ROCKHOPPER EXPLORATION PLC
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
REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2019
Creating value through building
a well-funded, full-cycle,
exploration-led E&P company
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9
STRATEGIC REPORT GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
STRATEGIC REPORT GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
CONTENTS
SHAREHOLDER INFORMATION
STRATEGIC REPORT
1 Rockhopper – Who we are
2 2019 highlights
4 Rockhopper – timeline
6 Rockhopper at a glance
7 Vision, strategy and business model
8 Chairman and Chief Executive Officer’s review
11 Key Performance Indicators (KPIs)
12
14 Sea Lion Phase 1 development overview
16 Financial review
19
20 Principal risks and uncertainties
24 Health, safety, environmental and social management
Internal controls and risk management
Industry overview
GOVERNANCE
25 Rockhopper Board
26 Board of Directors
28 Governance report
32 Audit & Risk Committee Chairman’s report
34 Nomination Committee Chairman’s report
35 Remuneration report
46 Statutory information
48
Independent auditors’ report to the
members of Rockhopper Exploration plc
FINANCIAL STATEMENTS
Group financial statements
55 Consolidated income statement
55 Consolidated statement of comprehensive income
56 Consolidated balance sheet
57 Consolidated statement of changes in equity
58 Consolidated statement of cash flows
59 Notes to the consolidated financial statements
Parent company financial statements
80 Company balance sheet
81 Company statement of changes in equity
82 Notes to the company financial statements
OTHER INFORMATION
89 Key licence interests as at 1 April 2020
90 Glossary
91 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
Fruit & Wool Exchange
1 Duval Square
London
E1 6PW
Principal Bankers
Royal Bank of Scotland plc
36 St Andrew Square
Edinburgh
EH2 2YB
Auditor
PricewaterhouseCoopers LLP
1 Embankment
London
WC2N 6RH
Registrar
Computershare Investor Services plc
Vintners Place
68 Upper Thames Street
London
EC4V 3BJ
Cover: Eudyptes moseleyi
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2019
91
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ROCKHOPPER – WHO WE ARE
Rockhopper Exploration plc (AIM: RKH) is an
oil and gas exploration and production company
with key interests in the North Falkland Basin.
The Company has been operating offshore
the Falkland Islands since 2004 and discovered
the world-class Sea Lion oil field in 2010.
OUR STRATEGIC AMBITION
Create value through building a well-funded,
full-cycle, exploration-led E&P company.
1
Report & Accounts for the year ended 31 December 2019STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 2019 HIGHLIGHTS
Sea Lion Phase 1 development
Project validated and de-risked through introduction of Navitas as joint venture partner.
30%
> Detailed Heads of Terms signed with Navitas to farm-in
for a 30 per cent interest in the Sea Lion project.
> Under the Heads of Terms, Rockhopper’s costs for the Phase 1
development (not met by external debt) are to be funded by
Premier and Navitas from 1 January 2020 to Phase 1 Project
Completion (estimated to occur 9-12 months after first oil).*
> Through the FEED and optimisation processes,
the project has been substantially de-risked
from a technical and cost perspective.
> Public commitment that Sea Lion will be
developed on a net zero emissions basis.
> Resources to be developed in Phase 1 increased
from 220 to 250 mmbbls (gross) with associated
capex to first oil estimated at approximately
US$1.8 billion (gross).
* Excluding licence fees, taxes and project wind down costs.
Financial
Revenue
US$10.3m
> Revenue of US$10.3 million and operating costs
US$4.6 million.
Operating costs
US$9.9per boe
> Cash operating costs of US$9.9 per boe
– maintaining a low cost base.
> Continued management of G&A costs – US$5.3 million
– reduced by circa 30% in the last three years.
> Cash resources of US$21.9 million as at 1 April 2020
(unaudited).
G&A
US$5.3m
Cash
US$21.9m
2
Rockhopper Exploration plcSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
Corporate
Outlook
> Appointment of Keith Lough as Non-Executive Chairman
following the retirement of David McManus at the Company’s
AGM in May 2019.
> Ombrina Mare arbitration – in June 2019 the Tribunal
rejected Italy’s request for suspension and related
intra-EU jurisdictional objections.
> Disposal of Rockhopper Egypt Pty Limited for
US$16 million completed in February 2020.
> Initiatives identified to further materially reduce corporate
G&A costs in response to current market conditions.
> Despite the current oil price weakness, all parties remain
committed to the finalisation of the Navitas farm-out agreement
with completion subject to agreed consents and approvals.
> In response to recent external events, cost reduction process
initiated to scale-back headcount and activity at Sea Lion
pending an improvement in the external macro environment.
> Outcome in relation to Ombrina Mare arbitration expected in
the coming months – seeking significant monetary damages.
3
Report & Accounts for the year ended 31 December 2019STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
ROCKHOPPER – TIMELINE
2010/11
2012
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.
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.
2016
Sea Lion enters FEED
Sea Lion project enters FEED with set of world-
class contractors.
Rockhopper completes merger with Falkland Oil
& Gas Ltd (FOGL) following shareholder approval
from both Rockhopper and FOGL shareholders.
Rockhopper acquires non-operated production
and exploration assets in Egypt.
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.
2017
4
Rockhopper Exploration plcSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
2013
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%.
2015
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.
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.
4
1
0
2
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.
2019/Q1 2020
Farm-out
Project substantially de-risked through the FEED
and optimisation processes.
Resources to be developed in Phase 1 increased
from 220 to 250 mmbbls (gross).
Preliminary Information Memorandum and
comprehensive set of independent expert reports,
which formed the basis of a financing guarantee
application package for the senior debt component
of the project financing, were submitted to potential
senior lenders including export credit agencies in
July 2019.
Heads of Terms agreement with Navitas Petroleum
“Navitas” to farm-in to Sea Lion project.
2018
2019/Q1 2020
5
Report & Accounts for the year ended 31 December 2019STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION ROCKHOPPER AT A GLANCE
Falkland Islands
PL01
PL032
PL033
North Falkland Basin
Sea Lion Phase 1 (PL032)
> 250 mmbbls gross*
> 75 mmbbls net to Rockhopper†
Sea Lion Phase 2 (PL032/PL004)
> 280 mmbbls gross*
> 84 mmbbls net to Rockhopper†
Phase 3 Isobel-Elaine (PL004)
> Isobel-Elaine complex significantly
de-risked during 2015/16 exploration
campaign
Acreage position†
Rockhopper Premier Navitas
Operator
PL032
30% 40% 30%
Premier
PL003a
95.5% 4.5%
— Rockhopper
PL003b
60.5% 4.5%
— Rockhopper
PL004a‡
64%
36%
—
Premier
PL004b
30% 40% 30%
Premier
PL004c
30% 40% 30%
Premier
PL005
100%
—
— Rockhopper
* Operator estimate.
† Post farm-out to Navitas.
‡ Under farm-out additional option to further align
PL004a acreage (30%/40%/30%).
50°S
F A L K L A N D
F A L K L A N D
I S L A N D S
I S L A N D S
STANLEY
100 Kms
60°W
CASPER
PL03b
CASPER
SOUTH WEST
PHASE 1
SEA LION
PL04a
PL04b
ZEBEDEE
NINKY SOUTH
PL04c
PHASE 2
PL03a
LIZ
PL05
EMILY
ISOBEL
ISOBEL DEEP
PHASE 3
Prospective
Discovered
5 Kms
6
Rockhopper Exploration plcSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
VISION, STRATEGY AND BUSINESS MODEL
Vision
To build a well-funded, full-cycle, exploration-led E&P company.
Strategy
Business model
> Building a balanced portfolio
> Across the full asset life cycle
> Production base to enable growth through exploration
> Active portfolio management.
> 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
> Commitment to socially and environmentally
responsible operations
Delivering on strategy
>
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DEVELO P M E N
T
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Production
(kboepd)
Revenue
(US$m)
Recurring G&A costs
(US$m)
Gross Sea Lion Complex
resources (mmbbl)
10.4 10.6
10.3
1.3
1.2
1.1
1.5
1.2
0.9
0.6
0.3
0.8
0.3
12
10
8
6
4
2
7.4
4.0
12
10
8
6
4
2
9.4
7.4
5.3
5.3
5.3
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
5
1
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2
6
1
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7
1
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8
1
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9
1
0
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5
1
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6
1
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4
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900
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560
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517
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386
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7
Report & Accounts for the year ended 31 December 2019STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
CHAIRMAN AND CHIEF EXECUTIVE OFFICER’S REVIEW
Rockhopper’s strategy is to build a well-funded, full-cycle,
exploration-led E&P company.
In the first quarter of 2020, equity markets and oil prices have fallen
significantly due to a combination of fears over the spread of COVID-19
and the impact this will have on the global balance of supply and demand
for oil coupled with the recent inability of OPEC and Russia to agree
on supply cuts. Recent initiatives by the Company, including the sale
of Rockhopper Egypt together with the legally binding Heads of Terms
signed with Premier Oil plc (“Premier”) place the Company in a relatively
stable financial position to weather this current period of uncertainty.
The Company was delighted to announce the signing of a Heads of Terms
with Navitas Petroleum LP (“Navitas”) in January 2020 as the Board
believes the introduction of Navitas into the Sea Lion joint venture
validates the attractive nature of the asset, enhances the prospects of
securing the requisite senior debt to allow sanction (once oil prices and
capital markets recover) and, at the same time, through the revised
commercial arrangements ensures that Rockhopper is fully funded
for all Sea Lion development costs (excluding licence fees, taxes and
project wind down costs) from 1 January 2020 to project completion
(estimated 9-12 months after first oil).
Our interest in Abu Sennan has performed very well for us both
operationally and financially. However, despite our efforts to acquire
and grow a more material position in Egypt, we were unable to do so on
attractive terms given the competitive market dynamics and significant
buyer interest for assets. As a result, we took the opportunity to
instead divest, crystallise an attractive return on investment and
at the same time strengthen the Company’s balance sheet.
Sea Lion Phase 1 development – project validated and de-risked
through introduction of Navitas as joint venture partner
The introduction of Navitas represents an important milestone both for
the Sea Lion project and Rockhopper itself. Highlights of the proposed
transaction include:
> Working interests aligned across the Sea Lion licences PL032,
PL004b and PL004c: Premier 40% (Operator); Rockhopper 30%;
Navitas 30%
> Adds additional strength to the Sea Lion joint venture which
Rockhopper believes will increase the likelihood of a successful
senior debt project financing for the Sea Lion Phase 1 development
once markets recover
> Brings additional sources of senior debt financing to the project
> Rockhopper’s costs for the Phase 1 development (not met by
external debt and save for licence fees, taxes and project wind down
costs) to be met by a combination of carry and loans from Premier
and Navitas from 1 January 2020 to Phase 1 Project Completion
(estimated to occur 9-12 months after first oil)
> Greater alignment and simplified commercial arrangements
across the joint venture
> Rockhopper maintains material share of Phase 1 project NPV,
a significant 30% interest in Phase 2 Sea Lion development,
and additional upside from the Isobel-Elaine area (PL004a)
> Contingent consideration payable to Rockhopper by Premier
and Navitas of up to US$48 million related to future phases
of development in the North Falkland Basin.
Good progress has been made during the first quarter of 2020 to
convert the Heads of Terms into fully documented agreements.
Despite the current oil price weakness, all parties remain committed
to the finalisation of the Navitas farm-out agreement with completion
subject to agreed consents and approvals.
Following the FEED and optimisation processes which concluded
during 2019, the resources to be developed in Phase 1 have increased
from 220 to 250 mmbbls (gross) with associated capex to first oil
estimated at approximately US$1.8 billion (gross). A total of 29 wells
are now expected to be drilled in the Phase 1 project with 12 wells
drilled pre-first oil, supporting ramp-up to plateau production rates
of approximately 85,000 bopd. This optimisation and value engineering
has resulted in a substantially de-risked project with robust
economics, which is critical as we progress the process to secure
senior debt funding for the project.
From an operational standpoint, the overall strategy to develop
the North Falkland Basin remains a phased development solution,
starting with Sea Lion Phase 1, which will commercialise through
a conventional FPSO development scheme 250 mmbbls (gross) of
oil resources in the northern part of PL032 (in which Rockhopper
has a 30% working interest post farm-out to Navitas). A subsequent
Keith Lough
Non-Executive Chairman
8
Rockhopper Exploration plcSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION Greater Mediterranean – opportunistic disposal of Abu Sennan
to generate attractive return on investment and strengthen the
balance sheet
Our Greater Mediterranean portfolio continued to perform well
in 2019 with production averaging 1.3 kboepd net to Rockhopper.
In March 2019, Rockhopper announced the commencement of a four
well drilling campaign on the Abu Sennan concession with activity
focused on the continued development of the Al Jahraa field as well
as an exploration / appraisal well at ASH.
In July 2019, Rockhopper announced the disposal of Rockhopper
Egypt Pty Limited to United Oil & Gas plc (“United”) for consideration
of US$16.0 million. The key asset of Rockhopper Egypt Pty Limited is a
22% working interest in the Abu Sennan concession. Having acquired
the interest in Abu Sennan for US$11.9 million in August 2016 and
agreeing to sell for US$16.0 million, plus benefitting from free cash
flow during our period of ownership, the Board concluded that it was
a suitable time to dispose.
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. In June
2019, the Tribunal rejected Italy’s request for the suspension of the
arbitration and Italy’s related intra-EU jurisdictional objections. Post-
hearing briefings were submitted in October and November 2019
with a final outcome anticipated in the coming months.
Phase 2 development will commercialise the remaining
approximately 280 mmbbls (gross) resources in both PL032
and the satellite accumulations in the north of PL004 (in which
Rockhopper has a 30% working interest post farm-out to Navitas).
In addition, there is a further 200 mmbbls (gross) 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 Sea Lion financing plan comprises funding elements including
senior project finance debt (likely involving a combination of export
credit guarantees and loans as well as commercial debt), vendor
financing from contractors and equity from the joint venture.
During 2019, the joint venture engaged with a wide range of
stakeholders to obtain the support required to secure senior
debt, which represents the core of the project’s funding strategy.
In this regard, a Preliminary Information Memorandum and
comprehensive set of independent expert reports, which formed
the basis of a financing application for the senior debt component
of the project financing, were submitted to potential senior lenders
including export credit agencies in July 2019. It is clear that the UK
General Election in December 2019 and the subsequent Cabinet
reshuffle in February 2020 have had the impact of delaying the
decision-making process. While engagement with senior debt
providers has been constructive, feedback received highlights
the need for Premier to complete its announced corporate actions
and extension of its credit facilities to provide certainty over its
medium- to long-term funding position before financial guarantees
for the project can be secured. Recovery of the oil price is clearly
also critical to securing such funding.
On the vendor financing side, the project contractors have
undertaken an extensive due diligence and assurance process
and remain supportive of the project and its financing plan.
Rockhopper’s share of the joint venture equity is to be funded
through an interest free loan from Premier and Navitas.
Constructive and supportive engagement with the Falkland Islands
Government (“FIG”) continues on a range of environmental, fiscal
and regulatory matters with a view to obtaining the consents and
agreements necessary to reach a final investment decision. Formal
approval of the Environmental Impact Statement (“EIS”) and Field
Development Plan (“FDP”) are expected at sanction. As part of this
engagement, the Sea Lion Discovery Area licence, which was due
to expire on 15 April 2020, has been extended to 1 May 2021 with
no additional licence commitments.
Samuel Moody
Chief Executive Officer
9
Report & Accounts for the year ended 31 December 2019STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 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.
to reduce headcount levels and activity on the Sea Lion project has
commenced with a smaller team continuing to progress mainly
regulatory, fiscal and financial matters, pending a recovery in the
external macro environment. A delay to the Final Investment Decision
on the Sea Lion project is inevitable until the oil price and capital
markets recover.
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 retired as a Director at the Company’s
AGM in May 2019. Keith Lough, previously Senior Independent Director,
succeeded David as Non-Executive Chairman. In addition, and as
previously announced, Tim Bushell will step down from the Board
effective 30 April 2020. We thank David and Tim for their significant
contribution and wish them every success in the future.
The Company continues to actively manage its corporate costs
and has reduced G&A by circa 50% over the last 5 years. In these
particularly difficult times, a further review of corporate overheads
has been initiated with additional cost savings of circa 30% of G&A
identified. Implementation of such cost reduction initiatives has
already commenced.
Environmental, Social and Governance (“ESG”)
ESG continues to be a key focus for Rockhopper and we are
committed to acting as a socially responsible contributor to the
global energy mix. For the Sea Lion development, Rockhopper is
committed to net zero in respect of scope 1 and 2 emissions from
the project. Such a commitment is expected to be achieved through
a combination of reduced emissions from the use of best-in-class
technologies and investment in carbon-offsetting projects both in
the Falklands and the UK.
In June 2019, FIG approved the establishment of an environment fund
to receive and administer future off-setting payments from the Sea
Lion joint venture and distribute those funds for activities aimed at
ensuring a positive environmental legacy.
Impact on the Company of COVID-19
The immediate human and economic impact of COVID-19 has been
very significant. At this point, the longer-term implications are unclear
and will depend on a number of factors which will develop in the
coming months.
In part related to COVID-19, the Brent oil price has fallen dramatically
during Q1 2020 hitting a low of c.$25 per barrel in late March. This has
resulted in a material fall in global equities (including the Company’s
share price) and will bring balance sheet strength, liquidity and cost
reduction measures to the fore. In the upstream oil & gas sector,
companies have announced very material and widespread cost
reductions through deferment or eliminations of non-essential capital
and operating costs. Premier, the operator of the Sea Lion project
has made similar public statements. As a consequence, a process
With the Company’s modest presence in Italy already having been
substantially scaled back, the Company’s day to day operations remain
unaffected by the spread of COVID-19 with necessary contingency
measures in place.
In these unprecedented times, our priority remains the health and
wellbeing of our employees and wider stakeholders. At the time of
writing, we are glad to report all our employees and their families are
safe and well.
Outlook
Notwithstanding the current market volatility, Sea Lion remains a
world-class oil resource with the potential to be transformational
for Rockhopper and the Falklands as a whole.
We look forward to the finalisation and ultimate completion of the
proposed farm-out to Navitas which we believe validates the world-
class nature of the asset, enhances the prospects of securing the
requisite senior debt to allow sanction and at the same time, through
the revised commercial arrangements, ensures that Rockhopper is
fully funded for all Sea Lion development costs (excluding licence fees,
taxes and project wind down costs) from 1 January 2020 to project
completion (estimated 9-12 months after first oil).
With a supportive interim ruling on jurisdiction, we remain positive on
the prospects of recovering significant monetary damages through
our international arbitration against the Republic of Italy in respect of
Ombrina Mare and look forward to an outcome in the coming months.
The Company continues to believe that the creation of shareholder
value will be maximised through a strategy to build a well-funded, full-
cycle, exploration led-E&P company. As such, we maintain ambitions
to materially 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.
Keith Lough
Non-Executive Chairman
Samuel Moody
Chief Executive Officer
8 April 2020
10
Rockhopper Exploration plcSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
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 2019, Rockhopper has continued to deliver on a number of its key
metrics.
2019
KPI #1
KPI #2
2020
KPI #1
KPI #2
KPI #3
Definition
Performance
Attainment
> Heads of Terms signed with Navitas
to farm-out 30% interest in Sea
Lion project.
Partially achieved
> Disposal of Rockhopper Egypt Pty Limited
for $16 million.
> Legally binding Heads of Terms signed with
Premier which provides funding support for
future Sea Lion project costs.
Partially achieved
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.
Definition
Protection of the Company’s balance sheet.
Completion of the Navitas farm-out.
Progression of senior debt financing for the Sea Lion project.
11
Report & Accounts for the year ended 31 December 2019STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION INDUSTRY OVERVIEW
Economic and political
> Widespread economic and geopolitical uncertainty meant the
global business environment remained challenging in 2019
> Global economic growth for 2019 is estimated to have fallen to
2.9% from 3.6% in 2018 (source: IMF World Economic Outlook)
> Driven by weak business confidence in part as a result of
growing trade tensions between the USA and China
> In Q1 2020, increasing concerns as a result of COVID-19 spread
and its wider implications become clearer
> Despite unprecedented support from governments and central
banks, global GDP growth is expected to fall sharply in 2020
driven by recessions in many major economies.
Crude oil
> High volatility throughout 2019 and Q1 2020
> Brent traded between $53 and 75/bbl in 2019, ending the year at $67/bbl
> Between mid February and late March 2020, Brent fell from
just below $60/bbl to around $25/bbl, with a decline of over
25% experienced in a single day
> Key oil market dynamics in 2019 impacted by lower than expected
demand due to weakening economic environment
and non-OPEC supply growth, mostly from US shale, being
balanced by lower OPEC production
> The sharp fall in oil prices seen in Q1 2020 reflects the combination
of fears over the spread of COVID-19 and the impact this will have
on global demand coupled with an inability of OPEC and Russia to
agree on supply cuts.
Average Brent Crude price
US$/bbl
Projected oil demand
mmbd
100
125
100
75
50
25
71
64
54
54
45
120
100
80
60
40
20
Evolving
transition
Even faster
transition
Supply with
no investment
(3% decline rate)
,
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Cost Index (Year 2000=100)
Billion toe
250
End use sector
Region
Fuel
Transport
Industry*
Non-combusted
Buildings
* Industry excludes
non-combusted
use of fuels
Other
Africa
Other Asia
India
China
OECD
20
15
10
5
Renewables
Hydro
Nuclear
Coal
Gas
Oil
UCCI
Q4 2019
181
UOCI
Q4 2019
173
20
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10
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Rockhopper Exploration plcSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
Climate change and the impact on the energy outlook
> Whilst global energy consumption is expected to grow strongly
Industry investment, activity levels and costs
> Through 2019, the industry continued to take a relatively
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.
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 the dramatic collapse in oil prices experienced in Q1 2020,
industry focus is likely to return to managing liquidity and debt
with a resultant sharp reduction in expenditure, deferral of
new projects and significantly reduced service costs.
Primary energy consumption by fuel
Average Brent Crude price
Billion toe
US$/bbl
25
2040
100
20
125
15
100
75
10
50
5
25
71
64
54
54
45
CO2 emissions
Projected oil demand
Gt of CO2
mmbd
50
More energy (ME)
Evolving transition (ET)
Less globalisation (LG)
Rapid transition (RT)
Renew.*
Hydro
Nuclear
Coal
Gas
Oil
*Renewables includes:
wind, solar, geothermal,
biomass, and biofuels.
45
40
35
30
25
20
15
10
5
120
100
80
60
40
20
Evolving
transition
Even faster
transition
Supply with
no investment
(3% decline rate)
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250
200
150
100
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UCCI
Q4 2019
181
UOCI
Q4 2019
173
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13
Report & Accounts for the year ended 31 December 2019STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
SEA LION PHASE 1 DEVELOPMENT OVERVIEW
Headline facts and figures
US$1.8 bn
Gross CAPEX to first oil
~85,000 bopd
Gross annual production (at plateau)
US$1.8 bn
Gross project revenue per annum
(at plateau, assuming US$65/bbl)
250 mmbbls
120,000 bpd
29 wells
Resource to be monitised
(Phase 1 only)
FPSO liquid capacity
to be drilled of which 20 oil producers
Proven development concept
14
Rockhopper Exploration plcSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION PL01
PL032
PL033
50°S
F A L K L A N D
F A L K L A N D
I S L A N D S
I S L A N D S
STANLEY
100 Kms
60°W
CASPER
PL03b
CASPER
SOUTH WEST
SEA LION
PL04a
PL04b
ZEBEDEE
NINKY SOUTH
PL04c
EMILY
ISOBEL
ISOBEL DEEP
PL03a
LIZ
PL05
Legend
Rockhopper 30%, Premier 40%, Navitas 30%
Rockhopper 40%, Premier 60%
Rockhopper 64%, Premier 36%
Rockhopper 95%, Premier 4.5%
Rockhopper 60.5%, Premier 4.5%, Denholm 35%
Rockhopper 100%
5 Kms
World scale resource
> 1.8 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.
Projected production profile
Average annual daily oil rate (kbopd)
Phase 1
Phase 2
160
140
120
100
80
60
40
20
0
5
0
1
5
1
0
2
Years from first production
15
Report & Accounts for the year ended 31 December 2019STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION FINANCIAL REVIEW
Overview
From a finance perspective, the most significant events in the year
include:
> Heads of Terms signed with Navitas to farm-in for a 30 per
cent interest in the Sea Lion project (signed January 2020)
> Progression of the Sea Lion project financing with the
submission of a Preliminary Information Memorandum to
potential senior lenders
> Disposal of Rockhopper Egypt Pty Limited to United for
consideration of US$16.0 million (completed February 2020).
Following the disposal of Rockhopper Egypt Pty Limited, the Company
has cash and term deposits of US$21.9 million as at 1 April 2020
(unaudited).
The revised funding arrangements ensure that Rockhopper is funded
for all pre-sanction costs related to Sea Lion (other than licence fees,
taxes and project wind down costs). As such, the Company believes the
above events materially strengthen the Company’s financial position
in the short and medium term and significantly enhance the prospects
for a successful project financing for the Sea Lion project, once
markets recover.
Stewart MacDonald
Chief Financial Officer
16
Results summary
US$m (unless otherwise specified)
Working interest production (kboepd)
Realised oil price (US$/bbl)
Revenue
Cash operating costs
Recurring administrative costs (“G&A”)
Loss after tax
Cash (out)/in flow from operating activities
Capital expenditure
Cash and term deposits
2019
1.3
60.8
10.3
4.6
5.3
(20.6)
(0.2)
23.9
17.2
2018
1.1
68.4
10.6
4.6
5.3
(7.1)
5.4
15.8
40.4
Results for the year
For the period ended 31 December 2019, the Group reported revenues
of US$10.3 million and loss after tax of US$20.6 million. The loss after
tax primarily arose as a result of non-recurring non-cash impairments
associated with the Group’s Greater Mediterranean portfolio.
Revenue
The Group’s revenues of US$10.3 million (2018: $10.6 million) during
the period relate entirely to the sale of oil and natural gas in the Greater
Mediterranean (Egypt and Italy). The reduction in revenues from the
comparable period reflects a decrease in realised oil and gas prices,
partially offset by an increase in production.
Working interest production averaged approximately 1,284 boepd
during 2019, an increase over the comparable period (2018:
1,064 boepd) primarily relating to the ASH-2 well within the Abu
Sennan concession in Egypt.
During the period, the Group’s gas production in Italy was sold under
short-term contract with an average realised price of a0.17 per scm
(2018: a0.25 per scm), equivalent to US$5.3 per 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 was sold to Egypt
General Petroleum Company (“EGPC”). The average realised price
for oil was US$60.8 per barrel (2018: $68.4 per barrel), a small
discount to the average Brent price over the same period. Gas was
sold at a fixed price of US$2.65 per mmbtu.
Operating costs
Cash operating costs, excluding depreciation and impairment charges,
amounted to US$4.6 million (2018: US$4.6 million). Underlying cash
operating costs were flat on 2018 levels despite increased production
in the period. Cash operating costs on a per barrel of oil equivalent
basis improved on the comparative period and remain attractive at
US$9.9 per boe.
Rockhopper Exploration plcSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
The Group continues to manage corporate costs having achieved an
approximate 30% reduction in general and administrative (“G&A”)
costs, excluding non-recurring expenses related to restructuring and
acquisitions, over the last three years. G&A costs remained flat in 2019
amounting to US$5.3 million, compared to the corresponding period
last year (2018: US$5.3 million). In light of the sharp reduction in oil
prices experienced in Q1 2020, initiatives to further reduce corporate
costs have been explored and are in the process of being implemented.
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 2019, the Company had cash and term deposits of
US$17.2 million (31 December 2018: US$40.4 million) and no debt.
Following the disposal of Rockhopper Egypt Pty Limited, the Company has
cash and term deposits of US$21.9 million as at 1 April 2020 (unaudited).
Cash and term deposit movements during the period:
Admin and miscellaneous includes G&A, foreign exchange and
movements in working capital during the period.
Mergers, acquisitions and disposals
On 23 July 2019, Rockhopper announced the disposal of Rockhopper
Egypt Pty Limited which holds a 22% working interest in the Abu
Sennan concession to United for consideration of US$16.0 million.
The consideration payable to Rockhopper under the transaction comprised:
> cash of $11.5 million; and
> the issue of 114,503,817 Consideration Shares (at an issue price of
3 pence) representing approximately 18.5% of United’s enlarged
ordinary share capital.
Consideration Shares held by Rockhopper in United are subject to
certain lock-up and orderly market disposal provisions for a period
of up to 12 months from completion.
The transaction was subject to satisfaction of customary conditions
precedent including United shareholder approval, completion
of the readmission of United to trading on AIM and receipt of
Egyptian government approvals. The transaction completed on
28 February 2020.
Opening cash balance (31 December 2018)
Revenues
Cost of sales
Falkland Islands
Greater Mediterranean
Admin and miscellaneous
Closing cash balance (31 December 2019)
US$m
40.4
10.3
(4.6)
(19.3)
(4.6)
(5.0)
17.2
Falkland Islands spend of US$19.3 million relates primarily to pre-
development activities on Sea Lion. Following signature of a Heads
of Terms in January 2020, Rockhopper’s share of pre-sanction costs
from 1 January 2020 (other than licence fees, taxes and project wind
down costs) are funded by Premier and/or Navitas. During the first
quarter of 2020, the Company paid US$3.9 million of Sea Lion costs
related to the period prior to 1 January 2020. Whilst timing remains
unclear, further such costs, estimated at up to US$10 million and
included in the balance sheet under current liabilities, could become
payable in the next 12 months.
Spend in the Greater Mediterranean largely relates to the Egyptian
drilling campaign at Abu Sennan. Following completion of the disposal
of Rockhopper Egypt Pty Limited, annual capital expenditure in the
Greater Mediterranean is expected to be limited.
Following impairments of US$2.0 million to reflect the value of
consideration received, assets and liabilities associated with the
transaction, as at 31 December 2019, were US$17.9 million and
US$2.0 million respectively.
Taxation
On 8 April 2015, the Group agreed binding documentation (“Tax
Settlement Deed”) with the Falkland Islands Government in relation
to the tax arising from the Group’s farm-out to Premier.
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 on 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. The
outstanding tax liability is classified as non-current and is discounted
to a period-end value of US$39.2 million.
17
Report & Accounts for the year ended 31 December 2019STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
Full details of the provisions and undertakings of the Tax Settlement
Deed are disclosed in note 23 of these consolidated financial
statements 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).
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 completion of the disposal of Rockhopper Egypt
Pty Limited, the Group has cash resources of US$21.9 million
(as at 1 April 2020 unaudited) and generates limited revenue and
cash flow from the sale of oil or gas but continues to fund the Group’s
reduced G&A costs.
Historically, the Group’s largest annual expenditure has related to
pre-sanction costs associated with the Sea Lion development.
However, following signature of a legally binding Heads of Terms in
January 2020, Rockhopper’s share of all Sea Lion pre-sanction costs
from 1 January 2020 (other than licence fees, taxes and project wind
down costs) are funded by Premier and/or Navitas.
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 these
consolidated financial statements. Nonetheless, for the avoidance of
doubt, in the downside scenario run and in the absence of potential
mitigating actions, a material uncertainty exists that may cast
significant doubt on the Group’s ability to continue as a going concern.
The consolidated financial statements do not include any adjustments
that may be necessary if the Group were not a going concern.
Principal risk and uncertainties
A detailed review of the potential risks and uncertainties which could
impact the Company are outlined elsewhere in this Strategic Report.
The Company identified its principal risks at the end of 2019 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
> failure of the joint venture partners to secure the requisite funding
to allow a Sea Lion Final Investment Decision.
Management’s base case forecast assumes a final investment
decision on the Sea Lion development during 2021, subject to securing
requisite financing. With the Group’s costs funded by Premier and/or
Navitas during this period.
During 2019, the environmental impact of oil and gas extraction (eg.
Climate Change) has been added to the risk register, reflecting the
increased focus on ESG issues which could have an adverse impact
on investor and lender sentiment towards the Company and the Sea
Lion project.
Management has also considered a downside scenario in which the
project does not achieve sanction which could be due to a number of
factors including funding not being achieved, or Premier deciding to
withdraw from the Sea Lion Development which could also ultimately
result in relinquishment of the acreage. In this scenario the Sea Lion
project would need to be wound down including the decommissioning
of the assets in the Falklands and the Group is liable for its share of
these project wind down costs with no funding support from Premier
and/or Navitas.
Under the base case forecast, the Group will have sufficient financial
headroom to meet forecast cash requirements for the 12 months
from the date of approval of these consolidated financial statements.
However, in the downside scenario, in the absence of any mitigating
actions, the Group may have insufficient funds to meet its forecast
cash requirements. Potential mitigating actions, some of which are
outside the Group’s control, could include collection of arbitration
award proceeds, deferral of expenditure or raising additional equity.
Stewart MacDonald
Chief Financial Officer
8 April 2020
18
Rockhopper Exploration plcSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION INTERNAL CONTROLS AND RISK MANAGEMENT
The Board is responsible for establishing and maintaining the system
of internal controls which has been in place throughout 2019.
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. Audit Committee
considers annually whether there is requirement for an independent
internal audit function. It has agreed there is no necessity at present
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.
During 2017 an independent audit firm was commissioned to undertake
a review focused on the Group’s financial controls which encompassed
the key financial transaction cycles including:
Since the year end the Audit Committee has received an update on
the findings and recommendations of the report on financial controls.
It concluded the existing control environment continued to be fit
for purpose.
A further review of the Group’s financial controls will be conducted
in the event of a change of personnel and/or the business model.
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.
> capital projects
> monthly financial reporting
> bank and treasury
> revenue to receivables.
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
19
Report & Accounts for the year ended 31 December 2019STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 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, 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.
Environmental impact (eg. Climate Change)
of oil and gas extraction.
> Adverse investor and lender sentiment towards the oil
and gas sector
> Disruption to projects and operations as a result
of more frequent weather events
> Longer term reduction in demand for oil and gas,
resulting in lower oil and gas prices.
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.
20
Rockhopper Exploration plcSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION STRATEGIC RISKS
Description
Impact
Mitigants
Recent changes and ongoing initiatives
> Active engagement with the operator and regulators to establish
> Ongoing engagement with providers of senior debt including
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.
project finance banks and export credit agencies. PIM submission
in Q2 2019
> Heads of Terms signed with Navitas to farm-in to Sea Lion project
> Sea Lion Discovery Area Licence extended to 1 May 2021.
> The British Government has issued strong rebuttals
to the Argentine claims
> The Company is in regular contact with the Foreign
& Commonwealth Office
> In September 2016, the British Government and the Government
of Argentina agreed a joint statement on areas of cooperation,
including working towards removing restrictive measures affecting
the oil & gas industry in the Falkland Islands
> In a referendum, conducted in 2013, the Falkland Islands voted
> Further to the September 2016 joint statement, a second
unequivocally to remain as a British Overseas Territory.
commercial air link between South America and the Falklands
commenced operations in 2019.
> Commitment that Sea Lion development should be net zero
from scope 1 and scope 2 emissions through a combination
of best in class technology and offsetting projects in the
Falklands and UK.
> In June 2019, FIG approved the establishment of an environment
fund ensuring a positive environmental legacy from the Sea Lion
project.
FINANCIAL RISKS
Description
Impact
Mitigants
Recent changes and ongoing initiatives
> Short-term and long-term cash forecasts are reported
> Disposal of Rockhopper Egypt Pty Limited for US$16 million
to the Board on a regular basis
completed February 2020
> The Company has no debt
> The Company has entered a Heads of Terms with Premier and
Navitas through which Rockhopper’s share of Sea Lion development
costs are funded through to project completion (estimated 9-12
months after first oil)
> Agreement reached to defer tax liability associated with 2012 farm-out.
> Legally binding Heads of Terms signed with Premier in
January 2020.
> Contingency built into planning and budgeting process to allow for
> As a result of the oil price collapse experienced in Q1 2020,
downside movements in commodity prices
industry and service costs are expected to reduce significantly.
> 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.
> 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 2019, 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.
21
Report & Accounts for the year ended 31 December 2019STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 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.
22
Rockhopper Exploration plcSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION OPERATIONAL RISKS
Description
Impact
Mitigants
Recent changes and ongoing initiatives
> 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.
> The Company employs qualified and experienced technical
> Analysis of commerciality thresholds is inherent in exploration
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
> In 2018/19, the Company successfully completed a two well plug
and abandonment programme at Monte Verdese concession in Italy.
ORGANISATIONAL RISKS
Description
Impact
Mitigants
Recent changes and ongoing initiatives
> Training and development opportunities are considered for
> A short-term succession plan is in place for executive directors
all staff
and key staff members.
> Executive directors and senior staff have notice periods 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.
23
Report & Accounts for the year ended 31 December 2019STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 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:
> Strong leadership and clearly defined responsibilities and
accountabilities for HSE at all levels of the organisation;
> Selection of competent personnel to manage activities;
> Compliance with regulatory and other applicable requirements, or
where regulations do not exist, application of industry standards;
> Identifying, assessing and managing HSE risks and preventing
pollution;
> Developing specific HSE plans for each operational project;
> Selecting competent contractors and ensuring that they are
effectively managed;
> Preparing and testing response plans to ensure that any incident
can be quickly and efficiently controlled, reported and investigated
to prevent recurrence;
> Continual improvement of HSE performance through monitoring,
regular reporting and periodic audits; and
> Periodic management reviews to identify and implement
improvements to our HSE systems.
This policy is implemented through our HSE Management System,
which has been prepared to be consistent with international standards
for HSE management including ISO14001 and ISO18001.
Our HSE Management System is used to guide all our activities and
will not be compromised by other business priorities. Application of
the HSE Management System will include preparation of detailed
Environmental Impact Statements (“EISs”) for all of the Group’s
activities. The preparation of the EIS includes consultation with
interested parties and the local Government as well as public
HSE Management System
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 8 April 2020 by:
Samuel Moody
Chief Executive Officer
HSE
MANAGEMENT
SYSTEM
HEALTH AND
SAFETY
ENVIRONMENT
BUSINESS
CONDUCT
EMPLOYEES
LOCAL
COMMUNITIES
24
Rockhopper Exploration plcSTRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION STRATEGIC REPORT GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
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 – 18 employees as at 31 December 2019
Non-executive director tenure
50% Male 50% Female
61% British
11% Egyptian
22% Italian
6% Other EU nationals
< 3 years
25%
50%
6-9 years
25%
3-6 years
25
Report & Accounts for the year ended 31 December 2019 STRATEGIC REPORT GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
BOARD OF DIRECTORS
Keith Lough
Non-Executive Chairman 61
Appointed to board: January 2014
Skills and experience
Keith has over 30 years experience in the natural
resources sector in both senior finance and general
management roles with LASMO, Petrokazakhstan,
British Energy and Hutton Energy. He was also a founder
shareholder and CEO of unconventional gas explorer
Composite Energy Limited.
Keith was previously Chairman of Gulf Keystone Petroleum
and Director of UK Gas and Electricity Markets Authority.
Committee membership:
> Nomination (Chairman)
External appointments:
Chairman:
> Southern Water
Director:
> Cairn Energy plc
> Hunting PLC
Samuel Moody
Chief Executive Officer 50
Skills and experience
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.
Appointed to board: February 2005
Committee membership:
—
External appointments:
Director:
> Greenland Gas & Oil Limited
Stewart MacDonald
Chief Financial Officer 39
Skills and experience
Stewart has 18 years of energy industry and investment
banking 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.
Appointed to board: March 2014
Committee membership:
—
External appointments:
Director:
> United Oil & Gas PLC
26
Rockhopper Exploration plc STRATEGIC REPORT GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
Alison Baker
Senior Independent Director 49
Skills and experience
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.
Appointed to board: September 2018
Committee membership:
> Audit & Risk (Chairman)
> Remuneration
> Nomination
External appointments:
Director:
> KAZ Minerals PLC
> Helios Towers plc
> Endeavour Mining Corporation
Tim Bushell
Non-Executive Director 60
Appointed to board: January 2016
Skills and experience
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.
Committee membership:
> Audit & Risk
> Remuneration (Chairman)
> Nomination
External appointments:
Deputy Chairman:
> Wentworth Resources plc
Director:
> Petro Matad Limited
> Genel Energy plc
John Summers
Non-Executive Director 64
Appointed to board: February 2014
Skills and experience
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.
Committee membership:
> Audit & Risk
> Remuneration
> Nomination
External appointments:
—
27
Report & Accounts for the year ended 31 December 2019
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
GOVERNANCE REPORT
Introduction from the Chairman on the Governance Report
Rockhopper is listed on the Alternative Investment Market of the London
Stock Exchange (AIM) and as such is required to apply a recognised
corporate governance code. In 2018, following a review of the provisions
of both the UK Corporate Governance Code and the Quoted Companies
Alliance Corporate Governance Code (the “QCA Code”), the Board
decide to adopt the QCA Code which is designed for small to mid-sized
companies and which has been adopted by many AIM companies.
Corporate culture
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.
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.
Board composition
The Board currently consists of a Non-Executive Chairman, two
Executive Directors and three Non-Executive Directors including the
Senior Independent Director. During 2019, Keith Lough replaced David
McManus as Chairman. Tim Bushell, Non-Executive Director, will be
stepping down from the Board at the end of April 2020.
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.
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.
28
Rockhopper Exploration plc
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
Board composition during the year
Name
Role
Independent
Length of
service as at
8 April 2020
Date of
appointment
Date of
resignation
Non-Executives
Keith Lough
Alison Baker
Tim Bushell
Chairman
Senior Independent Director
Non-Executive Director
John Summers
Non-Executive Director
Executives
Sam Moody
Chief Executive Officer
Stewart MacDonald
Chief Financial Officer
Former Director
Yes
Yes
Yes*
Yes
No
No
6 years 3 months
14 January 2014
1 year 7 months
4 years 3 months
6 years 2 months
18 September 2018
18 January 2016
1 February 2014
15 years 2 months
21 February 2005
6 years 1 month
10 March 2014
—
—
—
—
—
—
David McManus
Chairman
Yes
8 years 7 months
30 September 2010
15 May 2019
* 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 of the Directors stand for re-election by shareholders at each 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 Tim Bushell, all Directors will be standing for re-election at
the 2020 Annual General Meeting.
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.
Senior Independent Director
Keith Lough was the Senior Independent Director until his appointment
as Chairman in May 2019 when he was replaced by Alison Baker.
The main responsibilities of the Senior Independent Director are as
follows:
> to provide a sounding board for the Chairman and to 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; and
> to coordinate the Chairman’s appraisal.
The Group’s website contains an email contact for the Senior
Independent Director should shareholders have concerns which
have not been adequately addressed by the Chairman or Chief
Executive Officer. The email address is also disclosed at the back
of these accounts.
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.
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.
Board meetings and processes
The Board has between six and seven scheduled 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 Chief Executive Officer on key current activities and issues
together with Operations and Finance Reports and any papers relative
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.
Report & Accounts for the year ended 31 December 2019
29
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
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
Name
Keith Lough
Sam Moody
Stewart MacDonald
Tim Bushell
John Summers
Alison Baker
Former Director
David McManus (resigned 15 May 2019)
Scheduled Board
meetings
Additional
short notice
Board meetings
6/6
6/6
6/6
6/6
6/6
6/6
2/2
2/2
2/2
2/2
0/2
2/2
1/2
n/a
Audit & Risk The Chairman of the Audit & Risk Committee/Senior
Committee
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. This usually
includes the following:
Board
Board papers and minutes for prior 12 months
Schedule of matters reserved for the Board
Delegated financial authorities
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
Each Board member is requested to consider 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 tabled and
discussed at a Board meeting and follow up action is
agreed if necessary.
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
An external performance evaluation of the Board has
been previously undertaken with specific focus on the
skillset and structure of the Board. This was used as the
basis for discussions on succession planning.
Commercial Management summaries of key transactions
Insurance
Details of Directors’ and officers’ liability cover
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.
Shareholders Overview of the breakdown of the share register
including details of major shareholders
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.
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.
30
Rockhopper Exploration plc
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
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.
Annual
Report
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. Details
are circulated to other Board members who are invited to advise the
Chairman or Company Secretary if they have any concerns about the
proposed appointment.
AGM
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.
Keith Lough
Non-Executive Chairman
8 April 2020
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. If requested by the Chairman, a Director
will absent themselves from any Board discussions and decisions on
matters where there is an actual or perceived 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.
Political and charitable donations
The Group made no charitable or political donations during the year
(2018: £nil).
Communication with shareholders
The Company engages with shareholders in a variety of ways:
Meetings
Executive Directors meet regularly 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
Website
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
Report & Accounts for the year ended 31 December 2019
31
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
AUDIT & RISK COMMITTEE CHAIRMAN’S REPORT
Introduction by the Audit & Risk Committee Chairman, Alison Baker
I replaced Keith Lough as Chairman of the Audit & Risk Committee in
May 2019 following his appointment as Chairman of the Company and
I am pleased to present the report of the Audit & Risk Committee for
the year ended 31 December 2019. The report includes details of the
committee’s activities during the financial year and since the year end.
Committee composition
The members of the Audit & Risk Committee are Alison Baker as
Chairman, Tim Bushell and John Summers. The Board considers all
the members of the Committee to be independent and is satisfied that
at least one member of the Audit & Risk Committee, Alison Baker, has
recent and relevant financial experience.
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. Both the previous and current external auditors met and
had discussions with the Chairman of the committee during the course
of the year. The external auditors also met the committee members
without management present.
Only members of the committee have the right to attend the meetings
of the committee but the committee can invite the Chairman of the
Board, Executive Directors, members of senior management and
representatives of the external auditors to attend its meetings.
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 auditors;
> 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 auditors may have arising from their
audit work, any matters which may materially affect or impair the
independence of the external auditors, 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.
Since the year end, the Audit & Risk Committee’s terms of reference
have been updated with reference to the guidance and model terms
of reference issued by the Institute of Chartered Secretaries and
Administrators and to reflect current practice. 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:
Following each meeting, the Chairman of the committee reports
formally to the Board on the main matters discussed by the committee.
> Group financial disclosures and accounting matters including
impairment and going concern;
> audit plan of the external auditors for the 2019 financial year;
> reports of the external auditors concerning its audit and review of the
financial statements of the Group and the status of follow-up actions
with management;
> external auditors’ fees;
> process and outcomes of the committee performance review;
> process for the review by the committee and the Board of the Group’s
systems of internal controls and risk management;
> effectiveness of the systems and processes that management
has developed pertaining to risk identification, classification and
mitigation; and
> whistleblowing procedures and shareholder concerns.
Details of the meetings attended during the financial year were as
follows:
Audit & Risk Committee
meetings attended
Director
Alison Baker – Chairman (appointed 15 May 2019)
Tim Bushell
John Summers
Keith Lough (Committee Chairman until 15 May 2019)
S MacDonald
S Moody
Former Director
David McManus (resigned 15 May 2019)
Total meetings during year
† Invitee
* Keith Lough ceased to be a committee member on 15 May 2019.
He attended one meeting after that date as an invitee.
2/2
2/2
2/2
2/2*
2†
2†
1†
2
32
Rockhopper Exploration plc
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
A number of actions were agreed as a result of the performance review
undertaken in 2019 including:
> updating the terms of reference of the Audit & Risk Committee;
> scheduling an additional committee meeting prior to the
commencement of the annual audit to consider emerging accounting
and corporate governance issues and the annual review on risks and
internal controls;
> producing an updated policy on the objectivity and independence
of the external auditors; and
> agreeing a revised process for the review of principal risks and
internal controls.
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 Rockhopper’s
Code in their day to day business behaviour. The Company also has
in place an Anti-Bribery and Corruption Policy and Procedures which
are kept under review and communicated to staff who have joined since
the initial training session.
Alison Baker
Audit & Risk Committee Chairman
8 April 2020
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 1.5 of the Group financial statements on page 60.
External auditors
The committee recommends to the Board the appointment of the
external auditors, 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 auditors.
During the year PricewaterhouseCoopers (PwC) were appointed as
the Company’s auditors in place of KPMG following a competitive
tender process. Given the Chairperson of the Audit & Risk Committee
was previously a partner in two audit firms she recused herself from
the tender process decision making which was co-ordinated by the
Chairman in conjunction with the Chief Financial Officer.
The committee is responsible for the approval of the provision of all
audit services and permitted non-audit services undertaken by the
external auditors.
Since the year end, the committee has approved a revised policy
on auditor independence and objectivity in the light of the Financial
Reporting Council’s Ethical Standard issued in December 2019. The
Committee actively considers the effectiveness and quality of the
external auditors. This included consideration of the FRC external
report on PwC published on 1 July 2019.
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.
Report & Accounts for the year ended 31 December 2019
33
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
NOMINATION COMMITTEE CHAIRMAN’S REPORT
Introduction by the Nomination Committee Chairman, Keith Lough
I replaced David McManus as Chairman of the Nomination Committee
following my appointment as Chairman of the Company in May 2019 and
I am pleased to present the report of the Nomination Committee for the
year ended 31 December 2019 which includes details of the committee’s
activities during the financial year.
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:
Director
Keith Lough – Chairman (appointed 15 May 2019)
Alison Baker
Tim Bushell
John Summers
Former Director
David McManus (resigned 15 May 2019)
Total meetings during year
Nomination Committee
meetings attended
2/2
2/2
2/2
2/2
2/2
2
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 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 performance evaluation process and link to Company strategy;
> Board succession planning with regard to length of tenure and good
corporate governance practice;
> Board changes including appointment of a new Chairman and Senior
Independent Director;
> Chairmanship of the Audit & Risk Committee;
> Extension of the tenure of Tim Bushell for a further three year term;
> Emergency succession plan; and
> Status of disclosures relating to compliance with the Quoted
Companies Alliance Corporate Governance Code.
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 Nomination Committee evaluates the balance of skills
and experience on the Board and makes recommendations to the
Board on the basis of what it considers that the Company needs in
order to support delivery of the agreed strategic objectives.
The committee also recognises the need for progressive refreshing of
the Board and the benefits of diversity and the committee has regard
to these when considering succession planning. The committee is
committed to recruiting on merit measured against objective criteria.
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.
Keith Lough
Nomination Committee Chairman
8 April 2020
34
Rockhopper Exploration plc
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
REMUNERATION REPORT
Introduction by the Remuneration Committee Chairman, Tim Bushell
On behalf of the Board, I am pleased to present the Directors’
Remuneration Report (‘Report’) for the year ended 31 December
2019. The Report has been prepared largely in compliance with the
requirements of Schedule 8 of the Large and Medium-sized Companies
and Group Regulations 2013 except where deemed inappropriate given
the size and structure of the Company.
The Report is divided into two sections:
> The Policy report which sets out the current Remuneration Policy
> The Annual Report on Remuneration which sets out details of
the operation of the Remuneration Committee and details of
the Directors’ remuneration packages for the year ended
31 December 2019. It also sets out details of the implementation
of the Remuneration Policy for Executive and Non-Executive
Directors for the year ending 31 December 2020.
The Committee aims to ensure that remuneration is linked to the
performance of the Company and believes that the Long Term Incentive
Plan, which is based on total shareholder return measured against
an appropriate peer group of companies, ensures that management
is aligned with shareholders in respect of the share incentive element
of their remuneration packages. The Committee is satisfied that the
outcomes, in respect of the incentives and remuneration during the
financial year under review, are appropriate.
The Committee does not propose any substantial changes to the
Remuneration Policy which is laid out on the following pages. The
Committee will ensure that the Company’s remuneration policy and
practices are kept under review to ensure that they remain appropriate
for the Company at its stage of development and that they do not
encourage any unnecessary risk taking by the executive team.
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 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 on page 41.
Report & Accounts for the year ended 31 December 2019
35
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
Salary
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
Opportunity
> 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
> 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 corporate and individual targets
Operation
> 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
> Exceptional bonus payments may be in the form of shares and/or cash at the Committee’s discretion
Opportunity
> 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. In these circumstances the Committee has discretion to
decide the form of payment which may be in shares or cash.
> A one-off bonus of between 100% and 200% of base 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
36
Rockhopper Exploration plc
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
Long Term Incentive Plan (LTIP)
Purpose and link to strategy
> To support alignment with shareholders through the use of Total Shareholder Return (‘TSR’)
measured against a peer group as the performance target for awards under the LTIP
Operation
> The LTIP was approved by shareholders in 2013
> The Committee makes annual awards of nil cost options which vest on a sliding scale after three
years subject to the extent that the performance targets attached to the awards have been achieved
> Awards will usually be granted within a period of 42 days from the release of the annual financial
results and will be calculated using the market value of the shares at the date of grant
> The LTIP performance period 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 three year performance period
> The percentage of awards that can vest is determined by the Committee at the time that the awards
are made. Awards currently vest on a sliding scale from 35% up to 100% for performance between the
median and highest performing stock. No awards will vest for performance below the median
> The Committee has discretion to scale back the percentage of awards that will vest if it considers that
this is appropriate having regard to underlying Company performance
Share Incentive Plan (SIP)
Purpose and link to strategy
> To encourage share ownership in Rockhopper
Operation
Opportunity
> A tax-advantaged scheme under which employees (including Executive Directors) can elect to make
contributions from gross salary for the purchase of Rockhopper shares which are then matched by
the Company at a ratio agreed by the Committee at the beginning of each tax year. The Committee
can also decide to make an annual award of ‘free’ shares up to legislative limits. The shares need to
be held for a term of five years to obtain the full tax benefits 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 2019
37
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
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 on an equal basis. 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 with any
amount over the maximum Annual Allowance payable as a pension cash allowance. The new appointee will also be eligible to participate in the
Company’s SIP after a qualifying period.
In relation to any elements of variable pay, the Committee will take the following approach:
Component
Approach
Maximum annual opportunity
Annual Bonus
LTIP
> The annual bonus would operate as outlined in the Policy for existing
Executive Directors. The relevant maximum will be pro-rated to
reflect the period of employment over the year. Consideration will be
given to the appropriate performance targets at the time of joining
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
38
Rockhopper Exploration plc
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
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
SJ Moody
S MacDonald
Appointment date
Original contract
Revised contract
21 February 2005
8 August 2005
8 March 2011
10 March 2014
27 March 2014
—
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, unvested 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 2019
39
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
Non-Executive Director Policy
The Company’s Articles of Association provide that the Board can determine the level of fees to be paid to the Non-Executive Directors within limits
set by the shareholders. This is currently set at an aggregate of £500,000 per annum. The policy for the Chairman and Non-Executive Directors is as
follows:
Fees
Purpose and link to strategy
> To provide a competitive level of fee which will attract and retain high calibre Directors with the range
of skills and experience required to support the Executive Directors and assist the Company in delivering
its objectives
Operation
> The fees for the Chairman and Non-Executive Directors are determined by the Board as
a whole with Directors absenting from discussions regarding their own remuneration
> The Board has regard to level of fees paid to the Non-Executive Directors of other similar
sized companies and the time commitment and responsibilities of the role
> Neither the Chairman nor the Non-Executive Directors participate in any of the Company’s
share schemes
Opportunity
> The current annual fees are:
> Chairman: £100,000
> 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 appointments are set out below:
Director
Keith Lough
John Summers
Tim Bushell
Alison Baker
Appointment date
Original appointment letter
Revised appointment letter
14 January 2014
14 January 2014
1 February 2017
15 May 2019
1 February 2014
3 February 2014
1 February 2017
1 February 2020
18 January 2016
18 January 2016
18 January 2019
18 September 2018
18 September 2018
15 May 2019
Directors are subject to annual re-election by shareholders at each Annual General Meeting and each Director is subject to election by shareholders
at the first Annual General Meeting following their appointment. The Directors’ letters of appointment are available to view at the Company’s
registered office and prior to each Annual General Meeting at the venue for the meeting.
40
Rockhopper Exploration plc
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
Report on Remuneration
Remuneration Committee membership and meetings
As at 31 December 2019, the Committee comprised the Committee Chairman and two independent Non-Executive Directors. The Committee
met three times during the financial period and the 2019 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)
AC Baker
AJ Summers
Former Committee member
KG Lough (ceased to be Committee member on appointment as Chairman on 15 May 2019)
During the financial year, the Committee’s main areas of activity included:
> Confirming the staff salary adjustments for 2019 and bonus awards for the year ended 31 December 2018
> Setting the targets and potential 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 2018
> Approving the 2019 LTIP awards and reviewing the constitution of the peer group
> Approving the annual implementation of the SIP
> Considering the conclusions of the executive remuneration benchmarking exercise undertaken by Aon.
Meeting attendance as Committee member
3/3
3/3
3/3
2 plus 1 as invitee after ceasing
to be Committee member
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.
During the financial period, the Committee commissioned Aon to provide input on current practice in relation to executive remuneration across
the sector and to produce an executive director remuneration benchmarking report.
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
2019
Year
ended
31 Dec
2018
Year
ended
31 Dec
2019
Year
ended
31 Dec
2018
Year
ended
31 Dec
2019(i)
Year
ended
31 Dec
2018
Year
ended
31 Dec
2019
Year
Year
ended
ended
31 Dec 31 Dec
2019
2018
S J Moody
S MacDonald
380.4 373.0
11.4
11.2
312.0 305.9
9.8
9.7
76.0
62.7
93.0 —
— 57.1
93.0 —
— 46.8
Year
ended
31 Dec
2018
55.9
45.9
Year
ended
31 Dec
2019
6.6
6.6
Year
ended
31 Dec
2018
Year
ended
31 Dec
2019
Year
ended
31 Dec
2018
6.6 531.5 539.7
6.6 437.9 461.1
(i) Represents amounts paid in January 2020 in respect of the 2019 financial year. Further bonus payments in respect of the 2019 financial year of £38,000 (SJ Moody)
and £31,333 (S MacDonald) will become payable upon execution of the Sea Lion farm-out agreement and related documentation with Navitas Petroleum and Premier Oil.
Report & Accounts for the year ended 31 December 2019
41
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
The table below reports a single figure for total remuneration for each Non-Executive Director:
K G Lough (appointed as Chairman 15 May 2019)
T P Bushell
A C Baker (appointed as Senior Independent Director and
Audit Committee Chair 15 May 2019)
A J Summers
D McManus (resigned 15 May 2019)
Base fee
£’000
Year ended
31 December
2018
40.0
40.0
11.4
40.0
115.0
Year ended
31 December
2019
78.2
40.0
40.0
40.0
43.2
Additional fees
£’000
Year ended
31 December
2019
4.6
10.0
8.1
—
—
Year ended
31 December
2018
12.5
10.0
—
—
—
Year ended
31 December
2019
82.8
50.0
48.1
40.0
43.2
Total
£’000
Year ended
31 December
2018
52.5
50.0
11.4
40.0
115.0
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 (2018: £2,500) for acting as Senior Independent Director and £10,000 for acting 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 2019
Annual bonus
In respect of the financial period, the Committee agreed that the Executive Director annual bonus opportunity would be up to 50 per cent of base
salary. The following objectives were agreed for the 2019 financial year:
> 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 agreed the following outcomes in respect of the executive directors’ performance in 2019 in relation to the corporate and individual
objectives:
i.
ii.
Pre-FID farm-out of Sea Lion: heads of terms had been signed with Navitas to farm-in for a 30% interest in the Sea Lion project. It was agreed
that this was a significant milestone which could unlock the project and enhance the prospects for a successful project financing.
Commercial arrangements with Premier: the existing funding arrangements between Rockhopper and Premier would be replaced so that
Rockhopper would be funded for all pre- and post-sanction costs not met by external debt by Premier and/or Navitas through a combination
of carry and loans. It was agreed that this was a good outcome as the Company maintains a material stake in the project, the commercial
arrangements between the joint venture partners have been simplified and balance sheet/liquidity pressures have reduced.
iii.
Sale of Abu Sennan: proceeds from the sale of Rockhopper Egypt Pty Limited had been in excess of the original purchase price and the
minimum consideration which had been specified by the Board.
The Committee had recognised the contribution of the executive directors to achievement of the 2019 corporate objectives and had approved the
following bonuses for the Executive Directors in recognition of the extent to which the 2019 corporate targets had been achieved and to reflect 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
20%
20%
Cash £
76,000
62,667
The Committee agreed that further bonus payments in respect of the 2019 financial year of £38,000 (SJ Moody) and £31,333 (S MacDonald)
will become payable upon execution of the Sea Lion farm-out agreement and related documentation with Navitas and Premier.
42
Rockhopper Exploration plc
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
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 14 companies over a three year
period.
Director
SJ Moody
S MacDonald
Date of grant
31 July 2019
31 July 2019
Share price
at date of
grant
£0.2075
£0.2075
Number of options
subject to TSR
performance
condition
2,100,000
2,100,000
Exercise
price
—
—
Maximum
number of shares
that may vest
2,100,000
2,100,000
Face value of
maximum award*
£435,750
£435,750
* 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 2019 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 2022.
> Performance measurement is based on the average price over the 90 day dealing period to 31 March 2019 measured against the 90 day dealing
period up to 31 March 2022.
> Performance is based on Total Shareholder Return (‘TSR’) measured against an original peer group of 13 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, 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 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 2020
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 1.5% with effect from 1 January 2020.
Annual bonus
For 2020, 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 2020:
> Protection of the Company’s balance sheet
> Completion of the Navitas farm-out
> Progression of senior debt financing for the Sea Lion project.
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 2019
43
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
Long Term Incentive Plan
The Committee intends to grant LTIP awards in 2020 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 2020
Non-Executive Director fees (excluding the Chairman) were last increased in 2014 and no further review is scheduled. On the appointment of
KG Lough as Chairman, the fees for acting as Chairman were reduced from £115,000 to £100,000 per annum. The current fees are set out in the
table below:
Role
Chairman
Other non-executive directors
Type of fee
Total fee
Basic fee
Chairman of Remuneration and Audit & Risk Committees
Senior Independent Director
Statement of directors’ shareholdings
The table below summarises the interests in shares (including those held in the SIP) of the Directors in office at the year end:
£100,000
£40,000
£10,000
£2,500
Samuel Moody
Stewart MacDonald
Tim Bushell
John Summers
Alison Baker
Keith Lough
At 31 December 2019
Ordinary 1p shares
At 31 December 2018
Ordinary 1p shares
2,363,640
285,310
103,606
244,100
2,403,865
325,532
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
Date of
grant
Awards
held at
31 Dec 2018
Lapsed/
relinquished
during Year
Vested
Awards
held at
31 Dec 2019
Market price
at date
of award
Granted
Director
S J Moody
22.04.16
1,738,080
— 1,738,080
16.06.17
1,900,000
23.04.18
2,100,000
—
—
31.07.19
—
2,100,000
—
—
—
S MacDonald
22.04.16
1,425,600
— 1,425,600
16.06.17
1,800,000
23.04.18
1,900,000
—
—
31.07.19
—
2,100,000
—
—
—
Performance
period
—
Earliest
vesting
date
—
—
—
—
—
—
—
—
—
—
—
1,900,000
£0.2025
01.06.17-31.05.20
16.06.20
2,100,000
£0.2550
01.04.18-31.03.21
23.04.21
2,100,000
£0.2075
01.04.19-31.03.22
01.04.22
—
—
—
—
1,800,000
£0.2025
01.06.17-31.05.20
16.06.20
1,900,000
£0.2550
01.04.18-31.03.21
23.04.21
2,100,000
£0.2075
01.04.19-31.03.22
01.04.22
44
Rockhopper Exploration plc
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
(ii) Vested LTIP Awards
Director
SJ Moody
S MacDonald
Date of
grant
08.10.13
10.03.14
Vested
Awards
held at
31 Dec 2018
177,802
70,391
Exercised
during the
year
—
—
Vested
Awards
held at
31 Dec 2019
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 2018 and 31 December 2019 there were no share options held by individuals who were directors during the year ended
31 December 2019.
(c) Share appreciation rights
The share appreciation rights outstanding as at 31 December 2019 and held by individuals who were Directors during the year ended
31 December 2019 are:
Director
S J Moody
Date of grant
11.01.11
17.01.12
30.01.13
Awards held at
31 December 2018
Exercised during
the year
Lapsed during
the year
Awards held at
31 December 2019
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 2019
The mid-market closing price of the Company’s shares as at 31 December 2019 was 15 pence (31 December 2018: 21.10 pence). The range of the
trading price of the Company’s shares during the year was between 28 pence and 14 pence.
Executive Director external appointments
S J Moody is a Non-Executive Director of Greenland Gas & Oil Limited for which he receives a fee. Since the year end S MacDonald has been
appointed as a Non-Executive Director of United Oil & Gas PLC for which he receives a fee.
By order of the Board
Tim Bushell
Chairman of the Remuneration Committee
8 April 2020
Report & Accounts for the year ended 31 December 2019
45
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
STATUTORY INFORMATION
Principal activity
The principal activity of the Group is the exploration, appraisal and
development of its oil and gas acreage. Group strategy is to explore,
appraise, develop and manage production from its acreage both
safely and responsibly.
Results and dividends
The trading results for the year, and the Group’s financial position at
the end of the period are shown in the attached financial statements.
The Directors have not recommended a dividend for the year (year
ended 31 December 2018: £nil).
Key performance indicators “KPIs”
See page 11 for more details.
Substantial shareholders
At 31 March 2020 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
21,861,583
RAB Capital/William Phillip Seymour Richards 19,000,220
Hosking Partners
Aedos Advisers
17,781,329
17,545,290
4.77
4.15
3.88
3.83
Directors
The present members of the Board are as listed in the Board
composition section of the Governance Report. 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
Particulars of important events affecting the Group since the
financial year end are set out in note 30.
Principal risks and uncertainties
Information relating to the principal risks and uncertainties facing
the Group is set out in the Strategic Report and note 31.
Related party transactions
Related party transactions are disclosed in note 29.
Financial instruments
For the period under review the Group held no financial instruments,
outside of cash and receivables. Financial risk management policies
are disclosed in note 31.
Political and charitable contributions
The Group made no charitable donations (year ended 31 December
2018: £nil) and no political donations (year ended 31 December 2018:
£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 23 days (year ended 31 December 2018: 35 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 18 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.
Environment
The Group’s operations are, and will be, subject to environmental
regulation (with regular environmental impact assessments and
evaluation of operations required before any permits are granted
to the Group) in the jurisdiction in which it operates. Although the
Group intends to be in compliance with all applicable environmental
laws and regulations, there are certain risks inherent to its activities,
such as accidental spills, leakages or other circumstances, that
could subject the Group to extensive liability. Further, the Group may
fail to obtain the required approval from the relevant authorities
necessary for it to undertake activities which are likely to impact the
environment. The Group is unable to predict the effect of additional
environmental laws and regulations which may be adopted in
the future, including whether any such laws or regulations would
materially increase the Group’s cost of doing business or affect its
operations in any area.
46
Rockhopper Exploration plc
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
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
8 April 2020
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.
Report & Accounts for the year ended 31 December 2019
47
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF ROCKHOPPER EXPLORATION PLC
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
Opinion
> In our opinion Rockhopper Exploration plc’s group financial statements and company financial statements (the “financial statements”)
give a true and fair view of the state of the group’s and of the company’s affairs as at 31 December 2019 and of the group’s loss and cash
flows for the year then ended;
> the group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union;
> the company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law); and
> the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report, which comprise: the group and company Balance Sheets as
at 31 December 2019; the group consolidated Income Statement, the group consolidated Statement of Comprehensive Income, the group
consolidated Statement of Cash Flows, and the group consolidated and Company statements of changes in equity for the year then ended;
and the notes to the financial statements, which include a description of the significant accounting policies.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities
under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements
in the UK, which includes the FRC’s Ethical Standard, as applicable to listed entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements.
Material uncertainty related to going concern
In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosure made in note
1.5 to the financial statements concerning the group’s and company’s ability to continue as a going concern. We draw attention to note 1.5
in the financial statements, which indicates that in the downside forecast scenario which adjusts for matters outside of the group’s control,
and in the absence of sufficient mitigating actions being able to be taken by management on a timely basis, the group may have insufficient
funds to meet its forecast cash flow requirements during the next 12 months from the date of signing the financial statements.
These events or conditions, together with the other matters stated in note 1.5, indicate the existence of a material uncertainty that may
cast significant doubt on the group’s and company’s ability to continue as a going concern. The financial statements do not include the
adjustments that would result if the group and company were unable to continue as a going concern.
Explanation of material uncertainty
We focused on this area due to the downside scenario which, in the absence of any mitigating actions, indicates that the group may have
insufficient funds to meet its forecasted cash requirements giving rise to a material uncertainty around the going concern of the group
and company.
Management’s downside scenario considers a scenario in which the project does not achieve sanction which could be due to a number
of factors including funding not being achieved, or Premier Oil plc deciding to withdraw from the Sea Lion Development which could
also ultimately result in relinquishment of the acreage. In this scenario the Sea Lion project would need to be wound down including the
decommissioning of the assets in the Falklands and the Group is liable for its share of these project wind down costs with no funding
support from Premier Oil plc and/or Navitas Petroleum LP.
Management’s assessment of going concern is based on cash flow projections and business plans, each of which is dependent on
management’s judgement and can be influenced by management bias.
48
Rockhopper Exploration plc
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
Audit procedures performed
In concluding that there was a material uncertainty, we:
> Checked the mathematical accuracy of management’s cash flow forecast and validated the opening cash position;
> Validated management’s underlying cash flow projections for the group and company to other external and internal sources where
appropriate;
> Assessed management’s downside scenario for appropriateness to assess the impact of the unwinding of the Sea Lion Development on
the group and company cash flow forecasts and the group’s and company’s ability to take mitigating actions, if required; and
> Reviewed the completeness and appropriateness of management’s going concern disclosures in the financial statements.
Our audit approach
Overview
> Overall group materiality: $5.1 million, based on 1% of total assets.
> Overall company materiality: $4.6 million, based on 1 % of total assets and capped at 90% of group materiality.
> We identified 4 full scope entities out of the group’s 13 statutory entities thereof, which were selected due
to their size and risk characteristics. Specific audit procedures were performed on certain balances and
transactions at a further 3 units.
> This enabled us to obtain coverage over 100% of group consolidated revenue and 94% of group consolidated
total assets.
> Going concern (group and company) – see material uncertainty related to going concern above.
> Recoverability of the exploration and evaluation assets – Sea Lion Development (group).
> Recoverability of the company’s investment in subsidiaries and receivables due from group companies (company).
> Potential impact of COVID 19 (group and company).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In
particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that
involved making assumptions and considering future events that are inherently uncertain.
As in all our audits we also addressed the risk of management override of internal controls, including evaluating whether there was
evidence of bias by the directors that represented a risk of material misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, 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, and any comments we make on the results of our procedures thereon,
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 addition to going concern, described in the material uncertainty related to going concern section
above, we determined the matters described below to be the key audit matters to be communicated in our report. This is not a complete list
of all risks identified by our audit.
Report & Accounts for the year ended 31 December 2019
49
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
Key audit matter
How our audit addressed the key audit matter
Recoverability of the exploration and evaluation assets –
Sea Lion Development (Group)
See pages 61 and 62 Significant accounting policies and note 15
Intangible Exploration and Evaluation assets.
The carrying value of the group’s Exploration and Evaluation assets
totalled $465.8 million. These represent 91% of the group’s total
assets.
We focused on this area due to the material nature of the balance, the
judgement involved in assessing for impairment and the estimates
required to calculate the value in the current economic climate.
Management sensitised the model to consider the current oil price
subsequent to year end and concluded that if the oil price were to
remain at the current level for the next year and then steadily increase,
no impairment would be recognised for the phase 1 development.
However, the phase 2 development would potentially be impaired.
> We considered management’s impairment trigger analysis, in
accordance with IFRS 6, and agreed that an impairment indicator
does not exist.
> We evaluated the discounted cash flow model prepared by
management which supports the carrying value of the Sea Lion
Development.
> We agreed the forecast oil price to third party consensus forecasts.
We concluded management’s price forecast was reasonable.
> We reconciled management’s production forecasts, to the
independent reserves report provided by the operator.
> We have performed our own independent calculation of the discount
rate used in the calculation and consider it to be reasonable.
> Finally, we considered the adequacy of management’s disclosure of
the key judgements and sensitivities in relation to the impairment
assessment in note 15. These were deemed to be appropriate.
Recoverability of the company’s investments in subsidiaries
and receivables due from group companies (Company)
See page 84 note 1 Accounting policies of the company financial
statements and note 3 Investments and note 4 Group Undertakings.
The company’s investments in its subsidiaries totalled $85.7 million
and other group receivables totalled $452.5 million.
The Sea Lion Development forms the majority of the Falkland Island
subsidiaries’ assets and an impairment in these would materially
impact the value of the Company’s investments.
> We have obtained management’s assessment over whether the
carrying value of the investments in and receivables due from
group companies is supportable. This included comparing the fair
value of each entity with the carrying value of the parent company
investments and receivables.
> Fair values for the Falkland Island subsidiaries were based on the
net present value of the exploration and evaluation assets based on
the Group’s value in use model for the Sea Lion Development.
> Based on the procedures performed we concur with management
that, after impairment of $18m in relation to the Mediterranean and
Egypt investment, the investment is supportable.
Potential impact of COVID 19 (Group and Company)
> We concur with management that the COVID-19 outbreak and
See page 77 note 30 Subsequent Events of the group financial
statements.
The Brent oil price has reduced significantly with the impact of COVID–
19 and other geopolitical interference. The company has considered
the impact of both these areas on its operations and forecasts. The key
potential impact being on the development of the Sea Lion project, in
particular should either of the group’s joint venture partners choose to
delay or withdraw from the project.
geopolitical factors which together have led to a decrease in oil price
are a result of conditions that arose after the balance sheet date and
as a result are non-adjusting post balance events.
> We have reviewed the disclosures included in the Annual Report in
respect of this risk, including the chairman’s letter and post balance
sheet events and consider them reasonable.
> The impact of COVID-19 on the group’s and company’s ability to
continue as a going concern has also been considered within our
analysis of going concern above.
50
Rockhopper Exploration plc
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a
whole, taking into account the structure of the group and the company, the accounting processes and controls, and the industry in which
they operate.
The Group’s major assets are its E&E assets which is the Sea Lion development project in the Falkland Islands. The Group financial
statements are a consolidation of 13 separate statutory entities, comprising the Group’s operating businesses and centralised functions
within these segments.
The group has two operating businesses which are within Italy and Egypt which are controlled and managed in the UK and therefore our
audit work was all conducted solely in the UK.
Accordingly, of the group’s 13 reporting entities, we identified 4 which, in our view, required an audit of their complete financial information,
either due to their size or their risk characteristics. This included the entities with the majority of E&E assets, as well as the parent
company. Specific audit procedures on certain balances and transactions were performed at a further 3 reporting entities. Because the
group includes a number of relatively small reporting entities, this gave us coverage over 100% of consolidated revenue and 94% coverage
over total assets. This, together with additional procedures performed at the Group level, gave us the evidence we needed for our opinion on
the group financial statements as a whole.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These,
together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit
procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually
and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall materiality
$5.1 million
$4.6 million
Group financial statements
Company financial statements
How we determined it
1% of total assets
1% of total of assets and capped at 90% of group
materiality
Rationale for benchmark applied
Based on our understanding of the group and the
users of the financial statements we believe that
the focus of the users of the financial statements
will be on the exploration and evaluation activities
of the licences held by the group which form the
majority of the total assets.
Based on our understanding of the company
financial statements we believe that the focus of
the users of the financial statements will be on the
investments and group undertakings which form
the majority of the total assets of the company.
For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range of
materiality allocated across components was $0.8m to $4.6m.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above $255k (group audit) and
$230k (company audit) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.
Report & Accounts for the year ended 31 December 2019
51
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
Going concern (Parent and Group)
In accordance with ISAs (UK) we report as follows:
Reporting obligation
Outcome
We are required to report if we have anything material to add or draw attention to
in respect of the directors’ statement in the financial statements about whether the
directors considered it appropriate to adopt the going concern basis of accounting
in preparing the financial statements and the directors’ identification of any
material uncertainties to the group’s and the company’s ability to continue as a
going concern over a period of at least twelve months from the date of approval of
the financial statements.
We have nothing material to add or to draw attention to
other than the material uncertainty we have described in
the material uncertainty related to going concern section
above.
However, because not all future events or conditions
can be predicted, this statement is not a guarantee as to
the group’s and company’s ability to continue as a going
concern.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’
report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other
information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form
of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise
appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform
procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other
information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report based on these responsibilities.
With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK Companies Act
2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (UK) require us also to report certain
opinions and matters as described below.
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report
for the year ended 31 December 2019 is consistent with the financial statements and has been prepared in accordance with applicable legal
requirements.
In light of the knowledge and understanding of the group and company and their environment obtained in the course of the audit, we did not
identify any material misstatements in the Strategic Report and Directors’ Report.
52
Rockhopper Exploration plc
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ responsibilities in respect of the Strategic Report, the Directors’ Report and the
financial statements set out on page 47, the directors are responsible for the preparation of the financial statements in accordance with the
applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for 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.
In preparing the financial statements, the directors are responsible for assessing the group’s and the 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 the
directors either intend to liquidate the group or the company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
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 an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a 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 the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of
Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
> we have not received all the information and explanations we require for our audit; or
> adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from
branches not visited by us; or
> certain disclosures of directors’ remuneration specified by law are not made; or
> the company financial statements are not in agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Richard Spilsbury
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
8 April 2020
Report & Accounts for the year ended 31 December 2019
53
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
FINANCIAL STATEMENTS CONTENTS
FINANCIAL STATEMENTS
Group financial statements
55 Consolidated income statement
55 Consolidated statement of comprehensive income
56 Consolidated balance sheet
57 Consolidated statement of changes in equity
58 Consolidated statement of cash flows
59 Notes to the consolidated financial statements
Parent company financial statements
80 Company balance sheet
81 Company statement of changes in equity
82 Notes to the company financial statements
54
Rockhopper Exploration plc
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2019
Revenue
Other cost of sales
Depreciation and impairment of oil and gas assets
Total cost of sales
Gross (loss)/profit
Exploration and evaluation expenses
Impairment of goodwill
Costs in relation to acquisition and disposals
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.
Year ended
31 December
2019
$’000
Year ended
31 December
2018
$’000
Notes
10,328
(4,647)
(5,738)
(10,385)
(57)
(1,974)
(10,057)
(649)
(5,293)
(5,942)
(1,307)
—
(1,627)
(20,964)
624
(291)
(20,631)
—
(20,631)
(4.54)
(4.54)
10,580
(4,563)
(3,968)
(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)
(1.57)
(1.57)
4
5
7
10
11
12
12
13
14
14
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2019
Loss for the year
Exchange differences on translation of foreign operations
Total comprehensive loss for the year
The notes on pages 59 to 79 form an integral part of these consolidated financial statements.
Year ended
31 December
2019
$’000
(20,631)
70
(20,561)
Year ended
31 December
2018
$’000
(7,131)
371
(6,760)
Report & Accounts for the year ended 31 December 2019
55
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
CONSOLIDATED BALANCE SHEET
as at 31 December 2019
Non current assets
Exploration and evaluation assets
Property, plant and equipment
Right-of-use assets
Finance lease receivable
Goodwill
Current assets
Inventories
Other receivables
Finance lease receivable
Restricted cash
Term deposits
Cash and cash equivalents
Assets held for sale
Total assets
Current liabilities
Other payables
Lease liability
Liabilities directly associated with assets held for sale
Non-current liabilities
Lease liability
Tax payable
Provisions
Deferred tax liability
Total liabilities
Equity
Share capital
Share premium
Share based remuneration
Own shares held in trust
Merger reserve
Foreign currency translation reserve
Special reserve
Retained losses
Attributable to the equity shareholders of the company
Total liabilities and equity
31 December
2019
$’000
31 December
2018
$’000
Notes
15
16
1.4
1.4
17
18
1.4
19
20
21
22
1.4
21
1.4
23
24
25
26
27
27
27
27
27
27
27
465,820
1,814
1,255 —
628 —
—
1,463
3,501
146 —
467
—
17,223
17,925 —
447,035
11,836
10,308
1,779
9,510
568
30,000
10,426
510,242
521,462
17,943
426 —
2,000 —
1,735 —
39,167
13,636
39,221
15,148
37,860
13,888
39,223
114,128
106,119
7,212
3,547
4,871
(3,371)
74,332
(9,678)
433,766
(114,565)
396,114
510,242
7,205
3,422
5,103
(3,369)
74,332
(9,748)
456,680
(118,282)
415,343
521,462
These financial statements were approved by the directors and authorised for issue on 8 April 2020 and are signed on their behalf by:
Stewart MacDonald
Chief Financial Officer
The notes on pages 59 to 79 form an integral part of these consolidated financial statements.
56
Rockhopper Exploration plc
(3,397)
5,249
—
—
—
—
—
—
(7,131)
(6,760)
—
—
—
—
1,478
27
—
1,307
25
—
(20,631)
(20,561)
(22,914)
24,348
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2019
Share
capital
$’000
Share
premium
$’000
Share based
remuneration
$’000
Own
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 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
Share issues in relation to SIP
Other transfers
—
—
5
—
—
—
140
—
1,478
—
—
(1,984)
—
—
(118)
132
—
—
—
—
371
—
—
—
Balance at 31 December 2018
7,205
3,422
5,103
(3,369)
74,332
(9,748) 456,680
(118,282) 415,343
Total comprehensive loss for the year
Share based payments (see note 10)
Share issues in relation to SIP
Other transfers
—
—
7
—
—
—
—
1,307
125
(105)
—
(1,434)
—
—
(2)
—
—
—
—
—
70
—
—
—
Balance at 31 December 2019
7,212
3,547
4,871
(3,371)
74,332
(9,678) 433,766
(114,565) 396,114
See note 27 for a description of each of the reserves of the Group.
Report & Accounts for the year ended 31 December 2019
57
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 December 2019
Cash flows from operating activities
Net loss before tax
Adjustments to reconcile net losses to cash:
Depreciation
Share based payment charge
Impairment of oil and gas assets
Impairment of exploration and evaluation assets
Impairment of goodwill
Finance expense
Finance income
Foreign exchange
Operating cash flows before movements in working capital
Changes in:
Inventories
Other receivables
Payables
Movement on other provisions
Cash (utilised by)/from 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
Year ended
31 December
2019
$’000
Year ended
31 December
2018
$’000
Notes
(20,631)
(7,106)
1.4 & 16
10
16
15
17
11
4,544
1,307
1,600 —
350
10,057 —
291
(624)
1,221
(1,885)
214
3,259
(1,623)
(189)
(224)
(20,152)
(3,743)
—
1,020
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
Investing cash flows before movements in capital balances
(22,875)
(15,692)
Changes in:
Restricted cash
Term deposits
Cash flow from investing activities
Cash flows from financing activities
Share incentive plan
Lease liability payments
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
101
30,000
7,226
25
(259)
(13)
(247)
42
6,755
10,426
17,223
(28)
—
(15,720)
27
—
(9)
18
(31)
(10,272)
20,729
10,426
58
Rockhopper Exploration plc
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2019
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. During 2016 the Group augmented this through the acquisition of exploration and production
assets in Egypt which were subsequently divested in 2020. 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 the provisions of the Companies Act 2006. The consolidated financial statements were
approved for issue by the board of directors on 8 April 2020 and are subject to approval at the Annual General Meeting of shareholders which
will take place in June 2020.
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 as set out in the accounting policies below.
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
Adoption of IFRS 16
In the current year new and revised standards, amendments and interpretations were effective and are applicable to the consolidated financial
statements of the Group. Furthermore, IFRIC 23 ‘Uncertainty over Income Tax Treatments’ was adopted on 1 January 2019. These did not affect
amounts reported in these consolidated financial statements other than the adoption of IFRS16 with effect from 1 January 2019. The Group
applied the modified retrospective approach to adoption, measuring right-of-use assets at an amount based on their respective lease liability
on adoption, with the cumulative effect of adopting the standard recognised in the balance sheet on 1 January 2019.
Adjustments on adoption of IFRS 16
On adoption of IFRS 16, the Group recognised lease liabilities and receivables in relation to leases which had previously been classified as
‘operating leases’ under the principles of IAS 17 Leases. These leases were measured at the present value of the remaining lease payments
and discounted using an incremental borrowing rate representing the rate of interest Rockhopper would have to pay to borrow over a similar
term, and with a similar security, the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic
environment. The incremental borrowing rate applied to the leases as of 1 January 2019 was 6%. The resulting lease liability and receivable
as of 1 January 2019 was determined as follows:
Operating lease commitments disclosed at 31 December 2018
Add: finance lease liabilities recognised at 31 December 2018
Less: effects of discounting
Lease liability recognised at 1 January 2019
1 January 2019
$’000
855
2,117
(522)
2,450
The associated right-of-use assets were measured at the amount equal to the lease, therefore there was no adjustment to retained earnings
on adoption.
Report & Accounts for the year ended 31 December 2019
59
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2019
1.4 Change in accounting policy (continued)
Changes in accounting standards (continued)
Adjustments on adoption of IFRS 16 (continued)
The effect of adoption of IFRS 16 is as follows:
As at 1 January 2019
Depreciation expense
Interest income/(expense)
(Receipts)/payments
Balance as at 31 December 2019
Of which are:
Current
Non-current
Right-of-use assets
$’000
Lease receivable
$’000
Lease liabilities
$’000
1,555
(300)
—
—
1,255
—
1,255
1,255
912
—
55
(193)
774
146
628
774
(2,450)
—
(147)
436
(2,161)
(426)
(1,735)
(2,161)
Practical expedients applied
In applying IFRS 16 for the first time, the Group used the following practical expedients permitted by the standard:
— Reliance on previous assessments on whether leases are onerous;
— The exclusion of initial direct costs for the measurement of the right-of-use asset at the date of the initial application, and;
— The use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease
The Group’s leasing activities and how these are accounted for
The Group lets and sub-lets various offices typically for periods of 5 years but may have extension options. Until the 2018 financial year, leases
of property were classified as operating leases. Payments and receipts made under operating leases (net of any incentives received from the
lessor) were charged to profit and loss on a straight-line basis over the period of the lease.
From 1 January 2019, leases are recognised as a right-of-use asset and a corresponding liability and receivable at the date at which the leased
asset is available for use by the Group. Each lease payment is allocated between the liability and finance cost, while the corresponding receipt
associated with the sub-lease are allocated between the receivable and finance income. The finance cost and income are charged to profit and
loss over the lease period. The right-of-use asset is depreciated over the lease term on a straight-line basis.
Payment associated with short term leases and leases of low value assets are recognised on a straight-line basis as an expense in profit or loss.
Short term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT-equipment and small items of office furniture.
1.5 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 completion of the disposal of Rockhopper Egypt Pty Limited, the Group has cash resources of US$21.9 million (as at 1 April 2020
unaudited) and generates limited revenue and cash flow from the sale of oil or gas but continues to fund the Group’s reduced G&A costs.
Historically, the Group’s largest annual expenditure has related to pre-sanction costs associated with the Sea Lion development. However,
following signature of a legally binding Heads of Terms in January 2020, Rockhopper’s share of all Sea Lion pre-sanction costs from 1 January
2020 (other than licence fees, taxes and project wind down costs) are funded by Premier and/or Navitas.
Management’s base case forecast assumes a final investment decision on the Sea Lion development during 2021, subject to securing requisite
financing. With the Group’s costs funded by Premier and/or Navitas during this period.
Management has also considered a downside scenario in which the project does not achieve sanction which could be due to a number of factors
including funding not being achieved, or Premier deciding to withdraw from the Sea Lion Development which could also ultimately result in
relinquishment of the acreage. In this scenario the Sea Lion project would need to be wound down including the decommissioning of the assets in
the Falklands and the Group is liable for its share of these project wind down costs with no funding support from Premier and/or Navitas.
60
Rockhopper Exploration plc
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
Under the base case forecast, the Group will have sufficient financial headroom to meet forecast cash requirements for the 12 months from the
date of approval of these consolidated financial statements. However, in the downside scenario, in the absence of any mitigating actions, the
Group may have insufficient funds to meet its forecast cash requirements. Potential mitigating actions, some of which are outside the Group’s
control, could include 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 these consolidated financial statements. Nonetheless, for the avoidance of doubt, in the downside
scenario run and in the absence of potential mitigating actions, a material uncertainty exists that may cast significant doubt on the Group’s
ability to continue as a going concern. The consolidated financial statements do not include any adjustments that may be necessary if the Group
were not a going concern.
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 centred in the UK.
(D) Oil and gas assets
The Group applies the successful efforts method of accounting for exploration and evaluation (“E&E”) costs, having regard to the requirements
of IFRS6 – ‘Exploration for and evaluation of mineral resources’.
Exploration and evaluation (“E&E”) expenditure
Expensed exploration & evaluation costs
Expenditure on costs incurred prior to obtaining the legal rights to explore an area, geological and geophysical costs are expensed immediately
to the income statement.
Capitalised intangible exploration and evaluation assets
All directly attributable E&E costs are initially capitalised in well, field, prospect, or other specific, cost pools as appropriate, pending
determination.
Treatment of intangible E&E assets at conclusion of appraisal activities
Intangible E&E assets related to each cost pool are carried forward until the existence, or otherwise, of commercial reserves have been
determined, subject to certain limitations including review for 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.
Report & Accounts for the year ended 31 December 2019
61
STRATEGIC REPORT
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FINANCIAL STATEMENTS
OTHER INFORMATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2019
1. Accounting policies (continued)
1.6 Significant accounting policies (continued)
(D) Oil and gas assets (continued)
Treatment of intangible E&E assets at conclusion of appraisal activities (continued)
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.
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.
(ii)
Development and production assets
Development and production assets, classified within property, plant and equipment, are accumulated generally on a field-by-field basis and
represent the costs of developing the commercial reserves discovered and bringing them into production, together with the E&E expenditures
incurred in finding commercial reserves transferred from intangible E&E assets.
Depreciation of producing assets
The net book values of producing assets are depreciated generally on a field-by-field basis using the unit-of-production method by reference
to the ratio of production in the year and the related commercial reserves of the field, taking into account the future development expenditure
necessary to bring those reserves into production.
Disposals
Net cash proceeds from any disposal of an intangible E&E asset are initially credited against the previously capitalised costs. Any surplus
proceeds are credited to the income statement.
Decommissioning
Provision for decommissioning is recognised in full when the related facilities are installed. The amount recognised is the present value of the estimated
future expenditure. A corresponding amount equivalent to the provision is also recognised as part of the cost of the related oil and gas property. This is
subsequently depreciated as part of the capital costs of the production facilities. Any change in the present value of the estimated expenditure is dealt
with prospectively as an adjustment to the provision and the oil and gas property. The unwinding of the discount is included in finance cost.
(E) Right of Use assets
The Group’s accounting policy for Right of Use assets is explained in note 1.4.
(F) 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.
62
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FINANCIAL STATEMENTS
OTHER INFORMATION
(G) 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 financial statements of the parent
and subsidiary undertakings in their functional currency. Where applicable, the Group translates subsidiary financial statements into the
presentation currency, US$, using the closing rate method for assets and liabilities which are translated at the rate of exchange prevailing at the
balance sheet date and rates at the date of transactions for income statement accounts. Differences are taken directly to reserves.
Transactions and balances:
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions.
Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of
monetary assets and liabilities denominated in foreign currencies are capitalised in the income statement, except when deferred in equity as
qualifying cash flow hedges and qualifying net investment hedges.
The year end rates of exchange actually used were:
£ : US$
a : US$
(H) Revenue and income
(i) Revenue
31 December 2019
31 December 2018
1.32
1.12
1.28
1.15
Revenue arising from the sale of goods is recognised when a performance obligation is satisfied by transferring control over a product or
service 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.
(I) Non-derivative financial instruments
Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group has become a party to the contractual
provisions of the instrument.
(i) Other receivables
Other receivables are classified as loans and receivables and are initially recognised at fair value. They are subsequently measured at their
amortised cost using the effective interest method less any provision for impairment. A provision for impairment is made where there
is objective evidence that amounts will not be recovered in accordance with original terms of the agreement. A provision for impairment
is established when the carrying value of the receivable exceeds the present value of the future cash flow discounted using the original
effective interest rate. The carrying value of the receivable is reduced through the use of an allowance account and any impairment loss is
recognised in the income statement.
(ii) Term deposits
Term deposits are disclosed separately on the face of the balance sheet when their term is greater than three months and they are unbreakable.
(iii) Restricted cash
Restricted cash is disclosed separately on the face of the balance sheet and denoted as restricted when it is not under the exclusive control
of the Group.
(iv) Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and at bank and other short-term deposits held by the Group including breakable
and unbreakable deposits with terms of less than three months and breakable term deposits of greater terms than three months where
amounts can be accessed within three months without material loss. They are stated at carrying value which is deemed to be fair value.
Report & Accounts for the year ended 31 December 2019
63
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2019
1. Accounting policies (continued)
1.6 Significant accounting policies (continued)
(v) Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into.
An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.
(vi) 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.
(J) 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.
(K) 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 10.
Cash settled share based payment transactions result in a liability. Services received and liability incurred are measured initially at fair value of
the liability at grant date, and the liability is remeasured each reporting period until settlement. The liability is recognised on a straight line basis
over the period that services are rendered.
2. Use of estimates, assumptions and judgements
The Group makes estimates, assumptions and judgements that affect the reported amounts of assets and liabilities. Estimates, assumptions and
judgements are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed
to be reasonable under the circumstances.
The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of
causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.
Carrying value of intangible exploration and evaluation assets (note 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, 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.
64
Rockhopper Exploration plc
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FINANCIAL STATEMENTS
OTHER INFORMATION
Decommissioning costs (note 24)
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 consolidated Financial Statements. Provision for environmental clean-up and remediation costs is based on current legal and
contractual requirements, technology and price levels.
3. Revenue and segmental information
The Group’s operations are located and managed in three geographically distinct business units; namely the Falkland Islands, the Greater
Mediterranean, and Corporate (or UK). Some of the business units currently do not generate any revenue or have any material operating income.
The business is only engaged in one business of upstream oil and gas exploration and production.
Year ended 31 December 2019
Revenue
Cost of sales
Gross loss
Exploration and evaluation expenses
Impairment of goodwill
Costs in relation to acquisition and disposals
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
Loss for year
Reporting segments assets
Reporting segments liabilities
Depreciation
Falkland
Islands
$’000
Greater
Mediterranean
$’000
—
—
—
(315)
—
—
—
—
—
—
(1,307)
(1,622)
—
—
(1,622)
—
(1,622)
464,638
78,304
—
10,328
(10,385)
(57)
(560)
(10,057)
(649)
(1,603)
(2,252)
—
—
(142)
(13,068)
29
(214)
(13,253)
—
(13,253)
27,230
16,621
4,249
Corporate
$’000
—
—
—
(1,099)
—
—
(3,690)
(3,690)
(1,307)
—
(178)
(6,274)
595
(77)
(5,756)
—
(5,756)
18,374
19,203
295
Total
$’000
10,328
(10,385)
(57)
(1,974)
(10,057)
(649)
(5,293)
(5,942)
(1,307)
—
(1,627)
(20,964)
624
(291)
(20,631)
—
(20,631)
510,242
114,128
4,544
Report & Accounts for the year ended 31 December 2019
65
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2019
3. Revenue and segmental information (continued)
Year ended 31 December 2018
Revenue
Cost of sales
Gross profit
Exploration and evaluation expenses
Costs in relation to acquisition and disposals
Recurring administration 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 year
Reporting segments assets
Reporting segments liabilities
Depreciation
Falkland
Islands
$’000
Greater
Mediterranean
$’000
—
—
—
(253)
—
—
—
—
—
2,197
1,944
—
—
1,944
—
1,944
440,314
76,996
—
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
Corporate
$’000
—
—
—
(1,079)
—
(3,922)
(3,922)
(1,478)
—
(889)
(7,368)
817
1
(6,550)
—
(6,550)
39,156
10,940
120
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
All of the Group’s worldwide sales revenues of oil and gas $10,328 thousand (2018: 10,580 thousand) arose from contracts to customers. Total
revenue relates to revenue from two customers (2018: two customers) each exceeding 10 per cent of the Group’s consolidated revenue.
4. Cost of sales
Cost of sales
Impairment of oil and gas assets
Depreciation of oil and gas assets (see note 16)
5. Exploration and evaluation expenses
Allocated from administrative expenses (see note 7)
Capitalised exploration costs impaired (see note 15)
Other exploration and evaluation expenses
Year ended
31 December
2019
$’000
4,647
1,600
4,138
10,385
Year ended
31 December
2019
$’000
790
350
834
1,974
Year ended
31 December
2018
$’000
4,563
—
3,968
8,531
Year ended
31 December
2018
$’000
891
3,884
239
5,014
Impairment of goodwill
6.
As a result of the acquisition of Mediterranean Oil & Gas plc in 2014, goodwill of a9 million arose relating to the portfolio of intangible exploration
and appraisal assets and the strategic premium associated with a significant presence in a new region. However, following the decision to dispose of
Rockhopper Egypt Pty Limited and with Italian portfolio now deemed largely non-core, a decision was made to impair the goodwill associated with
that acquisition.
66
Rockhopper Exploration plc
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GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
7. Administrative expenses
Directors’ salaries and fees, including bonuses (see note 8)
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
Auditors’ remuneration (see note 9)
Other professional fees
Other
Depreciation
Amounts reallocated
Year ended
31 December
2019
$’000
Year ended
31 December
2018
$’000
1,563
2,475
541
148
96
4,823
(1,518)
3,305
232
1,444
1,527
106
(672)
5,942
1,727
2,638
637
164
88
5,254
(2,105)
3,149
251
1,058
1,648
143
(863)
5,386
The average number of staff employed during the year was 18 (31 December 2018: 20). The relative decrease between years reflects the continued
restructuring of the Greater Mediterranean operation. Following the sale of Rockhopper Egypt Pty Ltd the number of staff further reduced to 16,
comprising 12 in the UK and 4 in Italy.
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.
8. 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
2019
$’000
Year ended
31 December
2018
$’000
887
178
133
27
338
912
250
137
28
400
1,563
1,727
Year ended
31 December
2019
£ £
380,400
76,000
57,100
11,400
524,900
Year ended
31 December
2018
373,000
93,000
55,900
11,200
533,100
Interest in outstanding share options and SARs, by director, are separately disclosed in the directors’ remuneration report.
Report & Accounts for the year ended 31 December 2019
67
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2019
9. Auditors’ remuneration
Fees payable to the Company’s auditors for the audit of the Company’s annual financial statements
Fees payable to the Company’s auditors and its associates for other services:
Audit of the accounts of subsidiaries
Half year review
Tax compliance services
Year ended
31 December
2019
$’000
Year ended
31 December
2018
$’000
119
81
32
—
232
128
72
38
13
251
In May 2019, after a competitive tender process, PricewaterhouseCoopers LLP was appointed as the Group’s auditors replacing KPMG LLP.
10. 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
2019
$’000
1,202
105
1,307
Year ended
31 December
2018
$’000
1,360
118
1,478
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 have an additional performance condition so that no awards will 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.
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
31 July 2019
20.75
7,200,000
50.0%
70.0%
0.35%
5%
0p
0%
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%
68
Rockhopper Exploration plc
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
The following movements occurred during the year:
Issue date
Expiry date
8 October 2013
10 March 2014
22 April 2016
16 June 2017
23 April 2018
31 July 2019
8 October 2023
10 March 2024
22 April 2026
16 June 2027
23 April 2028
31 July 2029
At 31 December
2018
546,145
70,391
6,017,850
6,700,000
7,000,000
—
20,334,386
Issued
Lapsed
—
—
—
—
—
7,200,000
7,200,000
—
—
(6,017,850)
—
—
—
(6,017,850)
At 31 December
2019
546,145
70,391
—
6,700,000
7,000,000
7,200,000
21,516,536
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 £38,999 (year ended 31 December 2018 £41,997) worth of Free Shares to eligible employees.
This resulted in 173,329 (year ended 31 December 2018: 156,268) Free Shares and under the SIP scheme matching and partnership shares issued
were 310,527 (year ended 31 December 2018: 223,131) in the year.
The average fair value of the shares awarded (pence)
Vesting
Dividend yield
Lapse due to withdrawals
31 December
2019
31 December
2018
21
100%
Nil
Nil
28
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 year on SARs:
Issue date
Expiry date
Exercise price
(pence)
At 31 December
2018
Exercised
Lapsed
At 31 December
2019
3 July 2009
11 January 2011
14 July 2011
16 August 2011
13 December 2011
17 January 2012
30 January 2013
3 July 2019
11 January 2021
14 July 2021
16 August 2021
13 December 2021
17 January 2022
30 January 2023
30.87
372.75
239.75
237.00
240.75
303.75
159.00
103,368
175,048
43,587
17,035
29,594
244,541
277,162
890,335
—
—
—
—
—
—
—
—
(103,368)
—
—
—
—
—
—
(103,368)
Report & Accounts for the year ended 31 December 2019
—
175,048
43,587
17,035
29,594
244,541
277,162
786,967
69
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2019
11. Foreign exchange
Foreign exchange (loss)/gain on Falkland Islands tax liability (see note 23)
Foreign exchange gain on term deposits, cash and restricted cash
Foreign exchange on operating activities
Total net foreign exchange (loss) /gain
12. Finance income and expense
Bank and other interest receivable
Total finance income
Unwinding of discount on decommissioning provisions (see note 24)
Other
Total finance expense
13. Taxation
Current tax:
Overseas tax
Adjustment in respect of prior years
Total current tax
Deferred tax:
Overseas tax
Total deferred tax – note 25
Tax on profit on ordinary activities
Loss on ordinary activities before tax
Loss on ordinary activities multiplied at 26% weighted average rate (31 December 2018: 26%)
Effects of:
Income and gains not subject to taxation
Impairment of goodwill
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
Tax charge/(credit) for the year
Year ended
31 December
2019
$’000
Year ended
31 December
2018
$’000
(1,307)
86
(1,221)
(406)
(1,627)
2,197
59
2,256
(1,048)
1,208
Year ended
31 December
2019
$’000
Year ended
31 December
2018
$’000
624
624
204
87 9
291
825
825
244
253
Year ended
31 December
2019
$’000
Year ended
31 December
2018
$’000
— —
— —
— —
—
—
—
(20,631)
(5,364)
(1,646)
1,911 —
1,631
1,060
313
1,326
769
—
—
25
25
25
(7,106)
(1,848)
(2,528)
1,688
1,050
384
1,275
(21)
25
25
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. 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 23 Tax payable.
70
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FINANCIAL STATEMENTS
OTHER INFORMATION
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
2019
$’000
70,429
631,203
56,156
Year ended
31 December
2018
$’000
66,740
592,483
75,278
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 utilisation of the losses in the future may not be possible.
14. 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
Net loss after tax for purposes of basic and diluted earnings per share
Loss per share – cents
Basic
Diluted
31 December
2019
Number
31 December
2018
Number
457,495,899
457,116,500
483,856 3
79,399
457,979,755
457,495,899
454,659,998
457,369,112
454,659,998
457,369,112
$’000
(20,631)
(4.54)
(4.54)
$’000
(7,131)
(1.57)
(1.57)
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.
The weighted average number of Ordinary Shares takes into account those shares which are treated as own shares held in trust (see note 27).
15. Intangible exploration and evaluation assets
As at 31 December 2017
Additions
Written off to exploration costs
Transfer to assets held for sale (see note 21)
Foreign exchange movement
As at 31 December 2018
Additions
Written off to exploration costs
Transfer to oil and gas assets (see note 16)
Transfer to assets held for sale (see note 21)
Foreign exchange movement
As at 31 December 2019
Report & Accounts for the year ended 31 December 2019
Falkland
Islands
$’000
425,971
14,595
(252)
—
—
440,314
24,325
—
—
—
—
464,639
Greater
Mediterranean
$’000
6,176
3,364
(3,632)
834
(21)
6,721
1,745
(350)
(3,901)
(3,012)
(22)
1,181
Total
$’000
432,147
17,959
(3,884)
834
(21)
447,035
26,070
(350)
(3,901)
(3,012)
(22)
465,820
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STRATEGIC REPORT
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FINANCIAL STATEMENTS
OTHER INFORMATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2019
15. Intangible exploration and evaluation assets (continued)
Falkland Islands licences
The additions during the year of $24.3 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. In response to current market conditions, the cash flow model now assumes a project sanction decision at the end of
2021 (with such decision dependent on securing funding) and is expected to take three and half years from sanction to first oil.
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 related to the remaining barrels in Sea Lion and associated near yield discoveries as well as the Isobel/Elaine discoveries are carried at cost
and no indication of impairment currently exists. The assets are still pending determination but are expected to be monetised in a second and third
phase of development respectively.
Greater Mediterranean licences
The $1.7 million additions during the year predominantly relate to work on the Egyptian license interests. A $3.9 million transfer of costs to oil and
gas assets was made following the award of a development lease concerning the oil discovery in the Abu Roash C-Reservoir (see note 16). A further
$3 million reallocation was made concerning all costs associated with the disposal of the Group’s interest in Egypt.
16. Property, plant and equipment
Cost brought forward
Additions
Transfer from intangible exploration and
evaluation assets
Foreign exchange
Disposals
Transfer from/(to) assets held for sale
Cost carried forward
Accumulated depreciation and impairment
loss brought forward
Current year depreciation charge
Impairment
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
37,168
3,757
3,901
(430)
—
(20,121)
24,275
(25,504)
(4,138)
(1,600)
317
—
8,360
(22,565)
11,664
1,710
Other
assets
$’000
878
40
—
(4)
—
—
914
(706)
(106)
—
2
—
—
(810)
172
104
31 December
2019
$’000
38,046
3,797
3,901
(434)
—
(20,121)
25,189
(26,210)
(4,244)
(1,600)
319
—
8,360
(23,375)
11,836
1,814
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
All oil and gas assets relate to the Greater Mediterranean region, specifically producing assets in Italy and Egypt.
72
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FINANCIAL STATEMENTS
OTHER INFORMATION
Asset additions, transfers from intangible exploration and evaluation assets and impairment relate almost entirely to the Abu Sennan production
asset in Egypt.
The value of the Abu Sennan production asset was written down in the year to the value of net consideration receivable and was subsequently
transferred to asset held for sale.
17. Goodwill
As at 31 December 2018
Impairment
Foreign exchange movement
As at 31 December 2019
Greater
Mediterranean
$’000
10,308
(10,057)
(251)
—
As a result of the acquisition of Mediterranean Oil & Gas plc in 2014, goodwill of a9 million arose relating to the portfolio of intangible exploration
and appraisal assets and the strategic premium associated with a significant presence in a new region. However, following the decision to dispose of
Rockhopper Egypt Pty Limited and with Italian portfolio now deemed largely non-core, a decision was made to impair the goodwill associated with
that acquisition.
18. Other receivables
Current
Receivables
Accrued interest
Other
31 December
2019
$’000
31 December
2018
$’000
1,059
—
2,442
3,501
3,811
396
5,303
9,510
The carrying value of receivables approximates to fair value. The decrease in receivables in the year is due to transfer of receivable balances
associated with the Group’s interest in Egypt and the reclaim of prior period IVA balances from the Italian tax authorities.
Other receivables predominantly relate to IVA balances due from the Italian tax authorities which are in the process of being reclaimed.
19. Restricted cash
Charged accounts
Restricted cash amounts mainly relate to sums on deposit in relation to offices leased by the Group.
20. Term deposits
Maturing after the period end:
Within three months
Six to nine months
Nine months to one year
31 December
2019
$’000
31 December
2018
$’000
467
467
568
568
31 December
2019
$’000
31 December
2018
$’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.
Report & Accounts for the year ended 31 December 2019
73
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2019
21. Disposal group held for sale
On 23 July 2019, the Group announced the sale of Rockhopper Egypt Pty Limited. The key asset of Rockhopper Egypt Pty Limited is a 22% working
interest in the Abu Sennan concession. The transaction completed on the 28 February 2020 and accordingly the assets and associated liabilities are
presented as a disposal group.
As at 31 December 2019, following impairments to intangible exploration and evaluation assets ($0.3 million) and property, plant and equipment
($1.6 million) the disposal group comprised net assets of $15.9 million, detailed as follows.
Intangible exploration and evaluation assets
Property, plant and equipment
Inventories
Other receivables
Other payables
22. Other payables and accruals
Accounts payable
Accruals
Other creditors
$’000
3,012
11,764
67
3,082
(2,000)
15,925
31 December
2018
$’000
2,462
12,246
440
15,148
31 December
2019
$’000
2,248
15,272
423
17,943
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.
23. Tax payable
Non current tax payable
31 December
2019
$’000
39,167
39,167
31 December
2018
$’000
37,860
37,860
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.
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 is confirmed at £59.6 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%. A
foreign exchange loss of US$1.3 million (2018: US$2.2 million gain) has been recognised in the year.
74
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FINANCIAL STATEMENTS
OTHER INFORMATION
24. Provisions
Brought forward
Amounts utilized
Amounts arising in the year
Unwinding of discount
Transfer from liabilities associated with assets held for sale
Foreign exchange
Carried forward at year end
Decommissioning
provision
$’000
Other
provisions
$’000
13,815
(193)
—
204
—
(265)
13,561
73
(5)
8
—
—
(1)
75
31 December
2019
$’000
13,888
(198)
8
204
—
(266)
13,636
31 December
2018
$’000
5,986
(881)
10
247
8,750
(224)
13,888
The Decommissioning 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 being an
inflation rate of 2 per cent and a discount rate of 2 per cent, 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.
25. Deferred tax liability
At beginning of year
Movement in year
At end of year
31 December
2019
$’000
39,223
(2)
39,221
31 December
2018
$’000
39,202
21
39,223
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 2019 are
disclosed in note 13 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 2019 would be $197 million
(31 December 2018: $185 million).
26. Share capital
Authorised called up, issued and fully paid: Ordinary shares of £0.01 each
7,212
457,979,755
7,205
457,495,899
31 December 2019
31 December 2018
$’000
Number
$’000
Number
For details of all movements during the year, see note 14.
Report & Accounts for the year ended 31 December 2019
75
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2019
27. 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
Own shares held in trust
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.
Shares held in trust represent the issue value of shares held on behalf of participants in the SIP by Capita
IRG Trustees Limited, the trustee of the SIP as well as shares held by the Employee Benefit Trust which
have been purchased to settle future exercises of options.
Merger reserve
The difference between the nominal value and the fair value of shares issued on acquisition of
subsidiaries.
Foreign currency translation reserve
Exchange differences arising on consolidating the assets and liabilities of the Group’s subsidiaries are
classified as equity and transferred to the Group’s translation reserve.
Special reserve
The reserve is non distributable and was created following cancellation of the share premium account on
4 July 2013. It can be used to reduce the amount of losses incurred by the Parent Company or distributed
or used to acquire the share capital of the Company subject to settling all contingent and actual liabilities
as at 4 July 2013. Should not all of the contingent and actual liabilities be settled, prior to distribution the
Parent Company must either gain permission from the actual or contingent creditors for distribution or
set aside in escrow an amount equal to the unsettled actual or contingent liability.
Retained losses
Cumulative net gains and losses recognised in the financial statements.
28. Capital commitments
Significant capital expenditure contracted for at the end of the reporting period but not recognised as liabilities is US$0.6 million (2018: US18 million)
relating to the Group’s intangible exploration and evaluation assets.
29. Related party transactions
The remuneration of directors, who are the key management personnel of the Group, is set out below in aggregate. Further information about the
remuneration of individual directors is provided in the Directors’ Remuneration Report on pages 35 to 45.
Short term employee benefits
Pension contributions
Share based payments
Year ended
31 December
2019
$’000
1,430
133
679
2,242
Year ended
31 December
2018
$’000
1,636
137
742
2,515
76
Rockhopper Exploration plc
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
30. Post balance sheet events
Impact of COVID-19
The immediate human and economic impact of COVID-19 has been very significant. At this point, the longer-term implications are unclear and will
depend on a number of factors which will develop in the coming months.
In part related to COVID-19, the Brent oil price has fallen dramatically during Q1 2020 hitting a low of c.$25 per barrel in late March. This has
resulted in a material fall in global equities (including Group’s share price) and will bring balance sheet strength, liquidity and cost reduction
measures to the fore. In the upstream oil and gas sector, companies have announced very material and widespread cost reductions through
deferment or eliminations of non-essential capital and operating costs. Premier, the operator of the Sea Lion project has made similar public
statements. As a consequence, headcount levels and activity on the Sea Lion project are expected to reduce in the coming months. A delay to the
Final Investment Decision on the Sea Lion project is inevitable until the oil price and capital markets recover.
With the Company’s modest presence in Italy already having been substantially scaled back, the Group’s day to day operations remain unaffected by
the spread of COVID-19 with necessary contingency measures in place.
Heads of Terms for farm-in to Sea Lion signed
On 7 January 2020 the Group announced that itself and Premier had signed a detailed Heads of Terms with Navitas to farm-in for a 30 per cent
interest in the Sea Lion project (the “Transaction”). In addition, Rockhopper and Premier agreed certain amendments to their existing commercial
arrangements.
Under the Heads of Terms working interest in Sea Lion licences PL032, PL004b and Pl004c to be aligned: Premier 40% (Operator); Rockhopper
30%; Navitas 30%. The joint venture will continue to pursue a senior debt project finance (or similar) to fund the Phase 1 development of Sea Lion.
Existing funding arrangements between Rockhopper and Premier are to be replaced such that Rockhopper is funded for all pre- and post-sanction
costs not met by senior debt by Premier and/or Navitas through a combination of carry and loans.
Premier will carry all of Rockhopper’s costs from 1 January 2020 to 1 March 2020 (being the effective date for the Transaction) and on a bridging
basis pending completion of the Transaction (the “Carry”).
Premier and Navitas will fund all of Rockhopper’s project development costs (excluding production area licence fees, taxes and project wind down
costs) from 1 March 2020 to Phase 1 Project Completion (estimated to occur 9-12 months after first oil) through an interest free loan (“Loan”).
Funds drawn under the Loan will be repaid from 85% of Rockhopper’s working interest share of free cash flow.
An additional standby loan (“Standby Loan”) will be available from Premier to cover Rockhopper’s share of production area licence fees and any
Capital Gains Tax liability. The new Standby Loan will attract interest at a rate of 15% per annum and will be repaid from Rockhopper’s residual
share of Phase 1 free cash flow.
Existing funding arrangements between Rockhopper and Premier will be replaced such that, subject to certain conditions, Rockhopper will receive
contingent payments of up to US$36 million from Premier and Navitas’ share of Phase 2 cash flows, linked to the achievement of certain production
and oil price milestones.
Rockhopper has granted Navitas and Premier an option to acquire working interests in PL004a (30% and 4% respectively) to align working
interests across PL032 and PL004. The option must be exercised by Navitas within 8 years of completion of the Transaction, or the date of Phase
2 FID (“Financial Investment Decision”). In the event the option is exercised and subject to certain conditions, Rockhopper will receive contingent
payments of up to US$12 million from Navitas’ and Premier’s share of Phase 3 cash flows, linked to the achievement of certain production and oil
price milestones.
Good progress has been made during the first quarter of 2020 to convert the Heads of Terms into fully documented agreements. Despite the
current oil price weakness, all parties remain committed to the finalisation of the Navitas farm-out agreement with completion subject to agreed
consents and approvals.
Report & Accounts for the year ended 31 December 2019
77
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2019
30. Post balance sheet events (continued)
Completion of disposal of Rockhopper Egypt Pty Limited
On the 28 February 2020, the Group announced that following satisfaction of the requisite conditions precedent, the disposal of Rockhopper Egypt Pty
Limited to United was completed.
The US$16.0 million consideration payable to Rockhopper under the transaction comprises:
—
—
cash of $11.5 million; and
the issue of 114,503,817 Consideration Shares (at an issue price of 3 pence) representing approximately 18.5% of United’s enlarged ordinary
share capital.
Consideration Shares held by Rockhopper in United are subject to certain lock-up and orderly market disposal provisions for a period of up to
12 months from completion.
31. Risk management policies
Risk review
The risks and uncertainties facing the Group are set out in the risk management report. Risks which require further quantification are set out below.
Foreign exchange risks: The Group is exposed to foreign exchange movements on monetary assets and liabilities denominated in currencies
other than US$, 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 $17.7 million of which $13.0 million was held in US$
denominations. The following table summarises the split of the Group’s assets and liabilities by currency:
Currency denomination of balance
Assets
31 December 2019
31 December 2018
Liabilities
31 December 2019
31 December 2018
$
$’000
494,570
491,148
57,857
51,200
£
$’000
3,454
2,440
41,451
38,346
a
$’000
10,688
27,234
14,820
16,518
EGP £
$’000
1,530
640
—
—
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 2019
31 December 2018
US$ against euro
31 December 2019
31 December 2018
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
(3,800)
(3,591)
(413)
1,072
3,800
3,591
413
(1,072)
(3,800)
(3,591)
(413)
1,072
3,800
3,591
413
(1,072)
78
Rockhopper Exploration plc
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GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
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 2019 were $2,168,000 (31 December 2018: $3,948,000). 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 2019 were $nil (31 December 2018: $30,000,000).
(i) Maturity of financial liabilities
The table below analyses the Group’s financial liabilities, which will be settled on a gross basis, into relevant maturity groups based on the remaining
period at the balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.
At 31 December 2019
Other payables
Lease liability
Tax payable
At 31 December 2018
Other payables
Lease liability
Tax payable
Within 1 year
$’000
2 to 5 years
$’000
17,943
539
—
18,482
—
1,975
—
1,975
Within 1 year
$’000
2 to 5 years
$’000
15,148
458
—
15,606
—
2,149
—
2,149
More than
5 years
$’000
—
—
78,780
78,780
More than
5 years
$’000
—
365
76,150
76,515
Total contractual
cashflows
$’000
Carrying amount
$’000
17,943
2,514
78,780
99,237
17,943
2,161
39,167
59,271
Total contractual
cashflows
$’000
Carrying amount
$’000
15,148
2,972
76,150
94,270
15,148
2,450
37,860
55,458
Report & Accounts for the year ended 31 December 2019
79
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
PARENT COMPANY FINANCIAL STATEMENTS –
COMPANY BALANCE SHEET
As at 31 December 2019
Non current assets
Property, plant and equipment
Right of use assets
Investments
Finance lease receivable
Group undertakings
Current assets
Other receivables
Finance lease receivable
Restricted cash
Term deposits
Cash and cash equivalents
Total assets
Current liabilities
Other payables
Lease liability
Non-current liabilities
Lease liability
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
31 December
2019
$’000
31 December
2018
$’000
Notes
2
3
4
5
6
7
11
11
11
11
11
11
51
1,044 —
85,728
628 —
88
93,617
452,575
438,652
219
146 —
411
—
14,346
917
511
30,000
6,999
555,148
570,784
32,603
348
1,596
34,547
7,212
3,547
4,872
(3,371)
74,575
433,766
— —
520,601
555,148
27,167
—
—
27,167
7,205
3,422
5,104
(3,369)
74,575
456,680
543,617
570,784
Loss for the year ending 31 December 2019 was US$24,348,000 (2018: US$ 6,621,000).
These financial statements were approved by the directors and authorised for issue on 8 April 2020 and are signed on their behalf by:
Stewart MacDonald
Chief Financial Officer
Registered Company number: 05250250
The notes on pages 82 to 88 form an integral part of these consolidated financial statements.
80
Rockhopper Exploration plc
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
COMPANY STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2019
Share
capital
$’000
Share
premium
$’000
Share based
remuneration
$’000
Shares held
in trust
$’000
Merger
reserve
$’000
Special
reserve
$’000
Retained
losses
$’000
Total
Equity
$’000
Balance at 31 December 2017
7,200
3,282
5,610
(3,383)
74,575
461,449
—
548,733
Total comprehensive loss for the year
Share based payments
Share issues in relation to SIP
Other transfers
—
—
5
—
—
—
140
—
Balance at 31 December 2018
7,205
3,422
Total comprehensive loss for the year
Share based payments
Share issues in relation to SIP
Other transfers
—
—
7
—
—
—
125
—
—
1,478
—
(1,984)
5,104
—
1,307
(105)
(1,434)
—
—
(118)
132
—
—
—
—
—
—
—
(4,769)
(6,621)
—
—
6,621
(6,621)
1,478
27
—
(3,369)
74,575
456,680
—
543,617
—
—
(2)
—
—
—
—
—
—
—
—
(22,914)
(24,348)
—
—
24,348
(24,348)
1,307
25
—
Balance at 31 December 2019
7,212
3,547
4,872
(3,371)
74,575
433,766
—
520,601
See note 11 for a description of each of the reserves of the Company.
Report & Accounts for the year ended 31 December 2019
81
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
NOTES TO THE COMPANY FINANCIAL STATEMENTS
for the year ended 31 December 2019
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’),
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. During 2016 the Group augmented this through the acquisition of exploration and production assets in
Egypt which were subsequently divested in 2020. 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 2019 were approved and signed by the Group Chief
Financial Officer on 8 April 2020 having been duly authorised to do so by the board of directors. The Company meets the definition of a qualifying
entity under Financial Reporting Standard 100 (FRS 100) issued by the Financial Reporting Council. Accordingly, these financial statements were
prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101) and in accordance with the provisions of
the Companies Act 2006. The amendment to FRS101 (2014/15 cycle) issued in July 2015 and effective immediately have been applied.
In these financial statements, the Company as permitted by FRS101 has taken advantage of the disclosure exemptions available under that standard
in relation to accounting standards issued but not yet effective or implemented, share-based payment information, financial instruments, capital
management, presentation of comparative information in respect of certain assets, presentation of a cash-flow statement and certain related party
transactions.
Basis of accounting
These financial statements are prepared on a going concern basis. The financial statements have been prepared under the historical cost
convention. Historical cost is generally based on the fair value of the consideration given in exchange for the assets. As permitted by Section 408 of
the Companies Act 2006, the profit and loss account of the Company is not presented as part of these financial statements. The accounting policies
set out below have, unless otherwise stated, been applied consistently to all periods presented in these financial.
All values are rounded to the nearest thousand dollars ($’000), except where otherwise indicated.
Changes in accounting standards
Adoption of IFRS 16
In the current year new and revised standards, amendments and interpretations were effective and are applicable to the consolidated financial
statements of the Company. Furthermore, IFRIC23 ‘Uncertainty of Income Tas Treatments’ was adopted on 1 January 2019. These did not affect
amounts reported in these financial statements other than the adoption of IFRS16 with effect from 1 January 2019. The Company applied the
modified retrospective approach to adoption, measuring right-of-use assets at an amount based on their respective lease liability on adoption, with
the cumulative effect of adopting the standard recognised in the balance sheet on 1 January 2019.
Adjustments on adoption of IFRS 16
On adoption of IFRS 16, the Company recognised lease liabilities and receivables in relation to leases which had previously been classified as
‘operating leases’ under the principles of IAS 17 Leases. These leases were measured at the present value of the remaining lease payments and
discounted using an incremental borrowing rate representing the rate of interest Rockhopper plc would have to pay to borrow over a similar term,
and with a similar security, the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment. The
incremental borrowing rate applied to the leases as of 1 January 2019 was 6%. The resulting lease liability and receivable as of 1 January 2019 was
determined as follows:
Operating lease commitments disclosed at 31 December 2018
Add: finance lease liabilities recognised at 31 December 2018
Less: effects of discounting
Lease liability recognised at 1 January 2019
1 January 2019
$’000
392
2,246
(463)
2,175
The associated right-of-use assets were measured at the amount equal to the lease, therefore there was no adjustment to retained earnings on adoption.
82
Rockhopper Exploration plc
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
The effect of adoption of IFRS 16 is as follows:
As at 1 January 2019
Depreciation expense
Interest income/(expense)
(Receipts)/payments
Balance as at 31 December 2019
Of which are:
Current
Non-current
Right-of-use assets
$’000
Lease receivable
$’000
Lease liabilities
$’000
1,264
(220)
—
—
1,044
—
1,044
1,044
912
—
55
(193)
774
146
628
774
(2,175)
—
(131)
362
(1,944)
(348)
(1,596)
(1,944)
Practical expedients applied
In applying IFRS 16 for the first time, the Company used the following practical expedients permitted by the standard:
– Reliance on previous assessments on whether leases are onerous;
–
–
The exclusion of initial direct costs for the measurement of the right-of-use asset at the date of the initial application, and;
The use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease
The Company’s leasing activities and how these are accounted for
The Company lets and sub-lets various offices typically for periods of 5 years but may have extension options. Until the 2018 financial year, leases of
property were classified as operating leases. Payments and receipts made under operating leases (net of any incentives received from the lessor)
were charged to profit and loss on a straight-line basis over the period of the lease.
From 1 January 2019, leases are recognised as a right-of-use asset and a corresponding liability and receivable at the date at which the leased
asset is available for use by the Company. Each lease payment is allocated between the liability and finance cost, while the corresponding receipt
associated with the sub-lease are allocated between the receivable and finance income. The finance cost and income are charged to profit and loss
over the lease period. The right-of-use asset is depreciated over the lease term on a straight-line basis.
Payment associated with short term leases and leases of low value assets are recognised on a straight-line basis as an expense in profit or loss.
Short term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT-equipment and small items of office furniture.
Going concern
The Company monitors its cash position, cash forecasts and liquidity on a regular basis and takes a conservative approach to cash management,
with surplus cash held on term deposits with a number of major financial institutions.
Following the completion of the disposal of Rockhopper Egypt Pty Limited, the Company has cash resources of US$21.9 million (as at 1 April 2020,
unaudited) and generates limited revenue and cash flow from the sale of oil or gas but continues to fund the Company’s reduced G&A costs.
Historically, the Company’s largest annual expenditure has related to pre-sanction costs associated with the Sea Lion development. However,
following signature of a legally binding Heads of Terms in January 2020, Rockhopper’s share of all Sea Lion pre-sanction costs from 1 January 2020
(other than licence fees, taxes and project wind down costs) are funded by Premier and/or Navitas.
Management’s base case forecast assumes a final investment decision on the Sea Lion development during 2021, subject to securing requisite
financing. With the Company’s costs funded by Premier and/or Navitas during this period.
Management has also considered a downside scenario in which the project does not achieve sanction which could be due to a number of factors
including funding not being achieved, or Premier deciding to withdraw from the Sea Lion Development which could also ultimately result in
relinquishment of the acreage. In this scenario the Sea Lion project would need to be wound down including the decommissioning of the assets in
the Falklands and the Group is liable for its share of these project wind down costs with no funding support from Premier and/or Navitas.
Report & Accounts for the year ended 31 December 2019
83
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2019
1. Accounting policies (continued)
Going concern (continued)
Under the base case forecast, the Company will have sufficient financial headroom to meet forecast cash requirements for the 12 months from
the date of approval of these consolidated financial statements. However, in the downside scenario, in the absence of any mitigating actions, the
Company may have insufficient funds to meet its forecast cash requirements. Potential mitigating actions, some of which are outside the Company’s
control, could include 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 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 these consolidated financial statements. Nonetheless, for the avoidance of doubt, in the downside scenario
run and in the absence of potential mitigating actions, a material uncertainty exists that may cast significant doubt on the Company’s ability to
continue as a going concern. The consolidated financial statements do not include any adjustments that may be necessary if the Company were not
a going concern.
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 year, 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.
84
Rockhopper Exploration plc
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
The year end rates of exchange actually used were:
£ : US$
a : US$
31 December 2019
31 December 2018
1.32
1.12
1.28
1.15
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 3 years
Over 5 years
Right of Use assets
The Company’s accounting policy for Right of Use assets is explained in note 1 “The Company’s leasing activities and how they are accounted for”.
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.
Report & Accounts for the year ended 31 December 2019
85
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2019
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
Impairment
Amounts provided carried forward
Net book value brought forward
Net book value carried forward
31 December
2019
$’000
31 December
2018
$’000
779
40
(2)
817
(691)
(76)
1
(766)
88
51
31 December
2019
$’000
139,117
— —
139,117
(45,500)
(7,889) —
(53,389)
93,617
85,728
1,026
25
(272)
779
(857)
(106)
272
(691)
169
88
31 December
2018
$’000
139,117
139,117
(45,500)
(45,500)
93,617
93,617
All amounts relate to subsidiary undertakings. Following the decision to dispose of Rockhopper Egypt Pty Limited and with the Italian portfolio now
deemed largely non-core, a decision was made to impair the investments associated with that region by $7.9 million (2018: $nil).
Details of the investments at the year 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
Falkland Oil and Gas Limited
Desire Petroleum Limited
Rockhopper Egypt Pty Limited
Incorporated
England & Wales
England & Wales
England & Wales
England & Wales
Falkland Islands
England & Wales
England & Wales
Italy
Falkland Islands
England & Wales
Australia
Class of
share
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Percentage
held
%
100
100
100
100
100
100
100
100
100
100
100
The companies listed above incorporated in England & Wales have their registered address at 4th Floor, 5 Welbeck Street, London W1G 9YQ,
United Kingdom.
The companies listed above incorporated in the Falkland Islands have their registered address at 45 John Street, Stanley, Falkland Islands, FIQQ 1ZZ.
Rockhopper Italia SpA has its registered address at Via Abruzzi 3, 00187 Rome, Italy.
Rockhopper Egypt Pty Limited has its registered address at Level 15 Exchange Tower, 2 The Esplannade, Perth, WA6000, Australia.
The disposal of this company completed on the 28 February 2020.
86
Rockhopper Exploration plc
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
4. Group undertakings
Group undertakings
Provisions
31 December
2019
$’000
473,343
(20,768)
452,575
31 December
2018
$’000
450,998
(12,346)
438,652
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.
Following the decision to dispose of Rockhopper Egypt Pty Limited and with the Italian portfolio now deemed largely non-core, a decision was made
to impair the receivables associated with that region by $10 million (2018: $nil).
5. Other receivables
Receivables
Prepayments
Accrued interest
Other
6. Other payables
Trade creditors
Other creditors
Accruals
Group undertakings
31 December
2019
$’000
31 December
2018
$’000
99
96
—
24
219
181
241
396
99
917
31 December
2019
$’000
31 December
2018
$’000
2,008
419
14,616
15,560
32,603
1,641
228
9,073
16,225
27,167
Accruals have increased due to costs associated with the Sea Lion development. Amounts with Group undertakings are subject to loan agreements,
repayable on demand and interest free.
7. Share capital
Shares in issue brought forward
Shares issued
– Issued under the SIP
Shares in issue carried forward
31 December
2019
Number
31 December
2018
Number
457,495,899
457,116,500
483,856
379,399
457,979,755
457,495,899
Authorised, called up, issued and fully paid: Ordinary shares of £0.01 each
7,212
457,979,755
7,205
457,495,899
31 December 2019
31 December 2018
$’000
Number
$’000
Number
Report & Accounts for the year ended 31 December 2019
87
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
for the year ended 31 December 2019
8. Salaries and directors’ remuneration
Salaries and fees
National insurance costs
Pension costs
Employee benefit costs
Average number of employees
Year ended
31 December
2019
$’000
Year ended
31 December
2018
$’000
3,401
433
125
66
12
3,728
465
140
81
14
Disclosures in relation to directors’ remuneration are given on a consolidated basis in the directors’ report and note 8 of the Group financial
statements.
9. Auditors’ remuneration
Note 9 of the Group financial statements provides details of the remuneration of the Company’s auditors on a Group basis.
10. Share based payments
Note 10 of the Group financial statements 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 27 of the Group financial statements.
12. Related parties
Note 29 of the Group financial statements provides details on remuneration of key management personnel of the Group. The amounts disclosed are
the same as those of the Company.
88
Rockhopper Exploration plc
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
KEY LICENCE INTERESTS AS AT 1 APRIL 2020
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
Operator
Rockhopper
Rockhopper
Premier Oil
Premier Oil
Premier Oil
Rockhopper
Premier Oil
Rockhopper working
interest %
Field/Discovery
95.50
60.50
64.00
64.00
64.00
100.00
40.00
—
—
Isobel Deep
Beverley
Casper South
Zebedee
—
—
Casper North
Sea Lion
Premier Oil
40.00
—
Operator
Rockhopper
Rockhopper
Rockhopper
Rockhopper working
interest %
Field/Discovery
100.00
100.00
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
01/05/2021
01/05/2021
Licence phase
expiry date
03/12/2020
15/12/2021
15/12/2021
Report & Accounts for the year ended 31 December 2019
89
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
GLOSSARY
best estimate of contingent resources
High
high estimate category of Prospective Resources also used
as a generic term to describe a high or optimistic estimate
proven plus probable reserves
a high estimate category of contingent resources
Annual General Meeting
a best estimate category of Prospective Resources
also used as a generic term to describe a best, or mid
estimate
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
Board
the Board of Directors of Rockhopper Exploration plc
Mmbbls million barrels
boe
bopd
boepd
Capex
barrels of oil equivalent
barrels of oil per day
Mmboe million barrels of oil equivalent
Mmbtu
million British thermal units
barrels of oil equivalent per day
MMstb
million stock barrels (of oil)
capital expenditure
Mscf
thousand standard cubic feet
Cash resources Cash and term deposits
Navitas
Navitas Petroleum LP
Company
Rockhopper Exploration plc
net pay
Exploration and evaluation
exploration and production
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
Egyptian General Petroleum Company
Environmental Impact Statement
P&A
PIM
plug and abandon
Project Information Memorandum
ERC Equipoise Limited
Premier
Premier Oil plc
Environmental, Social and Governance
Farm-down
to assign an interest in a licence to another party
Front End Engineering and Design
Field Development Plan
Final Investment Decision
Falkland Islands Government
Falkland Oil and Gas Limited
PSV
SAR
Scm
SIP
virtual exchange point
Share appreciation right
standard cubic metre
Share incentive plan
STOIIP
stock-tank oil initially in place
SURF
Subsea, Umbilicals, Risers and Flowlines
TSR
Total shareholder return
Floating Production, Storage and Offtake vessel
tvdss
True vertical depth subsea
General and administrative costs
United
United Oil & Gas plc
the Company and its subsidiaries
2C
2P
3C
AGM
Best
E&E
E&P
EGPC
EIS
ERCE
ESG
FEED
FDP
FID
FIG
FOGL
FPSO
G&A
Group
90
Rockhopper Exploration plc
2019-RKH TEXT pp55-90_JB04.indd 90
20/04/2020 08:32
STRATEGIC REPORT GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
STRATEGIC REPORT GOVERNANCE
FINANCIAL STATEMENTS
OTHER INFORMATION
CONTENTS
SHAREHOLDER INFORMATION
STRATEGIC REPORT
1 Rockhopper – Who we are
2 2019 highlights
4 Rockhopper – timeline
6 Rockhopper at a glance
7 Vision, strategy and business model
8 Chairman and Chief Executive Officer’s review
11 Key Performance Indicators (KPIs)
12
14 Sea Lion Phase 1 development overview
16 Financial review
19
20 Principal risks and uncertainties
24 Health, safety, environmental and social management
Internal controls and risk management
Industry overview
GOVERNANCE
25 Rockhopper Board
26 Board of Directors
28 Governance report
32 Audit & Risk Committee Chairman’s report
34 Nomination Committee Chairman’s report
35 Remuneration report
46 Statutory information
48
Independent auditors’ report to the
members of Rockhopper Exploration plc
FINANCIAL STATEMENTS
Group financial statements
55 Consolidated income statement
55 Consolidated statement of comprehensive income
56 Consolidated balance sheet
57 Consolidated statement of changes in equity
58 Consolidated statement of cash flows
59 Notes to the consolidated financial statements
Parent company financial statements
80 Company balance sheet
81 Company statement of changes in equity
82 Notes to the company financial statements
OTHER INFORMATION
89 Key licence interests as at 1 April 2020
90 Glossary
91 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
Fruit & Wool Exchange
1 Duval Square
London
E1 6PW
Principal Bankers
Royal Bank of Scotland plc
36 St Andrew Square
Edinburgh
EH2 2YB
Auditor
PricewaterhouseCoopers LLP
1 Embankment
London
WC2N 6RH
Registrar
Computershare Investor Services plc
Vintners Place
68 Upper Thames Street
London
EC4V 3BJ
Cover: Eudyptes moseleyi
Rockhopper Exploration plc
Report & Accounts for the year ended 31 December 2019
91
The pulp is bleached using an Elemental Chlorine Free process.
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ROCKHOPPER EXPLORATION PLC
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
REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2019
Creating value through building
a well-funded, full-cycle,
exploration-led E&P company
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