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Building a well-funded,
full-cycle, exploration-led
E&P company
Report and Accounts
for the year ended 31 December 2017
Rockhopper Exploration plc
Head office:
4th Floor
5 Welbeck Street
London
W1G 9YQ
Telephone +44 (0)207 486 1677
info@rockhopperexploration.co.uk
www.rockhopperexploration.co.uk
@RockhopperExplo
Company Reg. No. 05250250
2017-RKH Cover pp01-04-JB06.indd 1
18/04/2018 17:23
Contents
Strategic Report
2 2017 highlights
3 Rockhopper – the story so far
4 Rockhopper at a glance
6 Vision, strategy and business model
(cid:31) Chairman and Chief Executive Officer’s review
9 Industry overview
10 Sea Lion Phase 1 development overview
12 Operations review
17 Key Performance Indicators (KPIs)
18 Financial review
21 Internal controls and risk management
22 Principal risks and uncertainties
26 Health, safety, environmental and social management
Governance Report
2(cid:31) Chairman’s governance report
28 Senior management team
29 Rockhopper Board
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
Financial Statements
Group company financial statements
51 Group income statement
51 Group statement of comprehensive income
52 Group balance sheet
53 Group statement of changes in equity
54 Group cash (cid:198)ow statement
55 Notes to the group financial statements
Parent company financial statements
75 Company balance sheet
76 Company statement of changes in equity
(cid:31)(cid:31) Notes to the company financial statements
82 Key licence interests as at 1 April 2018
Supplementary Information
83 Glossary
84 Shareholder information
Supply base quay, Stanley,
Falkland Islands
2017-RKH Cover pp01-04-JB06.indd 2
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18/04/2018 17:23
Rockhopper Exploration plc
Strategic Report
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.
Report & Accounts for the year ended 31 December 2017
1
Strategic Report
Rockhopper Exploration plc
2017 highlights
Funding package for the Sea Lion Phase 1 development progressing;
working towards final investment decision by year end 20181
> Estimated capex to first oil reduced from US(cid:12)1.8 billion to US(cid:12)1.5 billion
> Life of field costs down to less than US(cid:12)35 per barrel
> Letters of Intent signed with contractors for a range of services and vendor financing
> Discussions progressing with senior debt providers including commercial banks
and export credit agencies
> Field Development Plan substantially agreed with the Falkland Islands Government
> Environmental Impact Statement public consultation process completed.
Building a material production base in the Greater Mediterranean
to maintain balance sheet strength and fund future growth
> Material increase in production (cid:183) net working interest production averaged 1.2 kboepd
in 201(cid:31) (cid:16)2016(cid:34) 0.8 kboepd(cid:17)
> Revenue up 40(cid:13) to US(cid:12)10.4 million (cid:16)2016(cid:34) US(cid:12)(cid:31).4 million(cid:17)
> Cash operating costs of US(cid:12)9.5 per boe (cid:183) maintaining a low cost base
> Continued management of G&A costs (cid:183) US(cid:12)5.3 million (cid:183) down over 50(cid:13) in 3 years
> G&A costs covered by operating cash (cid:198)ows
> Sale of non-core interests in Italy (cid:183) US(cid:12)9.5 million of future decommissioning costs
removed from balance sheet upon completion
> Initiated international arbitration against Republic of Italy to seek significant monetary
damages in relation to Ombrina Mare
> Balance sheet strength maintained with cash resources of US(cid:12)51 million
at 31 December 201(cid:31) and no debt.
Outlook
> Progress Sea Lion towards final investment decision by year end 20181
> Four well drilling campaign in Egypt to commence in Q2 2018
> Ombrina Mare arbitration hearing date set for early February 2019
> Continued pursuit of new venture opportunities to add production and cash (cid:198)ow.
1 Operator estimate
2
2
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Strategic Report
Rockhopper – the story so far
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.
In late 201(cid:31) and early 2018, Letters of Intent
were signed with a number of key contractors
for the provision of services and vendor
financing for the Sea Lion project.
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 (cid:66)ebedee 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.
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(cid:13).
2011
2010
Sea Lion Appraisal
Following the successful (cid:198)ow 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 enters FEED
Sea Lion project enters FEED with set of
world-class contractors.
Rockhopper completes merger with Falkland Oil &
Gas Ltd following shareholder approval from both
Rockhopper and FOGL shareholders.
Rockhopper acquires non-operated production
and exploration assets in Egypt.
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.
Farm-Out
In July, Rockhopper announced it had entered
into a farm-out agreement with Premier Oil plc
(cid:16)(cid:185)Premier(cid:186)(cid:17), whereby Premier acquired a 60(cid:13)
operated interest in Rockhopper’s North Falkland
Basin licences for undiscounted consideration of
c.(cid:12)1bn (cid:16)comprising cash, development carry and
exploration carry(cid:17).
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.
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 (cid:16)as operator(cid:17) drilled its first
exploration well on the Sea Lion prospect which
resulted in an oil discovery. The well was successfully
(cid:198)ow tested in September.
Report & Accounts for the year ended 31 December 2017
3
3
Strategic Report
Rockhopper Exploration plc
Rockhopper at a glance
Falkland Islands
North Falkland Basin
Sea Lion Phase 1 (PL032)
> 40(cid:13) working interest
> 220 mmbbls gross*
88 mmbbls net to Rockhopper*
> Targeting FID year-end 2018,
subject to securing funding*
Sea Lion Phase 2 (PL032/PL004)
> 40-64(cid:13) working interest†
> 300 mmbbls gross*
120-192 mmbbls net
to Rockhopper*
Phase 3 – Isobel-Elaine (PL004)
> 64(cid:13) working interest
> Isobel-Elaine complex significantly
de-risked during 2015(cid:23)16 NFB
exploration campaign
(cid:18) Operator estimate
†
Sea Lion Phase 2 straddles licences PL032 in which
Rockhopper holds a 40(cid:13) interest and PL004 in
which Rockhopper holds a 64(cid:13) interest.
50°S50°S50°S
F A L K L A N D
FA LKLAND
I S L A N D S
I S LANDS
Rockhopper
40.0%
STANLEY
STANLEY
100 kms
60°W
Sea Lion
Jayne
Rockhopper
Rockhopper
Rockhopper
64.0%
Zebedee
Isobel/Elaine
Chatham
Rockhopper
(op) 60.5%
Rockhopper (op)
95.5%
Rockhopper (op)
100.0%
Head Office
London, UK
Regional Offices
Rome, Italy
Cairo, Egypt
0
10
kms
4
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Strategic Report
Greater Mediterranean
ITA LY
Guendalina
Guendalina
Ombrina Mare
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
T U R K E Y
T U R K E Y
C a i r o
S u e z
E G Y P T
0
100
200
Kilometers
EL QA’A
PLAIN
Red
Sea
T U N I S I A
Badr El Din 04
Badr El Din 04
Badr El Din 01
Badr El Din 01
Abu El Gharadig NE
Abu El Gharadig NE
Badr El Din 11
Badr El Din 11
Sheiba 181
Sheiba 181
BW1
BW1
Abu Sennan
Guendalina
El Qa’a Plain
Abu El Gharadig
Abu El Gharadig
Abu El Gharadig
Al Jahraa
300
0
Kilometers
Al Ahamadi
Al Jahraa-1
Al Jahraa-1
Al Jahraa-1
Al Jahraa-1
Al Jahraa-1
Al Jahraa-1
Al Jahraa-1
Al Jahraa-1
Al Jahraa-1
Al Jahraa-1
Al Jahraa-1
Al Jahraa-1
Al Jahraa-1
Al Jahraa SE-1X
Al Jahraa SE-1X
Al Jahraa SE-1X
Al Jahraa SE-1X
GPY
Abo Senan
Abo Senan
Abo Senan
Al Jahraa SE
GPT
GPT
Abu Sennan
GPT SW
GPT SW
0
5
10
Kilometers
Italy
Guendalina
> 20(cid:13) working interest
> Northern Adriatic gas
production
Civita
> 100(cid:13) working interest
> Onshore gas production
Asa
Western Desert 33
Western Desert 33
L I B YA
ASA-1X
ASA-1X
ASA-1X
ASA-1X
ASA-1X
ASA-1X
GPZZ-1
GPZZ
El Salmiya-1
El Salmiya-1
El Salmiya-1
El Salmiya-1
El Salmiya-1
El Salmiya-1
El Salmiya-1
El Salmiya-1
El Salmiya-1
El Salmiya-1
El Salmiya-1
El Salmiya-1
Al Ahmadi-1X
El Salmiya
ASH-1X
Ash
Western
Western
Western
Desert 33/15
Desert 33/15
Oil well
Abu Sennan Licence
Production lease
Seismic area
Oil field
Gas field
Monte Grosso
> 23(cid:13) working interest
> Exploration stage (cid:183) seeking
regulatory permits to drill
Ombrina Mare
> 100(cid:13) working interest
> International arbitration
commenced (cid:183) hearing
date set February 2019
EGY P T
Egypt
Abu Sennan
> 22(cid:13) working interest
> Western Desert oil and gas production
El Qa’a Plain
> 25(cid:13) working interest
> Exploration commitment
well to spud April(cid:23)May 2018
Report & Accounts for the year ended 31 December 2017
5
Strategic Report
Rockhopper Exploration plc
Vision, strategy and business model
Vision
To build a well-funded, full-cycle, exploration-led E&P company
Strategy
Delivering on strategy
> Building a balanced portfolio in core areas
(cid:38) Focus on North Falkland Basin
and Greater Mediterranean
(cid:38) Across the full asset life cycle
(cid:38) Production base to enable growth
through exploration
> Maintaining balance sheet strength
(cid:38) Prudent balance sheet management
(cid:38) Partial monetisation of assets to fund
development
(cid:38) Disciplined approach to cost management
> Value accretive exploration
(cid:38) Leveraging technical skillset
(cid:38) Focus on proven hydrocarbon basins
(cid:38) Managed exposure to high-impact opportunities
Business model
> Proven basins
> High impact
> Managed exposure
x p l oration >
E
Creating
value
<
P
r
o
d
u
e lopment
ction < D e
v
> Right-sized
to fund
exploration
> Self-funded through
operating cash
flows or partial
monetisation
Production
(kboepd)
1.2
0.8
0.3
0.3
2014
2015
2016
2017
Gross Sea Lion
Complex resources
(mmbbl)
900
560
517
386
C
2
C
3
C
2
C
3
March
2012
April
2016
Revenue
(US$m)
Recurring G&A costs
(US$m)
10.4
10.8
9.4
7.4
5.3
7.4
4.0
1.9
2014
2015
2016
2017
2014
2015 2016
2017
2016 production and revenue reflects contribution from Egypt from August 2016
6
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Strategic Report
Chairman and Chief Executive Officer’s review
Rockhopper has made good progress across
its portfolio in 2017, against a backdrop of
challenging markets in the upstream oil
and gas exploration and production sector,
largely attributable to continued volatility in
commodity prices.
Over the course of 201(cid:31), Rockhopper has continued to
balance the progression of its world-class Sea Lion project
in the North Falkland Basin with an ongoing focus on
cost control.
Material progress has been made on Sea Lion Phase 1 (cid:183)
in which Rockhopper has a 40(cid:13) working interest (cid:183) on
a range of commercial, fiscal and financing matters with
the operator, Premier Oil, recently confirming that it is
working towards a final investment decision by the end
of 2018 with financial close expected in H1 2019.
Our Greater Mediterranean portfolio continues to meet
its primary objective, namely to provide a production
and cash (cid:198)ow base to fund our corporate and operating
costs and protect our balance sheet. Balance sheet cash
is preserved for capital investment, primarily in the
Falkland Islands.
We maintain ambitions to further expand our Greater
Mediterranean production base thereby generating
additional free cash (cid:198)ow to invest in future exploration
and value(cid:1665)accretive growth opportunities both in the
Falklands and elsewhere.
Funding package for the Sea Lion development
progressing; operator working towards final
investment decision by year end 2018
Front End Engineering and Design (cid:16)(cid:185)FEED(cid:186)(cid:17) for the
Sea Lion Phase 1 project was largely completed in 2016.
Following a comprehensive tendering exercise, across a
range of supply chain contractors, conducted through
201(cid:31), estimated gross capex to first oil reduced from
US(cid:12)1.8 billion to US(cid:12)1.5 billion with life-of-field costs
(cid:16)capex, opex and Floating Production Storage and
O(cid:1660)oading (cid:16)(cid:185)FPSO(cid:186)(cid:17) vessel lease(cid:17) now estimated at less
than US(cid:12)35 per barrel.
Principal commercial terms for the provision of services
and vendor financing have been agreed with selected
preferred contractors and Letters of Intent (cid:16)(cid:185)LOIs(cid:186)(cid:17)
signed. Under the terms of the LOIs, an exclusivity period
has been granted to each contractor during which the
joint venture will negotiate binding documentation based
on principles for the provision of both services and vendor
financing. The joint venture is seeking approximately
US(cid:12)400 million of vendor financing from the
preferred contractors.
In 201(cid:31), Portland Advisers, a specialist project finance adviser
was appointed by the Sea Lion joint venture to support the
financing process for the project. Discussions are advancing
with a range of potential senior debt providers including
export credit and commercial bank lenders.
Following a comprehensive commercial bank
engagement process, a number of banks have indicated
their desire to support the project and the appointment
of a lead bank is expected shortly. In order to support
the lender due diligence process, technical advisers for
subsurface and environmental matters have been selected.
David McManus
Chairman
Samuel Moody
Chief Executive Officer
Engagement continues with the Falkland Islands
Government (cid:16)(cid:185)FIG(cid:186)(cid:17) on a range of environmental, fiscal
and regulatory matters with a view to obtaining the
consents and agreements necessary to be in a position
to reach a final investment decision by the end of 2018.
Following submission of a revised Field Development
Plan (cid:16)(cid:185)FDP(cid:186)(cid:17) to FIG in March 2018, the FDP is now
considered substantially agreed. The Environmental
Impact Statement (cid:16)(cid:185)EIS(cid:186)(cid:17) public consultation process
concluded in March 2018 with no material objections
received. A number of constructive comments identified
through the public consultation process will now be
incorporated into the final EIS document for FIG’s
consideration and approval.
Building a material production base in the Greater
Mediterranean to protect balance sheet and fund
future growth
In our Greater Mediterranean portfolio, we have
benefited from a material increase in production following
the acquisition of a portfolio of interests in Egypt during
the second half of 2016. Production during 201(cid:31) averaged
1.2 kboepd net to Rockhopper, a 50(cid:13) increase over the
prior period (cid:16)2016(cid:34) 0.8 kboepd(cid:17). As a result of increasing
production and revenue, and the measures taken to
reduce costs (cid:16)outlined below(cid:17), operating cash (cid:198)ows more
than covered the Group’s general and administration
(cid:16)(cid:185)G&A(cid:186)(cid:17) costs during 201(cid:31).
In April 201(cid:31), the Company announced the
commencement of a two(cid:1665)well drilling campaign on the
Abu Sennan concession in Egypt, in which Rockhopper
has a 22(cid:13) working interest. While it is disappointing that
the Al Jahraa(cid:1665)9 well was water(cid:1665)wet, the deep oil shows
were an encouraging indication of the additional potential
at these deeper levels in other areas of the concession. The
initial exploration target of the Al Jahraa SE(cid:1665)2X well
was dry but the side(cid:1665)track confirmed oil pay and was put
onto production at a tubular and pump constrained rate
of approximately 250 boepd gross. A full review of the
prospect and lead inventory for the Abu Sennan concession
was completed in November 201(cid:31) which has high graded a
number of targets for future exploratory drilling.
Report & Accounts for the year ended 31 December 2017
7
Strategic Report
Rockhopper Exploration plc
Additionally, through 201(cid:31) and the beginning of 2018,
the Company has seen a material improvement in the
payment situation in Egypt and a significant decline
in outstanding receivables owed by Egyptian General
Petroleum Corporation (cid:16)(cid:185)EGPC(cid:186)(cid:17).
Rockhopper commenced international arbitration
proceedings against the Republic of Italy in relation to
the Ombrina Mare field in March 201(cid:31). A Request for
Arbitration was formally lodged with the International
Centre for Settlement of Investment Disputes (cid:16)(cid:185)ICSID(cid:186)(cid:17)
in April 201(cid:31) and the Procedural Hearing took place in
November 201(cid:31). The Company submitted its memorial
(cid:16)our representations and evidence(cid:17), witness statements
and expert reports in December 201(cid:31) and the hearing
has been scheduled for early February 2019. Rockhopper
believes it has strong prospects of recovering very
significant monetary damages (cid:183) on the basis of lost
profits (cid:183) as a result of the Republic of Italy’s breaches of
the Energy Charter Treaty. All costs associated with the
arbitration are funded on a non-recourse (cid:16)(cid:185)no win (cid:183) no
fee(cid:186)(cid:17) basis from a specialist arbitration funder.
Portfolio management and corporate cost
reduction initiatives
Over the last three years, a corporate cost reduction
programme has been implemented across the Group
which has resulted in a decline of more than 50(cid:13) in the
Group’s net G&A cost. In 201(cid:31), G&A costs were reduced
to US(cid:12)5.3 million compared with US(cid:12)(cid:31).4 million in 2016,
US(cid:12)9.4 million in 2015 and US(cid:12)10.8 million in 2014.
John Martin previously Chairman of FOGL, has elected
to step down at the forthcoming AGM, in order to pursue
his other business interests. Given our focus on corporate
costs, we are content with the size of the reduced board
and there is no current intention to replace either John
or Fiona. We thank John for his significant contributions
to the Company over the last two years.
Outlook
2018 has the potential to be transformational for
Rockhopper with all efforts focused on securing the
funding required to sanction the Sea Lion project and
move into the development phase.
With Brent oil prices currently above US(cid:12)(cid:31)0 per barrel,
combined with the cost efficiencies secured through
FEED and engagement with the contractors, the
economics for the project are highly attractive.
Our Greater Mediterranean portfolio, which can be
characterised as low-cost and short-cycle, provides more
than the necessary operating cash (cid:198)ow to fund corporate
costs while providing low-risk exploration upside
opportunities. The Board believes that this production
and cash (cid:198)ow, when combined with our continued focus
on costs, helps secure the long-term sustainability of the
Company. On a highly selective basis, we seek to further
expand our Greater Mediterranean production base
with the aim of generating additional free cash (cid:198)ow to
invest in future exploration and value(cid:1665)accretive growth
opportunities both in the Falklands and elsewhere.
In June 201(cid:31), the Company announced the disposal of
a portfolio of non-core interests onshore Italy to Cabot
Energy plc. The rationale for the transaction was to
streamline the Group’s Italian interests, focus on material
assets, remove future decommissioning liabilities and
further right-size our cost base. The transaction is now
expected to complete during 2018.
David McManus
Non-Executive Chairman
Samuel Moody
Chief Executive Officer
18 April 2018
>
Senior management
team – biographies
on page 28
Board changes
In July 201(cid:31), Fiona MacAulay, Chief Operating Officer,
stepped down from the Board to take up the role of
Chief Executive Officer of an AIM(cid:1665)listed exploration
company. The Board thanks Fiona for her significant
contribution to the Company and we wish her well in her
new role. Fiona’s day(cid:1665)to(cid:1665)day responsibilities have been
assumed by senior members of the Company’s technical
team, namely, Alun Griffiths (cid:16)Petroleum Engineering
Manager and Falkland Asset Manager(cid:17), Lucy Williams
(cid:16)Geoscience Manager(cid:17) and Paul Culpin (cid:16)Development
Manager(cid:17). Alun has worked with Rockhopper since 2010,
while Lucy and Paul have worked with Rockhopper since
2011; and each has over 25 years of oil and gas industry
experience in their respective fields.
8
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Strategic Report
Industry overview
Average Brent Crude price
US$/bbl
Upstream Capital Costs Index (UCCI) / Upstream Operating Costs Index (UOCI)
Cost Index (Year 2000=100)
120
109
100
80
40
0
54
54
45
250
200
150
100
50
0
UCCI
Q4 2017
177
UOCI
Q4 2017
173
2013
2014
2015
2016
2017
2000
2002
2004
2006
2010
2012
2014
2016
2018
2020
Primary energy demand
End use sector
Region
Fuel
Transport
Industry
Non-combusted
Buildings
20
15
10
5
0
Other
Africa
Other Asia
India
China
OECD
20
15
10
5
0
Renewables
Hydro
Nuclear
Coal
Gas
Oil
20
15
10
5
0
8
1
0
2
t
i
k
r
a
M
S
H
I
:
e
c
r
u
o
S
k
o
o
l
t
u
O
y
g
r
e
n
E
P
B
8
1
0
2
:
e
c
r
u
o
S
1970 1980 1990 2000 2010 2020 2030 2040
1970 1980 1990 2000 2010 2020 2030 2040
1970 1980 1990 2000 2010 2020 2030 2040
* Industry excludes non-conbusted use of fuels
Economic and political
> Continued political and economic uncertainty with major
elections in the U(cid:51), Germany and France as well as ongoing
Brexit negotiations and the Catalonia independence referendum
> US relations with North (cid:51)orea and Russia add further tension
to the geopolitical backdrop (cid:183) already impacted by a series of
terrorist incidents in various major international cities as well
as rising tensions in the Middle East
> Global growth considered robust overall, although long-standing
impact of central bank policies sees stubbornly low in(cid:198)ation
continue globally (cid:16)with the exception of the U(cid:51) given ongoing
Sterling weakness(cid:17).
Commodity prices
> Continued volatility through 201(cid:31)
> Low of US(cid:12)45 per bbl in mid June with a high of US(cid:12)6(cid:31) per bbl
at year end
Climate change and the impact on the energy outlook
> Whilst global energy consumption is expected to grow strongly
out to 2040 and beyond, increasing pressure to reduce greenhouse
gas emissions will impact on the future energy mix
> With oil demand in absolute terms expected to remain robust,
it will nonetheless likely make a smaller percentage contribution
to the future energy mix with renewables making an increasing
contribution from a relatively low level today.
Industry investment, activity levels and costs
> Through 201(cid:31), the industry continued to take a conservative
approach to capital investment with a focus on smaller,
brownfield or expansion projects
> Industry costs remain low compared with those three to five
years ago, re(cid:198)ecting the sectors continued focus on cost reductions,
project deferrals, capturing efficiencies, industry standardisation
and co-operation around shared infrastructure
> 2018 year to date price dynamics appears encouraging,
> With an improved oil price outlook, and an attractive cost
supported by continued political uncertainty in the Middle East
and continued reductions in global inventory levels
environment, investments in new greenfield projects, such as
Sea Lion, are expected to increase.
> Despite resurgence of shale oil production in the US, which
may have short-term dampening effect on prices, long-term
fundamentals appear strong.
Report & Accounts for the year ended 31 December 2017
9
Strategic Report
Rockhopper Exploration plc
Sea Lion Phase 1 development overview
Proven development concept
Key facts
World scale resource
> 1.(cid:31) billion barrels oil in place
> Well understood reservoir
> Highly marketable crude
Proven development concept
> Technically straightforward FPSO development
> Extensive project development and
engineering complete
> Supply chain and logistics proven
through multiple drilling campaigns
Regulatory interface well-advanced
> Environmental Impact Statement public
consultation process completed
> FDP substantially agreed; final update at sanction
> Alignment with FIG on key fiscal, commercial
and regulatory items
World class contractor team
> Experienced in comparable projects
> Opportunity to lock in supply chain
at competitive rates
> Alignment via provision of vendor financing
Gross CAPEX to first oil
Gross annual production (at plateau)
US(cid:12)1.5 bn
80,000 bopd
Resource to be monitised
FPSO liquid capacity
220 mmbbl
(Phase 1 only)
120,000 bpd
10
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Strategic Report
Indicative financing plan
Owner’s
costs
Subsea
Pre-first
oil capex
$1.5bn
Wells
25%
Upstream
partnership
50%
Export credit/
bank finance
25%
Vendor
financing
Gross project revenue per annum
Estimated opex per barrel
US(cid:12)1.8 bn
(at plateau, assuming US$65/bbl)
US(cid:12)25(cid:23)bbl
(Life of field, including field opex and FPSO lease)
Wells to be drilled
Targets for 2018
23
of which 16 oil producers
> Select preferred contractors and secure vendor financing
> Secure senior debt funding
> Working towards year-end final investment decision
Report & Accounts for the year ended 31 December 2017
11
Strategic Report
Rockhopper Exploration plc
Operations review
Sea Lion, North Falkland Basin
Following the Company’s acquisition of FOGL in early
2016, Rockhopper became the leading acreage holder in
the North Falkland Basin with a material working interest
in all key licences.
The overall strategy to develop the North Falkland Basin
remains a phased development solution, starting with Sea
Lion Phase 1, which will develop 220 mmbbls in PL032
(cid:16)in which Rockhopper has a 40(cid:13) working interest(cid:17). A
subsequent Phase 2 development will recover a further
300 mmbbls from the remaining resources in PL032
and the satellite accumulations in the north of PL004
(cid:16)in which Rockhopper has a 64(cid:13) working interest(cid:17). In
addition, there is a further 200 mmbbls of low risk, near
field exploration potential which could be included in
either the Phase 1 or Phase 2 developments. Phase 3 will
entail the development of the Isobel(cid:23)Elaine fan complex
in the south of PL004, subject to further appraisal drilling.
The resources in Sea Lion Phase 1 will be commercialised
utilising a conventional FPSO development scheme with
approximately 23 wells. Through the FEED process, which
commenced in January 2016 and which is substantially
complete, the joint venture team of Premier Oil (cid:16)(cid:185)Premier(cid:186)(cid:17)
and Rockhopper have worked collaboratively to support
and challenge the design specifications and installation
methodology leading to significant savings to both capital
and operating costs. Significant reductions in estimates of
field support services, including supply boats, helicopters
and shuttle tankers have been seen and, as a result,
estimates for field operating costs were reduced to less than
US(cid:12)15 per bbl, down from over US(cid:12)20 per bbl. Estimated
gross capex to first oil is US(cid:12)1.5 billion.
Through 201(cid:31), work focused on securing agreement
with key supply chain contractors and, as a result,
Letters of Intent have been signed with a number
of contractors for the provision of a range of services
and vendor financing.
In parallel, discussions continued with FIG on a
range of fiscal, environmental and regulatory matters.
Following the submission of a revised draft FDP to
FIG in early March 2018, the FDP is now considered
substantially agreed with a final FDP submission
expected in the lead-up to sanction. With the FDP
and EIS substantially complete, a 42-day public
consultation on the EIS commenced in January
2018. No material objections were raised through the
consultation process and various comments identified
through the process will be addressed in the final
EIS. Engagement with FIG continues with a view to
obtaining the consents and agreements necessary to
be in a position to reach FID on the project in 2018.
In addition, conceptual studies have commenced
to examine potential development schemes for the
remaining resources in PL032 and the satellite
accumulations in the north of PL004 (cid:16)Phase 2(cid:17) and for
the Isobel(cid:23)Elaine fan complex in the south of PL004
(cid:16)Phase 3(cid:17). In this regard, Phase 2 static and dynamic
modelling is progressing, and current subsurface
studies will explore locations for future appraisal
wells aimed at both further characterising existing
discoveries whilst also targeting exploration objectives.
South and East Falkland Basin
(100% working interest)
Through the acquisition of FOGL, Rockhopper
acquired a 52(cid:13) interest in Noble Energy operated
acreage to the South and East of the Falkland Islands.
Following the results of the Humpback well, Noble
and Edison gave notice to withdraw from this acreage
(cid:16)although retain an interest in PL001 in the North
Falkland Basin(cid:17). As a result, during 201(cid:31) Rockhopper
became operator of the South and East Falkland
Basin acreage with a 100(cid:13) working interest. No
outstanding financial or operational commitments
exist in relation to the Company’s South and East
Falkland Basin interests.
Stanley Harbour
12
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Strategic Report
North Falkland Basin snapshot
PL01
PL032
PL033
Leading acreage position
Chatham
_
SL30
Sea Lion
M
M M
M
M
CHATHAM
CHATHAM
]
Casper
L
_
Casper
South East
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
PL03b
Casper
South West
Beverely
West
L
L
ZEBEDEE
ZEBEDEE
Beverely
East
Jayne East
Ninky South
PL04b
_
Zebedee
_
_
_
Hector
W
W
PL04c
PL04a
PL004a
24%
40%
64%
Premier
PL004b
24%
40%
64%
Premier
PL004c
24%
40%
64%
Premier
PL005
n/a
100%
100% Rockhopper
Orca / Ann
Elaine South
Doreen
Doreen
Elaine North
Lydia
Projected production profile
PL03a
Liz
PL05
Emily
ISOBEL 2
ISOBEL 2
Irene
Susan
)
d
p
o
b
k
(
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
Isobel
Isobel Deep
ISOBEL DEEP
ISOBEL DEEP
Helen
Phase 2
Phase 1
0
5
10
Years from first production
15
20
Source: xxxx
10 Kms
Riser equipment,
supply base, Stanley
Sea Lion development
schematic
Report & Accounts for the year ended 31 December 2017
13
Strategic Report
Rockhopper Exploration plc
Abu Sennan, Egypt (22% working interest)
Operated by (cid:51)uwait Energy, the Abu Sennan concession
is located in the Abu Gharadig basin in the Western
Desert. The concession was signed in June 200(cid:31) with
first commercial production achieved during 2012. In
August 2016, Rockhopper completed the acquisition of
Beach Petroleum (cid:16)Egypt(cid:17) Pty Limited (cid:16)(cid:185)Beach Egypt(cid:186)(cid:17),
as a result acquiring a 22(cid:13) interest in the Abu Sennan
concession and a 25(cid:13) interest in the El Qa’a Plain
concession.
and a well test across the interval confirmed that, while
the sand is water wet, the reservoir pressure is in line
with the producing AR-C reservoir in the Al Jahraa
and Al Jahraa SE fields, indicating a common aquifer.
The well also encountered the deepest known oil
shows in the Abu Roash-D and AR-E reservoirs,
demonstrating further potential at these levels elsewhere
in the concession. During 2018, it is planned that
the Al Jahraa-9 well will be converted to a water
injection well.
Production from the six development leases within the
Abu Sennan concession increased during 201(cid:31) with
production during the period averaging approximately
3,460 boepd gross (cid:16)(cid:31)60 boepd net to Rockhopper(cid:17).
Production levels were enhanced in the second half of the
year as a result of numerous work over and production
optimisation operations primarily at the El Salmiya field.
The 201(cid:31) drilling campaign on the Abu Sennan
concession commenced in April.
Al Jahraa SE-2X
Exploration well Al Jahraa SE-2X, situated on the Abu
Sennan-5 (cid:16)Al Jahraa South East(cid:17) Development Lease,
was spudded on 25 April 201(cid:31).
The primary target of the well was the Cretaceous
Abu Roash-C (cid:16)(cid:185)AR-C(cid:186)(cid:17) reservoir in the fault block
immediately to the south of the Al Jahraa South East
field. The target reservoir was dry, but the well was
successfully side-tracked northwards into the Al Jahraa
SE field and oil pay confirmed from wireline logging in
both the AR-C and Abu Roash-E (cid:16)(cid:185)AR-E(cid:186)(cid:17) reservoirs.
The well was subsequently completed in the deeper
AR-E and put onto production, at a tubular and pump
constrained rate, of approximately 250 boepd gross.
Following depletion of the AR-E reservoir the well will
be re-completed in the AR-C.
Al Jahraa-9
Development well Al Jahraa-9 was spudded on
10 June 201(cid:31). The well penetrated five metres of reservoir
sand in the primary AR-C reservoir. Wireline logging
2018 outlook
A full review of the prospect and lead inventory for the
Abu Sennan concession was completed in November
201(cid:31) and through that review a number of exploration
targets have been high graded for exploratory drilling.
Post period end, an active programme has been agreed
for 2018. An exploration well is to be drilled on (cid:185)Prospect
S(cid:186) (cid:183) located in the adjacent fault block to the Al Jahraa
field. Prospect S has a similar tilted fault block trap and is
targeting the same Abu Roash reservoirs that produce at
Al Jahraa.
The development programme at Al Jahraa includes the
drilling of two infill development wells and the initiation
of a water injection programme designed to increase
reserves and field production rates.
Subject to securing a suitable rig, drilling is expected to
commence in mid 2018.
Guendalina, Italy (20% working interest)
Operated by Eni, the Guendalina gas field, located
in the Northern Adriatic, has been in production since
October 2011.
Guendalina continued to produce to forecast during
201(cid:31) and production over the period averaged 4(cid:31),000
standard cubic metres (cid:16)(cid:185)scm(cid:186)(cid:17) per day net to Rockhopper
(cid:16)approximately 290 boe per day(cid:17). Plant availability over
the period continued to be strong with production from
the side-track well drilled in 2015 continuing to make a
material contribution to field production.
Production facility
at Abu Sennan
Ombrina Mare
tripod removal
14
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Strategic Report
Greater Mediterranean snapshot
Italy
ITALY
Guendalina
> 20(cid:13) working
CROATIA
interest
> Northern Adriatic
> 201(cid:31) production
290 boepd
Adriatic Sea
Civita
Civita
> 100(cid:13) working
interest
> Onshore gas
production
> 201(cid:31) production
130 boepd
Guendalina
Adriatic Sea
Rimini
0
50
Kilometres
Adriatic Sea
ITALY
Bari
Monte Grosso
Taranto
Monte Grosso
> 23(cid:13) working
interest
> (cid:102)250 mmbbl
oil prospect
> 23(cid:13) chance
of success
ITALY
Campobasso
0
50
Kilometres
Adriatic Sea
Pescara
Ombrina Mare
ITALY
Ombrina Mare
> 100(cid:13) working
interest
> International
arbitration
commenced
> Hearing date set
February 2019
0
100
Kilometres
0
50
Kilometres
Tyrrhenian
Sea
Egypt
Egypt
Abu Sennan
> 22(cid:13) working
interest
> Western Desert
> 201(cid:31) production
(cid:31)60 boepd
Mediterranean Sea
Cairo
Abu Sennan
EGYPT
0
200
Kilometres
El Qa’a Plain
> 25(cid:13) working
interest
> Exploration
commitment well
to spud Q2 2018
Mediterranean Sea
Cairo
EGYPT
El Qa’a
Plain
Red
Sea
0
200
Kilometres
Report & Accounts for the year ended 31 December 2017
15
Strategic Report
Rockhopper Exploration plc
New static and dynamic models for the Guendalina field that
incorporate new well data suggest the gas initially in place is
larger than previous estimates with studies supporting a small
increase in the estimate of ultimately recoverable volumes.
In addition, Rockhopper has worked closely with the
operator throughout 201(cid:31) to reduce operating costs at the
field primarily through optimisation of water disposal.
Civita, Italy (100% working interest)
Operated by Rockhopper, the Civita gas field located
onshore Abruzzo, came into production in November 2015.
During 201(cid:31), production from the field averaged
approximately 21,000 scm per day (cid:16)approximately
130 boe per day(cid:17). Gas compression was successfully
commissioned at the site in December 2016.
The P&A operation was completed without incident
in August 2016 using the Attwood Beacon rig. The
safe and successful decommissioning and removal
of the tripod structure took place in October 201(cid:31) (cid:183)
Rockhopper will seek to recover both the costs of the
P&A operation and the tripod removal through the
international arbitration process, details of which are
included in the Financial Review.
Monte Grosso, Italy (23% working interest)
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.
However, in early February 2018, a depressurisation event
occurred at the Civita pipeline and as a result production
is temporarily suspended. Work has commenced to
remedy the issue and with production estimated to
resume mid year.
Rockhopper transferred the operatorship of the
Serra San Bernado permit to Eni during 2016. Eni is
exploring options for the design of a well on the Monte
Grosso prospect, whilst working in parallel to secure the
necessary regulatory and permitting approvals to drill.
As described later in the Financial Review, the Company
agreed in June 201(cid:31) the terms for the disposal of a package
of non-core interests in Italy, including the Civita field, to
Cabot Energy plc. Rockhopper and Cabot Energy remain
focused on the completion of the previously announced
transaction which is now expected during H2 2018.
Ombrina Mare, Italy (100% working interest)
Following the decision in February 2016 by the Italian
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 (cid:16)(cid:185)P&A(cid:186)(cid:17) the existing OM-2 well and remove
the tripod structure which had been constructed in 2008
with the intention of forming part of the future production
facilities on the field.
El Qa’a Plain, Egypt (25% working interest)
Operated by Dana Petroleum, the El Qa’a Plain concession
is located on the eastern shore of the Gulf of Suez. The
concession was signed in January 2014. In 2015(cid:23)16, the first
3D seismic in the El Qa’a Plain concession was acquired
and processed, in addition to a number of new 2D lines.
Horizon mapping on the new data has been integrated
with vintage data, and a basin modelling study has been
completed across the concession.
As a result, and following joint venture approval,
commitment well Raya-1X is expected to be spudded in
April or early May 2018. This well will target the Nukhul
Formation reservoir, known from the Gulf of Suez, in a
tilted fault block structure, close to where oil has been tested
from the same formation.
Supply base,
Falkland Islands
16
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Strategic Report
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 ob(cid:82)ectives(cid:22)
(cid:51)PIs 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 201(cid:31), Rockhopper continued to deliver on a number
of its key metrics.
2017
Definition
KPI #1
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
to project sanction.
Performance
Attainment
(cid:38) Letters of Intent signed with contractors
for provision of vendor finance
(cid:38) Discussions ongoing with senior debt
providers.
Partially achieved
KPI #2
Addition of a material new venture
that adds substantial production
and meets the Company’s corporate
investment criteria.
KPI #3
Preservation of the Company’s
cash position.
(cid:38) Significant number of opportunities
reviewed and evaluated
(cid:38) However Company continues to adopt a
conservative and highly selective approach
to new ventures
(cid:38) None of the opportunities reviewed in 201(cid:31)
met the Company’s investment criteria.
Not achieved
(cid:38) Cash at 31 December 201(cid:31)
(cid:12)51 million and no debt
(cid:38) Further significant reduction in G&A
achieved in 201(cid:31).
Fully achieved
2018
KPI #1
KPI #2
Definition
Bringing an additional paying partner into the Sea Lion Development project
and/or (cid:95)or(cid:83)ing closely (cid:95)ith the operator to deliver a financing solution to
enable the joint venture to advance to project sanction.
Making a commercial discovery in Egypt.
KPI #3
Preservation of the Company’s cash position / strengthen the Company’s balance
sheet which could be by way of a new venture.
Report & Accounts for the year ended 31 December 2017
17
Strategic Report
Rockhopper Exploration plc
Financial review
Stewart MacDonald
Chief Financial Officer
Overview
During 201(cid:31), significant progress was made to advance
and execute the contracting strategy and financing plan
for the Sea Lion Phase 1 development.
Our Greater Mediterranean portfolio provides a low-
cost, short-cycle production base which has delivered
record revenues and operating cash (cid:198)ows for the Group
which have more than covered the Group’s substantially
reduced G&A costs.
Efforts have continued to streamline the Group’s
portfolio to focus on material assets, remove future
decommissioning liabilities and streamline the
organisation with a resultant reduction in corporate costs.
In addition, significant time continues to be dedicated
to new venture activity with a view, on a highly selective
basis, to growing our production base whilst maintaining
a strong balance sheet.
Results summary
US$m (unless otherwise specified)
2017
2016
Production (cid:16)kboepd(cid:17)
Revenue
Cash operating costs
Recurring administrative expenses (cid:16)(cid:185)G&A(cid:186)(cid:17)
(cid:16)Loss(cid:17)(cid:23)profit after tax
Cash in (cid:198)ow(cid:23)(cid:16)out (cid:198)ow(cid:17) from operating activities
Cash and term deposits
Net assets
1.2
10.4
(cid:16)4.1(cid:17)
(cid:16)5.3(cid:17)
(cid:16)6.1(cid:17)
1.6
50.(cid:31)
420.6
0.8
(cid:31).4
(cid:16)4.4(cid:17)
(cid:16)(cid:31).4(cid:17)
98.1
(cid:16)21.2(cid:17)
81.0
42(cid:31).0
Results for the year
For the year ended 31 December 201(cid:31), the Group
reported revenues of US(cid:12)10.4 million and a loss after tax
of US(cid:12)6.1 million.
Revenue
The Group’s revenues of US(cid:12)10.4 million (cid:16)2016(cid:34) US(cid:12)(cid:31).4
million(cid:17) during the year relate entirely to the sale of oil
and natural gas in the Greater Mediterranean (cid:16)Egypt
and Italy(cid:17). The increase in revenues from the comparable
period re(cid:198)ects (cid:16)i(cid:17) the acquisition of production assets in
Egypt, which completed in August 2016; and (cid:16)ii(cid:17) the
increase in realised oil and gas prices.
Working interest production averaged approximately
1,184 boepd during 201(cid:31), a material increase over the
comparable period (cid:16)2016(cid:34) 838 boepd(cid:17) re(cid:198)ecting the
full year benefit of the acquisition of production assets
in Egypt.
During the period, the Group’s gas production in Italy was
sold under short-term contract with an average realised
price of (cid:194)0.19 per standard cubic meter (cid:16)(cid:185)scm(cid:186)(cid:17) (cid:16)2016(cid:34)
(cid:194)0.15 per scm(cid:17), equivalent to US(cid:12)6.0 per thousand standard
cubic feet (cid:16)(cid:185)mscf(cid:186)(cid:17). Gas is sold at a price linked to the Italian
(cid:185)PSV(cid:186) (cid:16)Virtual Exchange Point(cid:17) gas marker price.
In Egypt, all of the Group’s oil and gas production is
sold to EGPC. The average realised price for oil was
US(cid:12)52.3 per barrel, a small discount to the average Brent
price over the same period. Gas is sold at a fixed price of
US(cid:12)2.65 per million British thermal units (cid:16)(cid:185)mmbtu(cid:186)(cid:17).
Operating costs
Cash operating costs, excluding depreciation and
impairment charges, amounted to US(cid:12)4.1 million (cid:16)2016(cid:34)
US(cid:12)4.4 million(cid:17). Cash operating costs on a per barrel of
oil equivalent basis reduced from US(cid:12)14.4 per boe in 2016
to US(cid:12)9.5 per boe in 201(cid:31), re(cid:198)ecting the full year impact
of our low-cost Egyptian operations.
The Group continues to manage corporate costs having
achieved an approximate 50(cid:13) reduction in G&A cost,
excluding non-recurring expenses related to restructuring
and acquisitions, during the three years to end 201(cid:31).
G&A costs in 201(cid:31) amounted to US(cid:12)5.3 million, a
further reduction compared to the comparable period
(cid:16)2016(cid:34) US(cid:12)(cid:31).4 million(cid:17).
Following the decision in February 2016 by the Ministry
of Economic Development not to award the Group a
Production Concession covering the Ombrina Mare
field, in March 201(cid:31) the Group commenced international
arbitration proceedings against the Republic of Italy.
All costs associated with the arbitration are funded on a
non-recourse (cid:16)(cid:185)no win (cid:183) no fee(cid:186)(cid:17) basis from a specialist
arbitration funder.
Cash movements and capital expenditure
At 31 December 201(cid:31), the Group had cash and term
deposits of US(cid:12)50.(cid:31) million (cid:16)31 December 2016(cid:34)
US(cid:12)81.0 million(cid:17) and no debt.
18
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Strategic Report
Cash and term deposit movements during the period:
US$m
Opening cash balance (cid:16)31 December 2016(cid:17)
Revenues
Cost of sales
Falkland Islands
Greater Mediterranean
Administrative expenses
Other
Closing cash balance (cid:16)31 December 201(cid:31)(cid:17)
81
10
(cid:16)4(cid:17)
(cid:16)22(cid:17)
(cid:16)5(cid:17)
(cid:16)5(cid:17)
(cid:16)4(cid:17)
51
Falkland Islands spend of US(cid:12)22 million relates primarily
to the close-out costs associated with the 2015(cid:23)16 drilling
campaign (cid:16)US(cid:12)15 million(cid:17), as well as spend relating to the
pre-development activities on Sea Lion (cid:16)US(cid:12)(cid:31) million(cid:17).
Drilling campaign close out costs going forward are
expected to be minimal.
Spend in the Greater Mediterranean largely relates to the
Abu Sennan drilling campaign and the decommissioning
of the Ombrina Mare tripod (cid:16)the costs of which the
Group will seek to recover through the international
arbitration against the Republic of Italy(cid:17).
Other cash out(cid:198)ows include foreign exchange,
movements in working capital balances as well as
payments due to Beach Energy related to the Company’s
acquisition of Beach Egypt in 2016.
Impairment of oil and gas assets
Rockhopper has tested the carrying value of its assets
for impairment. Carrying values are compared to the
value in use of the assets based on discounted cash (cid:198)ow
models. Future cash (cid:198)ows were estimated using an
oil price assumption equal to the Brent forward curve
during the period 2018 to 2020, with a long-term price
of US(cid:12)(cid:31)0(cid:23)bbl (cid:16)in (cid:185)real(cid:186) terms(cid:17) thereafter. A post-tax
nominal discount rate of 12.5(cid:13) was used for the Group’s
Falkland Islands assets.
With no cash (cid:198)ow generation expected from Sea
Lion until 2021 at the earliest, the impact of the
Brent forward curve during the period 2018 to 2020
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
US(cid:12)20 per barrel reduction in the Group’s long-term
oil price assumption, no impairment on Sea Lion
arises. Equally, no impairment would arise even if
the Group assumed project sanction was delayed by
seven years.
Mergers, acquisitions and disposals
On 8 June 201(cid:31), Rockhopper announced the disposal of
a portfolio of non-core interests onshore Italy to Northern
Petroleum Plc (cid:16)(cid:185)Northern(cid:186)(cid:17). Northern has subsequently
undertaken a corporate name change to Cabot Energy
plc (cid:16)(cid:185)Cabot(cid:186)(cid:17).
The transaction is structured as the sale of Rockhopper
Civita Limited (cid:16)(cid:185)Rockhopper Civita(cid:186)(cid:17), a subsidiary
company which at completion will hold the following
Petroleum Licences(cid:34)
> Scanzano Concession (cid:16)100(cid:13) interest(cid:17)
> Monte Verdese Concession (cid:16)60(cid:13) interest(cid:17)
> Torrente Celone Concession (cid:16)50(cid:13) interest(cid:17)
> Aglavizza Concession (cid:16)100(cid:13) interest(cid:17)
> Civita Permit (cid:16)100(cid:13) interest(cid:17)
> San Basile Concession (cid:16)85(cid:13) interest(cid:17).
Under the terms of the transaction, Cabot will acquire all
the assets of the Petroleum Licences (cid:16)31 December 201(cid:31)(cid:34)
US(cid:12)3.8 million(cid:17) and assume all future abandonment and
decommissioning liabilities (cid:16)31 December 201(cid:31)(cid:34) US(cid:12)9.5
million(cid:17). In consideration, Rockhopper will make a cash
payment to Cabot at completion of US(cid:12)1.6 million plus
the usual working capital adjustments.
The effective date for the transaction is 1 January 201(cid:31)
and, under the terms of the transaction, Rockhopper
retains the benefit of a (cid:194)1.2 million Italian VAT refund
which was received during Q1 2018. The transaction is
expected to complete before the end of 2018.
In August 2016, Rockhopper completed the acquisition
of Beach Egypt. Under the terms of the transaction, a
proportion of any payments received by Rockhopper
from EGPC were payable to Beach Energy until their
historic receivable position (cid:16)US(cid:12)8.6 million as at 31
December 2015(cid:17) was satisfied. Following payments
received from EGPC in February 2018, no further
payments are due to Beach Energy.
Taxation
On the 8 April 2015, the Group agreed binding
documentation (cid:16)(cid:185)Tax Settlement Deed(cid:186)(cid:17) with the
Falkland Islands Government in relation to the tax
arising from the Group’s farm out to Premier Oil.
The Tax Settlement Deed confirms the quantum and
deferment of the outstanding tax liability and is made
under Extra Statutory Concession 16.
Report & Accounts for the year ended 31 December 2017
19
19
Strategic Report
Rockhopper Exploration plc
As a result of the Tax Settlement Deed, the outstanding
tax liability was confirmed at (cid:138)64.4 million and is
payable on the earlier of(cid:34) (cid:16)i(cid:17) the first royalty payment date
on Sea Lion; (cid:16)ii(cid:17) the date of which Rockhopper disposes of
all or a substantial part of the Group’s remaining licence
interests in the North Falkland Basin; or (cid:16)iii(cid:17) a change of
control of Rockhopper Exploration plc.
During the first half of 201(cid:31), as a result of the Group
receiving the full Exploration Carry from Premier during
the 2015(cid:23)16 drilling campaign, the Falkland Islands
Commissioner of Taxation agreed to reduce the tax
liability in line with the terms of the Tax Settlement Deed.
As such, the tax liability has been revised downwards to
(cid:138)59.6 million with a tax credit being recognised in the
period of US(cid:12)2.8 million.
In spite of the aforementioned reduction in the tax
liability, due to the movement in the Sterling(cid:34)US dollar
exchange rate, the outstanding tax liability in US dollar
terms has increased to US(cid:12)80.6 million (cid:16)31 December
2016(cid:34) US(cid:12)(cid:31)8.(cid:31) million(cid:17).
The outstanding tax liability is classified as non-
current and is discounted to a period-end value of
US(cid:12)40.1 million.
Full details of the provisions and undertakings of the
Tax Settlement Deed were disclosed in the Group’s 2014
Annual Report and these include (cid:185)creditor protection(cid:186)
provisions including undertakings not to declare
dividends or make distributions while the tax liability
remains outstanding (cid:16)in whole or in part(cid:17).
Liquidity, counterparty risk and going concern
The Group 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 Group’s acquisition of production and
exploration assets in Egypt, the Group is exposed to
potential payment delay from EGPC, which is an issue
common to many upstream companies operating in the
country. As at 31 March 2018, Rockhopper’s EGPC
receivable balance was US(cid:12)4.6 million (cid:16)unaudited(cid:17).
The Group maintains an active dialogue with EGPC
and has seen a material increase in monthly payments,
having received in aggregate US(cid:12)8.6 million gross
during 201(cid:31). Throughout 201(cid:31), payments from EGPC
were received in US dollars directly to bank accounts
held in the U(cid:51).
The Directors have assessed that the cash balance held
provides the Group with adequate headroom over
forecasted expenditure for the following 12 months (cid:183)
as a result, the Directors have adopted the going concern
basis of accounting in preparing the annual financial
statements.
Principal risk and uncertainties
A detailed review of the potential risks and uncertainties
which could impact the Group are outlined elsewhere in
this Strategic Report. The Group identified its principal
risks at the end of 201(cid:31) as being(cid:34)
> 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; and
> insufficient liquidity and funding capacity in the event
of a protracted delay to the Sea Lion Final Investment
Decision.
Stewart MacDonald
Chief Financial Officer
18 April 2018
20
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Strategic Report
Internal controls and risk management
Rockhopper Board
Overall responsibility
> Overall responsibility for risk
management and internal
control
> Defines risk appetite
> Reviews principal risks register
Audit & Risk Committee
Review and confirm
> Monitors, reviews and confirms
Company’s risk management
system and internal controls
Senior Management
Identification, mitigation
and implementation
> Risk assessment, identification
and mitigation
> Implementation of risk
management system and
internal control
The Board is responsible for establishing and
maintaining the system of internal controls
which has been in place throughout 2017.
The Directors are responsible for the Group’s system
of internal control and for reviewing its effectiveness.
The Group’s system of internal control is designed
to manage rather than eliminate the risk of failure to
achieve the Group’s business objectives and therefore
provides reasonable, rather than absolute, assurance
against material misstatement or loss.
The Group operates a series of controls to meet its
needs. The Group receives reports from the external
auditor concerning the system of internal control and
any material control weaknesses. The Board considers
that there is no necessity at the present time to establish
an independent internal audit function given the current
size and complexity of the business. 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(cid:34)
> capital projects
> monthly financial reporting
> bank and treasury
> revenue to receivables.
During 201(cid:31) an independent assessment of the Group’s
progress against those items indentified during the 2016
initial assessment was conducted (cid:183) the conclusion of
such review was that material progress had been made
while some areas remain open to improvement.
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.
Report & Accounts for the year ended 31 December 2017
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) and potential loss
of licence interests
> Increased costs
> Delay in future cash (cid:198)ow
> Reduced value creation
> Loss of investor confidence
> In extremis, potential loss of licence interests
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
Financial risks
Description
Impact
Mitigants
Recent changes and ongoing initiatives
(cid:49)nsu(cid:1659)cient li(cid:89)uidity and funding capacity
> Uncertain financial outcome
> Inability to meet financial obligations
> Restricted work programmes due to lack of capital
Uncertainty and volatility of commodity
prices
> Impact on expected future revenues, margins, cash
(cid:198)ows and returns
> Impact on future debt capacity
(cid:61)ncertainty of fiscal regime and
regulatory re(cid:89)uirements(cid:35) Sea Lion
remains the only commercial oil discovery
declared in the Falkland Islands
> Schedule risk
> Loss of value
> Uncertain financial outcome
Failure by JV partners to fund their
financial obligations
> Increased costs
> Potential failure to meet financial and operational
obligations
> In extremis, potential loss of licence interests
Recoverability of receivables and exposure
to foreign exchange
> Uncertainty on timing of receipt and currency of
payments
22
Report & Accounts for the year ended 31 December 2017
Strategic risks
Description
Impact
Mitigants
Recent changes and ongoing initiatives
Rockhopper Exploration plc
Strategic Report
> Active engagement with the operator and regulators to
establish constructive and trusted working relationships
> Active participation in technical meetings to challenge,
in(cid:198)uence and(cid:23)or support partners to establish a cohesive JV
view and decision making
> Field Development Plan substancially agreed with Falkland Islands
Government. Environmental Impact Statement public consultation
process completed
> Letters of Intent for provision of services and financing signed with set
of world class contractors
> Active support to operator in its objective of securing
> Ongoing engagement with providers of senior debt including project
funding for the project
finance banks and export credit agencies
> The British Government has issued strong rebuttals to the
Argentine claims
> The Company is in regular contact with the Foreign &
Commonwealth Office
> 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
> Further to the September 2016 joint statement, a second commercial
air link between South America and the Falklands is expected to
commence operations in October 2018
Financial risks
Description
Impact
Mitigants
Recent changes and ongoing initiatives
> Short-term and long-term cash forecasts are reported to the Board on a
> The Company’s balance sheet remains strong with cash at
regular basis
31 December 201(cid:31) of (cid:12)51 million and no debt
> The Company has no debt
> Through the 2012 farm-out and subsequent revisions, Rockhopper
> Corporate and operating costs funded by revenues from the
Company’s Greater Mediteranean portfolio in 201(cid:31)
secured a (cid:12)33(cid:31)m Development Carry for the initial phase of
development of Sea Lion, a (cid:12)33(cid:31)m Development Carry for the
subsequent phase of development of Sea Lion and a (cid:12)(cid:31)50m Standby
Loan facility from Premier Oil
> Agreement reached to defer tax liability associated with 2012 farm-out
> Contingency built into planning and budgeting process to allow for
downside movements in commodity prices
> Sustained low oil prices typically lead to a reduction in activity levels with
a resultant reduction in industry development and exploration costs
> The Company may consider it appropriate in the future to hedge a
proportion of its production, particularly if the Company is reliant on
such production to service debt
> As a result of the low oil price environment experienced
over the last few years, industry and service costs have
reduced and, through the Sea Lion FEED process,
significant cost reductions have been achieved
> Maintain positive relationships with host governments and key
stakeholders through regular dialogue and engagement
> Legal agreements in place to protect interests
> Seek appropriate legal and tax advice if required
> Ongoing dialogue with the Falkland Island Government in relation to
a range of commercial, fiscal and regulatory matters to be in a position
to reach a FID at year end
> Partner selection is a critical component of any investment decision
> Joint Operating Agreements and other commercial arrangements
> Active engagement with joint venture partners to ensure alignment
> Ongoing monitoring and regular review of the Company’s
provide legal protections in the event joint venture partners fail to meet
their obligations
financial exposure to joint venture partner credit risk
> Active engagement with EGPC and joint venture partners to manage
> Significant payments received from EGPC during mid 201(cid:31)
payments and the Company’s foreign currency liquidity
and early 2018
> Monitor macro-economic environment and lobby through established
> During 201(cid:31), EGPC payments received in US dollars,
relationships if required
direct to bank accounts held in the U(cid:51)
> Active treasury management to minimise funds held in foreign
currencies and match with creditor balances
Report & Accounts for the year ended 31 December 2017
23
Strategic Report
Rockhopper Exploration plc
Operational risks
Description
Impact
Mitigants
Recent changes and ongoing initiatives
Reliance on JV operators for asset
performance
> Cost and schedule overruns
> Poor performance of assets
> HSE performance
The assumptions used to estimate
hydrocarbon resources may prove
incorrect or inaccurate
> Exploration and appraisal efforts may target ultimately
uncommercial volumes of hydrocarbons
HSE and security risks
Description
Impact
Mitigants
Recent changes and ongoing initiatives
Health, safety, environment and security
incidents
> Serious injury or death
> Environmental impacts
> Loss of reputation
> Regulatory penalties
Organisational risks
Description
Impact
Mitigants
Recent changes and ongoing initiatives
Sta(cid:1658) recruitment, development and
retention
> Disruption to business
> Loss of key knowledge and experience
24
Report & Accounts for the year ended 31 December 2017
Operational risks
Description
Impact
Mitigants
Recent changes and ongoing initiatives
Rockhopper Exploration plc
Strategic Report
> Actively engage with all JV partners to establish trusted
> Active involvement by the Company in the evaluation and selection
working relationships
of contractors for the Sea Lion project
> Active participation in technical meetings to challenge, apply
in(cid:198)uence and(cid:23)or support partners to establish a cohesive JV
view and decision making
> Active involvement by the Company in the identification, evaluation
and ultimate selection of well locations for the Company’s forthcoming
drilling campaign in Egypt
> 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
> 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
> Company estimates of recoverable oil & gas resources are generally
consistent with those held by the operator and other independent
assessments or audits
HSE and security risks
Description
Impact
Mitigants
Recent changes and ongoing initiatives
> Regular review of HSE policies and procedures to ensure
full compliance with industry (cid:185)best practice(cid:186) as well as all
appropriate international and local rules and regulations
> Emergency and oil spill response procedures regularly tested
> Third party specialists in place to assist with security
arrangements and travel risks where appropriate
> The Company recently successfully completed the removal of the
Ombrina Mare tripod structure (cid:183) understood to be one of the first
decommissioning exercises completed in Italian waters and fulfilling
all required regulatory and authorisation processes
Organisational risks
Description
Impact
Mitigants
Recent changes and ongoing initiatives
> Training and development opportunities are considered for
> A short-term succession plan is in place for executive directors
all staff
and key staff members
> Executive directors and senior staff have notice period
of between 6 and 12 months to ensure sufficient time to
handover responsibilities in the event of a departure
> Succession planning considered regularly at Board level
> The Remuneration Committee regularly evaluates
compensation and incentivisation schemes to ensure they
remain competitive
Report & Accounts for the year ended 31 December 2017
25
Strategic Report
Rockhopper Exploration plc
Health, safety, environmental and social management
Rockhopper’s strategy is to explore, appraise
and develop its operated and non operated
acreage both safely and responsibly. The
two key elements of this strategy involve
maintaining high standards of Health, Safety
and Environmental (HSE) protection throughout
its operations and communicating clearly with
its stakeholders, both operational and within
the local community.
Maintaining high standards of Health, Safety and
Environmental (cid:16)HSE(cid:17) protection is achieved through(cid:34)
HSE MANAGEMENT
SYSTEM
Health and Safety
> Strong leadership and clearly defined responsibilities
and accountabilities for HSE at all levels of the
organisation;
> Selection of competent personnel to manage
activities;
Environment
Business conduct
> Compliance with regulatory and other applicable
requirements, or where regulations do not exist,
application of industry standards;
> Identifying, assessing and managing HSE risks and
Employees
> Developing specific HSE plans for each operational
preventing pollution;
Local communities
project;
> Selecting competent contractors and ensuring that
they are effectively managed;
> Preparing and testing response plans to ensure that
any incident can be quickly and efficiently controlled,
reported and investigated to prevent recurrence;
> Continual improvement of HSE performance
through monitoring, regular reporting and periodic
audits; and
> Periodic management reviews to identify and
implement improvements to our HSE systems.
This policy is implemented through our HSE
Management System, which has been prepared to
be consistent with international standards for HSE
management including ISO14001 and ISO18001.
Our HSE Management System is used to guide
all our activities and will not be compromised by
other business priorities. Application of the HSE
Management System will include preparation of
detailed Environmental Impact Statements (cid:16)(cid:185)EISs(cid:186)(cid:17)
for all of the Group’s activities. The preparation of the
EIS 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 (cid:16)wherever possible(cid:17) 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.
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 18 April 2018 by(cid:34)
Samuel Moody
Chief Executive Officer
26
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Governance Report
Chairman’s governance report
The Company is an AIM listed company and is
not re(cid:89)uired to comply (cid:95)ith 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 Code provisions 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 two Executive and five Non-Executive Directors
including the Chairman, four of whom are independent
under the Code definition. F M MacAulay was an
Executive Director and Chief Operating Officer
until her resignation on 4th July 201(cid:31). J E Martin has
announced his intention to resign as a Non-Executive
Director and will not be seeking re-election at the 2018
Annual General Meeting.
(cid:51) G Lough was the Senior Independent Director
throughout 201(cid:31). The Group’s website contains an email
contact for (cid:51) 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 in 2016.
David McManus
Chairman
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.
An external performance evaluation of the Board was
undertaken in 2016 with a specific focus on the skills
set and structure of the Board. Since the end of the
year, an internal performance evaluation of the Board
and its committees and an appraisal of the Chairman’s
performance has been undertaken. The Board
performance appraisal is in the form of a questionnaire
which is designed to (cid:198)ag up any issues of concern or areas
for improvement which are then discussed at a board
meeting. The Chairman’s performance appraisal is
coordinated by the Senior Independent Director.
The Board’s Chairman, D McManus, was independent
upon appointment. Three of the other Non-Executive
Directors, (cid:51) G Lough, J E Martin and A J Summers
are independent. T P 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
T P Bushell to be independent as he has demonstrated
independence of character and judgement since joining
the Board and the Board considers 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-Executive Directors
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 except J E Martin will stand for re-election
at the annual general meeting.
Report & Accounts for the year ended 31 December 2017
27
Governance Report
Rockhopper Exploration plc
Senior management team
In addition to the Executive Directors, biographies of which are included on pages 30,
Rockhopper has an experienced and highly capable senior management team.
Paul Culpin
Development Manager
> Over 40 years experience of oil and gas field development and operations
> Worked with Rockhopper since 2010 initially as a consultant before
joining full time in 2011
> Previous roles with Exxon, Mobil, Enterprise Oil, Burlington Resources
and Newfield Petroleum
> Worked in many areas of the world and has been a part of the senior
management team for three international green field oil and gas development
projects including Bijupira-Salema FPSO offshore Brazil.
Jan Davies
Company Secretary
> Qualified Company Secretary with law degree
> Joined Rockhopper as a consultant in 2010 and became an employee in 2011
> Over 20 years experience in the independent oil and gas sector
> Previous roles with Monument Oil and Gas, Indago Petroleum
and Serica Energy.
Alun Griffiths
Reservoir Engineer and
Sea Lion Asset Manager
> Chartered Engineer
> Over 35 years Petroleum Engineering experience
> Worked with Rockhopper since 2010, initially as a consultant
and joined full time in 2015
> Previous roles with Shell, Intera-ECL and Schlumberger, then
spent 16 years working as a freelance reservoir engineer for a wide
variety of international clients.
Will Perry
Group Financial Controller
> Fellow of the Institute of Chartered Accountants England and Wales
> Worked with Rockhopper since 2010 before joining full time in 2011
> Joined from Smith & Williamson where he was a senior manager
with a portfolio of clients from a range of industries including those
in the oil and gas sector.
Lucy Williams
Geoscience Manager
> Chartered geologist and currently Chairman of the Petroleum Group
of the Geological society
> Geoscientist with 25 years exploration and development experience
> 11 years with Chevron during which time she was Lead Development
Geologist on the 4.5Tcf Britannia gas condensate field in the North Sea
> Subsurface Manager of the Songo Songo gas field; at the time Tanzania’s
only producing field
> Worked on a variety of geologic basins across the world
> Joined Rockhopper in June 2011, initially to assist with construction
of first Sea Lion geomodels.
28
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Governance Report
Rockhopper Board
How your Board works
Shareholders
Board of Directors
Ongoing dialogue
Day-to-day running of Rockhopper
Chief Executive Officer
Executive Committee
Findings and
recommendations in
relation to financial
reporting
External
Auditors
Audit & Risk
Committee
Remuneration
Committee
Nomination
Committee
Integrity of financial information
and internal controls
Framework and individual
Director packages
Board composition
and succession
Corporate diversity
Company composition – 21 employees as at 31 December 2017
Male
52%
Female
48%
56% British
24% Italian
10% Other EU nationals
10% Egyptian
Non-executive director tenure
< 3 years
3-6 years
6-9 years
40%
40%
20%
> 9 years
–
Report & Accounts for the year ended 31 December 2017
29
Governance Report
Rockhopper Exploration plc
Board of Directors
David McManus
Chairman
Samuel Moody
Chief Executive Officer
Stewart MacDonald
Chief Financial 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 16 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.
Age:
64
48
37
Appointed to board:
September 2010
February 2005
March 2014
Meetings attended:
6/6
Committee membership:
> Nomination (Chairman)
External appointments:
Chairman:
> FLEX LNG
Director:
> Hess Corporation
> Costain plc
6/6
—
Director:
> Greenland Gas
& Oil Limited
6/6
—
—
30
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Governance Report
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.
Keith was previously Chairman
of Gulf Keystone Petroleum.
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.
59
62
58
68
January 2014
February 2014
January 2016
January 2016
6/6
6/6
6/6
6/6
> Audit & Risk (Chairman)
> Remuneration
> Nomination
> Audit & Risk
> Remuneration
> Nomination
> Audit & Risk
> Remuneration (Chairman)
> Nomination
> Audit & Risk
> Remuneration
> Nomination
Director:
> Cairn Energy plc
> UK Gas and Electricity
Markets Authority
—
Director:
> Point Resources AS
> Petro Matad Limited
> Genel Energy plc
Senior Vice President:
> World Petroleum Council
Report & Accounts for the year ended 31 December 2017
31
Governance Report
Rockhopper Exploration plc
Corporate governance statement
Audit & Risk, Remuneration and Nomination
Committees
Audit & risk, remuneration and nomination
committees, with formally delegated duties and
responsibilities, operate under the chairmanship of
K G Lough, T P Bushell and D McManus respectively.
The terms of reference of the Committees re(cid:198)ect the
provisions of the Code where relevant and can be found
on the Company’s website.
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 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.
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 details 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. J E Martin and A J Summers
were appointed to the Remuneration Committee in
January 2017. 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
T P Bushell – Chairman
KG Lough
J E Martin
A J Summers
D McManus
Total meetings during year
Remuneration committee
meetings attended
4
4
41
41
42
4
1 One meeting attended as Invitee. Thereafter as Committee Member.
2 Invitee.
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.
The Nomination Committee met once during
the financial year to consider the appointment of
K G Lough as Senior Independent Director in place
of R J Peters who left at the end of 2016, the
constititution of the Committees and the extension
of the appointments of K G Lough and A J Summers
for a further three year term.
32
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Governance Report
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. T P Bushell was appointed to the Audit &
Risk Committee in January 2017. 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.
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
con(cid:198)icts 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 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 is responsible for notifying
the Board of any significant concerns that the external
auditor may have arising from their audit work, any
matters that may materially affect or impair the
independence of the external auditor, any significant
deficiencies or material weaknesses in the design or
operation of the Group’s internal controls and any
serious issues of non-compliance. No such concerns were
identified during the financial period.
The Audit & Risk Committee recommends to the Board
the appointment of the external auditor, subject to the
approval of the Company’s shareholders at a general
meeting. Shareholders in a general meeting authorise the
Directors to fix the remuneration of the external auditor.
The Audit & Risk Committee has established procedures
for receiving and handling complaints concerning
accounting or audit matters. The Audit & Risk
Committee is responsible for the approval of the provision
of all audit services and permitted non-audit services
undertaken by the external auditor.
The Audit & Risk Committee’s terms of reference are
available on the Company’s website and on request from
the Company Secretary. The Audit & Risk Committee
held three formal meetings during the period and
informal discussions were also held both with and without
management present. The Committee met with the
external auditors without management present.
Following the Audit & Risk Committee meetings, the
Chairman of the Audit & Risk Committee reports to the
Board on the principal matters covered at the meeting.
During the year, the issues considered by the Audit &
Risk Committee included:
> Group financial disclosures and accounting matters;
> review of the key assumptions used by management
in assessing carrying values of assets for potential
impairment at the half year and year end;
> 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;
> scope of the external financial controls review;
> corporate governance practice with reference to the
Code;
> whistleblowing procedures and shareholder concerns;
> external auditor’s audit and non-audit fees.
Report & Accounts for the year ended 31 December 2017
33
33
Governance Report
Rockhopper Exploration plc
Going Concern
At 31 December 2017, the Group had available cash and
term deposits of (cid:12)51 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.
Details of the meetings attended during the financial year
were as follows:
Director
K G Lough – Chairman
J E Martin
A J Summers
T P Bushell
S MacDonald
D McManus
Total meetings during year
1 Invitee.
Audit & risk committee
meetings attended
3
2
3
1
31
31
3
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.
34
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Governance Report
Remuneration policy
This part of the Report sets out the remuneration policy
for the Company. The policy for the Executive Directors
is determined by the Committee and the Committee
approves any adjustments to salary and bonus awards. The
Committee also sets the parameters for the remuneration
packages of senior and support staff including the
Company Secretary. Authority is delegated to the Chief
Executive Officer to implement salary adjustments and
make bonus awards for staff within the agreed parameters.
The proposals of the Chief Executive Officer in this regard
are reviewed by the Chairman of the Committee to ensure
that they are in line with the parameters set down by the
Committee. The Committee decides on all awards under
the Company’s Long Term Incentive Plan (‘LTIP’) and
approves the operation of the Company’s Share Incentive
Plan (‘SIP’).
The aim of the Committee is to ensure that the
remuneration packages are sufficiently competitive to
attract, retain and motivate individuals of the quality
required to achieve the objectives of the group and thereby
enhance shareholder value. The Committee also aims
to ensure that all employees receive rewards that fairly
re(cid:198)ect 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:
Remuneration report
Annual statement
Dear Shareholder
On behalf of the Board, I am pleased to present the
Directors’ Remuneration Report (‘Report’) for the year
ended 31 December 2017. 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 except where deemed inappropriate
given the size and structure of the Group.
The Report is divided into two sections:
> The Policy report which sets out the current
Remuneration Policy.
> The Annual Report on Remuneration which sets out
details of the operation of the Remuneration Committee
and details of the Directors’ remuneration packages for
the year ended 31 December 2017. It also sets out details
of the implementation of the Executive Director Policy
for the year ending 31 December 2018.
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 2018 financial year, the Committee has
reduced the maximum bonus potential for the 2018 cash
bonus from 100(cid:13) of salary to 50(cid:13). This is to re(cid:198)ect the
Committee’s decision to remove progress towards the
Final Investment Decision on the Sea Lion Development
from the 2018 bonus targets and to make a one off special
bonus payable at project sanction. The Committee
does not propose any other 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.
On behalf of the Board I would like to thank shareholders
for their continuing support.
Yours sincerely
Tim Bushell
Chairman of the Remuneration Committee
18 April 2018
Report & Accounts for the year ended 31 December 2017
35
Governance Report
Salary
Rockhopper Exploration plc
Purpose and link to strategy > 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.
Operation
> Base salaries are reviewed annually on 1 January with regard to average industry increases,
each Executive Director’s role and responsibilities and salary adjustments across the Company.
Opportunity
> 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 re(cid:198)ect a gap in market positioning.
Performance metrics
> Not applicable for base salaries.
Benefits
Purpose and link to strategy > 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.
Operation
> 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
> The value of benefits will vary each year according to the cost of provision.
Performance metrics
> Not applicable for benefits package.
Pension
Purpose and link to strategy > To provide an appropriate level of pension contribution for Executive Directors whilst minimising
the administrative burden for the Company.
Operation
> Contributions are made to a private or group personal pension plan. Since April 2017, contributions
have been made up to the maximum Annual Allowance of £10,000 with the excess contribution paid
by way of a pension cash allowance which is subject to deductions for tax and national insurance.
Opportunity
> An annual contribution equal to 15% 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 this has been reduced to 50% in
respect of the year ending 31 December 2018. In exceptional circumstances a higher bonus award
may be made
> The bonus is non-contractual and is discretionary.
Performance metrics
> The targets for the Executive Directors comprise the corporate, strategic and financial objectives
agreed by the Board
> The Committee uses its judgement to decide the extent to which the objectives have been achieved
and will have regard to overall Company performance when agreeing the bonus payments
> The Committee considers whether operations have been 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 2017
Rockhopper Exploration plc
Governance Report
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 nil cost options 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(cid:23)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 re(cid:198)ect any corporate deals
> The Company has an employee benefit trust which can purchase shares in the market and(cid:23)or
subscribe for shares to satisfy the exercise(cid:23)vesting of awards under the LTIP.
Opportunity
> The maximum annual award is 200% of salary.
Performance metrics
> Performance measurement will be TSR measured against a peer group based on an average
price over a 90 day dealing period to be agreed by the Committee measured against the average
90 day dealing period up to the end of the three year performance period
> The percentage of awards that can vest is determined by the Committee at the time that the awards
are made. Awards currently 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
> The Committee has discretion to scale back the percentage of awards that will vest if it considers
that this is appropriate having regard to underlying Company performance.
Share Incentive Plan (SIP)
Purpose and link to strategy > To encourage share ownership in Rockhopper.
Operation
Opportunity
> A tax-advantaged scheme under which employees (including Executive Directors) can elect to
make contributions from gross salary for the purchase of Rockhopper shares which are then
matched by the Company at a ratio agreed by the Committee at the beginning of each tax year.
The Committee can also decide to make an award of ‘free’ shares up to legislative limits in any
one tax year. The shares need to be held for a term of five years to obtain the full 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 each
‘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 2017
37
Governance Report
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 oil and gas and Falkland Island oil and gas companies. The Committee
has determined that the minimum number of companies in the peer group will be nine. The size of the peer group has been increased 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 currently 50% 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 15% of base salary to
the Group Personal Pension Plan. The new appointee will also be eligible to participate in the Company’s SIP after a qualifying period
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
re(cid:198)ect the period of employment over the year. Consideration will be
given to the appropriate performance targets at the time of joining
50% of base salary in respect of the current
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(cid:13) of base salary in any financial year.
38
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Governance Report
In the case of an external hire, the Committee may deem it appropriate to (cid:187)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(cid:23)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
Appointment date
Original contract
Revised contract
21 February 2005
10 March 2014
8 August 2005
27 March 2014
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(cid:23)or a Director’s contribution to the Company justifies this. If an ex gratia payment is to be made, the
Committee will ensure that it is satisfied that it is in the best interests of the Company to make such a payment and that there is no (cid:187)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(cid:23)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 (cid:16)ii(cid:17) 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 lapse on the date
of cessation of employment except in certain (cid:187)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, subject to (i) the period of time that has elapsed since the start of
the performance period and (cid:16)ii(cid:17) the extent to which any performance target is satisfied at the date the director ceases to be employed by the
Company. Where the Committee exercises its discretion to allow a leaver to be a good leaver, the Committee may also determine both the
proportion of the SAR award that may be exercised and the period during which the SARs can be exercised.
In the event of termination of employment or a change of control, shares held under the SIP will be dealt with in accordance with the SIP
rules. The Committee does not have any discretion in relation to the operation of the SIP.
External appointments
Executive Directors are permitted to engage in other activities and businesses outside the group provided that there is no risk of con(cid:198)ict
with their executive duties and subject to full Board disclosure.
Report & Accounts for the year ended 31 December 2017
39
Governance Report
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
30 November 2010
29 October 2013
14 January 2014
1 February 2014
18 January 2016
18 January 2016
14 January 2014
3 February 2014
18 January 2016
18 January 2016
8th July 2016
1st February 2017
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 2017
Rockhopper Exploration plc
Governance Report
Report on Remuneration
Remuneration Committee membership and meetings
As at 31 December 2017, the Committee comprised the Committee Chairman and three independent Non-Executive Directors. The
Committee met four times during the financial period. The members of the Committee during the year and as at the year end and their
attendance are summarised below:
Committee member
T P Bushell (cid:16)Committee Chairman(cid:17)
(cid:51) G Lough
J E Martin (cid:16)appointed on 1(cid:31) January 201(cid:31)(cid:17)
A J Summers (cid:16)appointed on 1(cid:31) January 201(cid:31)(cid:17)
1 One meeting attended as invitee.
Meeting attendance
4(cid:23)4
4(cid:23)4
4(cid:23)41
4(cid:23)41
During the financial year, the Committee’s main areas of activity included(cid:34)
> Confirming the staff salary adjustments for 201(cid:31) and bonus awards for the period ended 31 December 2016
> Setting the targets for the bonus awards for the bonus scheme for the forthcoming financial year
> Approving the Directors’ Remuneration Report for the period ended 31 December 2016
> Approving the 2017 LTIP awards and reviewing the constitution of the peer group
> Approving the annual implementation of the SIP
> Approving the revised pension arrangements for Executive Directors following the reduction in the annual allowance
> Agreeing the terms of F MacAulay’s departure
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(cid:34)
Salary
£’000
Taxable benefits
£’000
Annual bonus
£’000
Long-term
Incentives
£’000
Pension3
£’000
SIP awards
£’000
Total
£’000
Year
ended
31 Dec
2017
Year
ended
31 Dec
2016
Year
ended
31 Dec
2017
Year
ended
31 Dec
2016
Year
ended
31 Dec
2017
Year
ended
31 Dec
2016
Year
ended
31 Dec
2017
Year
Year
ended
ended
31 Dec 31 Dec
2017
2016
Year
ended
31 Dec
2016
Year
ended
31 Dec
2017
Year
ended
31 Dec
2016
Year
ended
31 Dec
2017
Year
ended
31 Dec
2016
S J Moody
FM MacAulay1
S MacDonald
362.1 362.1 10.9
201.3 317.8
297.0 297.0
44.6
14.4 108.6 153.5 — — 36.9
6.2 13.4 — 166.22 — — 12.2 39.7
9.6
37.1
89.1 146.32 — — 29.7
2.0
6.6
4.8
6.6
6.6 525.1 581.8
6.6 224.5 543.7
6.6 432.0 489.0
(1) F MacAulay left the Company on 4th July 2017
(2) Includes proceeds of vesting of awards under Cash Incentive Plan held by F MacAulay and interim bonus paid to S MacDonald. Net proceeds were reinvested in Company shares.
(cid:16)3(cid:17) Represents pension contributions paid in 2016 for the period from 1 January 2016 to 31 March 201(cid:31) and pension contributions(cid:23)pension cash allowance paid in 201(cid:31) for the period from
1 April 2017 to 31 December 2017
Report & Accounts for the year ended 31 December 2017
41
Governance Report
Rockhopper Exploration plc
The table below reports a single figure for total remuneration for each Non-Executive Director(cid:34)
Base fee
£’000
Additional fees
£’000
Year ended
31 December
2017
Year ended
Year ended
31 December 31 December
2017
2016
Year ended
Year ended
31 December 31 December
2017
2016
D McManus
K G Lough
A J Summers
T P Bushell
J E Martin
P J Jungels (retired 17 May 2016)
R J Peters (retired 31 December 2016)
115.0
52.5
40.0
50.0
40.0
—
—
92.8
50.0
40.0
22.6
38.2
65.3
45.0
—
—
—
—
—
—
—
—
—
—
150.01
—
—
—
115.0
52.5
40.0
50.0
40.0
—
—
Total
£’000
Year ended
31 December
2015
92.8
50.0
40.0
172.6
38.2
65.3
45.0
(1) Represents fees for provision of consultancy services in respect of merger with Falkland Oil and Gas Limited. No fees were paid to TP Bushell in respect of his position as a Non-Executive Director
during the period of the consultancy agreement which terminated in July 2016.
D McManus was appointed as Chairman of the Company on 17 May 2016 and was Chairman of the Remuneration Committee until
July 2016.
KG 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 £2,500 (2016: £5,000) for acting as Senior Independent Director and £10,000 as Chairman of the Audit & Risk Committee
and Remuneration Committee. The Chairman of the Company does not receive any additional fees for chairing the Nomination
Committee.
Additional information in respect of single figure table of remuneration for the year ended 31 December 201(cid:31)
Annual bonus
In respect of the financial period, the Committee agreed that the Executive Director annual bonus opportunity would be up to 100 per
cent of base salary and that the Executive Directors would be treated as a team for the purpose of objective setting. The following objectives
were agreed for the financial year(cid:34)
(cid:16)i(cid:17) Bringing an additional paying partner into the Sea Lion Development project and(cid:23)or working closely with the operator to deliver a
financing solution to enable the joint venture to advance project sanction
There had been some progress towards project sanction during 201(cid:31) specifically in relation to the development financing plan, senior
debt negotiations and contractor finance arrangements. The Committee agreed that this target had been partially achieved.
(ii) Addition of a material new venture that adds substantial production and meets corporate investment criteria
There had been no material new ventures in 2017. The Committee agreed that this target had not been achieved.
(iii) Preservation of the Company’s cash position.
The year end target cash position had been exceeded. The Committee agreed that this target had been achieved in full.
The Committee agreed that the following bonuses should be paid to each of the Executive Directors in recognition of the extent to which
the 2017 corporate targets had been achieved.
Bonuses were paid in cash and were as follows:
Director
S J Moody
S MacDonald
2017 Bonus as % of salary
30
30
Cash £
108,630
89,100
42
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Governance Report
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. The percentage of
awards which will vest will be dependent on the total shareholder return (‘TSR’) measured against a peer group of 15 companies over a three year period.
Director
S J Moody
S MacDonald
Date of grant
16 June 2017
16 June 2017
Share price
at date of
grant
£0.2025
£0.2025
Number of options
subject to TSR
performance
condition
— see 1 below
1,900,000
1,800,000
Exercise
price
—
—
Maximum
number of shares
that may vest
1,900,000
1,800,000
Face value of
maximum award*
£384,750
£364,000
* 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.
The key features of the 2017 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 May 2020
> Performance measurement is based on the average price over the 90 day dealing period to 31 May 2017 measured against the 90 day
dealing period up to 31 May 2020
> Performance is based on Total Shareholder Return (’TSR’) measured against an original peer group of 15 other oil and gas companies
comprising both FTSE 250, larger AIM oil and gas companies and Falkland Islands focussed companies being EnQuest PLC, Amerisur
Resources plc, Providence Resources Plc, Faroe Petroleum plc, BowLeven plc, Borders & Southern Petroleum plc, Premier Oil plc,
Hurricane Energy plc, Sound Energy plc, The Parkmead Group plc, IGas Energy plc, Gulf Keystone Petroleum Limited, Chariot Oil
& Gas Limited, Ophir Energy plc and SDX Energy Inc. The Committee has discretion to amend the size and constitution of the peer
group to ensure that it remains appropriate and to re(cid:198)ect corporate changes.
> 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 2018
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. The Executive Directors’ base salaries were increased by 3% with
effect from 1 January 2018. Prior to this there had been no salary increase since 1 January 2015.
Annual bonus
For 2018, the Executive Director annual bonus opportunity is up to 50% of base salary, reduced from 100% in previous years, although
the Committee has discretion to make a higher award in exceptional circumstances. 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 2018:
> Preservation of the Company’s cash position(cid:23)strengthening the balance sheet
> Making a commercial discovery in Egypt
Given the strong progress made during 2017 towards project sanction, continued progress towards the Final Investment Decision on the
Sea Lion Development has been removed from the 2018 bonus targets and replaced with a one off special bonus payable at project sanction.
The exact quantum of this bonus is at the Committee’s discretion but is set at a maximum of 200% of salary.
Report & Accounts for the year ended 31 December 2017
43
Governance Report
Rockhopper Exploration plc
Long Term Incentive Plan
The Committee intends to grant LTIP awards in 2018 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 cash allowance and participation in the SIP
in line with the policy.
Implementation of Non-Executive remuneration policy for 2018
Non-Executive Director fees (excluding the Chairman) were last increased in 2014 and no further review is scheduled. 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 2014
£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(cid:34)
S J Moody
S MacDonald
D McManus
T P Bushell
K G Lough
J E Martin
A J Summers
At 31 December 2017
Ordinary 1p shares
At 31 December 2016
Ordinary 1p shares
2,333,749
255,419
498,952
103,606
—
341,600
244,100
2,051,456
97,971
132,803
103,606
—
91,600
—
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 S MacDonald and two times base salary in the case of S J Moody over a five year period. It is intended that this should be achieved
through the retention of any vested LTIP awards and Share Appreciation Rights awarded under the Employee Share Option Scheme. During 2018, the
Executive Directors, the Chairman and a number of Non-Executive Directors purchased additional shares on the open market out of their own resources.
Outstanding awards under the LTIP, Employee Share Option Scheme and Cash Incentive Plan
(a) LTIP
(i) Unvested LTIP Awards
Director
S J Moody
S MacDonald
F MacAulay
1 Lapsed in full since year end.
Date of
grant
Awards
held at
31 Dec 2016
Lapsed/
relinquished
during Year
Awards Market price
at date
held at
of award
31 Dec 2017
Vested
Granted
Performance
period
Earliest
vesting
date
665,625
13.10.14
13.04.15
855,354
22.04.16 2,317,440
16.06.17
506,250
13.10.14
13.04.15
701,575
22.04.16 1,900,800
16.06.17
775,000
13.10.14
13.04.15
750,591
22.04.16 2,033,600
665,625
—
—
—
579,360
—
—
— 1,900,000
506,250
—
—
—
475,200
—
—
— 1,800,000
775,000
—
—
750,591
— 2,033,600
—
—
—
—
—
—
—
855,3541 £0.6350 01.04.15-31.03.18 31.03.18
1,738,080 £0.3125 01.04.16-31.03.19 31.03.19
— 1,900,000 £0.2025 01.06.17-31.05.20 16.06.20
—
—
701,5751 £0.6350 01.04.15-31.03.18 31.03.18
—
— 1,425,600 £0.3125 01.04.16-31.03.19 31.03.19
— 1,800,000 £0.2025 01.06.17-31.05.20 16.06.20
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
44
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Governance Report
ii) Vested LTIP Awards
Director
S J Moody
S MacDonald
F MacAulay
Date of
grant
08.10.13
10.03.14
08.10.13
Vested
Awards
held at
31 Dec 2016
177,802
70,931
109,497
Exercised
during the
year
—
—
—
Vested
Awards
held at
31 Dec 2017
177,8021
70,9311
109,4971
1 Exercise of the vested 2013 LTIP awards is subject to Rockhopper’s share price exceeding £1.80 averaged over any 90 dealing period ending no later than 31 March 2023.
(b) Share options
As at 31 December 2016 and 31 December 2017, there were no share options held by individuals who were directors during the year ended
31 December 2017.
(c) Share appreciation rights
The share appreciation rights outstanding as at 31 December 2017 and held by individuals who were Directors during the year ended 31 December
2017 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
31 December 2016
Exercised during
the year
Lapsed during
the year
Awards held at
31 December 2017
Exercise price
Pence
76,056
77,777
91,077
15,929
22,505
49,086
332,430
—
—
—
—
—
—
—
—
—
—
15,929
22,505
49,086
87,250
76,056
77,777
91,077
—
—
—
244,910
372.75
303.75
159.00
372.75
303.75
159.00
Share price movements during year ended 31 December 2017
The mid-market closing price of the Company’s shares as at 31 December 2017 was 21.25 pence (31 December 2016: 22.75 pence).
The range of the trading price of the Company’s shares during the year was between 18.50 pence and 29.25 pence.
Executive director external appointments
S J Moody is a Non-Executive Director of Greenland Gas & Oil Limited for which he receives a fee.
S MacDonald does not have any external directorships for which he is paid a fee.
By order of the Board
T P Bushell
Chairman of the Remuneration Committee
18 April 2018
Report & Accounts for the year ended 31 December 2017
45
Governance Report
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 (year ended
31 December 2016: £nil).
Key performance indicators “KPIs”
See page 17 for more details.
Substantial shareholders
At 31 March 2018 the Company had been notified of
the following interests of three percent or more of the
Company’s voting rights.
Shareholder/Fund manager
Majedie Asset Management
Carlson Capital
Odey Asset Management
Credit Suisse
Number of
shares
% of issued
share capital
23,152,016
22,630,467
14,808,732
14,292,898
5.06
4.95
3.25
3.13
Directors
The present members of the Board are as listed in
the Board of Directors section. The interests of the
Directors in office at the year 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
There are no important events affecting the Group
since the financial year end.
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 30.
Related party transactions
Related party transactions are disclosed in note 29.
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 30.
Political and charitable contributions
The Group made no charitable donations (year ended
31 December 2016: £nil) and no political donations
(year ended 31 December 2016: £nil) during the year.
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 year were 43 days (year ended 31 December
2016: 20 days), on the basis of accounts payable as a
percentage of amounts invoiced during the year.
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 21 employees at the year end, two 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.
46
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Governance Report
> select suitable accounting policies and then apply
them consistently;
> make judgements and estimates that are reasonable
and prudent;
> for the Group financial statements, state whether they
have been prepared in accordance with IFRSs as
adopted by the EU;
> for the Parent Company financial statements, state
whether applicable UK Accounting Standards have
been followed, subject to any material departures
disclosed and explained in the financial statements;
and
> prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the
Group and the Parent Company will continue in
business.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the Parent Company’s transactions and disclose
with reasonable accuracy at any time the financial
position of the Parent Company and enable them to
ensure that its financial statements comply with the
Companies Act 2006. They have general responsibility
for taking such steps as are reasonably open to them to
safeguard the assets of the Group and to prevent and
detect fraud and other irregularities.
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
18 April 2018
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.
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:
Report & Accounts for the year ended 31 December 2017
47
Governance Report
Rockhopper Exploration plc
Independent auditor’s report
to the members of Rockhopper Exploration plc
1. Our opinion is unmodified
We have audited the financial statements of Rockhopper
Exploration plc (“the Company”) for the year ended
31 December 2017 which comprise the Group Income
statement, the Group Statement of Comprehensive
Income, the Group and Parent Company Balance Sheet,
the Group and Parent Company Cash Flow Statements,
the Group and Parent Company Statements of Changes
in Equity, and the related notes, including the accounting
policies in note 1.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (“ISAs (UK)”) and applicable
law. Our responsibilities are described below. We have
fulfilled our ethical responsibilities under, and are
independent of the Group in accordance with, UK ethical
requirements including the FRC Ethical Standard as
applied to listed entities. We believe that the audit evidence
we have obtained is a sufficient and appropriate basis for
our opinion.
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 201(cid:31) and of the Group’s profit for the
year then ended;
> the group financial statements have been properly
prepared in accordance with International Financial
Reporting Standards as adopted by the European Union
(IFRSs as adopted by the EU);
> the parent Company financial statements have been
properly prepared in accordance with UK accounting
standards, including FRS 101 Reduced Disclosure
Framework; and
> the financial statements have been prepared in
accordance with the requirements of the Companies
Act 2006.
2. Key audit matters: our assessment of risks
of material misstatement
Key audit matters are those matters that, in our
professional judgment, were of most significance in
the audit of the financial statements and include the
most significant assessed risks of material misstatement
(cid:16)whether or not due to fraud(cid:17) identified by us, including
those which had the greatest effect on(cid:34) the overall audit
strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. These
matters were addressed in the context of our audit of
the financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate
opinion on these matters. In arriving at our audit opinion
above, the key audit matters were as follows:
48
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Governance Report
The risk
Our response
Recoverability of
exploration and evalution
assets/Recoverability
of Parent company’s
investment in subsidiaries
and receivables due
from group companies
Exploration and evaluation
assets: $432.1m (2016: $426.4m)
Refer to page 56
(accounting policy) and
page 68 (cid:16)financial disclosures(cid:17)
Investment in subsidiaries:
$93.6m (2016: $93.6m)
Forecast-based valuation
Uncertainty related to development prospects
of the fields in the Falkland Islands area could
have a significant impact on the recoverable
amount of Group’s exploration and evaluation
assets. Forecasting the recoverable amount of
the group’s CGUs is a highly subjective area
due to the inherent uncertainty involved in
forecasting and discounting future cash (cid:198)ows,
specifically around oil and gas prices, reserve
estimates and future cost estimates. Moreover,
certain licenses in this area expire in 2021.
Extension of these licenses is subject to ability
of the Company to secure financing for further
development and successful negotiations with
local government.
Loans due from group
companies: $412.2m
(2016: $404.4m)
Refer to page 78
(accounting policy) and
page 80 (cid:16)financial disclosures(cid:17)
Recoverability of Parent company’s
investment in subsidiaries and receivables
due from group companies depend solely on
the development prospects of the fields in the
Falkland Islands area.
Our procedures included:
> Impairment triggers analysis: We assessed the
directors’ judgments in considering if any impairment
indicators were present by considering whether the
appropriate business developments during the year were
incorporated in that analysis;
> Evaluating assumptions: With the assistance of
our valuation specialists, we challenged the Group’s
key assumptions and estimates by comparing them to
externally derived, as well to our own assessments based
on industry knowledge;
> Sensitivity analysis: We performed sensitivity
analysis on the key assumptions to assess whether a
reasonably possible change in these assumptions could
trigger an impairment charge;
> Methodology choice: We assessed reasonableness of
the model used, challenged whether all appropriate cash
(cid:198)ows are included as well as reviewed mathematical
accuracy of the model;
> Assessing transparency: We assessed whether
the Group’s disclosures about the sensitivity of the
outcome of the impairment assessment to changes in key
assumptions re(cid:198)ected the risks inherent in the valuation
of tangible and intangible assets;
> Assessing license extension prospects: We
assessed whether it is likely that extension will be granted
for licenses in the Falkland Islands area. We inquired
about the stages of negotiations with UK Export Finance
and other creditors to determine expected timeline of
securing financing necessary for development of the
oilfields in the area and read available correspondence
with these parties.
3. Our application of materiality and an overview
of the scope of our audit
Materiality for the group financial statements as a whole was set at
$5.3m (2016: $4.0m), determined with reference to a benchmark of total
assets, of which it represents 1% (2016: 1%).
Materiality for the parent company financial statements as a whole was
set at $5.3m (2016: $4.0m), determined with reference to a benchmark
of net assets and chosen not to exceed materiality for the group financial
statements as a whole. It represents 1% (2016: 1%) of the stated
benchmark.
For both the current and prior year, the Group audit team performed
the audit of the Group (cid:16)including the Parent Company financial
information(cid:17) as if it was a single aggregated set of financial information.
4. We have nothing to report on going concern
We are required to report to you if we have concluded that the use of
the going concern basis of accounting is inappropriate or there is an
undisclosed material uncertainty that may cast significant doubt over
the use of that basis for a period of at least twelve months from the date
of approval of the financial statements. We have nothing to report in
these respects.
We agreed to report to the Audit Committee any corrected or
uncorrected identified misstatements exceeding (cid:12)2(cid:31)5k (cid:16)2016(cid:34) (cid:12)200k(cid:17), in
addition to other identified misstatements that warranted reporting on
qualitative grounds.
Report & Accounts for the year ended 31 December 2017
49
Governance Report
Rockhopper Exploration plc
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue our opinion in an auditor’s
report. Reasonable assurance is a high level of assurance, but does not
guarantee that an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually
or in aggregate, they could reasonably be expected to in(cid:198)uence
the economic decisions of users taken on the basis of the financial
statements.
A fuller description of our responsibilities is provided on the FRC’s
website at www.frc.org.uk/auditorsresponsibilities.
8. The purpose of our audit work and to whom
we owe our responsibilities
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.
Lynton Richmond (Senior Statutory Auditor)
For and on behalf of KPMG LLP, Statutory Auditor
Chartered accountants
15 Canada Square
London E14 5GL
19 April 2018
5. We have nothing to report on the other information
in the Annual Report
The directors are responsible for the other information presented in the
Annual Report together with the financial statements. Our opinion
on the financial statements does not cover the other information and,
accordingly, we do not express an audit opinion or, except as explicitly
stated below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so,
consider whether, based on our financial statements audit work, the
information therein is materially misstated or inconsistent with the
financial statements or our audit knowledge. Based solely on that work
we have not identified material misstatements in the other information.
Strategic report and directors’ report
Based solely on our work on the other information:
> we have not identified material misstatements in the strategic report
and the directors’ report;
> in our opinion the information given in those reports for the financial
year is consistent with the financial statements; and
> in our opinion those reports have been prepared in accordance
with the Companies Act 2006.
6. We have nothing to report on the other matters
on which we are required to report by exception
Under the Companies Act 2006, we are required 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.
We have nothing to report in these respects.
7. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 47, the
directors are responsible for(cid:34) the preparation of the financial statements
including being satisfied that they give a true and fair view; such internal
control as they determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether
due to fraud or error; assessing the Group and parent Company’s ability
to continue as a going concern, disclosing, as applicable, matters related
to going concern; and using the going concern basis of accounting
unless they either intend to liquidate the Group or the parent Company
or to cease operations, or have no realistic alternative but to do so.
50
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Financial Statements
Group income statement
for the year ended 31 December 2017
Revenue
Other cost of sales
Depreciation and impairment of oil and gas assets
Total cost of sales
Gross profit(cid:23)(cid:16)loss(cid:17)
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
(cid:16)Loss(cid:17)(cid:23)profit before tax
Tax
(Loss)/profit for the year attributable to the e(cid:89)uity shareholders of the parent company
(cid:16)Loss(cid:17)(cid:23)profit per share(cid:34) 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 2017
Profit for the year
Exchange differences on translation of foreign operations
Total comprehensive (loss)/profit for the year
Year ended
31 December
2017
$’000
Year ended
31 December
2016
$’000
Notes
10,401
(4,100)
(5,473)
(9,573)
828
(3,422)
—
(5,282)
(5,282)
—
(864)
(966)
7,417
(4,373)
(3,294)
(7,667)
(250)
(8,237)
(2,529)
(7,441)
(9,970)
111,842
(994)
5,679
(9,706)
98,070
783
(39)
(cid:16)8,962)
2,823
(6,139)
(1.34)
(1.34)
307
(333)
98,044
—
98,044
21.98
21.98
4
5
6
9
10
11
11
12
13
13
Year ended
31 December
2017
$’000
Year ended
31 December
2016
$’000
(6,139)
(1,151)
(7,290)
98,044
192
98,236
Report & Accounts for the year ended 31 December 2017
51
Financial Statements
Rockhopper Exploration plc
Group balance sheet
as at 31 December 2017
(cid:54)on-current assets
Exploration and evaluation assets
Property, plant and equipment
Goodwill
(cid:43)urrent assets
Inventories
Other receivables
Restricted cash
Term deposits
Cash and cash equivalents
Assets held for sale
Total assets
(cid:43)urrent liabilities
Other payables
Tax payable
(cid:54)on-current liabilities
Tax payable
Provisions
Deferred tax liability
Liabilities directly associated with assets held for sale
Total liabilities
(cid:45)(cid:89)uity
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 e(cid:89)uity shareholders of the company
Total liabilities and e(cid:89)uity
31 December
2017
$’000
31 December
2016
$’000
Notes
14
15
16
17
18
19
20
21
22
22
23
24
20
25
26
26
26
26
26
26
26
432,147
426,419
11,585
10,789
1,621
16,840
540
30,000
20,729
3,814
18,025
9,439
1,608
17,184
495
30,000
51,019
–
528,065
554,189
12,772
—
40,057
5,986
39,202
9,450
34,012
9
39,115
14,914
39,145
—
107,467
127,195
7,200
3,282
5,609
(3,383)
74,332
(10,119)
7,194
3,149
6,251
(3,407)
74,332
(8,968)
460,077
462,549
(116,400)
(114,106)
420,598
528,065
426,994
554,189
These financial statements were approved by the directors and authorised for issue on 18 April 2018 and are signed on their behalf by(cid:34)
Ste(cid:95)art MacDonald
Chief Financial Officer
52
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Financial Statements
Group statement of changes in equity
for the year ended 31 December 2017
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 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)
—
—
—
—
(128)
234
—
—
—
63,220
—
—
—
192
—
—
—
—
—
Total comprehensive income for the year
Share based payments
Share issues in relation to SIP
Other transfers
—
—
6
—
—
—
133
—
—
864
—
(1,506)
—
—
(109)
133
—
—
—
—
(1,151)
—
—
—
(10,418)
10,418
—
—
—
—
—
—
—
—
98,044
98,236
—
—
—
—
—
—
884
65,498
142
—
—
864
30
—
(6,139)
(7,290)
(2,472)
3,845
Balance at (cid:27)(cid:25) December (cid:26)(cid:24)(cid:25)(cid:30)
(cid:31),(cid:25)(cid:33)(cid:28)
(cid:27),(cid:25)(cid:28)(cid:33)
(cid:30),(cid:26)(cid:29)(cid:25)
((cid:27),(cid:28)(cid:24)(cid:31))
(cid:31)(cid:28),(cid:27)(cid:27)(cid:26)
((cid:32),(cid:33)(cid:30)(cid:32)) (cid:28)(cid:30)(cid:26),(cid:29)(cid:28)(cid:33)
((cid:25)(cid:25)(cid:28),(cid:25)(cid:24)(cid:30)) (cid:28)(cid:26)(cid:30),(cid:33)(cid:33)(cid:28)
Balance at (cid:27)(cid:25) December (cid:26)(cid:24)(cid:25)(cid:31)
7,200
3,282
5,609
(3,383)
74,332
(10,119) 460,077
(116,400) 420,598
Report & Accounts for the year ended 31 December 2017
53
Financial Statements
Rockhopper Exploration plc
Group cash flow statement
for the year ended 31 December 2017
(cid:43)ash (cid:198)o(cid:95)s from operating activities
Net (cid:16)loss(cid:17)(cid:23)profit before tax
Adjustments to reconcile net losses to cash(cid:34)
Depreciation
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 (cid:198)ows before movements in working capital
Changes in(cid:34)
Other receivables
Payables
Movement on other provisions
Cash utilised by operating activities
(cid:43)ash (cid:198)o(cid:95)s 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 (cid:198)ows before movements in capital balances
Changes in(cid:34)
Restricted cash
Term deposits
Cash (cid:198)ow from investing activities
(cid:43)ash (cid:198)o(cid:95)s from financing activities
Share incentive plan
Finance expense
Cash (cid:198)ow from financing activities
Currency translation differences relating to cash and cash equivalents
Net cash (cid:198)ow
Cash and cash equivalents brought forward
(cid:43)ash and cash e(cid:89)uivalents carried for(cid:95)ard
Year ended
31 December
2017
$’000
Year ended
31 December
2016
$’000
Notes
(8,962)
98,044
15
4
9
14
10
5,687
—
864
—
2,321
—
40
(783)
3,331
2,498
(964)
110
(14)
1,630
—
(25,366)
(1,451)
—
(6,266)
566
(32,517)
(45)
—
(32,562)
30
(43)
(13)
655
(30,945)
51,019
20,729
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
54
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Financial Statements
Notes to the group financial statements
for the year ended 31 December 2017
1. Accounting policies
1.1 Group and its operations
Rockhopper Exploration plc, the (cid:187)Company’, a public limited company quoted on AIM, incorporated and domiciled in the United
(cid:51)ingdom (cid:16)(cid:187)U(cid:51)’(cid:17), together with its subsidiaries, collectively (cid:187)the (cid:187)Group’ holds certain exploration licences 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 9(cid:65)Q.
1.2 Statement of compliance
The consolidated financial statements are prepared in compliance with International Financial Reporting Standards (cid:16)IFRS(cid:17) as
adopted by the European Union and applied in accordance with U(cid:51) company law. The consolidated financial statements were
approved for issue by the board of directors on 18 April 2018 and are subject to approval at the Annual General Meeting of
shareholders on 18 May 2018.
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 (cid:16)(cid:12)’000(cid:17) or thousand pounds (cid:16)(cid:138)’000(cid:17), 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.
(cid:183) IFRS9 Financial Instruments (cid:16)effective date for annual periods beginning on or after 1 January 2018(cid:17);
(cid:183) IFRS15 Revenue from Contracts with customers (cid:16)effective date for annual periods beginning on or after 1 January 2018(cid:17);
(cid:183) IFRS16 Leases (cid:16)effective date for annual periods beginning on or after 1 January 2019(cid:17);
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 201(cid:31), the Group had available cash and term deposits of (cid:12)51 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 2017
55
Financial Statements
Rockhopper Exploration plc
Notes to the group financial statements continued
for the year ended 31 December 2017
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 and production activities in the geographical
regions of the Falkland Islands and the Greater Mediterranean region as well as its corporate activities centered in the U(cid:51).
(D) Oil and gas assets
The Group applies the successful efforts method of accounting for exploration and evaluation (cid:16)(cid:185)E&E(cid:186)(cid:17) costs, having regard to
the requirements of IFRS6 (cid:183) (cid:187)Exploration for and evaluation of mineral resources’.
Exploration and evaluation (cid:16)(cid:185)E&E(cid:186)(cid:17) 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 (cid:16)see below(cid:17) 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%.
56
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Financial Statements
Such reserves may be considered commercially producible if management has the intention of developing and producing them
and such intention is based upon(cid:34)
(cid:183) a reasonable assessment of the future economics of such production;
(cid:183) a reasonable expectation that there is a market for all or substantially all the expected hydrocarbon production;
(cid:183) evidence that the necessary production, transmission and transportation facilities are available or can be made available; and
(cid:183) the making of a final investment decision.
Furthermore(cid:34)
(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(cid:34) (cid:16)a(cid:17) that portion delineated by drilling and
defined by gas-oil and(cid:23)or oil-water contacts, if any, or both; and (cid:16)b(cid:17) 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 (cid:198)uid contacts, the lowest known structural occurrence of hydrocarbons
controls the lower proved limit of the reservoir.
(cid:16)ii(cid:17)
Reserves which can be produced economically through application of improved recovery techniques (cid:16)such as (cid:198)uid
injection(cid:17) 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(cid:34)
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(cid:12) as this best re(cid:198)ects
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(cid:12), 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 2017
57
Financial Statements
Rockhopper Exploration plc
Notes to the group financial statements continued
for the year ended 31 December 2017
1. Accounting policies continued
1.6 Significant accounting policies continued
(F) Foreign currency translation continued
Transactions and balances(cid:34)
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 (cid:198)ow hedges and qualifying net investment hedges.
The period end rates of exchange actually used were(cid:34)
(cid:138) (cid:34) US(cid:12)
(cid:194) (cid:34) US(cid:12)
(G) Revenue and income
(i) Revenue
31 December 2017
31 December 2016
1.35
1.20
1.22
1.05
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 (cid:198)ow 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.
58
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Financial Statements
(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 (cid:16)excluding the effect of non market based vesting conditions(cid:17) 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 2017
59
Financial Statements
Rockhopper Exploration plc
Notes to the group financial statements continued
for the year ended 31 December 2017
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 cash(cid:198)ows which requires key assumptions and estimates
in relation to(cid:34) 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 re(cid:198)ect 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 23)
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.
60
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Financial Statements
3. Revenue and segmental information
(cid:65)ear ended 31 December 201(cid:31)
Revenue
Cost of sales
Gross profit
Exploration and evaluation expenses
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
Loss before tax
Tax
Loss for year
Reporting segments assets
Reporting segments liabilities
Depreciation
(cid:65)ear 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(cid:23)(cid:16)loss(cid:17) before tax
Tax
Profit (cid:23)(cid:16)loss(cid:17) for year
Reporting segments assets
Reporting segments liabilities
Depreciation
Report & Accounts for the year ended 31 December 2017
Falkland
Islands
$’000
Greater
Mediterranean
$’000
Corporate
$’000
Total
$’000
—
—
—
—
(7)
(7)
—
—
(3,791)
(3,798)
—
—
(3,798)
2,866
(932)
425,971
80,462
—
10,401
(9,573)
828
(2,369)
(1,487)
(1,487)
—
—
366
(2,662)
—
(30)
(2,692)
(43)
(2,735)
51,647
19,551
5,498
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)
(cid:16)11,882(cid:17)
—
(cid:16)11,882(cid:17)
36,369
18,968
4,529
—
—
—
(1,053)
(3,788)
(3,788)
—
(864)
2,459
(3,246)
783
(9)
(2,472)
—
(2,472)
50,447
7,454
189
Corporate
$’000
—
—
—
(775)
(1,179)
(4,884)
(6,063)
—
(994)
(2,640)
(10,472)
307
(8)
(cid:16)10,1(cid:31)3(cid:17)
—
(cid:16)10,1(cid:31)3(cid:17)
92,953
30,275
196
10,401
(9,573)
828
(3,422)
(5,282)
(5,282)
—
(864)
(966)
(9,706)
783
(39)
(8,962)
2,823
(6,139)
528,065
107,467
5,687
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
61
Financial Statements
Rockhopper Exploration plc
Notes to the group financial statements continued
for the year ended 31 December 2017
4. Cost of sales
Cost of sales
Depreciation 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 (cid:16)see note (cid:31)(cid:17)
Other employees’ salaries
National insurance costs
Pension costs
Employee benefit costs
Total staff costs (cid:16)including group restructuring costs(cid:17)
Amounts reallocated
Total staff costs charged to administrative expenses
Costs in relation to acquisition
Auditor’s remuneration (cid:16)see note 8(cid:17)
Other professional fees
Other
Depreciation
Amounts reallocated
Year ended
31 December
2017
$’000
4,100
5,473
—
9,573
Year ended
31 December
2016
$’000
4,373
4,499
(1,205)
7,667
Year ended
31 December
2017
$’000
Year ended
31 December
2016
$’000
597
2,321
504
—
3,422
754
3,549
3,957
(23)
8,237
Year ended
31 December
2017
$’000
Year ended
31 December
2016
$’000
1,934
2,604
651
260
92
5,541
(2,200)
3,341
—
244
992
1,481
214
(990)
5,282
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
The average number of staff employed during the year was 24 (cid:16)31 December 2016(cid:34) 31(cid:17). The relative decrease between years re(cid:198)ects the
continued restructuring of the Greater Mediterranean operation. As at 31 December 201(cid:31) the number of staff employed had reduced
to 21.
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.
62
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Financial Statements
(cid:31). Directors’ remuneration
Executive salaries
Executive bonuses
Company pension contributions to money purchase schemes
Benefits
Non-executive fees
The total remuneration of the highest paid Director was(cid:34)
Annual salary
Bonuses
Money purchase pension schemes
Benefits
Gain on exercise of share options
Year ended
31 December
2017
$’000
Year ended
31 December
2016
$’000
1,141
267
104
37
385
1,934
Year ended
31 December
2017
£
362,100
108,600
36,900
10,904
—
518,504
1,283
508
139
52
487
2,469
Year ended
31 December
2016
£
362,100
153,900
44,600
14,361
—
574,961
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(cid:34)
Audit of the accounts of subsidiaries
Half year review
Tax compliance services
Year ended
31 December
2017
$’000
Year ended
31 December
2016
$’000
117
63
45
19
244
148
79
41
10
278
Report & Accounts for the year ended 31 December 2017
63
Financial Statements
Rockhopper Exploration plc
Notes to the group financial statements continued
for the year ended 31 December 2017
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 year
Year ended
31 December
2017
$’000
Year ended
31 December
2016
$’000£
768
96
864
934
60
994
The models and key assumptions used to value each of the grants and hence calculate the above charges are set out below(cid:34)
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 (cid:16)(cid:187)Awards’(cid:17), 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 can 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 (cid:138)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
(cid:138)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 (cid:138)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(cid:34)
Closing share price
Minimum exercise(cid:23)base price
16 June 201(cid:31) 22 Apr 2016 13 Apr 2015
64.0p
N(cid:23)A
21.25p
N(cid:23)A
31.5p
N(cid:23)A
13 Oct 14
76.0p
N(cid:23)A
13 Oct 14
76.0p
N(cid:23)A
Escalation applied for being best of peer group
N(cid:23)A
N(cid:23)A
N(cid:23)A
N(cid:23)A
33(cid:13)
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(cid:23)A
6,700,000
53.3%
71.4%
0.18(cid:13)
N(cid:23)A
10,047,885
60.4%
71.2%
0.58(cid:13)
N(cid:23)A
4,111,838
44.5%
55.8%
0.(cid:31)0(cid:13)
N(cid:23)A
1,063,750
36.5%
42.2%
1.2(cid:31)(cid:13)
29(cid:13)
2,382,581
36.5%
42.2%
1.2(cid:31)(cid:13)
15.3%
0p
0%
27.5%
0p
0%
33.5%
0p
0%
32.0%
0p
0%
32.0%
0p
0%
64
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Financial Statements
The following movements occurred during the year(cid:34)
Issue date
Expiry date
8 October 2013
10 March 2014
13 October 2014
13 April 2015
22 April 2016
16 June 201(cid:31)
8 October 2023
10 March 2024
13 October 2024
13 April 2025
22 April 2026
16 June 202(cid:31)
At 31 December
2015
546,145
70,391
3,042,188
3,728,535
10,047,885
(cid:184)
17,435,144
Issued
Lapsed
—
—
—
—
—
6,(cid:31)00,000
6,700,000
—
—
(3,042,188)
(750,591)
(4,030,035)
(cid:184)
At 31 December
2017
546,145
70,391
—
2,977,944
6,017,850
6,700,000
(7,822,814)
16,312,330
Share incentive plan
The Group has in place an HMRC approved Share Incentive Plan (cid:16)(cid:185)SIP(cid:186)(cid:17). The SIP allows the Group to award Free Shares to U(cid:51)
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 (cid:138)41,99(cid:31) (cid:16)year ended 31 December 2016 (cid:138)50,99(cid:31)(cid:17) worth of Free Shares to eligible
employees.
This resulted in 154,826 (cid:16)year ended 31 December 2016(cid:34) 1(cid:31)(cid:31),(cid:31)(cid:31)2(cid:17) Free Shares and under the SIP scheme matching and partnership
shares issued were 302,622 (cid:16)year ended 31 December 2016(cid:34) 216,(cid:31)(cid:31)8(cid:17) in the period.
The average fair value of the shares awarded (pence)
Vesting
Dividend yield
Lapse due to withdrawals
31 December
2017
31 December
2016
23
100%
Nil
Nil
29
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 (cid:16)(cid:185)SAR(cid:186)(cid:17) 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(cid:34)
Issue date
Expiry date
Exercise price
(pence)
At 31 December
2016
Exercised
Lapsed
At 31 December
2017
22 November 2008
3 July 2009
11 January 2011
14 July 2011
16 August 2011
13 December 2011
1(cid:31) January 2012
30 January 2013
22 November 2018
3 July 2019
11 January 2021
14 July 2021
16 August 2021
13 December 2021
1(cid:31) January 2022
30 January 2023
19.25
30.8(cid:31)
3(cid:31)2.(cid:31)5
239.(cid:31)5
237.00
240.75
303.(cid:31)5
159.00
355,844
103,368
212,641
43,58(cid:31)
17,035
29,594
291,531
366,931
1,420,531
—
(cid:184)
(cid:184)
(cid:184)
—
—
(cid:184)
(cid:184)
—
—
(cid:184)
(cid:16)15,929(cid:17)
(cid:184)
—
—
(cid:16)22,505(cid:17)
(cid:16)49,086(cid:17)
355,844
103,368
196,712
43,587
17,035
29,594
269,026
317,845
(87,520)
1,333,011
Report & Accounts for the year ended 31 December 2017
65
Financial Statements
Rockhopper Exploration plc
Notes to the group financial statements continued
for the year ended 31 December 2017
10. Foreign exchange
Foreign exchange (cid:16)loss(cid:17)(cid:23)gain on Falkland Islands tax liability
Foreign exchange gain(cid:23)(cid:16)loss(cid:17) on term deposits, cash and restricted cash
Foreign exchange on operating activities
Total net foreign exchange (cid:16)loss(cid:17)(cid:23)gain
11. Finance income and expense
Bank and other interest receivable
Total finance income
Unwinding of discount on provisions
Other
Total finance expense
12. Taxation
Current tax(cid:34)
Overseas tax
Adjustment in respect of prior years
Total current tax
Deferred tax(cid:34)
Overseas tax
Total deferred tax – note 24
Tax on profit on ordinary activities
(cid:16)Loss(cid:17)(cid:23)Profit on ordinary activities before tax
(cid:16)Loss(cid:17)(cid:23)Profit on ordinary activities multiplied at 26(cid:13) weighted average rate (cid:16)31 December 2016(cid:34) 26(cid:13)(cid:17)
Effects of(cid:34)
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 (cid:16)credit(cid:17)(cid:23)charge for the year
Year ended
31 December
2017
$’000
Year ended
31 December
2016
$’000
(3,791)
460
(3,331)
2,365
(966)
8,290
(2,103)
6,187
(508)
5,679
Year ended
31 December
2017
$’000
Year ended
31 December
2016
$’000
783
783
(4)
43
39
307
307
300
33
333
Year ended
31 December
2017
$’000
Year ended
31 December
2016
$’000
(14)
(2,866)
(2,880)
57
57
(2,823)
(8,962)
(2,330)
(1,884)
3,005
(722)
189
1,656
134
(2,866)
(5)
(2,823)
—
—
—
—
—
—
98,044
25,491
(32,055)
253
(349)
216
6,894
(436)
—
(14)
—
On the 8 April 2015 the Group agreed binding documentation (cid:16)(cid:185)Tax Settlement Deed(cid:186)(cid:17) with the Falkland Island Government
(cid:16)(cid:185)FIG(cid:186)(cid:17) in relation to the tax arising from the Group’s farm out to Premier Oil plc (cid:16)(cid:185)Premier(cid:186)(cid:17). 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 22 Tax payable.
66
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Financial Statements
The total carried forward losses and carried forward pre trading expenditures potentially available for relief are as follows(cid:34)
U(cid:51)
Falkland Islands
Italy
Year ended
31 December
2017
$’000
62,033
576,121
61,961
Year ended
31 December
2016
$’000
59,529
123,732
54,051
In Egypt under the terms of the PSC any taxes arising are settled by EGPC on behalf of the Group. Consequently, any carried forward
losses would have no impact on the reported profits of the Group.
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. Losses carried
forward in the Falkland Islands includes amounts held within entities where utlisation of the losses in the future may not be possible.
13. Basic and diluted loss per share
Shares in issue brought forward
Shares issued
– Issued in relation to acquisitions
– 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 (cid:16)loss(cid:17)(cid:23)profit after tax for purposes of basic and diluted earnings per share
(cid:16)Loss(cid:17)(cid:23)Earnings per share (cid:183) cents
Basic
Diluted
31 December
2017
Number
31 December
2016
Number
456,659,052
296,579,834
—
457,448
457,116,500
456,945,871
159,684,668
394,550
456,659,052
446,106,108
—
456,945,871
—
446,106,108
$’000
(6,139)
(1.34)
(1.34)
$’000
98,044
21.98
21.98
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. The calculation of loss per share is based upon the loss for the
year and the weighted average shares in issue. As the Group is reporting a loss in the year then in accordance with IAS33 the share
options are not considered dilutive because the exercise of the share options would have the effect of reducing the loss per share.
Report & Accounts for the year ended 31 December 2017
67
Financial Statements
Rockhopper Exploration plc
Notes to the group financial statements continued
for the year ended 31 December 2017
14. Intangible exploration and evaluation assets
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
Additions
Written off to exploration costs
Transfer to assets held for sale
Foreign exchange movement
As at 31 December 2017
Falkland
Islands
$’000
251,424
170,000
—
(2,840)
(cid:184)
—
418,584
7,387
(cid:184)
—
—
425,971
Greater
Mediterranean
$’000
5,234
—
5,772
587
(cid:16)3,549(cid:17)
(209)
7,835
1,317
(cid:16)2,321(cid:17)
(824)
169
6,176
Total
$’000
256,658
170,000
5,772
(2,253)
(cid:16)3,549(cid:17)
(209)
426,419
8,704
(cid:16)2,321(cid:17)
(824)
169
432,147
Fal(cid:83)land (cid:49)slands licences
The additions during the period of $7.4 million relate principally to the Sea Lion development.
The Acquisition during the prior period of (cid:12)1(cid:31)0 million re(cid:198)ects the fair value of the licences held by Falkland Oil & Gas Limited and its
subsidiary, principally being its 40% interest in the PL004 licences.
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 cash(cid:198)ow model. The key inputs to this model were a 2018 real terms oil price of (cid:12)(cid:31)0(cid:23)bbl, a post-tax discount rate of 12.5(cid:13) and
utilising the operator’s current estimates of capital and operating costs and production profiles. The project is targeting project sanction decision
at the end of 2018 (cid:16)with such decision dependent on funding(cid:17) 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 development.
This second phase has been checked for impairment in a similar manner.
Sensitivity analysis was performed by, in turn, reducing oil price by (cid:12)10(cid:23)bbl, reducing production by 10(cid:13), 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(cid:23)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.
(cid:47)reater Mediterranean licences
The (cid:12)1.3 million additions during the period predominantly relate to work on the Egyptian license interests. An impairment of (cid:12)2.3 million
was recognised during the year against the Abu Sennan concession in Egypt following confirmation of the Al Jahraa-9 well being water wet.
The asset additions in the prior period ($5.8 million) relate to the Egyptian exploration assets acquired as part of the acquisition of Beach
Petroleum (Egypt) Pty Limited.
At the end of the prior 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 (cid:12)3.5 million written off to exploration costs in the Greater Mediterranean region as all costs
associated with the licence were written off.
68
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Financial Statements
15. Property, plant and equipment
Cost brought forward
Acquisitions
Asset additions
Additions
Foreign exchange
Disposals
Transfer to assets held for sale
Cost carried forward
Accumulated depreciation and impairment
loss brought forward
Current year depreciation charge
Foreign exchange
Disposals
Transfer to assets held for sale
Accumulated depreciation and impairment
loss carried forward
Net book value brought forward
Net book value carried forward
Oil and gas
assets
$’000
32,378
—
—
970
2,524
—
(4,829)
31,043
(14,831)
(5,473)
(1,790)
—
2,343
(19,751)
17,547
11,292
Other
assets
$’000
1,096
—
—
17
21
—
—
1,134
(618)
(214)
(9)
—
—
(841)
478
293
31 December
2017
$’000
33,474
—
—
987
2,545
—
(4,829)
32,177
(15,449)
(5,687)
(1,799)
—
2,343
(20,592)
18,025
11,585
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
All oil and gas assets relate to the Greater Mediterranean region, specifically producing assets in Italy and Egypt.
Prior year asset additions 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.
Impairment testing was performed across the Group’s oil and gas assets and was calculated by comparing the future discounted cash
(cid:198)ows expected to be derived from production of commercial reserves (cid:16)the value in use being the recoverable amount(cid:17) against the
carrying value of the asset. The future cash (cid:198)ows were estimated using a realised oil and gas price assumption equal to existing contracts
in place and relevant forward curve in 2018 and 2019, and an oil price of (cid:12)(cid:31)0(cid:23)bbl and a gas price of (cid:194)0.25(cid:23)sm3 in 2018 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 (cid:16)2016(cid:34) (cid:12)nil(cid:17).
16. Goodwill
As at 31 December 2016
Foreign exchange movement
As at 31 December 2017
Greater
Mediterranean
$’000
9,439
1,350
10,789
Goodwill relates to the corporate acquisition of Mediterranean Oil & Gas plc (cid:16)(cid:185)MOG(cid:186)(cid:17) during the period ended 31 December
2014. This goodwill is fully allocated to the Italian CGU and 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 increase in the period of (cid:12)1,350,000 (cid:16)2016(cid:34) (cid:12)364,000 reduction(cid:17)
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 calculation. Future cash(cid:198)ows are estimated using long term realised
gas price of (cid:194)0.25(cid:23)sm3 and a long-term realised oil price of (cid:12)(cid:31)0(cid:23)bbl in 2018 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.
Report & Accounts for the year ended 31 December 2017
69
Financial Statements
Rockhopper Exploration plc
Notes to the group financial statements continued
for the year ended 31 December 2017
17. Other receivables
Current
Receivables
Prepayments
Accrued interest
Income tax
Other
31 December
2017
$’000
31 December
2016
$’000
9,826
473
323
85
6,133
16,840
12,633
374
106
74
3,997
17,184
The carrying value of receivables approximates to fair value. The decrease in receivables in the year is due to the reduction of the
receivable due from EGPC. At 31 December 2017, the receivable balance due from EGPC was $7.6 million of which net $6.9 million
was due to Rockhopper after offsetting the amount payable to the former parent company, Beach Energy Limited. This reduction has
been in part offset by an increase in the IVA tax receivable balance due from the Italian tax authorities.
18. Restricted cash
Charged accounts
19. Term deposits
Maturing after the period end(cid:34)
Within three months
Six to nine month
Nine months to one year
31 December
2017
$’000
31 December
2016
$’000
540
540
495
495
31 December
2017
$’000
31 December
2016
$’000
10,000
10,000
10,000
30,000
—
10,000
20,000
30,000
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. Disposal group held for sale
On 8 June 201(cid:31), the Group announced the disposal of a portfolio of non-core interests in onshore Italy. As at 31 December 201(cid:31), the
disposal group comprised assets of $3.8 million less liabilities of $9.5 million, detailed as follows.
$’000
Intangible exploration and evaluation assets
Property, plant and equipment
Inventories
Provisions
21. Other payables and accruals
Accounts payable
Accruals
Other creditors
972
2,625
217
(9,450)
(5,636)
31 December
2017
$’000
31 December
2016
$’000
2,551
8,654
1,567
12,772
687
25,202
8,123
34,012
70
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Financial Statements
Accruals have decreased due to the prior year including costs associated with the close out of the 2015(cid:23)16 North Falkland Basin drilling
campaign. The decrease in other creditors in the year is due to the reduction of 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 2017
was $0.7 million.
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.
22. Tax payable
Current tax payable
Non current tax payable
31 December
2017
$’000
—
40,057
40,057
31 December
2016
$’000
9
39,115
39,124
On the 8 April 2015, the Group agreed binding documentation (cid:16)(cid:185)Tax Settlement Deed(cid:186)(cid:17) with the Falkland Island Government (cid:16)(cid:185)FIG(cid:186)(cid:17)
in relation to the tax arising from the Group’s farm out to Premier Oil plc (cid:16)(cid:185)Premier(cid:186)(cid:17).
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 (cid:138)64.4 million and payable on the first royalty
payment date on Sea Lion. Currently the first royalty payment date is anticipated to occur within six months of first oil production
which itself is estimated to occur approximately three and a half years after project sanction. As such the tax liability has been
reclassified as non-current and discounted at 15(cid:13). The tax liability has been revised downwards in the year ended 31 December 201(cid:31)
to (cid:138)59.6 million, due to the full benefit of the exploration carry being received from Premier on the 2015(cid:23)16 drilling campaign and the
Falkland Islands Commissioner of Taxation agreeing to reduce the liability on that basis in line with the terms of the Tax settlement
Deed. A foreign exchange loss of US(cid:12)3.8 million (cid:16)2016(cid:34) US(cid:12)8.3 million gain(cid:17) has also been recognised in the year.
23. Provisions
Brought forward
Amounts utilised
Amounts arising in the period
Change in estimate
Unwinding of discount
Transfer to liabilities associated with assets held for sale
Foreign exchange
Carried forward at period end
Abandonment
provision
$’000
Other
provisions
$’000
31 December
2017
$’000
31 December
2016
$’000
14,812
(1,669)
—
—
(cid:184)
(8,772)
1,524
5,895
102
(35)
11
—
(cid:184)
—
13
91
14,914
(1,704)
11
—
—
(8,772)
1,537
5,986
20,343
(4,245)
66
(849)
300
—
(701)
14,914
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 re(cid:198)ect 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.
Report & Accounts for the year ended 31 December 2017
71
Financial Statements
Rockhopper Exploration plc
Notes to the group financial statements continued
for the year ended 31 December 2017
24. Deferred tax liability
At beginning of period
Movement in period
At end of period
31 December
2017
$’000
39,145
57
39,202
31 December
2016
$’000
39,145
—
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(cid:13), 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 2017 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 201(cid:31) would be (cid:12)1(cid:31)6 million (cid:16)31 December 2016(cid:34) (cid:12)59 million(cid:17).
25. Share capital
31 December 2017
31 December 2016
$’000
Number
$’000
Number
Called up, issued and fully paid(cid:34) Ordinary shares of (cid:138)0.01 each
7,200
457,116,500
7,194
456,659,552
For details of all movements during the year, see note 13.
26. Reserves
Set out below is a description of each of the reserves of the Group(cid:34)
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.
(cid:55)(cid:95)n 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.
72
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Financial Statements
27. Lease commitments
The future aggregate minimum lease payments under non-cancellable operating leases in respect of land and buildings were as follows(cid:34)
Total committed within 1 year
Total committed between 1 and 5 years
31 December
2017
$’000
31 December
2016
$’000
569
1,285
1,854
902
1,117
2,109
28. 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.
As at the date of these accounts the Group had committed to fund its share of the approved work programs and budgets for our licence
interests in the calendar year ending 31 December 2018 of US(cid:12)10 million.
29. 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
Share based payments
Year ended
31 December
2017
$’000
Year ended
31 December
2016
$’000
1,875
59
120
2,054
2,538
139
508
3,185
Report & Accounts for the year ended 31 December 2017
73
Financial Statements
Rockhopper Exploration plc
Notes to the group financial statements continued
for the year ended 31 December 2017
30. 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 e(cid:96)change ris(cid:83)s: The Group’s functional currency is US(cid:12) 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(cid:138) denominated balance. In addition a number of the Group’s subsidiaries have a functional currency other than US(cid:12),
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 $51.3 million of which $46.3 million was held in
US(cid:12) denominations. The following table summarises the split of the Group’s assets and liabilities by currency(cid:34)
Currency denomination of balance
Assets
31 December 2017
31 December 2016
Liabilities
31 December 2017
31 December 2016
$
$’000
£
$’000
€
$’000
EGP £
$’000
495,535
520,607
47,087
72,908
2,989
7,811
42,031
41,852
29,519
27,064
18,349
12,735
22
7
—
—
The following table summarises the impact on the Group’s pre-tax profit and equity of a reasonably possible change in the US(cid:12) to GB(cid:138)
exchange rate and the US(cid:12) to euro exchange(cid:34)
US(cid:12) against GB(cid:138)
31 December 2017
31 December 2016
US(cid:12) against euro
31 December 2017
31 December 2016
Pre tax profit
Total equity
+10% US$ rate
increase
$’000
–10% US$ rate
decrease
$’000
+10% US$ rate
increase
$’000
–10% US$ rate
decrease
$’000
(3,904)
(2,519)
1,117
(1,060)
3,904
2,519
(1,117)
1,060
(3,904)
(2,519)
1,117
(1,060)
3,904
2,519
(1,117)
1,060
(cid:43)apital ris(cid:83) 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.
(cid:43)redit ris(cid:83)(cid:35) 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 201(cid:31) were (cid:12)9,826,000 (cid:16)31 December 2016(cid:34) (cid:12)12,633,000(cid:17). 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
(cid:49)nterest rate ris(cid:83)s(cid:35) 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.
Li(cid:89)uidity ris(cid:83)s(cid:35) 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 201(cid:31) were (cid:12)30,000,000 (cid:16)31 December 2016(cid:34) (cid:12)30,000,000(cid:17).
74
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Financial Statements
Parent company financial statements – company balance sheet
As at 31 December 2017
(cid:54)on current assets
Property, plant and equipment
Investments
(cid:43)urrent assets
Other receivables
Restricted cash
Term deposits
Cash and cash equivalents
Total assets
(cid:43)urrent liabilities
Other payables
Total liabilities
(cid:45)(cid:89)uity
Share capital
Share premium
Share based remuneration
Own shares held in trust
Merger reserve
Special reserve
Retained earnings
Attributable to the e(cid:89)uity shareholders of the company
Total liabilities and e(cid:89)uity
Notes
2
3
4
5
6
10
10
10
10
10
10
31 December
2017
$’000
31 December
2016
$’000
169
93,617
413,069
540
30,000
18,792
556,187
7,454
7,454
7,200
3,282
5,610
(3,383)
74,575
461,449
—
548,733
556,187
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
These financial statements were approved by the directors and authorised for issue on 18 April 2018 and are signed on their behalf by(cid:34)
Ste(cid:95)art MacDonald
Chief Financial Officer
Registered Company number(cid:34) 05250250
Report & Accounts for the year ended 31 December 2017
75
Financial Statements
Rockhopper Exploration plc
Company statement of changes in equity
for the year ended 31 December 2017
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
Total comprehensive loss for the year
Share based payments
Share issues in relation to SIP
Other transfers
Share
capital
$’000
4,910
—
—
2,278
6
—
—
7,194
—
—
6
—
Share
premium
$’000
Share based
remuneration
$’000
Shares held
in trust
$’000
Merger
reserve
$’000
Special
reserve
$’000
Retained
losses
$’000
Total
Equity
$’000
2,995
—
—
—
154
—
—
3,149
—
—
133
—
5,491
(3,513)
11,355
472,967
—
494,205
—
884
—
110
(234)
—
6,251
—
864
—
(1,505)
—
—
—
(128)
234
—
(3,407)
—
—
(109)
133
—
—
63,220
—
—
—
74,575
—
—
—
—
—
—
—
—
—
(10,418)
462,549
—
—
—
(1,100)
(10,418)
—
—
—
—
10,418
—
(2,472)
—
—
2,472
(10,418)
884
65,498
142
—
—
550,311
(2,472)
864
30
—
Balance at 31 December 2017
7,200
3,282
5,610
(3,383)
74,575
461,449
—
548,733
76
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Financial Statements
Notes to the company financial statements
for the year ended 31 December 2017
1. Accounting policies
Company and its operations
Rockhopper Exploration plc, the (cid:187)Company’, a public limited company quoted on AIM, incorporated and domiciled in the United
(cid:51)ingdom (cid:16)(cid:187)U(cid:51)’(cid:17), holds, through its subsidiaries, certain exploration licences for the exploration and exploitation of oil and gas in the
Falkland Islands. In 2014, it diversified its portfolio through the acquisition of an exploration and production company with operations
principally based in Italy 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 9(cid:65)Q.
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 201(cid:31) were approved and signed by the
Group Chief Financial Officer on 18 April 2018 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 (cid:16)FRS 100(cid:17) issued by the Financial Reporting Council.
Accordingly, these financial statements were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure
Framework (cid:16)FRS 101(cid:17) and in accordance with the provisions of the Companies Act 2006. The amendment to FRS101 (cid:16)2014(cid:23)15 cycle(cid:17)
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-
(cid:198)ow 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 (cid:16)(cid:12)’000(cid:17), 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 201(cid:31), the Group had available resources of (cid:12)51 million. In addition the Group’s main development, Sea Lion,
is fully funded through a combination of Development Carries and a loan facility from the operator.
It is for these reasons that the board is of the opinion, at the time of approving the financial statements, that the Group and Company
has adequate resources to continue in operational existence for the foreseeable future, being at least twelve months from the date of
approval of the financial statements. For this reason, the board has adopted the going concern basis in preparation of the financial
statements.
Share based payment
The Company issues equity settled share based payments to certain employees. Equity settled share based payments are measured at
fair value (cid:16)excluding the effect of non market based vesting conditions(cid:17) 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.
Report & Accounts for the year ended 31 December 2017
77
Financial Statements
Rockhopper Exploration plc
Notes to the company financial statements continued
for the year ended 31 December 2017
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(cid:12).
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(cid:34)
(cid:138) (cid:34) US(cid:12)
€ (cid:34) US(cid:12)
31 December 2017
31 December 2016
1.35
1.20
1.22
1.05
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(cid:34)
Office equipment
Leasehold improvements
Over three years
Over five years
Non-derivative financial instruments
Financial assets and financial liabilities are recognised on the Company’s balance sheet when the Company has become a party to the
contractual provisions of the instrument.
78
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Financial Statements
(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
(cid:198)ow 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
2017
$’000
31 December
2016
$’000
1,010
16
—
1,026
(693)
(164)
—
(857)
317
169
1,448
275
(713)
1,010
(1,015)
(167)
489
(693)
433
317
Report & Accounts for the year ended 31 December 2017
79
Financial Statements
Rockhopper Exploration plc
Notes to the company financial statements continued
for the year ended 31 December 2017
3.
Investments
Cost brought forward
Additions
Cost carried forward
Amounts provided brought and carried forward
Net book value brought forward
Net book value carried forward
31 December
2017
$’000
139,117
—
139,117
(45,500)
93,617
93,617
31 December
2016
$’000
47,600
91,517
139,117
(45,500)
2,100
93,617
All amounts relate to subsidiary undertakings. Additions during the prior period relate to the acquisition of 100(cid:13) of the ordinary issued
share capital of Falkland Oil and Gas Limited and Beach Petroleum Egypt Pty Limited (cid:16)now Rockhopper Egypt Pty Limited(cid:17).
Details of the investments at the period end were as follows(cid:34)
Company
Rockhopper Resources Limited
Rockhopper Exploration (cid:16)Oil(cid:17) Limited
Rockhopper Exploration (cid:16)Hydrocarbons(cid:17) Limited
Rockhopper Exploration (cid:16)Petrochemicals(cid:17) Limited
Rockhopper Exploration (cid:16)Oil(cid:17) Limited
Rockhopper Mediterranean Limited
Rockhopper Civita Limited
Rockhopper Italia SpA
Melita Exploration Company Limited
Falkland Oil and Gas Limited
Desire Petroleum Ltd
Rockhopper Egypt Pty Ltd
Incorporated
England & Wales
England & Wales
England & Wales
England & Wales
Falkland Islands
England & Wales
England & Wales
Italy
Malta
Falkland Islands
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
31 December
2017
$’000
9
442
323
131
412,164
413,069
Percentage
held
%
100
100
100
100
100
100
100
100
100
100
100
100
31 December
2016
$’000
70
302
106
127
404,393
404,998
Amounts with Group undertakings are subject to loan agreements, repayable on demand and interest free. Amounts with Group
undertakings are net of provisions of (cid:12)12,346,000 (cid:16)31 December 2016(cid:34) (cid:12)12,408,000(cid:17).
5. Other payables
Trade creditors
Other creditors
Accruals
31 December
2017
$’000
31 December
2016
$’000
1,350
658
5,446
7,454
310
7,392
21,067
28,769
80
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Financial Statements
6. Share capital
Shares in issue brought forward
Shares issued
– Issued in relation to acquisitions
– Issued under the SIP
Shares in issue carried forward
31 December
2017
Number
31 December
2016
Number
456,659,052
296,579,834
—
456,948
457,116,500
159,684,668
394,550
456,659,052
Called up, issued and fully paid(cid:34) Ordinary shares of (cid:138)0.01 each
7,200
457,116,500
7,194
456,659,052
31 December 2017
31 December 2016
$’000
Number
$’000
Number
(cid:31). Salaries and directors’ remuneration
Salaries and fees
National insurance costs
Pension costs
Employee benefit costs
Average number of employees
Year ended
31 December
2017
$’000
Year ended
31 December
2016
$’000
3,806
481
181
77
15
4,436
563
293
126
15
Disclosures in relation to directors’ remuneration are given on a consolidated basis in the directors’ report and note (cid:31) 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 26 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(cid:34)
Total committed within 1 year
Total committed between 1 and 5 years
31 December
2017
$’000
31 December
2016
$’000
498
382
880
452
798
1,250
12. Related parties
Note 29 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.
Report & Accounts for the year ended 31 December 2017
81
Financial Statements
Rockhopper Exploration plc
Key licence interests as at 1 April 2018
Falkland Islands
North Falkland Basin
Licence
PL003a
PL003b
PL004a
PL004b
PL004c
PL005
PL032
(cid:183) Sea Lion Discovery Area
PL033
South Falkland Basin
Licence
PL010(cid:183)PL016
PL025(cid:183)PL029
PL031
Greater Mediterranean
Egypt
Licence
Abu Sennan
El Qa’a Plain
Italy
Licence
A.C35.AG
Serra San Bernardo (cid:16)Monte Grosso(cid:17)
Aglavizza#
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
(cid:184)
(cid:184)
Isobel Deep
Beverley
Casper South
(cid:66)ebedee
(cid:184)
64.00
100.00
(cid:184)
40.00 Casper North
Sea Lion
(cid:184)
40.00
Licence phase
expiry date
01(cid:23)05(cid:23)2021
01(cid:23)05(cid:23)2021
01(cid:23)05(cid:23)2021
01(cid:23)05(cid:23)2021
01(cid:23)05(cid:23)2021
01(cid:23)05(cid:23)2021
01(cid:23)05(cid:23)2021
15(cid:23)04(cid:23)2020
01(cid:23)05(cid:23)2021
Operator
Rockhopper working
interest %
Field/Discovery
Licence phase
expiry date
Rockhopper
Rockhopper
Rockhopper
100.00
100.00
100.00
(cid:184)
(cid:184)
(cid:184)
03(cid:23)12(cid:23)2020
15(cid:23)12(cid:23)2018
15(cid:23)12(cid:23)2018
Operator
Rockhopper working
interest %
Field/Discovery
Licence phase
expiry date
(cid:51)uwait Energy
22.00
Various
Dana Petroleum
25.00
(cid:184)
01(cid:23)02(cid:23)2032
to 03(cid:23)0(cid:31)(cid:23)2036
29(cid:23)0(cid:31)(cid:23)18
Operator
Rockhopper working
interest %
Eni
Eni
Rockhopper
20.00
22.89
100.00
Field/Discovery
Guendalina
(cid:184)
Civita
Licence phase
expiry date
25(cid:23)11(cid:23)2022
13(cid:23)0(cid:31)(cid:23)2013*
1(cid:31)(cid:23)12(cid:23)2032
# Aglavizza is included within the announced disposal of a portfolio of interests in Italy.
(cid:18) Licence currently suspended. Revised expiry date will be known once regulatory approval received to drill.
82
Report & Accounts for the year ended 31 December 2017
Rockhopper Exploration plc
Glossary
Supplementary Information
AGM
Annual General Meeting
bbl
bcf
barrel
billion cubic feet
Beach Egypt
Beach Petroleum (Egypt) Pty Limited
(cid:16)now Rockhopper Egypt Pty Ltd(cid:17)
IAS
IFRS
JV
kboepd
kbopd
International Accounting Standard
International Financial Reporting Standard
Joint Venture
thousand barrels of oil equivalent per day
thousand barrels of oil per day
the Board of Directors of Rockhopper Exploration plc
(cid:51)PI
key performance indicator
Board
boe
boepd
BOP
bopd
Capex
barrel(s) of oil equivalent
barrel(s) of oil equivalent per day
blow out preventer
barrel(s) of oil per day
capital expenditure
Company
Rockhopper Exploration plc
E&P
EIS
ESA
exploration and production
Environmental Impact Statement
Exploration Study Agreement
ExCo
Executive Committee
LoI
LTI
LTIP
MOG
mmbbls
mmboe
mmbtu
mmscfd
mscf
mt
Letter of Intent
Lost Time Incident
Long Term Incentive Plan
Mediterranean Oil & Gas plc
million barrels
million barrels of oil equivalent
million British thermal units
million standard cubic feet per day
thousand standard cubic feet
metric tonne
Farm-in
to acquire an interest in a licence from another party
NAV
net asset value
Farm-out
to assign an interest in a licence to another party
Premier
Premier Oil plc
FDP
FEED
FID
FIG
FOGL
FPSO
G&A
Group
GSA
HoA
HSE
field development plan
front end engineering and design
Final Investment Decision
Falkland Islands Government
Falkland Oil & Gas Limited
PSA
PSC
scm
SIP
spud
Production Sharing Agreement
Production Sharing Contract
standard cubic metre
Share Incentive Plan
to commence drilling a well
(cid:198)oating production, storage and offtake vessel
STOIIP
stock-tank oil initially in place
General & Administration expenses
The Company and its subsidiaries
Gas Sales Agreement
Heads of Agreement
TSR
2C
2P
total shareholder return
best estimate of contingent resources
proven plus probable
(cid:12)(cid:23)US(cid:12)
United States dollar
health, safety and environment
WI
working interest
Report & Accounts for the year ended 31 December 2017
83
Supplementary Information
Rockhopper Exploration plc
Shareholder information
Key contacts
Concerns and procedures
General emails
info(cid:40)roc(cid:83)hoppere(cid:96)ploration(cid:22)co(cid:22)u(cid:83)
Audit committee emails
r(cid:83)h(cid:40)roc(cid:83)hoppere(cid:96)ploration(cid:22)co(cid:22)u(cid:83)
Website
(cid:95)(cid:95)(cid:95)(cid:22)roc(cid:83)hoppere(cid:96)ploration(cid:22)co(cid:22)u(cid:83)
Shareholder concerns(cid:34)
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(cid:34)
r(cid:83)h(cid:40)roc(cid:83)hoppere(cid:96)ploration(cid:22)co(cid:22)u(cid:83)
Whistle-blowing procedures(cid:34)
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(cid:34)
r(cid:83)h(cid:40)roc(cid:83)hoppere(cid:96)ploration(cid:22)co(cid:22)u(cid:83)
Registered address and head o(cid:1659)ce:
4th Floor
5 Welbeck Street
London
W1G 9(cid:65)Q
(cid:54)(cid:55)MAD and (cid:82)oint bro(cid:83)er
Canaccord Genuity Limited
88 Wood Street
London
EC2V (cid:31)QR
(cid:50)oint bro(cid:83)er
Peel Hunt LLP
Moor House
120 London Wall
London
EC2(cid:65) 5ET
Solicitors
Ashurst LLP
Broadwalk House
5 Appold Street
London
EC2A 2DA
Principal Ban(cid:83)ers
Royal Bank of Scotland plc
36 St Andrew Square
Edinburgh
EH2 2(cid:65)B
Auditor
KPMG LLP
15 Canada Square
London
E14 5GL
Registrar
Computershare Investor Services plc
Vintners Place
68 Upper Thames Street
London
EC4V 3BJ
84
Report & Accounts for the year ended 31 December 2017
Contents
Strategic Report
2 2017 highlights
3 Rockhopper – the story so far
4 Rockhopper at a glance
6 Vision, strategy and business model
(cid:31) Chairman and Chief Executive Officer’s review
9 Industry overview
10 Sea Lion Phase 1 development overview
12 Operations review
17 Key Performance Indicators (KPIs)
18 Financial review
21 Internal controls and risk management
22 Principal risks and uncertainties
26 Health, safety, environmental and social management
Governance Report
2(cid:31) Chairman’s governance report
28 Senior management team
29 Rockhopper Board
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
Financial Statements
Group company financial statements
51 Group income statement
51 Group statement of comprehensive income
52 Group balance sheet
53 Group statement of changes in equity
54 Group cash (cid:198)ow statement
55 Notes to the group financial statements
Parent company financial statements
75 Company balance sheet
76 Company statement of changes in equity
(cid:31)(cid:31) Notes to the company financial statements
82 Key licence interests as at 1 April 2018
Supplementary Information
83 Glossary
84 Shareholder information
Supply base quay, Stanley,
Falkland Islands
2017-RKH Cover pp01-04-JB06.indd 2
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Building a well-funded,
full-cycle, exploration-led
E&P company
Report and Accounts
for the year ended 31 December 2017
Rockhopper Exploration plc
Head office:
4th Floor
5 Welbeck Street
London
W1G 9YQ
Telephone +44 (0)207 486 1677
info@rockhopperexploration.co.uk
www.rockhopperexploration.co.uk
@RockhopperExplo
Company Reg. No. 05250250
2017-RKH Cover pp01-04-JB06.indd 1
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