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Building a well-funded,
full-cycle, exploration-led
E&P company
Report and Accounts
for the year ended 31 December 2018
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
Twitter @RockhopperExplo
Company Reg. No. 05250250
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.
Financial Statements
Group company financial statements
55 Group income statement
55 Group statement of comprehensive income
56 Group balance sheet
57 Group statement of changes in equity
58 Group cash flow statement
59 Notes to the group financial statements
Parent company financial statements
79 Company balance sheet
80 Company statement of changes in equity
81 Notes to the company financial statements
87 Key licence interests as at 1 April 2019
Supplementary Information
88 Glossary
89 Shareholder information
Strategic Report
1 Highlights
3 Rockhopper – the story so far
4 Rockhopper at a glance
6 Vision, strategy and business model
7 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
27 Rockhopper Board
28 Board of Directors
30 Senior management team
31 Corporate governance statement
35 Audit & Risk Committee Chairman’s report
38 Nomination Committee Chairman’s report
39 Remuneration report
50 Statutory information
52
Independent auditor’s report to the
members of Rockhopper Exploration plc
Cover: Stanley Harbour
Rockhopper Exploration plc
Supplementary Information
Shareholder information
Key contacts
Concerns and procedures
General emails
info@rockhopperexploration.co.uk
Audit committee emails
rkh@rockhopperexploration.co.uk
Website
www.rockhopperexploration.co.uk
Shareholder concerns:
Should shareholders have concerns which have not been
adequately addressed by the chairman or chief executive,
please contact the chairman of the audit committee at:
rkh@rockhopperexploration.co.uk
Whistle-blowing procedures:
Should employees, consultants, contractors or other
interested parties have concerns which have not been
adequately addressed by the chairman or chief executive,
please contact the chairman of the audit committee at:
rkh@rockhopperexploration.co.uk
Registered address and head office:
4th Floor
5 Welbeck Street
London
W1G 9YQ
NOMAD and joint broker
Canaccord Genuity Limited
88 Wood Street
London
EC2V 7QR
Joint broker
Peel Hunt LLP
Moor House
120 London Wall
London
EC2Y 5ET
Solicitors
Ashurst LLP
Broadwalk House
5 Appold Street
London
EC2A 2DA
Principal Bankers
Royal Bank of Scotland plc
36 St Andrew Square
Edinburgh
EH2 2YB
Auditor
KPMG LLP
15 Canada Square
London
E14 5GL
Registrar
Computershare Investor Services plc
Vintners Place
68 Upper Thames Street
London
EC4V 3BJ
.
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Report & Accounts for the year ended 31 December 2018
89
Rockhopper Exploration plc
Highlights
Strategic Report
Sea Lion Phase 1 development – securing senior debt funding
represents last major milestone to achievement of FID
> Front End Engineering and Design completed in Q1 2019
> Process to progress contractor LOIs to full agreements
well advanced
> Field Development Plan and Environmental Impact Statement
substantially agreed with the Falkland Islands Government
– final approval expected at sanction
> Good progress made with the Falkland Islands Government
on Sea Lion royalty and fiscal terms
> Financing structure progressed – extensive due diligence
and assurance process underway
> Vendor financing – contractors have agreed to provide up
to US$400 million of funding for the project
> Project momentum building with budget approved in Q3
2018 to increase activity and expand the Operator’s project
development team
Greater Mediterranean portfolio continues to deliver stable production
with exploration upside
> Net working interest production averaged 1.1 kboepd in 2018
> Multiple oil and gas discoveries as a result of the 2018 drilling
campaign at Abu Sennan, Egypt
– Successful infill drilling and implementation of a water
injection programme at the Al Jahraa field to enhance
production and maximise recoverability
– Oil discovery in the Bahariya de-risks future exploration
at this level across the concession
Report & Accounts for the year ended 31 December 2018
1
Strategic Report
Rockhopper Exploration plc
Strong financial performance with continued focus on managing costs
> Revenue of US$10.6 million; operating costs US$4.6 million;
cash flow from operations US$5.4 million
> Cash operating costs of US$11.7 per boe –
maintaining a low cost base
> Continued management of G&A costs –
US$5.3 million – down over 50% since 2014
> G&A costs covered by operating cash flows
> Cash resources of US$40.4 million at 31 December 2018
and no debt
Corporate
> International arbitration hearing in relation to Ombrina Mare
took place in February 2019
> Alison Baker appointed as Independent Non-Executive Director
in September 2018
Outlook
> Joint venture to submit formal senior debt funding application on
Sea Lion Phase 1 in Q2 2019
> Outcome in relation to Ombrina Mare arbitration expected in
late Q3 or early Q4 2019 – seeking significant monetary damages
> Active drilling campaign at Abu Sennan, Egypt with four wells
planned during 2019
> Appointment of Keith Lough as Non-Executive Chairman
following the retirement of David McManus at Company’s
forthcoming AGM
> Continued pursuit of new venture opportunities to supplement
production, enhance cash flow and strengthen balance sheet
2
Report & Accounts for the year ended 31 December 2018
Rockhopper Exploration plc
Strategic Report
Rockhopper – the story so far
2018/Q1 2019
2017
Completion of FEED
FEED completion Q1 2019.
Letters of Intent signed with a number of key
contractors for the provision of services and
vendor financing for the Sea Lion project.
Field Development Plan and Environmental
Impact Statement for Sea Lion substantially
agreed with the Falkland Island Government –
final approval expected at sanction.
2016
2015
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.
2014
2013
Acquisition of MOG
In May, Rockhopper announced a
recommended cash and share offer to acquire
AIM listed Mediterranean Oil & Gas plc. The
transaction completed in August. Through the
acquisition Rockhopper acquired a portfolio
of production, development, appraisal and
exploration interests in Italy, Malta and France.
2012
2010/11
Farm-Out
In July, Rockhopper announced it had entered
into a farm-out agreement with Premier Oil
plc (“Premier”), whereby Premier acquired a
60% operated interest in Rockhopper’s North
Falkland Basin licences for undiscounted
consideration of c.$1bn (comprising cash,
development carry and exploration carry).
In recognition of Rockhopper’s unrivalled
understanding of the North Falkland Basin,
it was agreed that Rockhopper would retain
the sub-surface lead in relation to future
exploration activities.
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.
NFB exploration campaign commences
In March, the Eirik Raude rig arrives in the
North Falkland Basin to commence a multi-
well drilling campaign. Exploration successes
at Zebedee and Isobel Deep with multiple oil
discoveries made.
In November, Rockhopper announced the terms
of its all-share merger with Falkland Oil & Gas.
Through the merger with FOGL, Rockhopper
consolidates its leading acreage and resource
position in the North Falkland Basin.
Consolidates interests in NFB acreage
Rockhopper consolidates its interests in the
Falklands through the farm-in to acreage held
by Desire Petroleum. As a result, Rockhopper
increases its interests in licences PL004a,
PL004b and PL004c to 24%.
Sea Lion discovery and appraisal
In February 2010, the Ocean Guardian drilling rig
arrived in Falklands waters to carry out a multi-
well programme on behalf of multiple operators.
In the spring, Rockhopper (as operator) drilled
its first exploration well on the Sea Lion prospect
which resulted in an oil discovery. The well was
successfully flow tested in September.
During late 2010/11 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.
Report & Accounts for the year ended 31 December 2018
3
Strategic Report
Rockhopper Exploration plc
Rockhopper at a glance
Falkland Islands
North Falkland Basin
Sea Lion Phase 1 (PL032)
> 40% working interest
> 220 mmbbls gross*
88 mmbbls net to Rockhopper*
50°S50°S50°S
Sea Lion Phase 2 (PL032/PL004)
> 40-64% working interest†
> 300 mmbbls gross*
120-192 mmbbls net
to Rockhopper*
Phase 3 – Isobel-Elaine (PL004)
> 64% working interest
> Isobel-Elaine complex significantly
de-risked during 2015/16
exploration campaign
* Operator estimate
†
Sea Lion Phase 2 straddles licences PL032 in which
Rockhopper holds a 40% interest and PL004 in
which Rockhopper holds a 64% interest.
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
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 2018
Rockhopper Exploration plc
Strategic Report
Greater Mediterranean
ITA LY
Guendalina
Ombrina Mare
Civita
Exploration
Production
Discovery
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% working interest
> Northern Adriatic gas
production
Civita
> 100% 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
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% working interest
> Exploration stage – seeking
regulatory permits to drill
Ombrina Mare
> 100% working interest
> International arbitration
commenced – outcome
expected late Q3/early
Q4 2019
EGY P T
Egypt
Abu Sennan
> 22% working interest
> Western Desert oil and
gas production
El Qa’a Plain
> 25% working interest
> Exploration commitment
well drilled 2018
Report & Accounts for the year ended 31 December 2018
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
> Focus on North Falkland Basin
and Greater Mediterranean
> Across the full asset life cycle
> Production base to enable growth
through exploration
> Maintaining balance sheet strength
> Prudent balance sheet management
> Partial monetisation of assets to fund
development
> Disciplined approach to cost management
> Value accretive exploration
> Leveraging technical skillset
> Focus on proven hydrocarbon basins
> Managed exposure to high-impact opportunities
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)
0.3
0.3
Revenue
(US$m)
1.1
1.2
0.8
10.6
10.4
7.4
4.0
1.9
Recurring G&A costs
(US$m)
5.3
5.3
7.4
9.4
10.8
2018
2017
2016
2015
2014
2018
2017
2016
2015
2014
2018
2017
2016
2015
2014
Gross Sea Lion Complex resources
(mmbbl)
April
2016
March
2012
2C
3C
2C
3C
517
900
386
560
6
Report & Accounts for the year ended 31 December 2018
Rockhopper Exploration plc
Strategic Report
David McManus
Chairman
Samuel Moody
Chief Executive Officer
Chairman and Chief Executive Officer’s review
Rockhopper’s strategy is to build a well-funded,
full-cycle, exploration led E&P company.
Against a backdrop of volatile commodity prices,
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.
Sea Lion has the potential to be transformational
for Rockhopper and the Falkland Islands as a
whole. Securing funding is the last remaining major
milestone before Sea Lion can reach FID and all
efforts are focused on securing such financing to allow
the project to move into the development phase.
In the Greater Mediterranean, our portfolio continues
to meet its primary objective, namely to provide a
production and cash flow base to fund our corporate
and operating costs and support our balance sheet.
We maintain ambitions to further expand our
production base thereby generating additional free
cash flow to strengthen our balance sheet and invest
in future exploration or other value-accretive growth
opportunities both in the Falklands and elsewhere.
Sea Lion Phase 1 – FEED completed; formal funding
application to be submitted Q2 2019
Material progress continues to be made across a
range of commercial, fiscal and funding matters as
we work towards a final investment decision on the
Phase 1 development of the Sea Lion field.
During 2018, FEED contracts were awarded
for all the outstanding elements of the project
scope with a corresponding increase in activity,
expenditure and expansion of the Operator’s project
development team. Although FEED concluded in
March 2019, increased activity levels are expected
to be maintained throughout 2019 in the lead up to
project sanction. The process to agree fully termed
documentation for the provision of contractor
services and vendor finance is well advanced and
letters of award will be issued as we go through the
sanction gate.
received. The final EIS document has been submitted
to FIG. Formal approval of the EIS and FDP are
expected at sanction.
Good progress has been made with FIG on the
royalty and fiscal terms which will apply to the first
phase of development of the Sea Lion field. A public
consultation on a number of technical tax matters
associated with oil field development in the Falklands
was concluded in the third quarter of 2018 with a
number of technical amendments and clarifications
being implemented. These amendments and
clarifications provided definition on a number of
important regulatory and tax matters which were
critical to enabling the project to progress.
The Sea Lion financing plan comprises funding
elements including senior project finance debt (likely
involving a combination of export credit financing
and project bank funding), vendor financing from
contractors and equity from the joint venture.
Rockhopper’s share of the joint venture equity is to be
funded through the carry arrangements with Premier.
The joint venture continues to lead engagement with
a wide range of stakeholders to obtain the support
required to secure senior project finance debt, which
represents the core of the project’s funding strategy.
With initial debt feasibility and structuring now
progressed, the joint venture expects to submit
the Project Information Memorandum (“PIM”)
and formal funding application during Q2 2019. On
the vendor financing side, the project contractors
have undertaken an extensive due diligence and
assurance process and, subject to the finalisation
of documentation, have agreed to provide up to
US$400 million of funding for the project.
Greater Mediterranean portfolio continues to
deliver stable production with exploration upside
Our Greater Mediterranean portfolio continued
to perform well with production growth in Egypt
broadly offsetting declining production in Italy.
Production during 2018 averaged 1.1 kboepd net
to Rockhopper, with operating cash flows again
covering the Group’s G&A costs.
Engagement continues with the Falkland Islands
Government (“FIG”) 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.
Following submission of a revised Field Development
Plan (“FDP”) to FIG in March 2018, the FDP is
considered substantially agreed. The Environmental
Impact Statement (“EIS”) public consultation process
concluded in March 2018 with no material objections
In June 2018, the Company announced the
commencement of a four-well drilling campaign
across its Egyptian portfolio, including three wells at
Abu Sennan and one at El Qa’a Plain. Whilst the Raya
commitment well on the El Qa’a Plain concession
encountered good quality sands, no hydrocarbons
were encountered.
Within the Abu Sennan concession, successful infill
oil producers were drilled at Al Jahraa-6 and Al
Jahraa-10 as well as a successful exploration well at
Report & Accounts for the year ended 31 December 2018
7
Strategic Report
Rockhopper Exploration plc
ASZ-1X. At Al Jahraa-6, success occurred in both the
primary objective, being the Abu Roash-C reservoir,
and with a new oil discovery in the deeper Bahariya
section. The Bahariya formation was subsequently put
into production and continues to make a meaningful
contribution to overall volumes from the concession.
During 2018 the Company continued to see a
material improvement in the payment situation
in Egypt with a significant decline in outstanding
receivables owed by Egyptian General Petroleum
Corporation (“EGPC”).
Corporate matters
Rockhopper commenced international arbitration
proceedings against the Republic of Italy in relation
to the Ombrina Mare field in March 2017. The
hearing took place in early February 2019 in Paris.
Rockhopper continues to believe it has strong
prospects of recovering very significant monetary
damages – on the basis of lost profits - 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 (“no win - no fee”) basis
from a specialist arbitration funder.
As part of the Board’s long-term succession
planning, and having served on the Board for
nearly nine years, the past three as Non-Executive
Chairman, David McManus will be retiring as a
Director with effect from the Company’s 2019 Annual
General Meeting (“AGM”). David will be succeeded as
Non-Executive Chairman by Keith Lough, currently
the Senior Independent Director and a Non-Executive
Director of the Company since January 2014.
In September 2018, Alison Baker was appointed
as an Independent Non-Executive Director. Alison
has nearly 25 years’ experience in the provision
of audit, capital markets and advisory services,
having led the UK and EMEA Oil and Gas practice
at PricewaterhouseCoopers and prior to that the
Energy, Utilities and Mining Assurance practice at
Ernst & Young. Alison is currently an Independent
Non-Executive Director of KAZ Minerals PLC and
Centamin plc. Alison will replace Keith as Chairman
of the Audit and Risk Committee, also with effect
from the 2019 AGM.
Accordingly, following the Company’s 2019 AGM,
the Board will comprise six Directors – two Executive
Directors and four Non-Executive Directors,
including the Chairman. However, as part of the
Board’s long-term succession planning and given
our continued focus on corporate costs, the aim
remains to further reduce the size of the Board over
time. In this regard, and as previously announced,
it is anticipated that Tim Bushell will step down from
the Board at or before the Company’s AGM in 2020.
From 28 September 2018, all AIM companies are
required to state which recognised corporate
governance code the Board has decided to apply and
to explain how the Company complies with that code.
Following a review of the alternative codes available,
the Board decided to adopt the Quoted Companies
Alliance Corporate Governance Code (the “QCA Code”)
and suitable disclosures will be made going forward.
Following the conclusion of a formal tender process,
the Board has approved the proposed appointment
of PricewaterhouseCoopers as the Company’s
auditor for the financial year commencing 1 January
2019. This appointment is subject to approval by
shareholders of the Company at the 2019 AGM.
Outlook
Sea Lion has the potential to be transformational
for Rockhopper and all efforts remain focused on
securing the requisite stakeholder support and
funding to allow sanction to occur.
With Brent oil prices currently above US$65 per
barrel, the economics for the Sea Lion project
remain robust. It is in this context that the Board
remains confident that the requisite stakeholder
support and funding will be secured. Whilst PIM and
formal funding application submission represent
a significant milestone in the financing process,
the timetable and process to secure such funding
remains outside our control.
The outcome of the international arbitration
against the Republic of Italy is expected later this
year and following the hearing in February we
remain confident that we have strong prospects of
recovering very significant monetary damages.
Our Greater Mediterranean portfolio continues to
provide the necessary operating cash flow to fund
corporate costs while providing low-risk exploration
upside opportunities. On a highly selective basis, the
Company will seek to further expand the production
base with the aim of generating additional free
cash flow to invest in future exploration and value-
accretive growth opportunities both in the Falklands
and elsewhere.
David McManus
Non-Executive Chairman
Samuel Moody
Chief Executive Officer
1 April 2019
>
Senior management
team – biographies
on page 30
8
Report & Accounts for the year ended 31 December 2018
Rockhopper Exploration plc
Strategic Report
Industry overview
Average Brent Crude price
US$/bbl
Upstream Capital Costs Index (UCCI) / Upstream Operating Costs Index (UOCI)
Cost Index (Year 2000=100)
120
109
100
80
40
0
71
54
54
45
250
200
150
100
50
0
UCCI
Q4 2018
182
UOCI
Q4 2018
172
2013
2014
2015
2016
2017
2018
2000
2002
2004
2006
2010
2012
2014
2016
2018
2020
Primary energy demand
Billion ton
20
15
10
5
0
End use sector
Transport
Industry*
Non-combusted
Buildings
Fuel
Renewables
Hydro
Nuclear
Coal
Gas
Oil
20
15
10
5
0
Region
Other
Africa
Other Asia
India
China
OECD
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-combusted use of fuels
Economic and political
> Continued global political and economic uncertainty
> Iranian sanctions and US-China trade outlook provided
volatile backdrop
> Ongoing Eurozone uncertainty associated with Brexit
> Global growth outlook considered robust overall although
increasing risk of US recession from 2020 onwards.
Commodity prices
> Volatility continued through 2018
> Brent price increased during the first three-quarters
of 2018, peaking at $84/bbl in October
> Sharp fall in Q4 with Brent ending the year at $50/bbl
> Key supply/demand dynamics in the year impacted by
supply disruptions in Nigeria and Venezuela, continued
strong output and increasing efficiencies from US shale,
and OPEC response to changing market dynamics
> Outlook for 2019 remains volatile given limited spare
production capacity, uncertain growth outlook and scope
for further political interventions.
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 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 2018, 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, reflecting the sectors continued focus on
cost reductions, project deferrals, capturing efficiencies,
industry standardisation and co-operation around shared
infrastructure
> With an improved oil price outlook, and an attractive cost
environment, investments in new greenfield projects,
such as Sea Lion, are expected to increase.
Report & Accounts for the year ended 31 December 2018
9
Strategic Report
Rockhopper Exploration plc
Sea Lion Phase 1 development overview
Proven development concept
Key facts
World scale resource
> 1.7 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
> EIS and FDP substantially agreed; final approval
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$1.5 bn
80,000 bopd
Resource to be monitised
FPSO liquid capacity
220 mmbbls
(Phase 1 only)
120,000 bpd
10
Report & Accounts for the year ended 31 December 2018
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$1.8 bn
(at plateau, assuming US$65/bbl)
US$25/bbl
(Life of field, including field opex and FPSO lease)
Wells to be drilled
23
of which 16 oil producers
Report & Accounts for the year ended 31 December 2018
11
Strategic Report
Rockhopper Exploration plc
Operations review
Sea Lion, North Falkland Basin
Rockhopper is 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
approximately 220 mmbbls in PL032 (in which
Rockhopper has a 40% working interest). A
subsequent Phase 2 development will develop a
further 300 mmbbls from the remaining resources
in PL032 and the satellite accumulations in the
north of PL004 (in which Rockhopper has a 64%
working interest). 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/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
subsea wells. Estimated gross capex to first oil
remains US$1.5 billion. The Sea Lion financing plan
comprises funding elements including senior project
finance debt, vendor financing from contractors and
equity from the joint venture. Rockhopper’s share of
the joint venture equity is to be funded through the
carry arrangements with Premier.
Through 2017 and 2018, work focused on securing
agreements with key supply chain contractors and,
as a result, LOIs have been signed for the provision of
key services, including the FPSO, the drilling rig, well
services, subsea production systems and helicopter
services, as well as vendor funding. The process to
convert the LOIs into fully termed executed contracts
is well advanced and letters of award will be issued
as we go through the sanction process.
Through 2018, 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 largely 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 have been
addressed in the final EIS submission. Engagement
with FIG continues with a view to obtaining the
consents and agreements necessary to be in a
position to reach a final investment decision.
The Sea Lion Discovery Area is due to expire on
15 April 2020. The submission of the final Field
Development Plan for FIG approval is expected before
that date and therefore no further license extension
is currently thought to be required from FIG.
South and East Falkland Basin
(100% working interest)
Through the acquisition of Falkland Oil and Gas
(“FOGL”) in 2016, Rockhopper acquired a 52%
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 and, as a result, during 2017
Rockhopper became operator of the South and
East Falkland Basin acreage with a 100% working
interest. No outstanding financial or operational
commitments exist in relation to the Company’s
South and East Falkland Basins’ interests.
Stanley Heliport
12
Report & Accounts for the year ended 31 December 2018
Rockhopper Exploration plc
Strategic Report
North Falkland Basin snapshot
Leading acreage position
Rockhopper
Premier
Other
Operator
PL032
40%
60%
—
Premier
PL003a
95.5%
4.5%
— Rockhopper
PL003b
60.5%
4.5%
35% Rockhopper
PL004a
PL004b
PL004c
64%
64%
64%
36%
36%
36%
—
—
—
Premier
Premier
Premier
PL005
100%
—
— Rockhopper
Projected production profile
)
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
Phase 2
Phase 1
0
5
10
Years from first production
15
20
Source: xxxx
Sea Lion development
schematic
Report & Accounts for the year ended 31 December 2018
13
Strategic Report
Rockhopper Exploration plc
Abu Sennan, Egypt (22% working interest)
Production from the six development leases within the
Abu Sennan concession increased during 2018 with
production during the period averaging approximately
813 boepd net to Rockhopper (2017: 760 boepd).
from Abu Roash-C at a rate of 130 bopd gross,
and subject to further increase. Upside potential
exists in Abu Roash-D which is being evaluated for
possible acid stimulation.
In July 2018, Rockhopper was pleased to announce
the commencement of the 2018 drilling campaign
on the Abu Sennan concession which included the
drilling of two development wells (“Al Jahraa-6”
and “Al Jahraa-10”), one exploration well (“ASZ-1X”),
and a water injection programme targeting the Al
Jahraa field.
Al Jahraa-6
The Al Jahraa-6 development well spudded on
4 July 2018 and reached total depth of 3,935m MD
(-3,623m tvdss) in the Kharita Formation on
19 August 2018. Mudlogs indicated the presence
of oil in the Abu Roash C, D, E and G levels and
the deeper exploration target in the Bahariya
Formation. The Bahariya formation was put on
test on 22 September 2018 and, after clean-up,
is producing in excess of 550 barrels of oil per
day (“bopd”) with a stable water cut of 22%. This
represents the first commercial oil production
from the Bahariya formation within the Abu Sennan
concession. The well has been completed to allow
potential future production from Abu Roash G and
C levels. The Company believes that the Bahariya
discovery de-risks additional exploration targets
at the same level elsewhere in the concession.
Al Jahraa-10
The Al Jahraa-10 development well reached total
depth on 16 October 2018 in the Abu Roash-F
Formation. Oil pay was calculated in the Abu
Roash-C and Abu Roash-D levels. Following testing
operations, the well was brought into production
ASZ-1X
Exploration well ASZ-1X located on Prospect S was
spudded on 8 November 2018 and was the first of
two commitment wells to be drilled in the first phase
of the new concession. An oil discovery was made in
the Abu Roash-C level. The award of a development
lease over the discovery has recently been approved
by EGPC and production has commenced.
Water injection
The water injection programme in Al Jahraa began
on 14 July 2018. Injection rates have increased
steadily over time, with an accompanying reduction
in wellhead pressure, indicating that reservoir
injectivity has become established. Injection rates
into the Al Jahraa-9 well are currently averaging
approximately 2,000 barrels of water per day, which
is sufficient to re-pressurise the reservoir.
2019 drilling campaign
Following joint venture approval, an active drilling
programme has been agreed for 2019 including the
drilling of one exploration well (SW-ASH-1X), two in-
fill oil producer wells (Al Jahraa-11 and Al Jahraa-7)
and a second water injection well on the Al Jahraa
field. Activity in 2019 continues the planned
development programme in the Al Jahraa field,
as well as further exploration on the concession.
The Al Jahraa-11 development well, the first in the
2019 programme, was spudded on 13 March 2019
and is targeting the AR-C and Bahariya reservoirs.
The well is expected to take approximately two
months to complete.
14
Report & Accounts for the year ended 31 December 2018
Rockhopper Exploration plc
Strategic Report
Greater Mediterranean snapshot
Italy
ITALY
CROATIA
Guendalina
> 20% working
interest
> Northern
Adriatic
> 2018 production
180 boepd
Guendalina
Adriatic Sea
Rimini
0
50
Kilometres
Adriatic Sea
ITALY
Bari
Monte Grosso
Taranto
Monte Grosso
> 23% working
interest
> ~250 mmbbl
oil prospect
> 23% chance
of success
Adriatic Sea
Civita
ITALY
Campobasso
0
50
Kilometres
Adriatic Sea
Pescara
Ombrina Mare
ITALY
Civita
> 100% working
interest
> Onshore gas
production
> 2018 production
130 boepd
(excluding
pipeline
disruption)
Ombrina Mare
> 100% working
interest
> International
arbitration
commenced
> Outcome
expected late
Q3/early Q4 2019
0
100
Kilometres
0
50
Kilometres
Tyrrhenian
Sea
Egypt
Egypt
Abu Sennan
> 22% working
interest
> Western Desert
> 2018 production
813 boepd
Mediterranean Sea
Cairo
Abu Sennan
EGYPT
0
200
Kilometres
El Qa’a Plain
> 25% working
interest
> Exploration
commitment
well drilled Q2
2018
> Relinquished
end of 2018
Mediterranean Sea
Cairo
EGYPT
El Qa’a
Plain
Red
Sea
0
200
Kilometres
Report & Accounts for the year ended 31 December 2018
15
Strategic Report
Rockhopper Exploration plc
Guendalina, Italy (20% working interest)
Production decline at Guendalina continued to be
broadly in line with expectations during 2018 with
production over the period averaging approximately
30,000 standard cubic metres (“scm”) per day of
gas net to Rockhopper (approximately 180 boe per
day). Plant availability over the period continued to
be strong with production from the side-track well
in 2015 continuing to make a material contribution to
field production. Efforts continue with the operator
to manage declining production levels as well as
reduce operating costs.
Civita, Italy (100% working interest)
In February 2018, a depressurisation event
occurred at the Civita pipeline and, as a result,
production was suspended. Following remedial
works and reinstatement of the pipeline, production
recommenced in July 2018 at pre-incident levels
of approximately 20,000 scm per day of gas
(approximately 130 boe per day).
As described later in the Financial Review, the
Company agreed in June 2017 the terms for the
disposal of a package of non-core interests in Italy,
including the Civita field, to Cabot Energy plc. However,
following failure to satisfy all relevant conditions
precedent, including receipt of requisite regulatory
approvals in Italy, the Company and Cabot have
mutually agreed not to proceed with the transaction.
Monte Grosso, Italy (23% working interest)
Rockhopper transferred the operatorship of
the Serra San Bernado permit (which contains
the Monte Grosso prospect) to Eni during 2016.
Since that time, options for the design of a well on
the Monte Grosso prospect have been explored
and work undertaken to secure the permits and
approvals required to drill a well.
However, on 12 February 2019, the Italian
government introduced certain further changes
to oil and gas law through the “Sustainable Energy
Bill”. These changes include, amongst other
things, a temporary suspension on exploration
activities including the drilling of exploration wells.
Discussions are ongoing between the Serra San
Bernado joint venture partners to agree a
forward plan.
El Qa’a Plain, Egypt (25% working interest)
Exploration commitment well Raya-1X in the El Qa’a
Plain concession was spudded on 17 June 2018
and reached TD approximately two weeks later. At
the primary Nukhul Formation objective, wireline
logging confirmed the presence of good porosity
sands, although no hydrocarbons were encountered.
The well has been plugged and abandoned and
concession relinquished.
16
Report & Accounts for the year ended 31 December 2018
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 objectives.
KPIs have been set based on short-term targets
designed to ensure the Company achieves its long-
term strategy.
The Company measures a number of operational
and financial metrics to ascertain performance.
In 2018, Rockhopper continued to deliver on a
number of its key metrics.
2018
KPI #1
KPI #2
Definition
Performance
Attainment
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.
> Letters of Intent signed with
contractors for provision of vendor
finance
> Discussions ongoing with senior
debt providers
> Preparation well advanced for
PIM submission Q2 2019
Partially achieved
Making a commercial discovery in Egypt.
> Al Jahraa-6: Successful oil
KPI #3
Preservation of the Company’s cash
position/strengthen the Company’s
balance sheet which could be by way
of a new venture.
discovery in Bahariya
> ASZ-1X: Successful oil discovery
in AR-C. Development lease
recently approved
Fully achieved
> Cash at 31 December 2018
$40 million and no debt
> G&A maintained at 2017 levels
> Significant number of new venture
opportunities reviewed in 2018.
However, none met the Company’s
investment criteria
Partially achieved
2019
KPI #1
KPI #2
Definition
Bringing an additional paying partner into the Sea Lion Development project
and/or working closely with the operator to deliver a financing solution to enable
the joint venture to advance to project sanction.
Preservation of the Company’s cash position/strengthen the Company’s balance sheet.
Report & Accounts for the year ended 31 December 2018
17
Strategic Report
Rockhopper Exploration plc
Financial review
Stewart MacDonald
Chief Financial Officer
Overview
During 2018, significant progress was made to
advance and execute the financing plan for the Sea
Lion Phase 1 development. Submission of the PIM
and formal funding application for senior project
finance debt, expected in Q2 2019, represents a
material milestone in the funding process.
Our Greater Mediterranean portfolio continues to
provide a low-cost, short-cycle production base
which has delivered strong revenues and operating
cash flows for the Company which have more than
covered the Group’s G&A costs.
During the year, the Group’s gas production in Italy
was sold under short-term contract with an average
realised price of w0.25 per scm (2017: w0.19 per scm),
equivalent to US$8.2 per thousand standard cubic
feet (“mscf”). Gas is sold at a price linked to the Italian
“PSV” (Virtual Exchange Point) gas marker price.
In Egypt, all of the Group’s oil and gas production is
sold to EGPC. The average realised price for oil was
US$68.4 per barrel, a small discount to the average
Brent price over the same period. Gas is sold at a
fixed price of US$2.65 per million British thermal
units (“mmbtu”).
Results summary
US$m (unless otherwise specified)
Production (kboepd)
Revenue
Cash operating costs
Recurring administrative expenses (“G&A”)
Loss after tax
Cash in flow from operating activities
Cash resources
Net assets
2018
2017
1.2
10.4
4.1
5.3
(6.1)
1.6
1.1
10.6
4.6
5.3
(7.1)
5.4
40.4
50.7
415.3 420.6
Operating costs
Cash operating costs, excluding depreciation and
impairment charges, amounted to US$4.6 million
(2017: US$4.1 million). The small increase in
underlying cash operating costs is primarily due
to the costs associated with the development wells
and water injection programme being carried out
at Abu Sennan as well as incremental operating
costs at Guendalina. Cash operating costs on a per
barrel of oil equivalent basis remain attractive at
US$11.7 per boe.
Results for the year
For the year ended 31 December 2018, the Group
reported revenues of US$10.6 million and cash
from operating activities of US$5.4 million.
Revenue
The Group’s revenues of US$10.6 million
(2017: $10.4 million) during the year relate entirely
to the sale of oil and natural gas in the Greater
Mediterranean (Egypt and Italy). The increase in
revenues from the comparable period reflects an
increase in realised oil and gas prices, offset by
a modest reduction in production (due to natural
field decline at Guendalina and pipeline issues
at Civita).
Working interest production averaged approximately
1,064 boepd during 2018, a small reduction over the
comparable period (2017: 1,184 boepd).
The Group continues to manage corporate costs
having achieved an approximate 50% reduction in
G&A cost, excluding non-recurring expenses related
to restructuring and acquisitions, since 2014. G&A
costs in 2018 amounted to US$5.3 million, flat with
the comparable year (2017: US$5.3 million).
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 2017, the Group
commenced international arbitration proceedings
against the Republic of Italy. All costs associated with
the arbitration are funded on a non-recourse (“no win
– no fee”) basis from a specialist arbitration funder.
Cash movements and capital expenditure
At 31 December 2018, the Group had cash
resources of US$40.4 million (31 December 2017:
US$50.7 million) and no debt.
18
Report & Accounts for the year ended 31 December 2018
Rockhopper Exploration plc
Strategic Report
Cash resources movements during the year:
Opening cash balance (31 December 2017)
Revenues
Cost of sales
Falkland Islands
Greater Mediterranean
Admin and miscellaneous
Closing cash balance (31 December 2018)
US$m
51
11
(5)
(11)
(4)
(2)
40
Falkland Islands spend of US$11.0 million relates
primarily to pre-development activities on Sea Lion
(2017: US$6.7 million).
Spend in the Greater Mediterranean largely relates
to the Egyptian drilling campaigns at Abu Sennan
and El Qa’a Plain.
Admin and miscellaneous includes G&A, foreign
exchange, movements in working capital balances
as well as a non-recurring VAT credit received
during the period.
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 flow models. Future cash flows
were estimated using an oil price assumption equal
to the Brent forward curve during the period 2019
to 2020, with a long-term price of US$70/bbl (in
“real” terms) thereafter. A post-tax nominal discount
rate of 10% and 12.5% was used for the Group’s
Greater Mediterranean and Falkland Islands
assets respectively.
With no cash flow generation expected from Sea
Lion until 2022 at the earliest, the impact of the
Brent forward curve during the period 2019 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$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 2017, Rockhopper announced the
conditional disposal of a portfolio of non-core interests
onshore Italy to Northern Petroleum Plc (“Northern”).
Northern has subsequently undertaken a corporate
name change to Cabot Energy plc (“Cabot”).
Following failure to satisfy all relevant conditions
precedent, including receipt of requisite regulatory
approvals in Italy, the Company and Cabot have
mutually agreed not to proceed with the transaction.
As a result, Rockhopper retains the benefit of
the positive cash flows generated from the Civita
portfolio which, had the transaction proceeded,
would have been paid to Cabot.
Taxation
On the 8 April 2015, the Group agreed binding
documentation (“Tax Settlement Deed”) with the FIG
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.
As a result of the Tax Settlement Deed, the
outstanding tax liability was confirmed at
£64.4 million and is payable on the earlier of: (i) the
first royalty payment date on Sea Lion; (ii) the date
of which Rockhopper disposes of all or a substantial
part of the Group’s remaining licence interests in the
North Falkland Basin; or (iii) a change of control of
Rockhopper Exploration plc.
During the first half of 2017, as a result of the Group
receiving the full Exploration Carry from Premier
during the 2015/16 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 £59.6 million.
Due to the movement in the Sterling:US dollar
exchange rate, the outstanding tax liability in
US dollar terms has reduced to US$76.1 million
(31 December 2017: US$80.6 million). The
outstanding tax liability is classified as non-
current and is discounted to a year-end value
of US$37.9 million.
Report & Accounts for the year ended 31 December 2018
19
19
Strategic Report
Rockhopper Exploration plc
Full details of the provisions and undertakings of the
Tax Settlement Deed were disclosed in the Group’s
2014 Annual Report and these include “creditor
protection” provisions including undertakings not
to declare dividends or make distributions while the
tax liability remains outstanding (in whole or in part).
Brexit
It is the view of the Board that, given the Group’s
focus on the North Falkland Basin and Greater
Mediterranean region, Rockhopper’s business,
assets and operations will not be materially
affected by Brexit. Rockhopper derives a significant
proportion of its revenue from crude oil, a globally
traded commodity priced in US dollars.
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 which has historically been common to many
upstream companies operating in the country. As at
31 December 2018, Rockhopper’s EGPC receivable
balance was approximately US$1.3 million.
Cash forecasts are regularly produced based on,
inter alia, the Group’s production and expenditure
forecasts and management’s best estimates of
future commodity prices. Sensitivities are run to
reflect different scenarios including changes in
production rates, possible reductions in commodity
prices and increased costs. Management’s base case
forecast assumes an oil price of US$65/bbl in 2019
and 2020, production in line with prevailing rates
and expenditures in line with approved budgets. The
Group has run downside scenarios, where oil prices
are reduced by a flat $10/bbl throughout the going
concern period and where cost expenditures have
increased by 5%.
Under the base case forecast and the downside
scenarios run, the Group will have sufficient financial
headroom to meet forecast cash requirements
for the 12 months from the date of approval of the
2018 financial statements. However, beyond the
12 month going concern assessment depending on
the timing of sanction for the Sea Lion development,
in the absence of any mitigating actions, the Group
may have insufficient funds to meet its forecast
cash requirements. Potential mitigating actions
could include non-core asset disposals, collection of
arbitration award proceeds, deferral of expenditure
or raising additional equity.
Accordingly, after making enquiries and considering
the risks described above, the Directors have
assessed that the cash balance held provides the
Group with adequate headroom over forecasted
expenditure for at least the following 12 months –
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
2018 as being:
> sustained low oil price;
> joint venture partner alignment and funding
issues, both of which could ultimately create a
delay to the Sea Lion Final Investment Decision;
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
1 April 2019
20
Report & Accounts for the year ended 31 December 2018
Rockhopper Exploration plc
Strategic Report
Internal controls and risk management
The Board is responsible for establishing and
maintaining the system of internal controls
which has been in place throughout 2018.
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:
> capital projects
> monthly financial reporting
> bank and treasury
> revenue to receivables.
During 2017 an independent assessment of the
Group’s progress against those items identified during
the 2016 initial assessment was conducted – the
conclusion of such review was that material progress
had been made while some areas remain open
to improvement.
A further review of the Group’s financial controls will
be conducted in the event of a material change of the
Group (which could include a material acquisition or
project sanction of the Sea Lion project).
The process of monitoring and updating internal
controls and procedures continues throughout the
year and a risk management process is in place.
Existing processes and practices are reviewed to
ensure that risks are effectively managed around
a sound internal control structure.
A fundamental element of the internal control
structure involves the identification and
documentation of significant risks, the likelihood
of those risks occurring, their potential impact and
the plans for managing and mitigating each of those
risks. These assessments are reviewed by the Board.
The plans are discussed, updated and reviewed at
each board meeting, and any matters arising from
internal reviews or external audit are also considered.
Rockhopper 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
Report & Accounts for the year ended 31 December 2018
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 flow
> 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
Insufficient liquidity 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 flows and returns
> Impact on future debt capacity.
Uncertainty of fiscal regime and regulatory
requirements; Sea Lion remains the only
commercial oil discovery declared in the
Falkland Islands.
> Schedule risk
> Loss of value
> Uncertain financial outcome.
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 2018
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,
influence and/or support partners to establish a
cohesive JV view and decision making
> Active support to operator in its objective of securing
funding for the project.
> The British Government has issued strong rebuttals
to the Argentine claims
> The Company is in regular contact with the Foreign
& Commonwealth Office
> In a referendum, conducted in 2013, the Falkland
Islands voted unequivocally to remain as a British
Overseas Territory.
> Field Development Plan and EIS substantially agreed with Falkland
Islands Government. Formal approval expected at sanction
> Letters of Intent for provision of services and financing signed
with set of world class contractors
> Ongoing engagement with providers of senior debt including
project finance banks and export credit agencies. PIM
submission in Q2 2019
> 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 has
been agreed and is expected to commence operations in 2019
Financial risks
Description
Impact
Mitigants
Recent changes and ongoing initiatives
> Short-term and long-term cash forecasts are reported
> The Company’s balance sheet remains strong with cash
to the Board on a regular basis
at 31 December 2018 of $40 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 2018.
secured a $337m Development Carry for the initial phase of
development of Sea Lion, a $337m Development Carry for the
subsequent phase of development of Sea Lion and a $750m 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.
> During 2018, good progress was made with the Falkland Island
Government in relation to a range of commercial, fiscal and
regulatory matters.
> Partner selection is a critical component of any investment decision
> Joint Operating Agreements and other commercial arrangements
provide legal protections in the event joint venture partners fail to
meet their obligations.
> Active engagement with joint venture partners to ensure
alignment
> Ongoing monitoring and regular review of the Company’s
financial exposure to joint venture partner credit risk.
> Active engagement with EGPC and joint venture partners to
> Significant payments received from EGPC
manage payments and the Company’s foreign currency liquidity
during 2018.
> Monitor macro-economic environment and lobby through
established relationships if required
> Active treasury management to minimise funds held in foreign
currencies and match with creditor balances.
Report & Accounts for the year ended 31 December 2018
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
Staff recruitment, development
and retention.
> Disruption to business
> Loss of key knowledge and experience.
24
Report & Accounts for the year ended 31 December 2018
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 influence and/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
> Analysis of commerciality thresholds is inherent in exploration
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.
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 “best practice” 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.
> In 2017, the Company successfully completed the removal of the
Ombrina Mare tripod structure – 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
> A short-term succession plan is in place for executive directors
for 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 2018
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 (HSE) protection is achieved through:
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
Employees
> Developing specific HSE plans for each
risks and preventing pollution;
Local communities
> Selecting competent contractors and ensuring
operational project;
that they are effectively managed;
> Preparing and testing response plans to ensure
that any incident can be quickly and efficiently
controlled, reported and investigated to prevent
recurrence;
> Continual improvement of HSE performance
through monitoring, regular reporting and
periodic audits; and
> Periodic management reviews to identify and
implement improvements to our HSE systems.
This policy is implemented through our HSE
Management System, which has been prepared to
be consistent with international standards for HSE
management including ISO14001 and ISO18001.
Our HSE Management System is used to guide
all our activities and will not be compromised by
other business priorities. Application of the HSE
Management System will include preparation of
detailed Environmental Impact Statements (“EISs”)
for all of the Group’s activities. The preparation of the
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 (wherever possible)
that the operator maintains high standards of HSE
protection in line with our management systems.
Operational stakeholders
Where we have operating responsibility all
contractors are selected taking into account their
skills, experience and HSE performance. There is
a contractor selection and management section in
the HSE management system and we are closely
involved in day-to-day operations and closely monitor
contractor performance.
Local community stakeholders
The Falkland Islands has a population of
approximately 3,000 people and each member is
considered a stakeholder in the Group’s strategy.
We recognise that a key element in maintaining
stakeholder support is regular communication
at all levels. Our primary point of contact is the
Falkland Islands Government Department for
Mineral Resources and since inception we have
had good communication with all of the team there.
Since the start of operations, we have increasingly
liaised with other government departments, such
as the Secretariat and the Tax Office as well as the
Governor.
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 1 April 2019 by:
Samuel Moody
Chief Executive Officer
26
Report & Accounts for the year ended 31 December 2018
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 – 19 employees as at 31 December 2018
Male
53%
Female
47%
63% British
21% Italian
11% Egyptian
5% Other EU nationals
Non-executive director tenure
< 3 years
25%
3-6 years
6-9 years
50%
25%
Report & Accounts for the year ended 31 December 2018
27
Governance Report
Rockhopper Exploration plc
Board of Directors
Directors
David McManus
Chairman 65
Samuel Moody
Chief Executive Officer 49
Stewart MacDonald
Chief Financial Officer 38
Skills and experience
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 17 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.
Committee membership:
> Nomination (Chairman)
—
External appointments:
Director:
> Greenland Gas
& Oil Limited
Chairman:
> FLEX LNG
> Verus Petroleum UK
Limited (private)
Director:
> Hess Corporation
> Costain plc
—
—
28
Report & Accounts for the year ended 31 December 2018
Rockhopper Exploration plc
Governance Report
Keith Lough
Senior Independent Director 60
Alison Baker
Non-Executive Director 48
Tim Bushell
Non-Executive Director 59
John Summers
Non-Executive Director 63
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.
Alison has 25 years’
experience in provision
of audit, capital markets
and advisory services.
She previously led UK and
EMEA Oil & Gas practice at
PricewaterhouseCoopers
and prior to that the UK
Energy, Utilities and Mining
Assurance practice at Ernst
& Young.
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.
> 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
> Hunting PLC
Director:
> KAZ Minerals PLC
> Centamin plc
Deputy Chairman:
> Wentworth Resources plc
—
Director:
> Petro Matad Limited
> Genel Energy plc
> Redrock Energy Limited
(private)
Report & Accounts for the year ended 31 December 2018
29
Governance Report
Rockhopper Exploration plc
Senior management team
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.
30
Report & Accounts for the year ended 31 December 2018
Rockhopper Exploration plc
Governance Report
Corporate governance statement
Introduction from the Chairman on the
Governance Report
The Company is an AIM listed company and
is required to apply a recognised corporate
governance code. Historically, the Board’s
corporate governance policy had been to
observe the provisions of the 2016 UK Corporate
Governance Code (the “UKCG Code”) applicable
to FTSE 350 companies as far as practicable given
the size of the Company. During 2018, the Board
undertook a review of the provisions of both the
UKCG Code and the Quoted Companies Alliance
Corporate Governance Code (the “QCA Code”)
to assess which corporate governance code was
appropriate for the Company at this stage in its
development. The Board concluded that the QCA
Code, which is designed for small to mid-sized
companies and which has been adopted by many
AIM companies, was the appropriate code to adopt.
The Board has considered how the Company
applies the ten principles of the QCA Code and
the Governance Report includes the required
disclosures and explanations. Further details of
the Company’s corporate governance practices
are provided on the Company’s website under the
corporate governance section of the AIM rule 26
disclosure.
Corporate Governance Statement
The Board recognises that good governance
supports the execution of the Company’s
strategy and delivery of shareholder value.
Rockhopper’s Board, led by the Chairman, is
committed to maintaining high standards of
corporate governance and to ensuring that the
Company’s values are promoted and its strategy
clearly communicated across the Group and to
shareholders and stakeholders.
Corporate culture
Rockhopper has a small, experienced and diverse
team of employees most of whom hold shares in
the Company. The Board promotes a culture of
openness and transparency and staff understand,
and are fully committed to delivery of, the
corporate objectives.
The Company is committed to ensuring that there
is a healthy corporate culture and has put in place
a number of policies and procedures which are
designed to ensure that ethical and transparent
behaviour is recognised and followed across the
Group. These include the HSE Policy, Code of
Business Conduct and Social Responsibility, Anti-
Bribery and Corruption Policy and Procedures and
Share Dealing Code.
Board composition
The Board currently consists of a Non-Executive
Chairman and two Executive and four Non-Executive
Directors including the Senior Independent Director.
The Chairman will retire at the 2019 Annual General
Meeting and will be replaced by Keith Lough. During
2018, John Martin retired as a Non-Executive
Director and Alison Baker was appointed to the
Board as a Non-Executive Director.
The Board considers that the Chairman and the
Non-Executive Directors are all independent.
Other than any shareholdings in the Company
and the receipt of fees for acting as Directors, the
Chairman and Non-Executive Directors have no
financial interests in the Company or business
relationships that would interfere with their
independent judgement.
Keith Lough was the Senior Independent Director
throughout 2018 and will be replaced by Alison
Baker when he takes over as Chairman.
Report & Accounts for the year ended 31 December 2018
31
Governance Report
Rockhopper Exploration plc
Board composition during the year
Name
Role
Non-executives
David McManus
Chairman
Keith Lough
Tim Bushell
Senior Independent Director
Non-Executive Director
John Summers
Non-Executive Director
Alison Baker
Non-Executive Director
John Martin
Executives
Sam Moody
Non-Executive Director
Chief Executive Officer
Stewart MacDonald
Chief Financial Officer
Independent
Length of
service
Date of
appointment
Date of
resignation
Yes
Yes
Yes*
Yes
Yes
Yes
No
No
8 years, 6 months
30 September 2010
5 years, 3 months
14 January 2014
3 years, 3 months
18 January 2016
5 years, 2 months
1 February 2014
0 years, 7 months
18 September 2018
—
—
—
—
—
2 years, 4 months
18 January 2016
18 May 2018
14 years, 2 months 21 February 2005
5 years, 1 month
10 March 2014
—
—
* Tim Bushell was previously Chief Executive Officer at Falkland Oil and Gas Limited and had a 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. The Board considers him 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.
All the Directors are subject to annual re-election
by shareholders at the Annual General Meeting
and each Director is subject to election by
shareholders at the first Annual General Meeting
following their appointment. With the exception
of David McManus, all Directors will be standing
for election or re-election at the 2019 Annual
General Meeting.
Role of the Board
The Board is collectively responsible for delivery
of the strategy which is designed to promote the
long-term success of the Company and to deliver
shareholder value. The Board is responsible for
monitoring progress against the agreed strategic
objectives and ensuring that major business
risks are actively monitored and mitigated where
appropriate. There is a schedule of matters
reserved for the Board to ensure that the Board
exercises control over the key matters which could
impact on delivery of the Company’s strategy.
Details are provided on the Company’s website
under the corporate governance section of the
AIM rule 26 disclosure.
Board skills and responsibilities
The Directors have a wide range of experience
and skills across the oil and gas industry including
technical, operational, commercial and financial
both in the UK and internationally. Each of
the Non-Executive Directors have held senior
management/board/advisory positions in the
industry and bring relevant experience from
their current and previous positions.
There is a clear division of responsibilities between
the Chairman and Chief Executive Officer which
is set out in writing and has been approved by the
Board. Details are given on the Company’s website.
A clearly defined organisational structure exists
across the Group, with lines of responsibility and
delegation of authority to executive management.
Senior Independent Director
The main responsibilities of the Senior
Independent Director are as follows:
> to provide a sounding board for the Chairman
and act as an intermediary for Board members;
> to act as a point of contact for shareholders who
have concerns which have not been adequately
addressed by the Chairman or Executive
Directors; and
> to co-ordinate the Chairman’s appraisal.
Board meetings and processes
The Board has between six and seven scheduled
formal meetings each year with other meetings
held as required. The Chairman facilitates an
annual strategy review and meets regularly with
the Non-Executive Directors without the Executive
Directors present.
At the beginning of each Board meeting, the Board
receives an update from the CEO on key current
activities and issues together with Operations and
Finance Reports and any papers relating to specific
matters requiring consideration or approval. The
Board considers any changes to the principal risks
facing the Group at the start of the meeting and
discussions take place in this context.
32
Report & Accounts for the year ended 31 December 2018
Rockhopper Exploration plc
Governance Report
The appointment letters of the Non-Executive
Directors detail the expected time commitment
which is around 20 days a year. The Non-Executive
Directors undertake on joining the Company
that they are able to allocate sufficient time to
discharge effectively their responsibilities and are
required to keep the Board updated of any changes
in respect of their other commitments.
Board meeting attendance
Additional
short notice
Board meetings
1/1
1/1
1/1
1/1
0/1
1/1
1/1
Name
David McManus
Sam Moody
Stewart MacDonald
Keith Lough
Tim Bushell
John Summers
Alison Baker
(appointed 18 September 2018)
Scheduled Board
meetings
7/7
*6/7
7/7
7/7
7/7
7/7
2/2
(1 as invitee)
Former Director
John Martin (resigned 18 May 2018)
Total meetings during year
3/3
7
* Absent due to family bereavement.
Chairman
The Senior Independent Director
consults each individual Director
for their view on the Chairman’s
performance and feeds back any
issues to the Chairman/Board as
appropriate.
Audit & Risk
Committee
The Chairman of the Audit & Risk
Committee/Senior Independent
Director and Company Secretary
review the performance of the
Audit & Risk Committee based on
the Financial Reporting Council’s
guidance to listed companies on the
composition, role and responsibilities
of the audit committee. The key
conclusions are discussed by the
Audit & Risk Committee and follow
up action is agreed if necessary.
Board induction, training and outside advice
There is no formal induction process in place but
new Directors receive an appropriate induction
according to their requirements. During the year
Alison Baker received an induction which included
the following:
0
1
Board performance evaluation
An internal performance evaluation of the Board
and its committees and an appraisal of the
Chairman’s performance is undertaken each year
according to the following processes:
Board
Board papers and minutes for prior
12 months
Schedule of matters reserved
for the Board
Delegated financial authorities
Board
Board members review a
questionnaire which is focused
on strategy, risks, performance
against objectives, board processes,
relationships and communication and
Board structure and development.
The key conclusions are discussed at
a Board meeting and follow up action
is agreed if necessary.
In addition to the internal performance
evaluation, an external performance
evaluation of the Board was
undertaken in 2016 with specific focus
on the skillset and structure of the
Board which was used as the basis for
discussions on succession planning.
Committees Terms of reference for all Board
Committees
Minutes of relevant Committee
meetings for prior 12 months
Policies
Copies of current policies and
procedures including Anti-Bribery
and Corruption, Code of Business
Conduct, Share Dealing Code, Internal
Control and Financial Procedures and
Market Abuse Regulation
Organisation Group structure chart
Governance Briefing on AIM obligations from the
NOMAD
Commercial Management summaries of key
transactions
Insurance Details of Directors’ and officers’
liability cover
Shareholders Overview of the breakdown of the
share register including details of
major shareholders
Report & Accounts for the year ended 31 December 2018
33
Governance Report
Rockhopper Exploration plc
New directors are also encouraged to meet with
members of the senior management team to get
a thorough understanding of the Group’s assets
and operations.
Communication with shareholders
The Company engages with shareholders
in a variety of ways:
Meetings Executive Directors meet regularly
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.
External directorships and interests
Executive Directors are permitted to engage in
other activities and businesses outside the Group
providing that there is no risk of conflict with
their executive duties and subject to full Board
disclosure.
Non-Executive Directors are required to advise
the Chairman as soon as practicable of any
proposed Board appointments which could give
rise to a conflict with their position as a Director
of the Company.
Conflicts of interest
The Board has in place a procedure for dealing
with the consideration and authorisation of
any actual or potential conflicts of interest. All
Directors are aware of the requirement to advise
the Chairman and Company Secretary of any
situations which could give rise to a conflict or
potential conflict of interest.
Company Secretary
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 Company Secretary also facilitates the
induction of new directors and is responsible
for providing advice to the Board, through the
Chairman, on corporate governance matters.
Website
Annual
Report
AGM
with major shareholders and the
investment community which allows
exposure to new investors. This
process includes 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. Copies of analyst research
reports, press reports and industry
articles are circulated to all Directors
and ensures that the Board is aware of
the views of its major shareholders
The Company’s website is updated
regularly with external presentations
and corporate updates which ensures
that existing and potential investors
have access to up to date and relevant
information
The Company’s annual report gives
a detailed overview of the Company’s
strategy, operations, financial position,
risk profile, corporate governance
practice and remuneration structure
and is available in hard copy and on
the website. This ensures that existing
and potential investors are provided
with the information that they need to
make an assessment of the Company’s
performance and prospects
The AGM is attended by all Directors.
The Chairman gives an overview of
the Company’s performance in the
period since the previous AGM and
the Chief Executive Officer gives a
detailed operational and financial
update. The AGM is mainly attended
by retail investors and gives them the
opportunity to address questions to
the Board.
David McManus
Chairman
1 April 2019
34
Report & Accounts for the year ended 31 December 2018
Rockhopper Exploration plc
Governance Report
Audit & Risk Committee Chairman’s report
Introduction by the Audit & Risk Committee
Chairman, Keith Lough
I am pleased to present the report of the Audit &
Risk Committee for the year ended 31 December
2018 which includes details of the committee’s
activities during the financial year and since the
year end.
I will be stepping down as Chairman of the
committee at the 2019 Annual General Meeting
when I will take up the position of Chairman
of the Company. I will be succeeded by Alison
Baker who is a qualified chartered accountant.
This will also be the last audit of the financial
statements by KPMG LLP in line with best
practice given their nine year tenure and the
conclusion of the audit partner’s five year term.
After a tender process overseen by the committee,
the Board has approved the appointment of
PricewaterhouseCoopers LLP as the Company’s
auditor for the financial year commencing
1 January 2019 subject to approval by shareholders
of the Company at the 2019 Annual General
Meeting.
Committee composition
The members of the Audit & Risk Committee
are Keith Lough as Chairman, Tim Bushell,
Alison Baker and John Summers. Alison Baker
was appointed to the Audit & Risk Committee
in September 2018. The Board considers all the
members of the Committee to be independent and
is satisfied that the Committee membership has
sufficient recent and relevant financial experience.
Alison Baker will replace Keith Lough as Chairman
of the Audit & Risk Committee with effect from the
date of the 2019 Annual General Meeting.
The Company Secretary acts as secretary of the
committee.
Meetings
The Audit & Risk Committee met twice during
the year and informal discussions were also held
both with and without management present. The
external auditor met and had discussions with the
Chairman of the committee during the course of
the year. The external auditors also met with the
committee without management present.
Only members of the committee have the right
to attend the meetings of the committee but
the committee can request the Chairman of the
Board, Executive Directors, members of senior
management and the external auditors to attend
its meetings.
Following each meeting, the Chairman of the
committee reports formally to the Board on the
main matters discussed by the committee.
Details of the meetings attended during the
financial year were as follows:
Director
Keith Lough – Chairman
Tim Bushell
John Summers
Alison Baker (appointed
18 September 2018)
S MacDonald
D McManus
Audit & Risk Committee
meetings attended
2/2
2/2
2/2
0*
†2
†2
1*
2
Former Director
John Martin (resigned 18 May 2018)
Total meetings during year
† Invitee
* There were no committee meetings held after Alison Baker’s appointment
and John Martin resigned as a director prior to the September committee
meeting
Role
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 committee is responsible for notifying
the Board of any significant concerns that the
external auditor may have arising from their
audit work, any matters which 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.
Report & Accounts for the year ended 31 December 2018
35
Governance Report
Rockhopper Exploration plc
The Audit & Risk Committee’s terms of reference
are available on the Company’s website and on
request from the Company Secretary.
Key matters considered by the committee
During the year, the issues considered by the
committee included:
External auditors
The 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.
> Group financial disclosures and accounting
matters including impairment and going
concern;
> 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;
> external auditor’s audit fees;
> 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;
> outcome and recommendations of the external
review of internal financial controls including
the creation of a Financial and Accounting
Procedures manual;
> corporate governance practice and disclosure;
> implementation of the General Data Protection
Regulation 2016/679;
> tender process for the provision of audit services
to the Group;
> whistleblowing procedures and shareholder
concerns.
Going concern
As part of the year end reporting process,
management prepares a detailed report including
detailed cashflow forecasts with a number of
potential scenarios and sensitivity assumptions.
The committee reviews and challenges
management’s assumptions and conclusions in
order that it can provide comfort to the Board that
management’s assessment has been challenged
and is supported and that it is appropriate to
prepare the financial statements on a going
concern basis. Further details of the going concern
assessment process are contained in Note 1 of the
Group financial statements on page 59.
The committee is responsible for the approval of
the provision of all audit services and permitted
non-audit services undertaken by the external
auditor. In general, the external auditor will only
be used for audit, audit related and tax compliance
services. The policy on the provision of non-audit
services requires that the committee considers
each piece of work on a case by case basis. 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 committee is satisfied that there were
no conflicts during the financial period. The
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.
Audit & Risk Committee performance
The Chairman of the committee and Company
Secretary undertake an annual review of the
committee’s performance and effectiveness
with reference to the Financial Reporting
Council’s guidance to listed companies on the
composition, role and responsibilities of the audit
committee. The key conclusions are discussed by
the committee and follow up action is agreed if
necessary.
Since the year end, the performance review has
been completed. The committee concluded that,
having considered the size and complexity of
the business, the terms of reference continued
to be appropriate and that the committee was
performancing effectively.
36
Report & Accounts for the year ended 31 December 2018
Rockhopper Exploration plc
Governance Report
Whistleblowing and Anti-Bribery
The Company has in place a whistleblowing policy
and procedure which encourages staff to raise in
confidence any concerns about business practices.
The Company is committed to conducting all of
its business dealings in a responsible, honest
and ethical manner. All employees, directors
and consultants are required to have regard to
the Company’s Code of Business Conduct and
Corporate Social Responsibility in their day to day
business behaviour. The Company also has in place
Anti-Bribery and Corruption Policy and Procedures
which are kept under review and communicated
to staff who have joined since the initial training
session.
The Chairman of the committee is the contact for
shareholders, employees, consultants, contractors
or anyone with concerns which they believe have
not been adequately addressed by the Chairman
or Chief Executive Officer and contact details are
given on the Company’s website.
Keith Lough
Audit & Risk Committee Chairman
1 April 2019
Report & Accounts for the year ended 31 December 2018
37
Governance Report
Rockhopper Exploration plc
Nomination Committee Chairman’s report
Introduction by the Nomination Committee
Chairman, David McManus
I am pleased to present the report of the
Nomination Committee for the year ended
31 December 2018 which includes details of the
committee’s activities during the financial year.
I will be stepping down as Chairman of the Board
at the 2019 Annual General Meeting having served
nearly nine years on the Board, three of those as
Chairman. I will be succeeded by Keith Lough who
will also become Chairman of the Nomination
Committee.
Committee composition
The committee is chaired by the Chairman of the
Board with all the Non-Executive Directors as
its members. The Board considers all the Non-
Executive Directors to be independent.
The Company Secretary acts as secretary of the
committee.
Meetings
The committee met twice during the year and
informal discussions were also held. Only members
of the committee have the right to attend the
meetings of the committee but the committee can
request the attendance of the Chief Executive Officer.
Details of the meetings attended during the
financial year were as follows:
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.
Key matters considered by the committee
The issues considered by the committee during
the financial year included:
> Board and Board Committees structure and
composition
> proposed external directorships of the Non-
Executive Directors
> confirmation of the extension of the tenure of
Keith Lough and John Summers for a further
three year term
> proposed appointment of Alison Baker as a
Non-Executive Director
> Board succession with regard to length of
tenure and good corporate governance practice.
Succession planning
The Company is committed to appointing, retaining
and developing an experienced team which can
effectively manage the Company’s objectives and
deliver its strategy. When considering succession
planning, the committee evaluates the balance
of skills and experience on the Board and makes
recommendations to the Board on the basis of
what the Company needs to support delivery of the
agreed strategic objectives.
Director
David McManus – Chairman
Keith Lough
Tim Bushell
John Summers
Alison Baker (appointed 18 September 2018)
Nomination Committee
meetings attended
2/2
2/2
2/2
2/2
0*
The committee also recognises the need for
progressive refreshing of the Board and the
benefits of diversity and the committee has regard
to these factors when considering succession
planning. The committee is committed to
recruiting on merit measured against objective
criteria.
Former Director
John Martin (resigned 18 May 2018)
Total meetings during year
1*
2
* There were no committee meetings held after Alison Baker’s appointment
and John Martin resigned as a director prior to the September committee
meeting.
Role
The role of the committee 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
There is an emergency succession plan in
place to cover any unexpected unavailability or
departure of the Executive Directors or members
of senior management. The management of
human resources across the Group is a matter
for executive management but the Non-Executive
Directors are advised in advance of recruitment
plans in respect of senior appointments.
David McManus
Nomination Committee Chairman
1 April 2019
38
Report & Accounts for the year ended 31 December 2018
Rockhopper Exploration plc
Governance Report
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 2018 which has been
prepared largely in compliance with the requirements
of Schedule 8 of the Large and Medium-sized
Companies and Group Regulations 2013.
Remuneration Policy and practices are kept under
review to ensure that they remain appropriate for the
Company as it develops and will consider whether it
would be appropriate to seek external advice on the
Remuneration Policy and structure of remuneration
packages.
On behalf of the Board I would like to thank
shareholders for their continuing support.
The Report is divided into two sections:
Yours sincerely
> 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 2018. It also sets out details of
the implementation of the Executive Director
Remuneration Policy for the year ending
31 December 2019 .
During 2018, the Company agreed to adopt the
QCA code as its corporate governance code.
The Committee has reviewed the Company’s
Remuneration Policy and practices against the
principles of the QCA Code and has concluded that
they support the delivery of the Company’s strategy
but do not encourage any unnecessary risk taking
by management. The Committee aims to ensure
that remuneration is linked to the performance
of the Company. The bonus scheme is based on
the Company’s KPIs and 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.
The Committee has agreed some changes to the
executive directors’ bonus scheme for 2019 so that
individual targets will be introduced for the executive
directors in addition to the corporate targets and the
executive team will no longer be treated as a team
in respect of objective setting and bonus awards.
No other substantial changes are proposed to the
Remuneration Policy which is laid out on the following
pages. The Committee will ensure that the Company’s
Tim Bushell
Chairman of the Remuneration Committee
1 April 2019
Remuneration policy
This part of the Report sets out the remuneration
policy for the Company. The policy for the Executive
Directors is determined by the Committee and the
Committee approves any adjustments to salary
and bonus awards. The Committee also sets the
parameters for the remuneration packages of senior
and support staff including the Company Secretary.
Authority is delegated to the Chief Executive Officer
to implement salary adjustments and make bonus
awards for staff within the agreed parameters. The
proposals of the Chief Executive Officer in this regard
are reviewed by the Chairman of the Committee to
ensure that they are in line with the parameters set
down by the Committee. The Committee decides on
all awards under the Company’s Long Term Incentive
Plan (‘LTIP’) and approves the operation of the
Company’s Share Incentive Plan (‘SIP’).
The aim of the Committee is to ensure that the
remuneration packages are sufficiently competitive to
attract, retain and motivate individuals of the quality
required to achieve the objectives of the Group and
thereby enhance shareholder value. The Committee
also aims to ensure that all employees receive
rewards that fairly reflect their seniority, level of work
and contribution to the Company.
Executive Director Policy
The summary of the remuneration policy for the
Executive Directors is set out below. Full details of the
remuneration packages are given in the Report on
Remuneration:
Report & Accounts for the year ended 31 December 2018
39
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 reflect 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 the 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 and individual corporate targets
Operation
Opportunity
> Objectives are set as early as possible in the financial year
> The bonuses are paid in cash after the end of the financial year to which they relate
> The annual bonus award is determined as a percentage of base salary based on performance
against pre agreed objectives. When deciding on the level of bonus awards, the Committee will
have regard to the extent to which achievement of the objectives has contributed to progress
against the Company’s strategic drivers
> The bonus is non-contractual and is discretionary. Bonus payments will only exceed 50% of base
salary in circumstances of exceptional strategic progress. Exceptional bonus payments may be
in the form of shares and/or cash at the Committee’s discretion
> A one-off bonus of between 100% and 200% of salary will be payable at the point of project
sanction on the Sea Lion Development with the exact quantum at the Committee’s discretion
Performance metrics
> The targets for the Executive Directors comprise the corporate, strategic and financial objectives
agreed by the Board. Individual objectives are also set for each Executive Director
> 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
40
Report & Accounts for the year ended 31 December 2018
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
Operation
(‘TSR’) measured against a peer group as the performance target for awards under the
LTIP
> The LTIP was approved by shareholders in 2013
> The Committee makes annual awards of nil cost options which vest on a sliding scale
after the end of the performance period 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 is currently set at three years and the commencement date
of the performance period is at the discretion of the Committee
> Malus provisions exist so that the awards may be reduced or further conditions imposed
in the case of financial misstatement, the misleading of shareholders or management/the
Board regarding technical or financial performance, serious misconduct or conduct that
results in a serious loss to the Company
> The Committee has discretion to amend the size and constitution of the peer group to
ensure that it remains an appropriate comparator group and to reflect any corporate deals
> The Company has an employee benefit trust which can purchase shares in the market
and/or subscribe for shares to satisfy the exercise/vesting of awards under the LTIP
Opportunity
> The maximum annual award is 200% of salary
Performance metrics
> Performance measurement will be TSR measured against a peer group based on an
average price over a 90 day dealing period to be agreed by the Committee measured
against the average 90 day dealing period up to the end of the 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 2018
41
Governance Report
Rockhopper Exploration plc
Further details on the policy
Performance measurement
Annual bonus – the annual bonus is based on a range of corporate and individual 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 in recent years 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
reflect 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 of exceptional strategic
progress
> The LTIP would operate as outlined in the policy for existing
Directors. An award may be granted on joining subject to the
Company being in an open dealing period. The Committee
would retain discretion to decide on the scale, performance
period and performance targets attaching to any award.
200% of base salary in any financial year
42
Report & Accounts for the year ended 31 December 2018
Rockhopper Exploration plc
Governance Report
In the case of an external hire, the Committee may deem it appropriate to ‘buy-out’ incentive or benefit arrangements which the
new appointee would have to forfeit on leaving their previous employer. The Committee would consider the potential value of the
arrangement being forfeited and wherever possible would use the existing components of the Company’s remuneration structure to
compensate the incoming director. The value of any buy-out arrangements would be capped at no higher, on recruitment, than the
awards or benefits which the individual forfeited on leaving their previous employer. In the case of an internal hire, the new appointee
may retain awards made to him/her under arrangements entered into prior to appointment to the Board even if such awards are not
within the Directors’ Remuneration Policy as outlined in the policy table.
Service contracts, exit payments and change of control provisions
The Executive Directors have rolling term service agreements with the Company. Details of the Directors’ service contracts and
appointment dates are as follows:
Executive Directors
S J Moody
S MacDonald
Appointment date
21 February 2005
10 March 2014
Original contract
8 August 2005
27 March 2014
Revised contract
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 plus the fair value of any benefits. There is no entitlement to payment for any accrued
holiday where a payment in lieu of notice is made. The Committee will consider termination payments on a case-by-case basis. It
will consider the terms of the Director’s contract and the circumstances of the termination and might consider making an ex gratia
payment where the circumstances and/or a Director’s contribution to the Company justifies this. If an ex gratia payment is to be
made, the Committee will ensure that it is satisfied that it is in the best interests of the Company to make such a payment and that
there is no “reward for failure”.
The Committee also has discretion to settle any other amounts which it considers are reasonably due to the Director such as where
the parties agree to enter into a settlement agreement and the individual is required to seek independent legal advice. The Committee
can approve new contractual arrangements with a departing Director covering matters such as confidentiality or restrictive covenants
and/or consultancy arrangements where it believes this is in the best interests of the Company.
Treatment of incentives for leavers
In relation to annual bonuses, a bonus payment will not usually be made if the Director is under notice at the bonus payment date
or has already left. In the event of a change of control, the Committee retains the right to declare a bonus in respect of the part of the
year worked prior to the change of control becoming effective.
In relation to awards granted under the LTIP, awards will generally lapse on the date of cessation of employment except in certain
‘good leaver’ circumstances which are generally defined as retirement, ill-health, disability, death, redundancy, transfer or sale of
the employing company or any other circumstances at the discretion of the Committee. In these circumstances, any unvested award
will usually continue and vest on the normal vesting date. The Committee will decide the extent to which the unvested award will
vest taking into account (i) the period of time that has elapsed since the start of the performance period and (ii) the extent to which
any performance target is satisfied at the date the director ceases to be employed by the Company. Final treatment is subject to the
Committee’s discretion.
In relation to share appreciation rights (SARs) granted under the Company’s Employee Share Option Scheme, SARs will lapse on
the date of cessation of employment except in certain ‘good leaver’ circumstances which are generally defined as retirement, ill-
health, disability, death, redundancy, transfer or sale of the employing company or any other circumstances at the discretion of the
Committee. In the case of death, SARs shall be exercisable immediately for a period of one year from the date of death. In other good
leaver circumstances, SARs will be exercisable for a period of six months from the date of cessation. 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.
Report & Accounts for the year ended 31 December 2018
43
Governance Report
Rockhopper Exploration plc
Non-Executive Director Remuneration Policy
The Company’s Articles of Association provide that the Board can determine the level of fees to be paid to the Non-Executive Directors
within limits set by the shareholders. This is currently set at an aggregate of £500,000 per annum. The policy for the Chairman and
Non-Executive Directors is as follows:
Fees
Purpose and link to strategy
> To provide a competitive level of fee which will attract and retain high calibre Directors with
the range of skills and experience required to support the Executive Directors and assist the
Company in delivering its objectives
Operation
> The fees for the Chairman and Non-Executive Directors are determined by the Board
as a whole with Directors absenting from discussions regarding their own remuneration
> The Board has regard to level of fees paid to the Non-Executive Directors of other similar sized
companies and the time commitment and responsibilities of the role
> Neither the Chairman nor the Non-Executive Directors participate in any of the Company’s
share schemes
Opportunity
> The current annual fees are:
> Chairman: £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 are 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 appointment are set out below:
Director
David McManus
Keith Lough
John Summers
Tim Bushell
Alison Baker
Appointment date
Original engagement letter
Revised engagement letter
30 September 2010 30 November 2010
14 January 2014
1 February 2014
18 January 2016
14 January 2014
3 February 2014
18 January 2016
18 September 2018 18 September 2018
29 October 2013
8 July 2016
1 February 2017
1 February 2017
18 January 2019
—
Directors are subject to annual re-election by shareholders at the Annual General Meeting and each Director is subject to election by
shareholders at the first Annual General Meeting following their appointment. The Non-Executive 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.
44
Report & Accounts for the year ended 31 December 2018
Rockhopper Exploration plc
Governance Report
Report on Remuneration
Remuneration Committee membership and meetings
As at 31 December 2018, the Committee comprised the Committee Chairman and three independent Non-Executive Directors. The
Committee met three times during the financial period and the 2018 LTIP awards were dealt with by way of written resolutions of the
Committee.
The members of the Committee during the year and as at the year end and their attendance are summarised below:
Committee member
TP Bushell (Committee Chairman)
KG Lough
JE Martin (resigned 18 May 2018)
AJ Summers
AC Baker (appointed 18 September 2018)
Meeting attendance
3/3
3/3
3/3
3/3
0*
* There were no committee meetings held after Alison Baker’s appointment
During the financial year, the Committee’s main areas of activity included:
> Confirming the staff salary adjustments for 2018 and bonus awards for the year ended 31 December 2017.
> Setting the targets for the bonus scheme for the forthcoming financial year.
> Reviewing the Company’s remuneration policy.
> Approving the Directors’ Remuneration Report for the year ended 31 December 2017.
> Approving the 2018 LTIP awards and reviewing the constitution of the peer group.
> Approving the annual implementation of the SIP.
> Reviewing the administration and governance of the Group personal pension plan.
> Approving the introduction of a staff appraisal system.
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 by invitation.
No individual is involved in determining his or her own remuneration.
External advice
The Company Secretary is the principal source of advice on employment matters, remuneration policy and practice and share
scheme administration for the Committee. However, from time to time, the Committee obtains external legal advice from Osborne
Clarke in relation to employment matters and the operation of the share schemes. The Committee considers that the advice it
received during the financial period was objective and independent.
Total Remuneration
The table below reports a single figure for total remuneration for each Executive Director:
Salary
£’000
Taxable benefits
£’000
Annual bonus
£’000
Long-term
Incentives
£’000
Pension/pension
cash allowance
£’000
SIP awards
£’000
Total
£’000
Year
ended
31 Dec
2018
Year
ended
31 Dec
2017
Year
ended
31 Dec
2018
Year
ended
31 Dec
2017
Year
ended
31 Dec
2018
Year
ended
31 Dec
2017
Year
ended
31 Dec
2018
Year
ended
31 Dec
2017
Year
ended
31 Dec
2018
Year
ended
31 Dec
2017(ii)
Year
ended
31 Dec
2018
Year
ended
31 Dec
2017
Year
ended
31 Dec
2018
Year
ended
31 Dec
2017
373.0 362.1 11.2 10.9
9.6
305.9 297.0
6.2
9.7
— 201.3 —
93.0 108.6 —
89.1 —
93.0
— —
—
6.6
— 55.9 36.5
— 45.9 29.7
6.6
— — 12.2 —
6.6 539.7 524.7
6.6 461.1 432.0
4.8 — 224.5
S J Moody
S MacDonald
FM MacAulay (i)
(i) F MacAulay left the Company on 4 July 2017
(ii) Represents pension contributions/pension cash allowance paid in 2017 for the period from 1 April 2017 to 31 December 2017
Report & Accounts for the year ended 31 December 2018
45
Governance Report
Rockhopper Exploration plc
The table below reports a single figure for total remuneration for each Non-Executive Director:
Base fee
£’000
Additional fees
£’000
Total
£’000
Year ended
Year ended
Year ended
Year ended
Year ended
Year ended
31 December
31 December
31 December
31 December
31 December
31 December
2018
2017
115.0
40.0
40.0
40.0
20.0
11.4
115.0
40.0
40.0
40.0
40.0
—
2018
—
12.5
—
10.0
—
—
2017
—
12.5
—
10.0
—
—
2018
2017
115.0
52.5
40.0
50.0
20.0
11.4
115.0
52.5
40.0
50.0
40.0
—
D McManus
K G Lough
A J Summers
T P Bushell
J E Martin (resigned 18 May 2018)
A C Baker (appointed 18 September 2018)
J E Martin resigned from the Board on 18 May 2018.
A C Baker was appointed as a Director on 18 September 2018.
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 (2017: £2,500) for acting as Senior Independent Director and £10,000 as Chairman of the Audit and Risk
Committee and Remuneration Committee. The Chairman of the Company does not receive any additional fees for chairing the
Nomination Committee.
Additional information in respect of single figure table of remuneration for the year ended 31 December 2018
Annual bonus
In respect of the financial period, the Committee agreed that the Executive Director annual bonus opportunity would be up to 50% of
base salary. The following objectives and outcomes were agreed for the 2018 financial year:
• Preservation of the Company’s cash position/strengthening the balance sheet
The year end target cash position had been exceeded and there had been a substantial reduction in the Group’s EGPC receivables
position. A significant number of new venture opportunities had been reviewed in 2018 but none met the Company’s investment
criteria. The Committee agreed that this objective had been partially achieved.
• Making a commercial discovery in Egypt
Two commercial discoveries had been made in Egypt during the 2018 drilling campaign. The Committee agreed that this
objective had been fully achieved.
The Committee recognised that the executive directors had performed well against the agreed objectives but, in the interests of
alignment with shareholders, the Committee exercised its discretion to award lower bonus payments for 2018 than those calculated
from the percentage achievement of the targets. The Committee therefore agreed that the following bonuses should be paid to each
of the Executive Directors which reflected the relative contributions to achievement of the targets.
Bonuses were paid in cash and were as follows:
Director
SJ Moody
S MacDonald
Final Bonus as % of salary
25%
30%
Cash £
93,000
93,000
46
Report & Accounts for the year ended 31 December 2018
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 total shareholder return (‘TSR’) measured against a peer group of 15
companies over a three year period.
Director
SJ Moody
S MacDonald
Date of grant
23 April 2018
23 April 2018
Share price
at date of
grant
£0.255
£0.255
Number of options
subject to TSR
performance
condition
— see 1 below
2,100,000
1,900,000
Exercise
price
—
—
Maximum
number of shares
that may vest
2,100,000
1,900,000
Face value of
maximum award*
£535,500
£484,500
* 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 2018 LTIP awards are as follows:
> Awards are in the form of nil cost options.
> Performance will be measured over the three year period to 31 March 2021.
> Performance measurement is based on the average price over the 90 day dealing period to 31 March 2018 measured against the
90 day dealing period up to 31 March 2021.
> 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 reflect 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 2019
Base salaries
As part of the annual remuneration review, the Committee considered general economic conditions in the UK and had regard to
current industry market practice in relation to salary adjustments. The Executive Directors’ base salaries were increased by 2%
with effect from 1 January 2019.
Annual bonus
For 2019, the Executive Director annual bonus will be determined as a percentage of base salary based on performance against pre
agreed corporate and personal objectives. When deciding on the level of bonus awards, the Committee will have regard to the extent
to which achievement of the objectives has contributed to progress against the Company’s strategic drivers. Bonus payments will only
exceed 50% of base salary in circumstances of exceptional strategic progress. The Committee has the discretion to decide the form of
any exceptional bonus payments which may be in shares and/or cash.
The Committee has agreed the following objectives for the financial year ending 31 December 2019:
> Preservation of the Company’s cash position and strengthening of the Company’s balance sheet
> Portfolio management including mergers, asset acquisitions and disposals to strengthen the Company’s balance sheet
The Committee previously agreed to remove progress towards the Final Investment Decision on the Sea Lion Development from the
Executive Directors’ bonus targets. A one off special bonus of between 100% and 200% of salary will be payable at project sanction
with the exact quantum of this bonus at the Committee’s discretion.
Report & Accounts for the year ended 31 December 2018
47
Governance Report
Rockhopper Exploration plc
Long Term Incentive Plan
The Committee intends to grant LTIP awards in 2019 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 Director remuneration policy for 2019
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
£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:
Samuel Moody
Stewart MacDonald
David McManus
Tim Bushell
John Summers
Keith Lough
Alison Baker
At 31 December 2018
Ordinary 1p shares
At 31 December 2017
Ordinary 1p shares
2,363,640
285,310
498,952
103,606
244,100
—
—
2,333,749
255,419
498,952
103,606
244,100
—
—
The Committee has agreed that the Executive Directors should be encouraged to build up a stake of Rockhopper shares equivalent to
annual base salary in the case of S MacDonald and two times annual 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.
Outstanding awards under the LTIP and Employee Share Option Scheme
(a) LTIP
(i) Unvested LTIP Awards
Director
S J Moody
S MacDonald
Date of
grant
13.04.15
22.04.16
16.06.17
23.04.18
13.04.15
22.04.16
16.06.17
23.04.18
Awards
held at
31 Dec 2017
855,354
1,738,080
1,900,000
—
701,575
1,425,600
1,800,000
—
Granted
—
—
—
2,100,000
—
—
—
1,900,000
Lapsed/
relinquished
during Year
855,354
—
—
—
701,575
—
—
—
Awards
held at
31 Dec 2018
Market price
at date
of award
Vested
Performance
period
Earliest
vesting
date
—
—
— 1,738,080
— 1,900,000
— 2,100,000
—
—
— 1,425,600
— 1,800,000
— 1,900,000
—
—
—
£0.3125 01.04.16-31.03.19 31.03.19
£0.2025 01.06.17-31.05.20 16.06.20
£0.2550 01.04.18-31.03.21 23.04.21
—
£0.3125 01.04.16-31.03.19 31.03.19
£0.2025 01.06.17-31.05.20 16.06.20
£0.2550 01.04.18-31.03.21 23.04.21
—
—
48
Report & Accounts for the year ended 31 December 2018
Rockhopper Exploration plc
Governance Report
ii) Vested LTIP Awards
Director
SJ Moody
S MacDonald
Date of
grant
08.10.13
10.03.14
Vested
Awards
held at
31 Dec 2017
177,802*
70,391*
Exercised
during the
year
—
—
Vested
Awards
held at
31 Dec 2018
177,802*
70,391*
* 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 2017 and 31 December 2018 there were no share options held by individuals who were directors during the
year ended 31 December 2018.
(c) Share appreciation rights
The share appreciation rights outstanding as at 31 December 2018 and held by individuals who were Directors during the year
ended 31 December 2018 are:
Director
S J Moody
Date of grant
11.01.11
17.01.12
30.01.13
Awards held at
31 December 2017
Exercised during
the year
Lapsed during
the year
Awards held at
31 December 2018
Exercise price
Pence
76,056
77,777
91,077
244,910
—
—
—
—
—
—
—
—
76,056
77,777
91,077
244,910
372.75
303.75
159.00
Share price movements during year ended 31 December 2018
The mid-market closing price of the Company’s shares as at 31 December 2018 was 21.10 pence (31 December 2017: 21.25 pence).
The range of the trading price of the Company’s shares during the year was between 20.25 pence and 44.95 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
1 April 2019
Report & Accounts for the year ended 31 December 2018
49
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.
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.
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 2017: £nil).
Key performance indicators “KPIs”
See page 17 for more details.
Substantial shareholders
At 31 March 2019 the Company had been notified
of the following interests of three percent or more
of the Company’s voting rights.
Shareholder/Fund manager
Number of
shares
% of issued
share capital
Majedie Asset Management
Hosking Partners
Aedos Advisers
34,723,166
17,781,329
17,545,290
7.59
3.89
3.84
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
Strategic Report and note 30.
Related party transactions
Related party transactions are disclosed in note 29.
Political and charitable contributions
The Group made no charitable donations (year
ended 31 December 2017: £nil) and no political
donations (year ended 31 December 2017: £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 35 days (year ended 31 December 2017:
43 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 19 employees at the year end,
two of whom are Executive 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.
50
Report & Accounts for the year ended 31 December 2018
Rockhopper Exploration plc
Governance Report
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:
> 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;
> assess the Group and Parent Company’s ability
to continue as a going concern, disclosing, as
applicable, matters related to going concern;
and
> use 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.
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.
Under applicable law and regulations, the
Directors are also responsible for preparing a
Strategic Report and a Directors’ Report that
complies with that law and those regulations.
The Directors are responsible for the maintenance
and integrity of the corporate and financial
information included on the Company’s website.
Legislation in the UK governing the preparation
and dissemination of financial statements may
differ from legislation in other jurisdictions.
Jan Davies
Company Secretary
1 April 2019
Report & Accounts for the year ended 31 December 2018
51
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 2018 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.
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 2018 and of
the Group’s loss 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.
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.
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 (whether or not due to fraud)
identified by us, including those which had the
greatest effect on: 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 (unchanged
from 2017):
The risk
Our response
Our procedures included:
> Impairment triggers: 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;
> Assessing license extension prospects: We
assessed whether it is likely that conversion 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.
Recoverability of exploration
and evalution assets/
Recoverability of Parent
company’s investment in
subsidiaries and receivables
due from group companies
Exploration and evaluation
assets: $447.0m
(2017: $432.1m)
Refer to page 60
(accounting policy) and
page 72 (financial disclosures)
Investment in subsidiaries:
$93.6m (2017: $93.6m)
Loans due from group
companies: $438.7m
(2017: $412.2m)
Refer to page 82 (accounting policy)
and pages 84 and 85 (financial
disclosures)
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 flows, specifically
around oil and gas prices, reserve
estimates and future cost estimates.
Moreover, certain licenses in this area
expire in 2020. The conversion of these
to production licenses is subject to the
ability of the Company to secure financing
for further development and successful
negotiations with local government.
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.
52
Report & Accounts for the year ended 31 December 2018
Rockhopper Exploration plc
Governance Report
3. The impact of uncertainties due to the UK exiting
the European Union on our audit
Uncertainties related to the effects of Brexit are relevant to
understanding our audit of the financial statements. All audits
assess and challenge the reasonableness of estimates made by
the directors and related disclosures and the appropriateness
of the going concern basis of preparation of the financial
statements. All of these depend on assessments of the future
economic environment and the group’s future prospects and
performance. Brexit is one of the most significant economic
events for the UK, and at the date of this report its effects are
subject to unprecedented levels of uncertainty of outcomes,
with the full range of possible effects unknown. We applied a
standardised firm-wide approach in response to that uncertainty
when assessing the group’s future prospects and performance.
However, no audit should be expected to predict the unknowable
factors or all possible future implications for a company and this
is particularly the case in relation to Brexit.
4. 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 $5.1m (2017: $5.3m), determined with reference
to a benchmark of total assets, of which it represents 1%
(2017: 1%).
Materiality for the parent company financial statements as
a whole was set at $5.1m (2017: $5.3m), 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% (2017: 1%) of the stated benchmark.
We agreed to report to the Audit Committee any corrected
or uncorrected identified misstatements exceeding $250k
(2017: $275k), in addition to other identified misstatements
that warranted reporting on qualitative grounds.
For both the current and prior year, the Group audit team
performed the audit of the Group (including the Parent Company
financial information) as if it was a single aggregated set of
financial information.
5. We have nothing to report on going concern
The Directors have prepared the financial statements on
the going concern basis as they do not intend to liquidate
the Company or the Group or to cease their operations, and
as they have concluded that the Company’s and the Group’s
financial position means that this is realistic. They have also
concluded that there are no material uncertainties that could
have cast significant doubt over their ability to continue as
a going concern for at least a year from the date of approval
of the financial statements (“the going concern period”).
Our responsibility is to conclude on the appropriateness of
the Directors’ conclusions and, had there been a material
uncertainty related to going concern, to make reference to
that in this audit report. However, as we cannot predict all
future events or conditions and as subsequent events may
result in outcomes that are inconsistent with judgements
that were reasonable at the time they were made, the
absence of reference to a material uncertainty in this
auditor’s report is not a guarantee that the group or the
company will continue in operation. In our evaluation of the
Directors’ conclusions, we considered the inherent risks to
the Group’s and Company’s business model, including the
impact of Brexit, and analysed how those risks might affect
the Group’s and Company’s financial resources or ability
to continue operations over the going concern period. We
evaluated those risks and concluded that they were not
significant enough to require us to perform additional audit
procedures. Based on this work, 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 a year from the
date of approval of the financial statements. We have nothing
to report in these respects, and we did not identify going
concern as a key audit matter.
6. 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.
Report & Accounts for the year ended 31 December 2018
53
Governance Report
Rockhopper Exploration plc
7. 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
9. 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.
we require for our audit.
Lynton Richmond (Senior Statutory Auditor)
For and on behalf of KPMG LLP, Statutory Auditor
Chartered accountants
15 Canada Square
London E14 5GL
1 April 2019
We have nothing to report in these respects.
8. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 51,
the directors are responsible for: 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.
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 influence 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.
54
Report & Accounts for the year ended 31 December 2018
Rockhopper Exploration plc
Financial Statements
Group income statement
for the year ended 31 December 2018
Revenue
Other cost of sales
Depreciation and impairment of oil and gas assets
Total cost of sales
Gross profit
Exploration and evaluation expenses
Costs in relation to acquisition and group restructuring
Recurring administrative costs
Total administrative expenses
Charge for share based payments
Other income
Foreign exchange movement
Results from operating activities and other income
Finance income
Finance expense
Loss before tax
Tax
Loss for the year attributable to the equity shareholders of the parent company
Loss per share: cents
Basic
Diluted
All operating income and operating gains and losses relate to continuing activities.
Group statement of comprehensive income
for the year ended 31 December 2018
Loss for the year
Exchange differences on translation of foreign operations
Total comprehensive loss for the year
Year ended
31 December
2018
$’000
Year ended
31 December
2017
$’000
Notes
10,580
(4,563)
(3,968)
(8,531)
2,049
(5,014)
(58)
(5,328)
(5,386)
(1,478)
943
1,208
10,401
(4,100)
(5,473)
(9,573)
828
(3,422)
—
(5,282)
(5,282)
(864)
—
(966)
(7,678)
(9,706)
825
(253)
(7,106)
(25)
(7,131)
(1.57)
(1.57)
783
(39)
(8,962)
2,823
(6,139)
(1.34)
(1.34)
4
5
6
9
10
11
11
12
13
13
Year ended
31 December
2018
$’000
Year ended
31 December
2017
$’000
(7,131)
371
(6,760)
(6,139)
(1,151)
(7,290)
Report & Accounts for the year ended 31 December 2018
55
Financial Statements
Rockhopper Exploration plc
Group balance sheet
as at 31 December 2018
Non current assets
Exploration and evaluation assets
Property, plant and equipment
Goodwill
Current assets
Inventories
Other receivables
Restricted cash
Term deposits
Cash and cash equivalents
Assets held for sale
Total assets
Current liabilities
Other payables
Non-current liabilities
Tax payable
Provisions
Deferred tax liability
Liabilities directly associated with assets held for sale
Total liabilities
Equity
Share capital
Share premium
Share based remuneration
Own shares held in trust
Merger reserve
Foreign currency translation reserve
Special reserve
Retained losses
Attributable to the equity shareholders of the company
Total liabilities and equity
31 December
2018
$’000
31 December
2017
$’000
Notes
14
15
16
17
18
19
20
21
22
23
24
20
25
26
26
26
26
26
26
26
447,035
432,147
11,836
10,308
1,779
9,510
568
30,000
10,426
—
11,585
10,789
1,621
16,840
540
30,000
20,729
3,814
521,462
528,065
15,148
12,772
37,860
13,888
39,223
—
40,057
5,986
39,202
9,450
106,119
107,467
7,205
3,422
5,103
(3,369)
74,332
(9,748)
7,200
3,282
5,609
(3,383)
74,332
(10,119)
456,680
460,077
(118,282)
(116,400)
415,343
521,462
420,598
528,065
These financial statements were approved by the directors and authorised for issue on 1 April 2019 and are signed on their
behalf by:
Stewart MacDonald
Chief Financial Officer
56
Report & Accounts for the year ended 31 December 2018
Rockhopper Exploration plc
Financial Statements
Group statement of changes in equity
for the year ended 31 December 2018
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 2016
7,194
3,149
6,251
(3,407)
74,332
(8,968) 462,549
(114,106) 426,994
Total comprehensive loss for the year
Share based payments (see note 9)
Share issues in relation to SIP
Other transfers
—
—
6
—
—
—
133
—
864
—
—
(1,506)
—
—
(109)
133
—
—
—
—
(1,151)
—
—
—
—
—
—
(6,139)
(7,290)
—
—
864
30
—
(2,472)
3,845
Balance at 31 December 2017
7,200
3,282
5,609
(3,383) 74,332
(10,119) 460,077 (116,400) 420,598
Total comprehensive loss for the year
Share based payments (see note 9)
Share issues in relation to SIP
Other transfers
—
—
5
—
—
—
140
—
1,478
—
—
(1,984)
—
—
(118)
132
—
—
—
—
371
—
(7,131)
(6,760)
—
—
—
—
—
—
—
(3,397)
5,249
1,478
27
—
Balance at 31 December 2018
7,205
3,422
5,103
(3,369) 74,332
(9,748) 456,680 (118,282) 415,343
Report & Accounts for the year ended 31 December 2018
57
Financial Statements
Rockhopper Exploration plc
Group cash flow statement
for the year ended 31 December 2018
Cash flows from operating activities
Net loss before tax
Adjustments to reconcile net losses to cash:
Depreciation
Share based payment charge
Exploration impairment expenses
Finance expense
Finance income
Foreign exchange
Operating cash flows before movements in working capital
Changes in:
Inventories
Other receivables
Payables
Movement on other provisions
Cash from/(utilised by) operating activities
Cash flows from investing activities
Capitalised expenditure on exploration and evaluation assets
Purchase of property, plant and equipment
Acquisition of Beach Egypt
Interest
Investing cash flows before movements in capital balances
Changes in:
Restricted cash
Cash flow from investing activities
Cash flows from financing activities
Share incentive plan
Finance expense
Cash flow from financing activities
Currency translation differences relating to cash and cash equivalents
Net cash flow
Cash and cash equivalents brought forward
Cash and cash equivalents carried forward
Year ended
31 December
2018
$’000
Year ended
31 December
2017
$’000
Notes
(7,106)
(8,962)
15
9
14
10
4,111
1,478
3,884
253
(825)
(2,256)
(461)
(23)
7,029
(103)
(1,012)
5,430
(13,940)
(1,844)
(658)
750
(15,692)
(28)
(15,720)
27
(9)
18
(31)
(10,272)
20,729
10,426
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
58
Report & Accounts for the year ended 31 December 2018
Rockhopper Exploration plc
Financial Statements
Notes to the group financial statements
for the year ended 31December 2018
1. Accounting policies
1.1 Group and its operations
Rockhopper Exploration plc, the ‘Company’, a public limited company quoted on AIM, incorporated and domiciled in the United
Kingdom (‘UK’), together with its subsidiaries, collectively ‘the ‘Group’ holds certain exploration licences for the exploration and
exploitation of oil and gas in the Falkland Islands. In 2014, it diversified its portfolio into the Greater Mediterranean through the
acquisition of an exploration and production company with operations principally based in Italy and during 2016 augmented
this through the acquisition of exploration and production assets in Egypt. The registered office of the Company is 4th Floor,
5 Welbeck Street, London, W1G 9YQ.
1.2 Statement of compliance
The consolidated financial statements are prepared in compliance with International Financial Reporting Standards (IFRS) as
adopted by the European Union and applied in accordance with UK company law. The consolidated financial statements were
approved for issue by the board of directors on 1 April 2019 and are subject to approval at the Annual General Meeting
of shareholders on 15 May 2019.
1.3 Basis of preparation
The results upon which these financial statements have been based were prepared using the accounting policies set out below.
These policies have been consistently applied unless otherwise stated.
These consolidated financial statements have been prepared under the historical cost convention except, as set out in the
accounting policies below, where certain items are included at fair value.
Items included in the results of each of the Group’s entities are measured in the currency of the primary economic environment
in which that entity operates (the “functional currency”).
All values are rounded to the nearest thousand dollars ($’000) or thousand pounds (£’000), except when otherwise indicated.
1.4 Change in accounting policy
Changes in accounting standards
In the current year new and revised standards, amendments and interpretations were effective and are applicable to the
consolidated financial statements of the Group but did not affect amounts reported in these financial statements.
At the date of authorisation of this report the following standards and interpretations, which have not been applied in this report,
were in issue but not yet effective.
– IFRS16 Leases (effective date for annual periods beginning on or after 1 January 2019);
Management does not believe that the application of this standard will have a material impact on the financial statements.
1.5 Going concern
At 31 December 2018, the Group had available cash and term deposits of $40 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.
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 which has historically been common to many upstream companies operating in the country. As at
31 December 2018, Rockhopper’s EGPC receivable balance was approximately US$1.3 million.
Cash forecasts are regularly produced based on, inter alia, the Group’s production and expenditure forecasts and management’s
best estimates of future commodity prices. Sensitivities are run to reflect different scenarios including changes in production
rates, possible reductions in commodity prices and increased costs. Management’s base case forecast assumes an oil price of
US$65/bbl in 2019 and 2020, production in line with prevailing rates and expenditures in line with approved budgets. The Group
has run downside scenarios, where oil prices are reduced by a flat $10/bbl throughout the going concern period and where cost
expenditures have increased by 5%.
Report & Accounts for the year ended 31 December 2018
59
Financial Statements
Rockhopper Exploration plc
Notes to the group financial statements continued
for the year ended 31December 2018
1. Accounting policies (continued)
1.5 Going concern (continued)
Under the base case forecast and the downside scenarios run, the Group will have sufficient financial headroom to meet forecast
cash requirements for at least the 12 months from the date of approval of the 2018 financial statements. However, beyond the
12 month going concern assessment depending on the timing of sanction for the Sea Lion development, in the absence of any
mitigating actions, the Group may have insufficient funds to meet its forecast cash requirements.
Potential mitigating actions could include non-core asset disposals, collection of arbitration award proceeds, deferral of
expenditure or raising additional equity.
Accordingly, after making enquiries and considering the risks described above, the Directors have assessed that the cash
balance held provides the Group with adequate headroom over forecasted expenditure for the following 12 months – as a result,
the Directors have adopted the going concern basis of accounting in preparing the annual financial statements.
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 UK.
(D) Oil and gas assets
The Group applies the successful efforts method of accounting for exploration and evaluation (“E&E”) costs, having regard to the
requirements of IFRS6 – ‘Exploration for and evaluation of mineral resources’.
Exploration and evaluation (“E&E”) expenditure
Expensed exploration & evaluation costs
Expenditure on costs incurred prior to obtaining the legal rights to explore an area, geological and geophysical costs are expensed
immediately to the income statement.
Capitalised intangible exploration and evaluation assets
All directly attributable E&E costs are initially capitalised in well, field, prospect, or other specific, cost pools as appropriate,
pending determination.
60
Report & Accounts for the year ended 31 December 2018
Rockhopper Exploration plc
Financial Statements
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 indicators of impairment. If commercial reserves have been
discovered, the carrying value, after any impairment loss, of the relevant E&E assets, are then reclassified as development and
production assets within property plant and equipment. However, if commercial reserves have not been found, the capitalised
costs are charged to expense.
The Group’s definition of commercial reserves for such purpose is proved and probable reserves on an entitlement basis.
Proved and probable reserves are the estimated quantities of crude oil, natural gas and natural gas liquids which geological,
geophysical and engineering data demonstrate with a specified degree of certainty (see below) to be recoverable in future years
from known reservoirs and which are considered commercially producible. There should be a 50% statistical probability that the
actual quantity of recoverable reserves will be more than the amount estimated as proved and probable. The equivalent statistical
probabilities for the proven component of proved and probable reserves are 90%.
Such reserves may be considered commercially producible if management has the intention of developing and producing them
and such intention is based upon:
– a reasonable assessment of the future economics of such production;
– a reasonable expectation that there is a market for all or substantially all the expected hydrocarbon production;
– evidence that the necessary production, transmission and transportation facilities are available or can be made available; and
– the making of a final investment decision.
Furthermore:
(i)
Reserves may only be considered proved and probable if producibility is supported by either actual production or
a conclusive formation test. The area of reservoir considered proved includes: (a) that portion delineated by drilling
and defined by gas-oil and/or oil-water contacts, if any, or both; and (b) the immediately adjoining portions not yet
drilled, but which can be reasonably judged as economically productive on the basis of available geophysical, geological
and engineering data. In the absence of information on fluid contacts, the lowest known structural occurrence of
hydrocarbons controls the lower proved limit of the reservoir.
(ii)
Reserves which can be produced economically through application of improved recovery techniques (such as fluid
injection) are only included in the proved and probable classification when successful testing by a pilot project, the
operation of an installed programme in the reservoir, or other reasonable evidence (such as, experience of the same
techniques on similar reservoirs or reservoir simulation studies) provides support for the engineering analysis on which
the project or programme was based.
Development and production assets
Development and production assets, classified within property, plant and equipment, are accumulated generally on a field-by-
field basis and represent the costs of developing the commercial reserves discovered and bringing them into production, together
with the E&E expenditures incurred in finding commercial reserves transferred from intangible E&E assets.
Depreciation of producing assets
The net book values of producing assets are depreciated generally on a field-by-field basis using the unit-of-production method
by reference to the ratio of production in the year and the related commercial reserves of the field, taking into account the future
development expenditure necessary to bring those reserves into production.
Disposals
Net cash proceeds from any disposal of an intangible E&E asset are initially credited against the previously capitalised costs.
Any surplus proceeds are credited to the income statement.
Decommissioning
Provision for decommissioning is recognised in full when the related facilities are installed. The amount recognised is the present
value of the estimated future expenditure. A corresponding amount equivalent to the provision is also recognised as part of the
cost of the related oil and gas property. This is subsequently depreciated as part of the capital costs of the production facilities.
Any change in the present value of the estimated expenditure is dealt with prospectively as an adjustment to the provision and the
oil and gas property. The unwinding of the discount is included in finance cost.
Report & Accounts for the year ended 31 December 2018
61
Financial Statements
Rockhopper Exploration plc
Notes to the group financial statements continued
for the year ended 31December 2018
1. Accounting policies continued
1.6 Significant accounting policies continued
(E) Capital commitments
Capital commitments include all projects for which specific board approval has been obtained up to the reporting date. Projects
still under investigation for which specific board approvals have not yet been obtained are excluded.
(F) Foreign currency translation
Functional and presentation currency:
Items included in the results of each of the Group’s entities are measured using the currency of the primary economic
environment in which the entity operates, the functional currency. The consolidated financial statements are presented in US$
as this best reflects the economic environment of the oil exploration sector in which the Group operates. The Group maintains
the accounts of the parent and subsidiary undertakings in their functional currency. Where applicable, the Group translates
subsidiary accounts into the presentation currency, US$, using the closing rate method for assets and liabilities which are
translated at the rate of exchange prevailing at the balance sheet date and rates at the date of transactions for income statement
accounts. Differences are taken directly to reserves.
Transactions and balances:
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation
at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are capitalised in the income
statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges.
The period end rates of exchange actually used were:
£ : US$
a
:
US$
(G) Revenue and income
(i) Revenue
31 December 2018
31 December 2017
1.28
1.15
1.35
1.20
Revenue arising from the sale of goods is recognised when control over a product or service is transferred to a customer,
which is typically at the point that title passes, and the revenue can be reliably measured. Revenue is measured at the fair
value of the consideration received or receivable and represents amounts receivable for goods provided in the normal course
of business, net of discounts, customs duties and sales taxes.
(ii) Investment income
Investment income consists of interest receivable for the period. Interest income is recognised as it accrues, taking into
account the effective yield on the investment.
(H) Non-derivative financial instruments
Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group has become a party to the
contractual provisions of the instrument.
(i) Other receivables
Other receivables are classified as loans and receivables and are initially recognised at fair value. They are subsequently
measured at their amortised cost using the effective interest method less any provision for impairment. A provision for
impairment is made where there is objective evidence that amounts will not be recovered in accordance with original terms
of the agreement. A provision for impairment is established when the carrying value of the receivable exceeds the present
value of the future cash flow discounted using the original effective interest rate. The carrying value of the receivable is
reduced through the use of an allowance account and any impairment loss is recognised in the income statement.
(ii) Term deposits
Term deposits are disclosed separately on the face of the balance sheet when their term is greater than three months and
they are unbreakable.
62
Report & Accounts for the year ended 31 December 2018
Rockhopper Exploration plc
Financial Statements
(iii) Restricted cash
Restricted cash is disclosed separately on the face of the balance sheet and denoted as restricted when it is not under the
exclusive control of the Group.
(iv) Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and at bank and other short-term deposits held by the Group including
breakable and unbreakable deposits with terms of less than three months and breakable term deposits of greater terms
than three months where amounts can be accessed within three months without material loss. They are stated at carrying
value which is deemed to be fair value.
(v) Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements
entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting
all of its liabilities.
(vi) Account and other payables
Account payables are initially recognised at fair value and subsequently at amortised cost using the effective interest method.
(vii) Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
(I) Income taxes and deferred taxation
The current tax expense is based on the taxable profits for the period, after any adjustments in respect of prior years. Tax,
including tax relief for losses if applicable, is allocated over profits before tax and amounts charged or credited to reserves as
appropriate.
Deferred taxation is recognised in respect of all taxable temporary differences that have originated but not reversed at the
balance sheet date where a transaction or events have occurred at that date that will result in an obligation to pay more, or a right
to pay less or to receive more, tax, with the exception that deferred tax assets are recognised only to the extent that the directors
consider that it is probable that there will be suitable taxable profits from which the future reversal of the underlying temporary
differences can be deducted.
Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which temporary
differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date.
(J) Share based remuneration
The Group issues equity settled share based payments to certain employees. Equity settled share based payments are measured
at fair value (excluding the effect of non market based vesting conditions) at the date of grant. The fair value determined at the
grant date of the equity settled share based payments is expensed on a straight line basis over the vesting period, based on the
Group’s estimate of shares that will eventually vest and adjusted for non market based vesting conditions.
Fair value is measured by use of either Binomial or Monte-Carlo simulation. The main assumptions are disclosed in note 9.
Cash settled share based payment transactions result in a liability. Services received and liability incurred are measured initially
at fair value of the liability at grant date, and the liability is remeasured each reporting period until settlement. The liability is
recognised on a straight line basis over the period that services are rendered.
Report & Accounts for the year ended 31 December 2018
63
Financial Statements
Rockhopper Exploration plc
Notes to the group financial statements continued
for the year ended 31December 2018
2. Use of estimates, assumptions and judgements
The Group makes estimates, assumptions and judgements that affect the reported amounts of assets and liabilities. Estimates,
assumptions and judgements are continually evaluated and based on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the circumstances.
The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are
discussed below.
Carrying value of intangible exploration and evaluation assets (note 14) and property, plant and equipment (note 15)
The amounts for intangible exploration and evaluation assets represent active exploration and evaluation projects. These amounts
will be written off to the income statement as exploration costs unless commercial reserves are established or the determination
process is not completed and there are indications of impairment in accordance with the Group’s accounting policy.
In addition for assets under evaluation where discoveries have been made, such as Sea Lion, and property plant and equipment
assets their carrying value is checked by reference to the net present value of future cashflows which requires key assumptions
and estimates in relation to: commodity prices that are based on forward curves for a number of years and the long-term corporate
economic assumptions thereafter, discount rates that are adjusted to reflect risks specific to individual assets, the quantum of
commercial reserves and the associated production and cost profiles. Future development costs are estimated taking into account
the level of development required to produce the reserves by reference to operators, where applicable, and internal engineers.
Carrying value of goodwill (note 16)
Following the acquisition of Mediterranean Oil & Gas plc during 2014, Rockhopper recognised goodwill in line with the requirements
of IFRS 3- Business Combinations. Management performs annual impairment tests on the carrying value of goodwill and the
Greater Mediterranean CGU that the goodwill is attributed to. The calculation of the recoverable amount is based on the likely future
economic benefits of the exploration and evaluation assets in the acquired portfolio and is based on estimated value of the potential
and actual discoveries as noted above.
Decommissioning costs (note 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.
64
Report & Accounts for the year ended 31 December 2018
Rockhopper Exploration plc
Financial Statements
3. Revenue and segmental information
Year ended 31 December 2018
Revenue
Cost of sales
Gross profit
Exploration and evaluation expenses
Costs in relation to acquisition and group restructuring
Recurring administrative costs
Total administrative expenses
Charge for share based payments
Other income
Foreign exchange gain/(loss)
Results from operating activities and other income
Finance income
Finance expense
Loss before tax
Tax
Profit/(loss) for year
Reporting segments assets
Reporting segments liabilities
Depreciation
Year ended 31 December 2017
Revenue
Cost of sales
Gross profit
Exploration and evaluation expenses
Costs in relation to acquisition and group restructuring
Other administrative costs
Total administrative expenses
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
Falkland
Islands
$’000
—
—
—
(253)
—
—
—
—
—
2,197
1,944
—
—
1,944
—
1,944
440,314
76,996
—
Greater
Mediterranean
$’000
10,580
(8,531)
2,049
(3,682)
(58)
(1,406)
(1,464)
—
943
(100)
(2,254)
8
(254)
(2,500)
(25)
(2,525)
41,992
18,183
3,991
Falkland
Islands
$’000
Greater
Mediterranean
$’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
Corporate
$’000
—
—
—
(1,079)
—
(3,922)
(3,922)
(1,478)
—
(889)
(7,368)
817
1
(6,550)
—
(6,550)
39,156
10,940
120
Corporate
$’000
—
—
—
(1,053)
—
(3,788)
(3,788)
(864)
2,459
(3,246)
783
(9)
(2,472)
—
(2,472)
50,447
7,454
189
Total
$’000
10,580
(8,531)
2,049
(5,014)
(58)
(5,328)
(5,386)
(1,478)
943
1,208
(7,678)
825
(253)
(7,106)
(25)
(7,131)
521,462
106,119
4,111
Total
$’000
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
Report & Accounts for the year ended 31 December 2018
65
Financial Statements
Rockhopper Exploration plc
Notes to the group financial statements continued
for the year ended 31December 2018
4. Cost of sales
Cost of sales
Depreciation of oil and gas assets (see note 15)
5. Exploration and evaluation expenses
Allocated from administrative expenses (see note 6)
Capitalised exploration costs impaired (see note 14)
Other exploration and evaluation expenses
6. Administrative expenses
Directors’ salaries and fees, including bonuses (see note 7)
Other employees’ salaries
National insurance costs
Pension costs
Employee benefit costs
Total staff costs (including group restructuring costs)
Amounts reallocated
Total staff costs charged to administrative expenses
Auditor’s remuneration (see note 8)
Other professional fees
Other
Depreciation (see note 15)
Amounts reallocated
Year ended
31 December
2018
$’000
4,563
3,968
8,531
Year ended
31 December
2018
$’000
891
3,884
239
5,014
Year ended
31 December
2018
$’000
1,727
2,638
637
164
88
5,254
(2,105)
3,149
251
1,058
1,648
143
(863)
5,386
Year ended
31 December
2017
$’000
4,100
5,473
9,573
Year ended
31 December
2017
$’000
597
2,321
504
3,422
Year ended
31 December
2017
$’000
1,934
2,604
651
260
92
5,541
(2,200)
3,341
244
992
1,481
214
(990)
5,282
The average number of staff employed during the year was 20 (31 December 2017: 24). The relative decrease between years reflects
the continued restructuring of the Greater Mediterranean operation. As at 31 December 2018 the number of staff employed had
reduced to 19.
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.
66
Report & Accounts for the year ended 31 December 2018
Rockhopper Exploration plc
Financial Statements
7. Directors’ remuneration
Executive salaries
Executive bonuses
Company pension contributions to money purchase schemes & pension cash allowance
Benefits
Non-executive fees
The total remuneration of the highest paid director was:
Annual salary
Bonuses
Money purchase pension schemes
Benefits
Year ended
31 December
2018
$’000
Year ended
31 December
2017
$’000
912
250
137
28
400
1,727
Year ended
31 December
2018
£
373,000
93,000
55,900
11,200
533,100
1,141
267
104
37
385
1,934
Year ended
31 December
2017
£
362,100
108,600
36,900
10,904
518,504
Interest in outstanding share options and SARs, by director, are separately disclosed in the directors’ remuneration report.
8. Auditor’s remuneration
KPMG LLP
Fees payable to the Company’s auditor for the audit of the Company’s annual financial statements
Fees payable to the Company’s auditor and its associates for other services:
Audit of the accounts of subsidiaries
Half year review
Tax compliance services
Year ended
31 December
2018
$’000
Year ended
31 December
2017
$’000
128
72
38
13
251
117
63
45
19
244
Report & Accounts for the year ended 31 December 2018
67
Financial Statements
Rockhopper Exploration plc
Notes to the group financial statements continued
for the year ended 31December 2018
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
2018
$’000
1,360
118
1,478
Year ended
31 December
2017
$’000£
768
96
864
The models and key assumptions used to value each of the grants and hence calculate the above charges are set out below:
Long term incentive plan
During 2013 a long term incentive plan (“LTIP”) was approved by shareholders. The LTIP is operated and administered by the
Remuneration Committee. During the year a number of LTIP awards (‘Awards’), structured as nil cost options, were granted to
executive directors and senior staff.
LTIP awards will generally only vest or become exercisable subject to the satisfaction of a performance condition measured over
a three year period (“Performance Period”) determined by the Remuneration Committee at the time of grant. The performance
conditions must contain objective conditions, which must be related to the underlying financial performance of the Company. The
current performance condition used is based on Total Shareholder Return (“TSR”) measured over a three-year period against
the TSR of a peer group of at least 9 other oil and gas companies comprising both FTSE 250, larger AIM oil and gas companies
and Falkland Islands focused companies (“Peer Group”). The Peer Group for the Awards may be amended by the Remuneration
Committee at their sole discretion as appropriate.
Performance measurement for the Awards are based on the average price over the relevant 90 day dealing period measured against
the 90 dealing day period three years later. Awards will typically vest on a sliding scale from 35% to 100% for performance in the top
two quartiles of the Peer Group. No awards will vest for performance in the bottom two quartiles.
The Awards granted on 8 October 2013 and 10 March 2014 had an additional performance condition so that no awards would vest
if the Company’s share price did not exceed £1.80 based on the average price over the 90 day dealing period up to 31 March 2016.
The Remuneration Committee has exercised its discretion to vary the performance condition so that the period for achievement of
the £1.80 hurdle rate is extended to 31 March 2023. As a result, any LTIP awards that would have vested on 31 March 2016 will not
be exercisable unless the Company’s share price exceeds £1.80 based on an average price over any 90 day dealing period up to 31
March 2023. At the same time, the Remuneration Committee agreed to remove its discretion to allow vesting for performance in the
third quartile for all existing and future LTIP awards.
The LTIP has been valued using a Monte Carlo model the key inputs of which are summarised below:
Grant date:
Closing share price
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
23 April 2018
25.7p
7,000,000
44.4%
64.0%
0.90%
13.0%
0p
0%
16 June 2017
21.25p
6,700,000
53.3%
71.4%
0.18%
15.3%
0p
0%
22 Apr 2016
31.5p
10,047,885
60.4%
71.2%
0.58%
27.5%
0p
0%
13 Apr 2015
64.0p
4,111,838
44.5%
55.8%
0.70%
33.5%
0p
0%
68
Report & Accounts for the year ended 31 December 2018
Rockhopper Exploration plc
Financial Statements
The following movements occurred during the year:
Issue date
Expiry date
8 October 2013
10 March 2014
13 April 2015
22 April 2016
16 June 2017
23 April 2018
8 October 2023
10 March 2024
13 April 2025
22 April 2026
16 June 2027
23 April 2028
At 31 December
2017
546,145
70,391
2,977,944
6,017,850
6,700,000
—
16,312,330
Issued
Lapsed
—
—
—
—
—
7,000,000
7,000,000
—
—
(2,977,944)
—
—
—
(2,977,944)
At 31 December
2018
546,145
70,391
—
6,017,850
6,700,000
7,000,000
20,334,386
Share incentive plan
The Group has in place an HMRC approved Share Incentive Plan (“SIP”). The SIP allows the Group to award Free Shares to UK
employees (including directors) and to award shares to match Partnership Shares purchased by employees, subject to HMRC limits.
Throughout this and the prior year the Group issued two Matching Shares for every Partnership Share purchased.
In the year the Group made a free award of £41,997 (year ended 31 December 2017 £41,997) worth of Free Shares to eligible
employees.
This resulted in 156,268 (year ended 31 December 2017: 154,826) Free Shares and under the SIP scheme matching and partnership
shares issued were 223,131 (year ended 31 December 2017: 302,622) in the period.
The average fair value of the shares awarded (pence)
Vesting
Dividend yield
Lapse due to withdrawals
31 December
2018
31 December
2017
28
100%
Nil
Nil
23
100%
Nil
Nil
The fair value of the shares awarded will be spread over the expected vesting period.
Share appreciation rights
A share appreciation right (“SAR”) is effectively a share option that is structured from the outset to deliver, on exercise, only the net
gain in the form of new ordinary shares that would have been made on the exercise of a market value share option.
No consideration is payable on the grant of a SAR. On exercise, an option price of 1 pence per ordinary share, being the nominal value
of the Company’s ordinary shares, is paid and the relevant awardee will be issued with ordinary shares with a market value at the
date of exercise equivalent to the notional gain that the awardee would have made, being the amount by which the aggregate market
value of the number of ordinary shares in respect of which the SAR is exercised, exceeds a notional exercise price, equal to the
market value of the shares at the time of grant (the “base price”). The remuneration committee has discretion to settle the exercise
of SARs in cash.
The following movements occurred during the period on SARs:
Issue date
Expiry date
Exercise price
(pence)
At 31 December
2017
Exercised
Lapsed
At 31 December
2018
22 November 2008
3 July 2009
11 January 2011
14 July 2011
16 August 2011
13 December 2011
17 January 2012
30 January 2013
22 November 2018
3 July 2019
11 January 2021
14 July 2021
16 August 2021
13 December 2021
17 January 2022
30 January 2023
Report & Accounts for the year ended 31 December 2018
19.25
30.87
372.75
239.75
237.00
240.75
303.75
159.00
355,844
103,368
196,712
43,587
17,035
29,594
269,026
317,845
(355,844)
—
—
—
—
—
—
—
1,333,011
(355,844)
—
—
(21,664)
—
—
—
(24,485)
(40,683)
(86,832)
—
103,368
175,048
43,587
17,035
29,594
244,541
277,162
890,335
69
Financial Statements
Rockhopper Exploration plc
Notes to the group financial statements continued
for the year ended 31December 2018
10. Foreign exchange
Foreign exchange gain/(loss) on Falkland Islands tax liability (see note 22)
Foreign exchange gain on term deposits, cash and restricted cash
Foreign exchange on operating activities
Total net foreign exchange gain/(loss)
11. Finance income and expense
Bank and other interest receivable
Total finance income
Unwinding of discount on decommissioning provisions (see note 23)
Other
Total finance expense
12. Taxation
Current tax:
Overseas tax
Adjustment in respect of prior years
Total current tax
Deferred tax:
Overseas tax
Total deferred tax – note 24
Tax on profit on ordinary activities
Loss on ordinary activities before tax
Loss on ordinary activities multiplied at 26% weighted average rate (31 December 2017: 26%)
Effects of:
Income and gains not subject to taxation
Expenditure not deductible for taxation
Depreciation in excess of capital allowances
IFRS2 Share based remuneration cost
Losses carried forward
Effect of tax rates in foreign jurisdictions
Adjustments in respect of prior years
Other
Tax charge/(credit) for the year
Year ended
31 December
2018
$’000
2,197
59
2,256
(1,048)
1,208
Year ended
31 December
2017
$’000
(3,791)
460
(3,331)
2,365
(966)
Year ended
31 December
2018
$’000
Year ended
31 December
2017
$’000
825
825
244
9
253
783
783
(4)
43
39
Year ended
31 December
2018
$’000
Year ended
31 December
2017
$’000
—
—
—
25
25
25
(7,106)
(1,848)
(2,528)
1,688
1,050
384
1,275
(21)
25
—
25
(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)
On the 8 April 2015 the Group agreed binding documentation (“Tax Settlement Deed”) with the Falkland Island Government (“FIG”) in
relation to the tax arising from the Group’s farm out to Premier Oil plc (“Premier”). As such the Group is able to defer this tax liability
under Extra Statutory Concession 16. As it is deferred, the liability is classified as non-current and discounted. Additional information
is given in Note 22 Tax payable.
70
Report & Accounts for the year ended 31 December 2018
Rockhopper Exploration plc
Financial Statements
The total carried forward losses and carried forward pre trading expenditures potentially available for relief are as follows:
UK
Falkland Islands
Italy
Year ended
31 December
2018
$’000
66,740
592,483
75,278
Year ended
31 December
2017
$’000
62,033
576,121
61,961
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 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 loss after tax for purposes of basic and diluted earnings per share
Loss per share – cents
Basic
Diluted
31 December
2018
Number
31 December
2017
Number
457,116,500
456,659,052
379,399
457,495,899
457,369,112
457,448
457,116,500
456,945,871
—
457,369,112
—
456,945,871
$’000
(7,131)
(1.57)
(1.57)
$’000
(6,139)
(1.34)
(1.34)
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 2018
71
Financial Statements
Rockhopper Exploration plc
Notes to the group financial statements continued
for the year ended 31December 2018
14. Intangible exploration and evaluation assets
As at 31 December 2016
Additions
Written off to exploration costs
Transfer to assets held for sale (see note 20)
Foreign exchange movement
As at 31 December 2017
Additions
Written off to exploration costs
Transfer from assets held for sale (see note 20)
Foreign exchange movement
As at 31 December 2018
Falkland
Islands
$’000
418,584
7,387
—
—
—
425,971
14,595
(252)
—
—
440,314
Greater
Mediterranean
$’000
7,835
1,317
(2,321)
(824)
169
6,176
3,364
(3,632)
834
(21)
6,721
Total
$’000
426,419
8,704
(2,321)
(824)
169
432,147
17,959
(3,884)
834
(21)
447,035
Falkland Islands licences
The additions during the period of $14.6 million relate principally to the Sea Lion development.
In assessing whether it is necessary to undertake a detailed impairment test, management consider whether there are any triggers,
e.g. a significant change in the view on long term oil pricing or project cost, that would suggest such a detailed test is necessary.
Management do not consider there to be any such triggers.
Nevertheless, management, as a matter of good practice, run their cashflow model regularly. At the year end, the key inputs to
this model were a 2019 real terms Brent oil price of $70/bbl, a post-tax discount rate of 12.5% and utilising the operator’s current
estimates of capital and operating costs and production profiles. The project is targeting project sanction decision at the end of
2019 (with such decision dependent on securing funding) and is expected to take three and half years from sanction to first oil.
The remaining barrels in Sea Lion are expected to be recovered along with those in near field discoveries in a second phase of
development.
Sensitivity analysis is performed by, in turn, reducing oil price by $10/bbl, reducing production by 10%, increasing capital expenditure
by 10%, increasing operating expenditure by 10% and delaying the development by one year. None of these sensitivities would have
led to an impairment charge in the year.
Costs associated with Isobel/Elaine discoveries and a potential phase 3 development are carried at cost and no indication of
impairment currently exists although the assets require further appraisal.
Greater Mediterranean licences
The $3.4 million additions during the period predominantly relate to work on the Egyptian license interests. An impairment of
$3.4 million was recognised during the year in respect of the Raya-1X exploration commitment well in the El Qa’a Plain concession
which encountered no hydrocarbons.
72
Report & Accounts for the year ended 31 December 2018
Rockhopper Exploration plc
Financial Statements
15. Property, plant and equipment
Cost brought forward
Additions
Foreign exchange
Disposals
Transfer from/(to) assets held for sale
Cost carried forward
Accumulated depreciation and
impairment loss brought forward
Current year depreciation charge
Foreign exchange
Disposals
Transfer (from)/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
31,043
1,996
(762)
—
4,891
37,168
(19,751)
(3,968)
611
—
(2,396)
(25,504)
11,292
11,664
Other
assets
$’000
1,134
25
(10)
(271)
—
878
(841)
(143)
7
271
—
(706)
293
172
31 December
2018
$’000
32,177
2,021
(772)
(271)
4,891
38,046
(20,592)
(4,111)
618
271
(2,396)
(26,210)
11,585
11,836
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
All oil and gas assets relate to the Greater Mediterranean region, specifically producing assets in Italy and Egypt.
Asset additions relate almost entirely to the Abu Sennan production asset in Egypt.
Consistent with the approach taken to assess whether the Falkland Island licences should be subject to impairment testing,
management did not identify any triggers that would require a formal impairment calculation to be undertaken. Therefore,
no impairment was recognised in the period (2017: $nil).
Nonetheless, similar to the Falkland Islands licences future discounted cash flows expected to be derived from production of
commercial reserves (the value in use being the recoverable amount) were compared against the carrying value of the asset.
The future cash flows were estimated using a realised oil and gas price assumption equal to existing contracts in place and relevant
forward curve in 2019 and 2020, and a Brent oil price of $70/bbl and a gas price of a0.25/sm3 in 2019 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 impairments were identified in this process.
16. Goodwill
As at 31 December 2017
Foreign exchange movement
As at 31 December 2018
Greater
Mediterranean
$’000
10,789
(481)
10,308
Goodwill relates to the corporate acquisition of Mediterranean Oil & Gas plc (“MOG”) during the period ended 31 December 2014. This
goodwill is included in the Greater Mediterranean segment and allocated to the Italian CGU, which have the optionality and potential
to provide value in excess of this fair value as well as representing the strategic premium associated with a significant presence in
a new region. The functional currency of MOG is euros. As such the goodwill is also expressed in the same functional currency and
subject to retranslation at each reporting period end. The reduction in the period of $481,000 (2017: $1,350,000 increase) 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 cashflows are estimated using a long term
realised gas price of a0.25/sm3 and a realised long-term oil price of $70/bbl in 2019 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 2018
73
Financial Statements
Rockhopper Exploration plc
Notes to the group financial statements continued
for the year ended 31December 2018
17. Other receivables
Current
Receivables
Prepayments
Accrued interest
Income tax
Other
31 December
2018
$’000
31 December
2017
$’000
3,811
332
396
81
4,890
9,510
9,826
473
323
85
6,133
16,840
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 2018, the receivable balance due from EGPC was $1.3 million which is due solely to
Rockhopper following the settlement of the amount which was payable to the former parent company of Rockhopper Egypt Pty.
Limited, Beach Energy Limited.
Other receivables predominantly relate to IVA balances due from the Italian tax authorities which are in the process of being
reclaimed.
18. Restricted cash
Charged accounts
19. Term deposits
Maturing after the period end:
Within three months
Six to nine month
Nine months to one year
31 December
2018
$’000
568
568
31 December
2017
$’000
540
540
31 December
2018
$’000
31 December
2017
$’000
10,000
10,000
10,000
30,000
10,000
10,000
10,000
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 2017, the Group announced the disposal of a portfolio of non-core interests in onshore Italy. Following failure to satisfy all
relevant conditions precedent, including receipt of requisite regulatory approvals in Italy, the Group has decided not to proceed with
the transaction.
21. Other payables and accruals
Accounts payable
Accruals
Other creditors
31 December
2018
$’000
2,462
12,246
440
15,148
31 December
2017
$’000
2,551
8,654
1,567
12,772
Accruals have increased due to costs associated with the Sea Lion development.
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.
74
Report & Accounts for the year ended 31 December 2018
Rockhopper Exploration plc
Financial Statements
22. Tax payable
Current tax payable
Non current tax payable
31 December
2018
$’000
—
37,860
37,860
31 December
2017
$’000
—
40,057
40,057
On the 8 April 2015, the Group agreed binding documentation (“Tax Settlement Deed”) with the Falkland Island Government (“FIG”)
in relation to the tax arising from the Group’s farm out to Premier Oil plc (“Premier”).
The Tax Settlement Deed confirms the quantum and deferment of the outstanding tax liability and is made under Extra Statutory
Concession 16.
As a result of the Tax Settlement Deed the outstanding tax liability was confirmed at £64.4 million and payable on the first royalty
payment date on Sea Lion. Currently the first royalty payment date 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%. The tax liability was revised downwards in the year ended 31 December 2017 to
£59.6 million, due to the full benefit of the exploration carry being received from Premier on the 2015/16 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 gain of US$2.2 million (2017: US$3.8 million loss) has been recognised in the year.
23. Provisions
Abandonment
provision
$’000
Other
provisions
$’000
31 December
2018
$’000
31 December
2017
$’000
Brought forward
Amounts utilized
Amounts arising in the period
Unwinding of discount
Transfer from/(to) liabilities associated with assets held for sale
Foreign exchange
Carried forward at period end
5,892
(854)
—
247
8,750
(220)
13,815
94
(27)
10
—
—
(4)
73
5,986
(881)
10
247
8,750
(224)
13,888
14,914
(1,704)
11
—
(8,772)
1,537
5,986
The abandonment provision relates to the Group’s licences in the Greater Mediterranean region. The provision covers both the plug
and abandonment of wells drilled as well as any requisite site restoration. Assumptions, based on the current economic environment,
have been made which management believe are a reasonable basis upon which to estimate the future liability. These estimates
are reviewed regularly to take into account any material changes to the assumptions. However, actual decommissioning costs
will ultimately depend upon future market prices for the necessary decommissioning works required which will reflect market
conditions at the relevant time. Furthermore, the timing of decommissioning is likely to depend on when the fields cease to produce at
economically viable rates. This in turn will depend upon future oil and gas prices, which are inherently uncertain.
Other provisions include amounts due to employees for accrued holiday and leaving indemnity for staff in Italy, that will become
payable when they cease employment.
Report & Accounts for the year ended 31 December 2018
75
Financial Statements
Rockhopper Exploration plc
Notes to the group financial statements continued
for the year ended 31December 2018
24. Deferred tax liability
At beginning of period
Movement in period
At end of period
31 December
2018
$’000
39,202
21
39,223
31 December
2017
$’000
39,145
57
39,202
The deferred tax liability arises due to temporary differences associated with the intangible exploration and evaluation expenditure.
The majority of the balance relates to historic expenditure on licences in the Falklands, where the tax rate is 26%, being utilised to
minimise the corporation tax due on the consideration received as part of the farm out disposal during 2012.
Total carried forward losses and carried forward pre-trading expenditures available for relief on commencement of trade at
31 December 2018 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 2018 would be $185 million (31 December 2017: $176 million).
25. Share capital
Called up, issued and fully paid: Ordinary shares of £0.01 each
7,205
457,495,899
7,200
457,116,500
31 December 2018
31 December 2017
$’000
Number
$’000
Number
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:
Share premium
Amount subscribed for share capital in excess of its nominal value.
Share based remuneration
The share incentive plan reserve captures the equity related element of the expenses recognised for
the issue of options, comprising the cumulative charge to the income statement for IFRS2 charges for
share based payments less amounts released to retained earnings upon the exercise of options.
Own shares held in trust
Shares held in trust represent the issue value of shares held on behalf of participants in the SIP by
Capita IRG Trustees Limited, the trustee of the SIP as well as shares held by the Employee Benefit
Trust which have been purchased to settle future exercises of options.
Merger reserve
The difference between the nominal value and the fair value of shares issued on acquisition of
subsidiaries.
Foreign currency translation Exchange differences arising on consolidating the assets and liabilities of the Group’s subsidiaries are
reserve
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.
76
Report & Accounts for the year ended 31 December 2018
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:
Total committed within 1 year
Total committed between 1 and 5 years
31 December
2018
$’000
504
351
855
31 December
2017
$’000
569
1,285
1,854
28. Capital commitments
Capital commitments represent the Group’s share of expected costs in relation to its licence interests net of any carry arrangements
that are in force.
As at the date of these account the Group committed to fund its share of the approved work programs and budgets for our licence
interests in the calendar year ending 31 December 2019 of US$18 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 39 to 49.
Short term employee benefits
Pension contributions
Share based payments
Year ended
31 December
2018
$’000
1,636
137
742
2,515
Year ended
31 December
2017
$’000
1,875
59
120
2,054
Report & Accounts for the year ended 31 December 2018
77
Financial Statements
Rockhopper Exploration plc
Notes to the group financial statements continued
for the year ended 31December 2018
30. Risk management policies
Risk review
The risks and uncertainties facing the Group are set out in the risk management report. Risks which require further quantification
are set out below.
Foreign exchange risks: The Group is exposed to foreign exchange movements on monetary assets and liabilities denominated in
currencies other than US$, in particular the tax liability with the Falkland Island Government which is a GB£ denominated balance.
In addition a number of the Group’s subsidiaries have a functional currency other than US$, where this is the case the Group has an
exposure to foreign exchange differences with differences being taken to reserves.
Asset balances include cash and cash equivalents, restricted cash and term deposits of $41.0 million of which $35.3 million was held
in US$ denominations. The following table summarises the split of the Group’s assets and liabilities by currency:
Currency denomination of balance
Assets
31 December 2018
31 December 2017
Liabilities
31 December 2018
31 December 2017
$
$’000
491,148
495,535
51,200
47,087
£
$’000
2,440
2,989
38,346
42,031
a
$’000
27,234
29,496
16,518
18,349
EGP £
$’000
640
22
—
—
CAD $
$’000
—
—
55
—
The following table summarises the impact on the Group’s pre-tax profit and equity of a reasonably possible change in the US$ to
GB£ exchange rate and the US$ to euro exchange:
US$ against GB£
31 December 2018
31 December 2017
US$ against euro
31 December 2018
31 December 2017
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
(3,591)
(3,904)
1,072
1,117
3,591
3,904
(1,072)
(1,117)
(3,591)
(3,904)
1,072
1,117
3,591
3,904
(1,072)
(1,117)
Capital risk management: the Group manages capital to ensure that it is able to continue as a going concern whilst maximising the
return to shareholders. The capital structure consists of cash and cash equivalents and equity. The board regularly monitors the
future capital requirements of the Group, particularly in respect of its ongoing development programme.
Credit risk; the Group recharges partners and third parties for the provision of services and for the sale of Oil and Gas. Should
the companies holding these accounts become insolvent then these funds may be lost or delayed in their release. The amounts
classified as receivables as at the 31 December 2018 were $3,948,000 (31 December 2017: $9,826,000). Credit risk relating to the
Group’s other financial assets which comprise principally cash and cash equivalents, term deposits and restricted cash arises from
the potential default of counterparties. Investments of cash and deposits are made within credit limits assigned to each counterparty.
The risk of loss through counterparty failure is therefore mitigated by the Group splitting its funds across a number of banks, two of
which are part owned by the British government.
Interest rate risks; the Group has no debt and so its exposure to interest rates is limited to finance income it receives on cash and
term deposits. The Group is not dependent on its finance income and given the current interest rates the risk is not considered to be
material.
Liquidity risks; the Group makes limited use of term deposits where the amounts placed on deposit cannot be accessed prior to their
maturity date. The amounts applicable at the 31 December 2018 were $30,000,000 (31 December 2017: $30,000,000).
78
Report & Accounts for the year ended 31 December 2018
Rockhopper Exploration plc
Financial Statements
Parent company financial statements – company balance sheet
As at 31 December 2018
Non current assets
Property, plant and equipment
Investments
Group undertakings
Current assets
Other receivables
Restricted cash
Term deposits
Cash and cash equivalents
Total assets
Current liabilities
Other payables
Total liabilities
Equity
Share capital
Share premium
Share based remuneration
Own shares held in trust
Merger reserve
Special reserve
Retained earnings
Attributable to the equity shareholders of the company
Total liabilities and equity
Notes
2
3
4
5
6
7
11
11
11
11
11
11
31 December
2018
$’000
31 December
2017
$’000
88
93,617
438,652
917
511
30,000
6,999
570,784
27,167
27,167
7,205
3,422
5,104
(3,369)
74,575
456,680
—
543,617
570,784
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
These financial statements were approved by the directors and authorised for issue on 1 April 2019 and are signed on their behalf by:
Stewart MacDonald
Chief Financial Officer
Registered Company number: 05250250
Report & Accounts for the year ended 31 December 2018
79
Financial Statements
Rockhopper Exploration plc
Company statement of changes in equity
for the year ended 31December 2018
Balance at 31 December 2016
Total comprehensive loss for the year
Share based payments
Share issues in relation to SIP
Other transfers
Balance at 31 December 2017
Total comprehensive loss for the year
Share based payments
Share issues in relation to SIP
Other transfers
Share
capital
$’000
7,194
—
—
6
—
7,200
—
—
5
—
Share
premium
$’000
Share based
remuneration
$’000
Shares held
in trust
$’000
Merger
reserve
$’000
Special
reserve
$’000
Retained
losses
$’000
Total
Equity
$’000
3,149
—
—
133
—
3,282
—
—
140
—
6,251
(3,407)
74,575 462,549
— 550,311
—
864
—
(1,505)
5,610
—
1,478
—
(1,984)
—
—
(109)
133
(3,383)
—
—
(118)
132
—
—
—
—
—
—
—
(1,100)
74,575 461,449
(2,472)
—
—
2,472
(2,472)
864
30
—
— 548,733
—
—
—
—
—
—
—
(4,769)
(6,621)
—
—
6,621
(6,621)
1,478
27
—
Balance at 31 December 2018
7,205
3,422
5,104
(3,369)
74,575 456,680
— 543,617
80
Report & Accounts for the year ended 31 December 2018
Rockhopper Exploration plc
Financial Statements
Notes to the company financial statements
for the year ended 31 December 2018
1. Accounting policies
Company and its operations
Rockhopper Exploration plc, the ‘Company’, a public limited company quoted on AIM, incorporated and domiciled in the United
Kingdom (‘UK’), holds, through its subsidiaries, certain exploration licences granted in 2004 and 2005 for the exploration and
exploitation of oil and gas in the Falkland Islands. In 2014, it diversified its portfolio through the acquisition of an exploration and
production company with operations principally based in Italy and during 2016 augmented this through the acquisition of exploration
and production assets in Egypt. The registered office of the Company is 4th Floor, 5 Welbeck Street, London, W1G 9YQ.
Authorisation of financial statements and statement of compliance with financial reporting standard 101 reduced disclosure
framework (FRS101)
The financial statements of Rockhopper Exploration plc for the year ended 31 December 2018 were approved and signed by the
Group Chief Financial Officer on 1 April 2019 having been duly authorized to do so by the board of directors. The Company meets
the definition of a qualifying entity under Financial Reporting Standard 100 (FRS 100) issued by the Financial Reporting Council.
Accordingly, these financial statements were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure
Framework (FRS 101) and in accordance with the provisions of the Companies Act 2006. The amendment to FRS101 (2014/15 cycle)
issued in July 2015 and effective immediately have been applied.
In these financial statements, the Company as permitted by FRS101 has taken advantage of the disclosure exemptions available
under that standard in relation to accounting standards issued but not yet effective or implemented, share-based payment
information, financial instruments, capital management, presentation of comparative information in respect of certain assets,
presentation of a cash-flow statement and certain related party transactions.
Basis of accounting
These financial statements are prepared on a going concern basis. The financial statements have been prepared under the historical
cost convention. Historical cost is generally based on the fair value of the consideration given in exchange for the assets. As permitted
by Section 408 of the Companies Act 2006, the profit and loss account of the Company is not presented as part of these financial
statements. The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented
in these financial.
All values are rounded to the nearest thousand dollars ($’000), except where otherwise indicated.
At the date of authorisation of this report the following standards and interpretations, which have not been applied in this report,
were in issue but not yet effective are applicable to the financial statements of the Company.
–
IFRS16 Leases (effective date for annual periods beginning on or after 1 January 2019);
Management does not believe that the application of these standards will have a material impact on the financial statements.
Going concern
At 31 December 2018, the Group had available cash and term deposits of $40 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.
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 which has historically been common to many upstream companies operating in the country. As at
31 December 2018, Rockhopper’s EGPC receivable balance was approximately US$1.3 million.
Cash forecasts are regularly produced based on, inter alia, the Group’s production and expenditure forecasts and management’s
best estimates of future commodity prices. Sensitivities are run to reflect different scenarios including changes in production rates,
possible reductions in commodity prices and increased costs. Management’s base case forecast assumes an oil price of US$65/bbl in
2019 and 2020, production in line with prevailing rates and expenditures in line with approved budgets. The Group has run downside
scenarios, where oil prices are reduced by a flat $10/bbl throughout the going concern period and where cost expenditures have
increased by 5%.
Report & Accounts for the year ended 31 December 2018
81
Financial Statements
Rockhopper Exploration plc
Notes to the company financial statements continued
for the year ended 31 December 2018
1. Accounting policies continued
Going concern continued
Under the base case forecast and the downside scenarios run, the Group will have sufficient financial headroom to meet forecast
cash requirements for at least the 12 months from the date of approval of the 2018 financial statements. However, beyond the 12
month going concern assessment depending on the timing of sanction for the Sea Lion development, in the absence of any mitigating
actions, the Group may have insufficient funds to meet its forecast cash requirements.
Potential mitigating actions could include non-core asset disposals, collection of arbitration award proceeds, deferral of expenditure
or raising additional equity.
Accordingly, after making enquiries and considering the risks described above, the Directors have assessed that the cash balance
held provides the Company and the Group with adequate headroom over forecasted expenditure for the following 12 months –
as a result, the Directors have adopted the going concern basis of accounting in preparing the annual financial statements.
Share based payment
The Company issues equity settled share based payments to certain employees. Equity settled share based payments are measured
at fair value (excluding the effect of non market based vesting conditions) at the date of grant. The fair value determined at the grant
date of the equity settled share based payments is expensed on a straight line basis over the vesting period, based on the Company’s
estimate of shares that will eventually vest and adjusted for non market based vesting conditions.
Fair value is measured by use of either Binomial or Monte-Carlo simulation.
Cash settled share based payment transactions result in a liability. Services received and liability incurred are measured initially at fair
value of the liability at grant date, and the liability is remeasured each reporting period until settlement. The liability is recognised on a
straight line basis over the period that services are rendered.
Investments
The investments in the subsidiary undertakings are included in the Company financial statements at cost. The Company assesses
investments for impairment whenever events or changes in circumstances indicate that the carrying value of investment may not
be recoverable. If any such indication of impairment exists, the Company makes an estimate of its recoverable amount. Where the
carrying amount of an investment exceeds its recoverable amount, the investment is considered impaired and is written down to its
recoverable amount.
Income taxes and deferred taxation
The current tax expense is based on the taxable profits for the period, after any adjustments in respect of prior years. Tax, including
tax relief for losses if applicable, is allocated over profits before tax and amounts charged or credited to reserves as appropriate.
Deferred taxation is recognised in respect of all taxable temporary differences that have originated but not reversed at the balance
sheet date where a transaction or events have occurred at that date that will result in an obligation to pay more, or a right to pay less
or to receive more, tax, with the exception that deferred tax assets are recognised only to the extent that the directors consider that
it is probable that there will be suitable taxable profits from which the future reversal of the underlying temporary differences can be
deducted.
Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which temporary
differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date.
Foreign currencies
The functional and presentation currency of the Company is US$.
Transactions denominated in foreign currencies are translated at the exchange rate ruling at the transaction date. Monetary assets
and liabilities denominated in foreign currencies are translated into dollars at the exchange rates ruling at the balance sheet date and
any differences thereon are included in the income statement.
82
Report & Accounts for the year ended 31 December 2018
Rockhopper Exploration plc
Financial Statements
The period end rates of exchange actually used were:
£ : US$
a : US$
31 December 2018
31 December 2017
1.28
1.15
1.35
1.20
Property, plant and equipment and depreciation
Tangible fixed assets are stated at cost less depreciation. Depreciation is provided at rates calculated to write off the cost less
estimated residual value of each asset evenly over its expected useful life as follows:
Office equipment
Leasehold improvements
Over three years
Over five years
Non-derivative financial instruments
Financial assets and financial liabilities are recognised on the Company’s balance sheet when the Company has become a party to
the contractual provisions of the instrument.
(i) Other receivables
Other receivables are classified as loans and receivables and are initially recognised at fair value. They are subsequently
measured at their amortised cost using the effective interest method less any provision for impairment. A provision for
impairment is made where there is objective evidence that amounts will not be recovered in accordance with original terms of
the agreement. A provision for impairment is established when the carrying value of the receivable exceeds the present value of
the future cash flow discounted using the original effective interest rate. The carrying value of the receivable is reduced through
the use of an allowance account and any impairment loss is recognised in the income statement.
(ii) Term deposits
Term deposits are disclosed separately on the face of the balance sheet when their term is greater than three months and they
are unbreakable.
(iii) Restricted cash
Restricted cash is disclosed separately on the face of the balance sheet and denoted as restricted when it is not under the
exclusive control of the Group.
(iv) Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and at bank and other short-term deposits held by the Group including
breakable and unbreakable deposits with terms of less than three months and breakable term deposits of greater terms than
three months where amounts can be accessed within three months without material loss. They are stated at carrying value
which is deemed to be fair value.
(v) Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered
into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its
liabilities.
(vi) Trade payables
Trade payables are initially recognised at fair value and subsequently at amortised cost using the effective interest method.
(vii) Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Leasing
Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease. Benefits
received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term.
Report & Accounts for the year ended 31 December 2018
83
Financial Statements
Rockhopper Exploration plc
Notes to the company financial statements continued
for the year ended 31 December 2018
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
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
2018
$’000
31 December
2017
$’000
1,026
25
(272)
779
(857)
(106)
272
(691)
169
88
31 December
2018
$’000
139,117
—
139,117
(45,500)
93,617
93,617
1,010
16
—
1,026
(693)
(164)
—
(857)
317
169
31 December
2017
$’000
139,117
—
139,117
(45,500)
93,617
93,617
All amounts relate to subsidiary undertakings. Additions during the prior period relate to the acquisition of 100% of the ordinary
issued share capital of Falkland Oil and Gas Limited and Beach Petroleum Egypt Pty Limited (now Rockhopper Egypt Pty Limited).
Details of the investments at the period end were as follows:
Company
Rockhopper Resources Limited
Rockhopper Exploration (Oil) Limited
Rockhopper Exploration (Hydrocarbons) Limited
Rockhopper Exploration (Petrochemicals) Limited
Rockhopper Exploration (Oil) Limited
Rockhopper Mediterranean Limited
Rockhopper Civita Limited
Rockhopper Italia SpA
Melita Exploration Company Limited
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
Class of
share
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Percentage
held
%
100
100
100
100
100
100
100
100
100
100
100
100
84
Report & Accounts for the year ended 31 December 2018
Rockhopper Exploration plc
Financial Statements
4. Group undertakings
Group undertakings
31 December
2018
$’000
438,652
438,652
31 December
2017
$’000
—
—
Amounts with Group undertakings are subject to loan agreements, repayable on demand and interest free. Disclosure reflects the
Company’s expectation that repayment is not likely to occur within the next twelve months. Amounts with Group undertakings are net
of provisions of $12,346,000.
5. Other receivables
Receivables
Prepayments
Accrued interest
Other
Group undertakings
31 December
2018
$’000
181
241
396
99
—
917
31 December
2017
$’000
9
442
323
131
412,164
413,069
Amounts with Group undertakings are subject to loan agreements, repayable on demand and interest free. Amounts with Group
undertakings in the prior year were net of provisions of $12,346,000.
6. Other payables
Trade creditors
Other creditors
Accruals
Group undertakings
7. Share capital
Shares in issue brought forward
Shares issued
– Issued under the SIP
Shares in issue carried forward
31 December
2018
$’000
1,641
228
9,073
16,225
27,167
31 December
2017
$’000
1,350
658
5,446
—
7,454
31 December
2018
Number
31 December
2017
Number
457,116,500
456,659,052
379,399
457,495,899
457,448
457,116,500
Called up, issued and fully paid: Ordinary shares of £0.01 each
7,205
457,495,899
7,200
457,116,500
31 December 2018
31 December 2017
$’000
Number
$’000
Number
Report & Accounts for the year ended 31 December 2018
85
Financial Statements
Rockhopper Exploration plc
Notes to the company financial statements continued
for the year ended 31 December 2018
8. Salaries and directors’ remuneration
Salaries and fees
National insurance costs
Pension costs
Employee benefit costs
Average number of employees
Year ended
31 December
2018
$’000
3,728
465
140
81
14
Year ended
31 December
2017
$’000
3,806
481
181
77
15
Disclosures in relation to directors’ remuneration are given on a consolidated basis in the directors’ report and note 7 of the Group
accounts.
9. Auditor’s remuneration
Note 8 of the Group accounts provides details of the remuneration of the Company’s auditor on a Group basis.
10. 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.
11. Capital and reserves
For description of each of the reserves of the Company please see Note 26 of the Group accounts.
12. Financial Commitments
The future aggregate minimum lease payments under non-cancellable operating leases in respect of land and buildings were as follows:
Total committed within 1 year
Total committed between 1 and 5 years
31 December
2018
$’000
31 December
2017
$’000
392
—
392
498
382
880
13. 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.
86
Report & Accounts for the year ended 31 December 2018
Rockhopper Exploration plc
Financial Statements
Key licence interests as at 1 April 2019
Falkland Islands
North Falkland Basin
Licence
PL003a
PL003b
PL004a
PL004b
PL004c
PL005
PL032
– Sea Lion Discovery Area
PL033
South Falkland Basin
Licence
PL010–PL016
PL025–PL029
PL031
Greater Mediterranean
Egypt
Licence
Abu Sennan
Italy
Licence
Operator
Rockhopper working
interest %
Field/Discovery
Rockhopper
Rockhopper
Premier Oil
Premier Oil
Premier Oil
Rockhopper
Premier Oil
Premier Oil
95.50
60.50
64.00
64.00
—
—
Isobel Deep
Beverley
Casper South
Zebedee
—
—
40.00 Casper North
Sea Lion
—
40.00
64.00
100.00
Licence phase
expiry date
01/05/2021
01/05/2021
01/05/2021
01/05/2021
01/05/2021
01/05/2021
01/05/2021
15/04/2020
01/05/2021
Operator
Rockhopper working
interest %
Field/Discovery
Licence phase
expiry date
Rockhopper
Rockhopper
Rockhopper
100.00
100.00
100.00
—
—
—
03/12/2020
15/12/2021
15/12/2021
Operator
Rockhopper working
interest %
Field/Discovery
Licence phase
expiry date
Kuwait Energy
22.00
Various
01/02/2032
to 03/07/2036
Operator
Rockhopper working
interest %
Field/Discovery
Licence phase
expiry date
A.C35.AG
Serra San Bernardo (Monte Grosso)*
Aglavizza
Eni
Eni
Rockhopper
20.00
22.89
100.00
* Licence currently suspended. Revised expiry date will be known once regulatory approval received to drill.
Guendalina
25/11/2022
— 13/07/2013*
17/12/2032
Civita
Report & Accounts for the year ended 31 December 2018
87
Supplementary Information
Rockhopper Exploration plc
Glossary
2C
2P
3C
best estimate of contingent resources
proven plus probable reserves
Group
High
a high estimate category of contingent resources
the Company and its subsidiaries
high estimate category of Prospective Resources
also used as a generic term to describe a high or
optimistic estimate
AGM
Annual General Meeting
Beach Energy Beach Petroleum (Egypt) Pty Limited
Best
Board
boe
bopd
boepd
Capex
a best estimate category of Prospective
Resources also used as a generic term to
describe a best, or mid estimate
the Board of Directors of Rockhopper
Exploration plc
barrels of oil equivalent
barrels of oil per day
barrels of oil equivalent per day
capital expenditure
Cash resources Cash and term deposits
Company
Rockhopper Exploration plc
E&P
EGPC
EIS
ERCE
exploration and production
Egyptian General Petroleum Company
Environmental Impact Statement
ERC Equipoise Limited
Farm-down
to assign an interest in a licence to another party
FEED
FDP
FID
FIG
FOGL
FPSO
G&A
Front End Engineering and Design
Field Development Plan
Final Investment Decision
Falkland Islands Government
Falkland Oil and Gas Limited
Floating Production, Storage and Offtake vessel
General and administrative costs
IFRS
International Financial Reporting Standard
kboepd
thousand barrels of oil equivalent per day
Low
a low estimate category of Prospective Resources
also used as a generic term to describe a low or
conservative estimate
LOI
Letter of Intent
mmbbls
million barrels
mmboe
million barrels of oil equivalent
mmbtu
million British thermal units
MMstb
million stock barrels (of oil)
mscf
net pay
thousand standard cubic feet
the portion of reservoir containing hydrocarbons
that through the placing of cut offs for certain
properties such as porosity, water saturation and
volume of shale determine the productive element
of the reservoir
P&A
PIM
plug and abandon
Project Information Memorandum
Premier
Premier Oil plc
PSV
scm
virtual exchange point
standard cubic metre
STOIIP
stock-tank oil initially in place
SURF
tvdss
Subsea, Umbilicals, Risers and Flowlines
true vertical depth subsea
88
Report & Accounts for the year ended 31 December 2018
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.
Financial Statements
Group company financial statements
55 Group income statement
55 Group statement of comprehensive income
56 Group balance sheet
57 Group statement of changes in equity
58 Group cash flow statement
59 Notes to the group financial statements
Parent company financial statements
79 Company balance sheet
80 Company statement of changes in equity
81 Notes to the company financial statements
87 Key licence interests as at 1 April 2019
Supplementary Information
88 Glossary
89 Shareholder information
Strategic Report
1 Highlights
3 Rockhopper – the story so far
4 Rockhopper at a glance
6 Vision, strategy and business model
7 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
27 Rockhopper Board
28 Board of Directors
30 Senior management team
31 Corporate governance statement
35 Audit & Risk Committee Chairman’s report
38 Nomination Committee Chairman’s report
39 Remuneration report
50 Statutory information
52
Independent auditor’s report to the
members of Rockhopper Exploration plc
Cover: Stanley Harbour
Rockhopper Exploration plc
Supplementary Information
Shareholder information
Key contacts
Concerns and procedures
General emails
info@rockhopperexploration.co.uk
Audit committee emails
rkh@rockhopperexploration.co.uk
Website
www.rockhopperexploration.co.uk
Shareholder concerns:
Should shareholders have concerns which have not been
adequately addressed by the chairman or chief executive,
please contact the chairman of the audit committee at:
rkh@rockhopperexploration.co.uk
Whistle-blowing procedures:
Should employees, consultants, contractors or other
interested parties have concerns which have not been
adequately addressed by the chairman or chief executive,
please contact the chairman of the audit committee at:
rkh@rockhopperexploration.co.uk
Registered address and head office:
4th Floor
5 Welbeck Street
London
W1G 9YQ
NOMAD and joint broker
Canaccord Genuity Limited
88 Wood Street
London
EC2V 7QR
Joint broker
Peel Hunt LLP
Moor House
120 London Wall
London
EC2Y 5ET
Solicitors
Ashurst LLP
Broadwalk House
5 Appold Street
London
EC2A 2DA
Principal Bankers
Royal Bank of Scotland plc
36 St Andrew Square
Edinburgh
EH2 2YB
Auditor
KPMG LLP
15 Canada Square
London
E14 5GL
Registrar
Computershare Investor Services plc
Vintners Place
68 Upper Thames Street
London
EC4V 3BJ
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Report & Accounts for the year ended 31 December 2018
89
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Building a well-funded,
full-cycle, exploration-led
E&P company
Report and Accounts
for the year ended 31 December 2018
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
Twitter @RockhopperExplo
Company Reg. No. 05250250