 2011
16 August 2011
13 December 2011
17 January 2012
30 January 2013
22 November 2018
3 July 2019
11 January 2021
14 July 2021
16 August 2021
13 December 2021
17 January 2022
30 January 2023
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
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
At 31 December
2016
355,844
103,368
212,641
43,587
17,035
29,594
291,531
366,931
1,420,531
Report & Accounts for the year ended 31 December 2016
63
Accounts
Rockhopper Exploration plc
Notes to the group financial statements continued
for the year ended 31 December 2016
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
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
Profit/(loss) on ordinary activities before tax
Profit/(loss) on ordinary activities multiplied at 26% weighted average rate
(31 December 2015: 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
2016
$’000
Year ended
31 December
2015
$’000
8,290
(2,103)
6,187
(508)
5,679
1,990
(69)
1,921
6
1,927
Year ended
31 December
2016
$’000
Year ended
31 December
2015
$’000
307
307
300
—
33
333
975
975
378
4,347
25
4,750
Year ended
31 December
2016
$’000
Year ended
31 December
2015
$’000
—
—
—
—
—
—
98,044
9
(55,405)
(55,396)
1
1
(55,395)
(44,697)
25,491
(111,621)
32,055
253
(349)
216
6,894
(436)
—
(14)
—
—
10,365
(597)
174
2,537
(539)
(55,405)
(309)
(55,395)
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 is classified as non-current and discounted. Additional
information is given in Note 21 Tax payable.
64
Report & Accounts for the year ended 31 December 2016
Rockhopper Exploration plc
Accounts
The total carried forward losses and carried forward pre trading expenditures available for relief on commencement of trade are as
follows:
Year ended
31 December
2016
$’000
Year ended
31 December
2015
$’000
UK
Falkland Island
Italy
Egypt
59,529
123,732
54,051
3,010
53,161
127,388
19,917
—
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
Weighted average number of Ordinary Shares for the purposes of basic earnings per share
Effects of dilutive potential Ordinary shares
Contingently issuable shares
Net profit after tax for purposes of basic and diluted earnings per share
Earnings per share – cents
Basic
Diluted
31 December
2016
Number
31 December
2015
Number
296,579,834
292,805,453
159,684,668
—
394,550
456,659,052
446,106,108
—
3,532,920
241,461
296,579,834
293,442,707
—
446,106,108
321,330
293,764,037
$’000
98,044
21.98
21.98
$’000
10,698
3.65
3.64
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.
14. Intangible exploration and evaluation assets
As at 31 December 2014
Additions
Written off to exploration costs
Foreign exchange movement
As at 31 December 2015
Acquisitions through business combinations
Asset additions
Additions
Written off to exploration costs
Foreign exchange movement
As at 31 December 2016
Report & Accounts for the year ended 31 December 2016
Falkland
Islands
$’000
175,504
75,920
—
—
251,424
170,000
—
(2,840)
—
—
418,584
Greater
Mediterranean
$’000
28,660
2,577
(22,335)
(3,668)
5,234
—
5,772
587
(3,549)
(209)
7,835
Total
$’000
204,164
78,497
(22,335)
(3,668)
256,658
170,000
5,772
(2,253)
(3,549)
(209)
426,419
65
Accounts
Rockhopper Exploration plc
Notes to the group financial statements continued
for the year ended 31 December 2016
14. Intangible exploration and evaluation assets continued
Falkland Islands licences
The Acquisition during the period of $170 million reflects the fair value of the licences held by Falkland Oil & Gas Limited and its subsidiary,
principally being its 40% interest in the PL004 licences, further details are given in note 29.
The additions during the period relate to $7.2 million of costs for the exploration campaign in the North Falkland Basin including the
exploration successes at Zebedee and Isobel Deep. $17.2 million relates to the Sea Lion development. These have been offset by
$27.7 million as a result of insurance proceeds received on a claim relating to costs incurred on the Isobel deep well during the 2015/16 North
Falkland Basin exploration campaign. This reflects that portion of the total insurance proceeds of $48.5 million that was not recognised as a
receivable on acquisiton of FOGL. These costs have been previously capitalised.
The carrying value of Phase 1 of the Sea Lion Development, 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. The project is targeting project sanction decision
in mid 2018 (with such decision dependent on funding) and is expected to take three and half years from sanction to first oil. The remaining
barrels in Sea Lion are expected to be recovered along with those in near field discoveries in a second phase of the development. This second
phase has been checked for impairment in a similar manner.
Sensitivity analysis was performed by, in turn, reducing oil price by $10/bbl, reducing production by 10%, increasing capital expenditure by
10%, increasing operating expenditure by 10% and delaying the development by one year. None of these sensitivities would have led to an
impairment charge in the year.
Costs associated with Isobel/Elaine discoveries and a potential Phase 3 development are carried at cost and no indication of impairment
currently exist although the assets require further appraisal.
Greater Mediterranean licences
The asset additions in the period ($5.8 million) relate to the Egyptian exploration assets acquired as part of the acquisition of Beach Petroleum
(Egypt) Pty Limited, further details are provided in note 29.
The additions during the period ($0.6 million) predominantly relate to work on the Egyptian and Italian license interests.
As at the end of the prior year the costs associated with the Ombrina Mare exploration permit were impaired due to the Italian
Parliament approving 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.
Given the current legal position the decision was made to plug and abandon the Ombrina Mare well, the unprovided costs associated
with this activity have been initially capitalised in intangible assets and then impaired.
Following the decision in February 2016 by the Ministry of Economic Development not to award the Company a Production
Concession covering the Ombrina Mare field, in March 2017 the Company commenced international arbitration proceedings against
the Republic of Italy. Based on legal and expert opinions, Rockhopper has been advised that it has strong prospects of recovering very
significant monetary damages as a result of the Republic of Italy’s breaches of the Energy Charter Treaty. Damages would be sought
on the basis of lost profits.
66
Report & Accounts for the year ended 31 December 2016
Rockhopper Exploration plc
Accounts
The write-off in relation to Ombrina Mare has been taken without prejudice to the legal remedies that may be obtained through the
legal proceedings against the Republic of Italy and organs of the Italian State.
At the end of the year, following a review of the operator’s technical evaluation of the Maltese assets, the decision was made to
relinquish the licence. This was the main component of the $3.5 million written off to exploration costs in the Greater Mediterranean
region as all costs associated with the licence were written off.
15. Property, plant and equipment
Cost brought forward
Acquisitions
Asset additions
Additions
Foreign exchange
Disposals
Cost carried forward
Accumulated depreciation and
impairment loss brought forward
Current year depreciation charge
Impairment loss
Foreign exchange
Disposals
Accumulated depreciation and impairment
loss carried forward
Net book value brought forward
Net book value carried forward
Oil and gas
assets
$’000
23,245
—
9,696
1,615
(787)
(1,391)
32,378
(11,208)
(4,499)
—
566
310
(14,831)
12,037
17,547
Other
assets
$’000
1,645
58
33
96
(7)
(729)
1,096
(1,045)
(226)
—
3
650
(618)
600
478
31 December
2016
$’000
24,890
58
9,729
1,711
(794)
(2,120)
33,474
(12,253)
(4,725)
—
569
960
(15,449)
12,637
18,025
Oil and gas
assets
$’000
14,413
—
—
10,513
(1,681)
—
23,245
(3,245)
(2,449)
(5,649)
135
—
(11,208)
11,168
12,037
Other
assets
$’000
1,990
—
—
60
(22)
(383)
1,645
(1,012)
(295)
—
2
260
(1,045)
978
600
31 December
2015
$’000
16,403
—
—
10,573
(1,703)
(383)
24,890
(4,257)
(2,744)
(5,649)
137
260
(12,253)
12,146
12,637
All oil and gas property plant and equipment assets relate to the Greater Mediterranean region, specifically producing assets in Italy and
Egypt.
Asset additions in the period relate almost entirely to the addition of the Abu Sennan production asset in Egypt which was acquired as
part of the acquisition of Beach Petroleum (Egypt) Pty Limited, further information is provided in note 29.
Impairment testing was performed across the Group’s oil and gas assets and 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 2017 and 2018, and €0.25/sm3 in 2017 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. No impairment was recognised
in the period (2015: charge of $5.6 million).
Report & Accounts for the year ended 31 December 2016
67
Accounts
Rockhopper Exploration plc
Notes to the group financial statements continued
for the year ended 31 December 2016
16. Goodwill
As at 31 December 2015
Foreign exchange movement
As at 31 December 2016
Greater
Mediterranean
$’000
9,803
(364)
9,439
Total
$’000
9,803
(364)
9,439
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 Italian CGU and arises due to the difference between the fair value of the net assets and the
consideration transferred and relates more specifically to Monte Grosso and Ombrina Mare, which 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 $364,000 (2015: $1,137,000) 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 a value in use calculations. Future cashflows are estimated using long term realised
gas price of €0.25/sm3 and a 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.
17. Other receivables
Current
Receivables
Prepayments
Accrued interest
Income tax
Other
31 December
2016
$’000
31 December
2015
$’000
12,633
374
106
74
3,997
17,184
1,104
391
349
77
4,278
6,199
The carrying value of receivables approximates to fair value. The increase in receivables in the year is due to the acquisition of Beach
Petroleum (Egypt) Pty Limited which came with an associated receivable due from EGPC. At 31 December 2016, the receivable
balance due from EGPC was $11.4 million of which net $4.2 million was due to Rockhopper after offsetting the amount payable to the
former parent company, Beach Energy Limited. Further details regarding this balance are disclosed in note 29.
18. Restricted cash
Charged accounts
Other amounts including in relation to exploration licence applications
31 December
2016
$’000
31 December
2015
$’000
—
495
495
874
1,318
2,192
68
Report & Accounts for the year ended 31 December 2016
Rockhopper Exploration plc
Accounts
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
2016
$’000
31 December
2015
$’000
—
—
10,000
20,000
30,000
30,000
10,000
10,000
10,000
60,000
Term deposits are disclosed separately on the face of the balance sheet when their term is greater than three months and they are
unbreakable.
20. Other payables and accruals
Accounts payable
Accruals
Other creditors
31 December
2016
$’000
31 December
2015
$’000
687
25,202
8,123
34,012
2,377
25,390
2,690
30,457
The increase in other creditors in the year is due to the acquisition of Beach Petroleum (Egypt) Pty Limited and a payable balance
due to the former parent company Beach Energy Limited related to the associated receivable from EGPC (see note 17). The balance
outstanding as at 31 December 2016 was $7.2 million. Further details on this transaction are disclosed in note 29.
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
2016
$’000
9
39,115
39,124
31 December
2015
$’000
9
47,405
47,414
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 approximately three and a half years after project sanction. As such the tax liability has been reclassified as
non-current and discounted at 15%. The movement in the tax liability since the 31 December 2015 relates to an $8.3 million foreign
exchange gain. Management are considering strategies to mitigate 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”. The full benefit of the $48.0 million Exploration Carry has been received from Premier during the current campaign
and a request has been made to the Falkland Islands Commissioner of Taxation to reduce the tax liability by £4.7 million. No
adjustment in the tax liability has been made as this is still subject to agreement with the Falkland Islands’ Commissioner of Taxation.
Report & Accounts for the year ended 31 December 2016
69
Accounts
Rockhopper Exploration plc
Notes to the group financial statements continued
for the year ended 31 December 2016
22. Provisions
Brought forward
Amounts utilised
Amounts arising in the period
Change in estimate
Unwinding of discount
Foreign exchange
Carried forward at period end
Abandonment
provision
$’000
Other
provisions
$’000
31 December
2016
$’000
31 December
2015
$’000
20,059
(4,003)
—
(849)
300
(695)
14,812
284
(242)
66
—
—
(6)
102
20,343
(4,245)
66
(849)
300
(701)
14,914
21,816
(45)
64
382
393
(2,267)
20,343
The abandonment provision relates to the Group’s licences 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 leaving indemnity for staff in Italy, 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
2016
$’000
39,145
—
39,145
31 December
2015
$’000
39,144
1
39,145
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 2016 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 utilised. The potential deferred
tax asset at the 31 December 2016 would be $59 million (31 December 2015: $49 million).
24. Share capital
31 December 2016
31 December 2015
$’000
Number
$’000
Number
Called up, issued and fully paid: Ordinary shares of £0.01 each
7,194
456,659,552
4,910
296,579,834
For details of all movements during the year, see note 13.
70
Report & Accounts for the year ended 31 December 2016
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
2016
$’000
31 December
2015
$’000
902
1,117
2,109
1,258
2,951
4,209
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.
The Group also committed to fund its share of the approved work program for PL032 for the calendar year ending 31 December 2017
of US$8 million.
In addition, the Group has approved a capital work plan and budget commitments of US$3 million in relation to its portfolio of assets
in the Greater Mediterranean region.
Report & Accounts for the year ended 31 December 2016
71
Accounts
Rockhopper Exploration plc
Notes to the group financial statements continued
for the year ended 31 December 2016
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 35 to 45.
Short term employee benefits
Pension contributions
Other long term employee benefits
Share based payments
Year ended
31 December
2016
$’000
Year ended
31 December
2015
$’000
2,538
139
—
508
3,185
3,041
150
946
1,013
5,150
Other long term employee benefits relate to the gain on exercise of share options during the 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 prior year.
In addition a former director of the Company also exercised options. The options were due to expire during that 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
Number of
shares subject
to option
1,500,000
1,500,000
525,000
Exercise price
42 pence
42 pence
42 pence
Shares sold
to EBT
EBT share
purchase price
Shares retained
1,236,472
1,222,827
434,565
63.25 pence
63.25 pence
63.25 pence
263,528
277,173
90,435
29. Acquisition of subsidiaries
Acquisition of Falkland Oil and Gas Limited
In January 2016 Rockhopper completed the acquisition of the entire issued share capital of 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.
72
72
Report & Accounts for the year ended 31 December 2016
Rockhopper Exploration plc
Accounts
At acquisition FOGL had a portfolio of assets and internal technical resources and management and administrative processes. In addition
it has potential future outputs through monetisation of its 2C resources as such it is a business and the transaction has been accounted
for by the purchase method of accounting with an effective date of 18 January 2016 being the date on which the group gained control of
FOGL. Information in respect of the assets and liabilities acquired and the fair value allocation to the FOGL assets in accordance with the
provisions of “IFRS3 – Business Combinations” has been determined as follows:
Intangible exploration and appraisal assets
Property, plant and equipment
Inventories
Trade and other receivables
Trade and other payables
Net identifiable assets and liabilities
Fair value in excess of consideration
Satisfied by:
Equity instruments 159,684,668 ordinary shares
Less cash acquired
Total consideration
Recognised values on acquisition
$’000
170,000
58
162
21,031
(19,222)
172,029
(111,842)
65,499
(5,312)
60,187
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.
Inherently determining fair values, particularly of intangible exploration and evaluation assets, is subjective. The valuation of intangible
assets acquired was based on the $ per barrel multiples applied in transactions in the market place involving similar early stage
development assets. Not all factors in any particular transaction may be known and the market provides only a range of possible values
over a relatively small population of analogous transactions. Analysis of $ per barrel multiples implied a wide range of reasonable possible
outcomes between $1.5 per barrel and $2.5 per barrel although actual transactions ranged from near zero to values well in excess of
$5 per barrel. The value above equates to just under $2 per barrel of 2C resource acquired in the Sea Lion complex and around
$1.6 per barrel if management’s view of the additional 2C resource discovered in the Emily, Isobel and Isobel Deep J fans is included.
For reasonableness, this fair value was compared and supported by both historic investment in the basin and 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.
The fair value in excess of consideration arises due to the difference between the fair value of the net assets and the consideration
transferred and relates to the fact that the financial position of FOGL had deteriorated due to cost overruns at the Humpback exploration
well as well as merger terms being agreed prior to the Isobel Elaine well results, which as noted above added additional 2C resource and
substantially de-risked the Isobel-Elaine complex.
Acquisition costs of $1,430,000 arose as a result of the transaction in this and the prior period. These have been recognised as part of
administrative expenses in the statement of comprehensive income.
Since the acquisition date, FOGL has contributed $nil to group revenues and added $873,000 to the group loss. If the acquisition had
occurred on 31 December 2015, group revenues and group profit for the period would be materially the same.
Acquisition of Beach Petroleum (Egypt) Pty Limited
In August 2016 Rockhopper completed the acquisition of the entire issued share capital of Beach Petroleum (Egypt) Pty Limited
(“Beach Egypt”). Beach Egypt holds a 22% interest in the Abu Sennan concession and a 25% interest in the El Qa’a Plain concession.
Whilst the Company acquired had assets and outputs the processes of Beach Egypt were all managed by the former parent company.
As such the acquisition has not been accounted for as a business combination under IFRS 3 but an asset acquisition; the upfront
consideration paid for the asset acquisition was $11.9 million excluding working capital adjustments and further consideration of
$7.4 million to be paid in line with the recovery of Beach Energy’s retained interest in the gross transferred EGPC receivable. Under the
transaction terms the former parent company Beach Energy Limited retains the economic benefit of the EGPC receivable balance as at
31 December 2015, being US$8.6 million. Rockhopper pays the receivable due to Beach Energy Limited as the funds are received by
Rockhopper post-completion.
Report & Accounts for the year ended 31 December 2016
73
Accounts
Rockhopper Exploration plc
Notes to the group financial statements continued
for the year ended 31 December 2016
30. Post balance sheet events
Ocean Rig settlement
The Company announced on 14 September 2016, the operators of the 2015/16 North Falkland Basin exploration campaign had
entered into arbitration with Ocean Rig in relation to the termination of Eirik Raude rig.
The Company confirmed in February 2017 that a settlement had been reached between the operators and Ocean Rig. The financial
impact of this settlement is fully reflected in the results to 31 December 2016.
Commencement of international arbitration
On the 23 March 2017, Rockhopper announced that it has commenced international arbitration proceedings against the Republic of
Italy in relation to the Ombrina Mare project.
Following the decision in February 2016, by the Ministry of Economic Development not to award the Company a Production
Concession covering the Ombrina Mare field, the Company, with its legal advisers, has considered its options with regard to obtaining
damages and compensation from the Republic of Italy for breaching the Energy Charter Treaty (“ECT”).
Based on legal and expert opinions, Rockhopper has been advised that it has strong prospects of recovering very significant monetary
damages as a result of the Republic of Italy’s breaches of the ECT. Damages would be sought on the basis of lost profits.
In addition, the Company has secured non-recourse funding for the arbitration from a funder that specialises in financing commercial
litigation and arbitration claims. In the event of success (with an award above a nominal threshold) Rockhopper retains a very material
proportion of any award.
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 tax 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.
Asset balances include cash and cash equivalents, restricted cash and term deposits of $81.5 million of which $71.4 million was held in
US$ denominations. The following table summarises the split of the Group’s assets and liabilities by currency:
Currency denomination of balance
Assets
31 December 2016
31 December 2015
Liabilities
31 December 2016
31 December 2015
$
$’000
£
$’000
€
$’000
EGP £
$’000
520,607
346,295
72,908
60,585
7,811
15,546
41,852
52,262
27,064
37,752
12,735
24,512
7
—
—
—
74
Report & Accounts for the year ended 31 December 2016
Rockhopper Exploration plc
Accounts
The following table summarises the impact on the Group’s pre-tax profit and equity of a reasonably possible change in the US$ to GB£
exchange rate and the US$ to euro exchange:
US$ against GB£
31 December 2016
31 December 2015
US$ against euro
31 December 2016
31 December 2015
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
(2,519)
(3,672)
(1,060)
(126)
2,519
3,672
1,060
126
(2,519)
(3,672)
(1,060)
1,198
2,519
3,672
1,060
(1,198)
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 and for the sale of Oil and Gas. Should the
companies 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 2016 were $12,633,000 (31 December 2015: $1,104,000). Credit risk relating to the Group’s other
financial assets which comprise principally cash and cash equivalents, term deposits and restricted cash arises from the potential default
of counterparties. Investments of cash and deposits are made within credit limits assigned to each counterparty. The risk of loss through
counterparty failure is therefore mitigated by the Group splitting its funds across a number of banks, two of which are part owned by
the British government.
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 2016 were $30,000,000 (31 December 2015: $60,000,000).
Report & Accounts for the year ended 31 December 2016
75
Accounts
Rockhopper Exploration plc
Parent company financial statements – company balance sheet
As at 31 December 2016
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
Special reserve
Retained losses
Attributable to the equity shareholders of the company
Total liabilities and equity
Notes
2
3
4
5
6
11
11
11
11
11
11
31 December
2016
$’000
31 December
2015
$’000
317
93,617
404,998
495
30,000
49,653
579,080
28,769
28,769
7,194
3,149
6,251
(3,407)
74,575
462,549
—
550,311
579,080
433
2,100
405,431
1,974
60,000
47,106
517,044
22,839
22,839
4,910
2,995
5,491
(3,513)
11,355
472,967
—
494,205
517,044
These financial statements were approved by the directors and authorised for issue on 10 April 2017 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 2016
Rockhopper Exploration plc
Accounts
Company statement of changes in equity
for the year ended 31 December 2016
Balance at 31 December 2014
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
At 31 December 2015
Total comprehensive loss for the year
Share based payments
Share issues in relation to acquisition
Share issues in relation to SIP
Exercise of share options
Other transfers
Balance at 31 December 2016
Share
capital
$’000
4,854
—
—
3
53
—
—
4,910
—
—
2,278
6
—
—
7,194
Share
premium
$’000
Share based
remuneration
$’000
Shares held
in trust
$’000
Merger
reserve
$’000
Special
reserve
$’000
Retained
losses
$’000
Total
Equity
$’000
662
4,960
(628)
11,355
536,976
—
558,179
—
—
186
2,147
—
—
2,995
—
—
—
154
—
—
3,149
—
1,937
—
(1,406)
—
—
5,491
—
884
—
110
(234)
—
6,251
—
—
(152)
—
(2,733)
—
(3,513)
—
—
—
(128)
234
—
(3,407)
—
—
—
—
—
—
11,355
—
—
63,220
—
—
—
74,575
—
—
—
—
—
(64,009)
472,967
—
—
—
—
—
(10,418)
462,549
(65,415)
—
—
1,406
—
64,009
—
(10,418)
—
—
—
—
10,418
—
(65,415)
1,937
37
2,200
(2,733)
—
494,205
(10,418)
884
65,498
142
—
—
550,311
Report & Accounts for the year ended 31 December 2016
77
77
Accounts
Rockhopper Exploration plc
Notes to the company financial statements
for the year ended 31 December 2016
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 into the Greater Mediterranean through the
acquisition of an exploration and production company with operations principally based in Italy and during 2016 augmented
this through the acquisition of exploration and production assets in Egypt. The registered office of the Company is 4th Floor,
5 Welbeck Street, London, W1G 9YQ.
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 2016 were approved and signed by the
group chief financial officer on 10 April 2017 having been duly authorised to do so by the board of directors. The Company meets
the definition of a qualifying entity under Financial Reporting Standard 100 (FRS 100) issued by the Financial Reporting Council.
Accordingly, these financial statements were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure
Framework (FRS 101) and in accordance with the provisions of the Companies Act 2006. The amendment to FRS101 (2014/15 cycle)
issued in July 2015 and effective immediately have been applied.
In these financial statements, the Company as permitted by FRS101 has taken advantage of the disclosure exemptions available
under that standard in relation to accounting standards issued but not yet effective or implemented, share-based payment information,
financial instruments, capital management, presentation of comparative information in respect of certain assets, presentation of a cash-
flow statement and certain related party transactions..
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.
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 are applicable to the financial statements of the Company.
— 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 2016, the Group had available resources of $81 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 12 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.
78
78
Report & Accounts for the year ended 31 December 2016
Rockhopper Exploration plc
Accounts
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.
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$
€ : US$
31 December 2016
31 December 2015
1.22
1.05
1.48
1.09
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 three years
Over five years
Report & Accounts for the year ended 31 December 2016
79
79
Accounts
Rockhopper Exploration plc
Notes to the company financial statements continued
for the year ended 31 December 2016
1. Accounting policies continued
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.
(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
2016
$’000
31 December
2015
$’000
1,448
275
(713)
1,010
(1,015)
(167)
489
(693)
433
317
1,673
47
(272)
1,448
(999)
(276)
260
(1,015)
674
433
80
Report & Accounts for the year ended 31 December 2016
Rockhopper Exploration plc
Accounts
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
2016
$’000
31 December
2015
$’000
47,600
91,517
139,117
(45,500)
—
(45,500)
2,100
93,617
47,600
—
47,600
(420)
(45,080)
(45,500)
47,180
2,100
All amounts relate to subsidiary undertakings. Additions during the period relate to the acquisition of 100% of the ordinary issued
share capital of Falkland Oil and Gas Limited and Beach Petroleum Egypt Pty Limited (now Rockhopper Egypt Pty Limited). See note
29 of the group accounts for full details of the acquisition.
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
Falkland Oil and Gas Limited
Desire Petroleum Limited
Rockhopper Egypt Pty. Limited
Incorporated
England & Wales
England & Wales
England & Wales
England & Wales
Falkland Islands
England & Wales
England & Wales
Italy
Malta
Australia
England & Wales
England & Wales
Australia
4. Other receivables
Receivables
Prepayments
Accrued interest
Other
Group undertakings
Class of
share
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
31 December
2016
$’000
70
302
106
127
404,393
404,998
Percentage
held
%
100
100
100
100
100
100
100
100
100
100
100
100
100
31 December
2015
$’000
—
293
349
327
404,462
405,431
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 2015: $12,408,000).
5. Other payables
Trade creditors
Group undertakings
Other creditors
Accruals
Report & Accounts for the year ended 31 December 2016
31 December
2016
$’000
31 December
2015
$’000
310
—
7,392
21,067
28,769
1,090
—
264
21,485
22,839
81
Accounts
Rockhopper Exploration plc
Notes to the company financial statements continued
for the year ended 31 December 2016
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
31 December
2016
Number
31 December
2015
Number
296,579,834
292,805,453
159,684,668
—
395,050
456,659,552
—
3,532,920
241,461
296,579,834
Called up, issued and fully paid: Ordinary shares of £0.01 each
7,194
456,659,552
4,910
296,579,834
31 December 2016
31 December 2015
$’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
2016
$’000
Year ended
31 December
2015
$’000
4,436
563
293
126
15
5,441
843
285
108
18
Disclosures in relation to directors’ remuneration are given on a consolidated basis in the directors’ report and note 7 of the Group
accounts.
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
2016
$’000
31 December
2015
$’000
452
798
1,250
604
1,678
2,282
13. Related parties
Note 28 of the Group accounts provides details on remuneration of key management personnel of the Group. The amounts disclosed
are the same as those of the Company.
82
Report & Accounts for the year ended 31 December 2016
Rockhopper Exploration plc
Accounts
14. Risk Management Policies
Risk Review
The risks and uncertainties facing the Company are set out in the risk management report. Risks which require further quantification
are set out below.
Foreign exchange risks: The Company’s functional currency is US$ 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 2016
31 December 2015
Liabilities
31 December 2016
31 December 2015
$
$’000
£
$’000
570,179
501,422
7,813
15,546
28,432
2,818
337
337
a
$’000
1,080
76
—
—
EGP £
$’000
8
—
—
—
14. Risk Management Policies continued
The following table summarises the impact on the Company’s pre-tax profit and equity of a reasonably possible change in the US$ to
GB£ exchange rate and the US$ to euro exchange:
US$ against GB£
31 December 2016
31 December 2015
US$ against euro
31 December 2016
31 December 2015
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
598
1,150
181
8
(598)
(1,150)
(181)
(8)
598
1,150
181
8
(598)
(1,150)
(181)
(8)
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 2016
were $nil (31 December 2015: $nil). 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 2016 were $404,393,000 (31 December 2015: $404,462,000). Credit risk relating to the Group’s other
financial assets which comprise principally cash and cash equivalents, term deposits and restricted cash arises from the potential default
of counterparties. Investments of cash and deposits are made within credit limits assigned to each counterparty. The risk of loss through
counterparty failure is therefore mitigated by the Group splitting its funds across a number of banks, two of which are part owned by the
British government.
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 2016 were $30.0 million (31 December 2015: $60.0 million).
Report & Accounts for the year ended 31 December 2016
83
83
Accounts
Rockhopper Exploration plc
Key licence interests as at 1 April 2017
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
Premier Oil
95.50
60.50
64.00
64.00
—
—
Isobel Deep
Beverley
Casper South
Zebedee
—
64.00
100.00
—
40.00 Casper North
Sea Lion
—
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 Grosso)
Aglavizza
Egypt
Licence
Abu Sennan
El Qa’a Plain
Croatia
Licence
Block 9†
† Subject to signature of PSA.
Operator
Rockhopper working
interest %
Field/Discovery
Eni
Eni
Eni
Rockhopper
Eni
Rockhopper
20.00
15.00
15.00
Guendalina
—
—
100.00 Ombrina Mare
—
22.89
Civita
100.00
Operator
Rockhopper working
interest %
Kuwait Energy
Dana Petroleum
22.00
25.00
Field/Discovery
Various
—
Operator
Eni
Rockhopper working
interest %
Field/Discovery
40.00
—
84
Report & Accounts for the year ended 31 December 2016
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.
.
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Rockhopper Exploration plc
Shareholder information
Glossary
Annual General Meeting
barrel
billion cubic feet
AGM
bbl
bcf
Beach Egypt Beach Petroleum (Egypt) Pty Limited (now Rockhopper Egypt Pty Ltd)
the Board of Directors of Rockhopper Exploration plc
Board
barrel(s) of oil equivalent
boe
barrel(s) of oil equivalent per day
boepd
blow out preventer
BOP
barrel(s) of oil per day
bopd
capital expenditure
Capex
Rockhopper Exploration PLC
Company
exploration and production
E&P
Environmental Impact Statement
EIS
Exploration Study Agreement
ESA
Executive Committee
ExCo
to acquire an interest in a licence from another party
Farm-in
to assign an interest in a licence to another party
Farm-out
field development plan
FDP
front end engineering and design
FEED
Final Investment Decision
FID
Falkland Islands Government
FIG
Falkland Oil & Gas Limited
FOGL
floating production, storage and offtake vessel
FPSO
General & Administration expenses
G&A
The Company and its sunsidiaries
Group
Gas Sales Agreement
GSA
Heads of Agreement
HoA
health, safety and environment
HSE
International Accounting Standard
IAS
International Financial Reporting Standard
IFRS
Joint Venture
JV
thousand barrels of oil equivalent per day
kboepd
thousand barrels of oil per day
kbopd
key performance indicator
KPI
Letter of Intent
LoI
Lost Time Incident
LTI
Long Term Incentive Plan
LTIP
Mediterranean Oil & Gas plc
MOG
million barrels
mmbbls
million barrels of oil equivalent
mmboe
million British thermal units
mmbtu
million standard cubic feet per day
mmscfd
thousand standard cubic feet
mscf
metric tonne
mt
net asset value
NAV
Premier Oil plc
Premier
Production Sharing Agreement
PSA
Production Sharing Contract
PSC
standard cubic metre
scm
Share Incentive Plan
SIP
to commence drilling a well
spud
stock-tank oil initially in place
STOIIP
total shareholder return
TSR
best estimate of contingent resources
2C
proven plus probable
2P
United States dollar
$/US$
working interest
WI
Key contacts
Registered address
and head office:
4th Floor
5 Welbeck Street
London
W1G 9YQ
Mediterranean office:
Via Cornelia, 498
00166 Roma
Italia
Egypt office:
Level 1
6A Road 22
Maadi Sarayat
Cairo
Egypt
NOMAD and broker
Canaccord Genuity Limited
88 Wood Street
London
EC2V 7QR
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
Auditor
KPMG LLP
15 Canada Square
London
E14 5GL
Registrar
Computershare Investor
Services plc
Vintners Place
68 Upper Thames Street
London
EC4V 3BJ
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
Report & Accounts for the year ended 31 December 2016
85
Rockhopper Exploration plc
Head office:
4th Floor
5 Welbeck Street
London
W1G 9YQ
Rome office:
Via Cornelia, 498
00166 Roma
Italia
Egypt office:
Level 1
6A Road 22
Maadi Sarayat,
Cairo
Egypt
Telephone +44 (0)207 486 1677
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 2016