Rockhopper Exploration plc (AIM: RKH), the oil and gas company with key interests in the North Falkland Basin and the Greater Mediterranean region, is pleased to provide the following corporate update.
Group economic production
- Economic production* from Egypt and Italy for the year ended 31 December 2016 expected to average approximately 1,350 boepd net to Rockhopper
- Sea Lion continues to progress through the detailed engineering phase of FEED - improved economics with updated Field Development Plan and Environmental Impact Statement submitted to the Falkland Islands Government
- Ombrina Mare arbitration expected to commence in Q1 2017
- Isobel Deep well insurance settlement achieved - expected resulting year-end 2016 cash at upper end of previous guidance
Following completion of the acquisition of Beach Egypt in August, the Company's net full year economic production* for 2016 is expected to average approximately 1,350 boepd with production from both the Guendalina and Civita fields in Italy marginally ahead of expectations.
Consistent with the recovery in oil prices, the Group's average realised gas price in Italy has increased from approximately €0.12 per scm at the beginning of the year to approximately €0.18 per scm in November. Sea Lion Phase 1, North Falkland Basin (RKH 40% working interest)
During H2 2016 the Company saw a ramp-up of engineering activity as the FEED process progressed. Market engagement with key contractors continues to refine and further reduce costs. Latest estimate of capex to first oil is $1.5bn with life of field costs (capex, opex and lease) estimated at approximately $35 per barrel for Phase 1. The Phase 1 project "break-even" oil price remains approximately $45 per barrel (with break-even economics premised on achieving an ungeared project IRR of 10%).
An Environmental Impact Statement and revised draft Field Development Plan have been submitted to the Falkland Islands Government ("FIG"). Engagement with FIG on a range of operational, fiscal and regulatory matters is expected to continue through H1 2017. Abu Sennan, Egypt (RKH 22% working interest)
During the second half of 2016, both the Al Jahraa SE-1X exploration well and the ASH-1X ST2 development wells were brought onto production with additional zones in the wells to be brought into production at a later date.
A new development lease of c.30 square km was awarded around the Al Jahraa SE-1X well with EGPC attributing gross reserves of over 9 MMSTB to the development area.
Subject to Operating Committee approval, the Company expects two firm development wells to be drilled on the Al Jahraa field during the first half of 2017. These wells are aimed at maintaining production levels by offsetting natural decline from existing wells within the concession.
In addition, the Company imminently expects to receive final ratification for a 5-year extension to the Abu Sennan exploration licence. Once approved, the Company will undertake to participate in at least two exploration wells over the next 3 years at a commitment (net to Rockhopper's 22% working interest) of approximately $1.3 million. Ombrina Mare, Italy (RKH 100% working interest)
Following the decision of the Ministry of Economic Development not to award the Company a Production Concession covering the Ombrina Mare field, significant work has been undertaken with legal advisers and quantum experts to establish the possibility of obtaining compensation and damages from the Republic of Italy by way of arbitration proceedings.
The Company expects to provide a further update on the progress of the proposed arbitration during Q1 2017. Portfolio management, corporate costs and board changes
In line with Rockhopper's highly selective approach to new exploration ventures and following completion of seismic and geological evaluation work, the Company has given notice to the operator and the Maltese regulator that it does not intend to participate in any extension of the current term of the Area 3 Exploration Study Agreement which is due to expire in December 2016.
As previously indicated, a corporate cost reduction program has been initiated - as a result, headcount in Italy has reduced to less than 10 (a reduction of over 50% since the acquisition of Mediterranean Oil & Gas plc in August 2014). Initiatives to streamline the Group's UK operations have been achieved by combining our London and Salisbury staff in a single office in London.
As previously announced, Robert (Bob) Peters, Senior Independent Director, has elected to retire from the Board effective 31 December 2016. We thank Bob for his significant contribution and input to Board deliberations over his six years with the Company.Isobel insurance settlement and year-end cash guidance
Settlement has been agreed on the insurance claim relating to costs incurred on the Isobel Deep well during the 2015/16 North Falkland Basin exploration campaign.
The value of the settlement is $90 million (after deductions) on a gross basis. Rockhopper's share of such proceeds is approximately $49 million, of which $16 million had been received as at 30 June 2016. The balance of proceeds is expected to be received before the year-end.
As a result of the insurance settlement, Rockhopper expects its year-end 2016 cash balance to be approximately $80 million. The Company anticipates further North Falkland Basin exploration campaign close out costs to be incurred during H1 2017, bringing the expected year end cash balance for year-end 2016 in line with the upper end of previous guidance. Sam Moody, CEO, commented:
"This has been an important period for Rockhopper with progress made on a range of fronts. With costs on Sea Lion continuing to fall and our balance sheet strength still in place, we remain alert to opportunities to materially grow our Greater Mediterranean business in 2017.
"Through 2016, as the Sea Lion FEED process has progressed, we have seen a material reduction in costs and significant improvements in the overall economics of the project. Life of field costs for Phase 1 of Sea Lion are now approximately $35 per barrel - highly attractive in the context of today's oil price and we continue to actively explore all avenues to move the project toward sanction.
"We have significantly increased production and cash flow in the Greater Mediterranean region and see further scope to materially grow that business in 2017.
"Our balance sheet remains strong with expected year-end cash of approximately $80 million before the remaining North Falkland Basin exploration campaign close out costs."
* Economic production includes production from the effective date (being 1 January 2016) of the acquisition of Beach Egypt