Rockhopper wins extension for Falklands assets as it sheds two Italian ones

UK-based oil and gas exploration and production company Rockhopper Exploration has signed a share purchase agreement (SPA) with India’s Zodiac Energy to dispose of its two Italian assets and put in place an insurance policy as it awaits the resolution of a dispute with Italy over a third one. Additionally, the company has won extensions of its production licenses in the Falkland Islands.

According to Rockhopper, the insurance policy will enable the combination of the second tranche payment and the insurance payout to leave the firm with €31 million if Italy manages to have the award of the Ombrina Mare field fully or partially annulled. While the company and its advisors are confident the ruling will be in their favor, protecting shareholders against a potential loss is believed to be the wisest course of action.

Rockhopper has been in arbitration over the field since 2017 after Italy decided not to award the company a production concession covering the field one year prior. While the Mediterranean country justified its decision with the re-introduction of the ban on exploration and production activity within 12 nautical miles off the coast of Italy, the UK player argued that the field falls within the limit.

An international tribunal in charge of the arbitration sided with Rockhopper in 2021 and in August 2022, the International Centre for Settlement of Investment Disputes (ICSID) arbitration panel agreed that Italy had breached its obligations under the Energy Charter Treaty, awarding the UK player with €190 million plus interest. However, Italy sought for this award to be annulled in late October 2022, a process that the UK firm expected to last 18–24 months.

Against this backdrop, the British firm decided to sell its wholly-owned subsidiary in Italy, Rockhopper Civita, which holds the remainder of its Italian assets and liabilities – a 15% working interest in AC19, a northern Adriatic license with two gas discoveries and an additional adjacent prospect, and a 23% working interest in Serra San Bernado, containing the Monte Grosso exploration prospect.

Rockhopper’s CEO Samuel Moody said: “The steps announced today provide us with further strategic and commercial clarity as we continue to focus on progressing the Sea Lion development. The combination of the insurance policy and transaction with Zodiac allows us to refocus the Company on Sea Lion by further reducing both short and long term costs, reducing risk, protecting our balance sheet whilst maintaining some potential upside in two Italian licences.”

Under the terms of the sale, the UK firm will pay Zodiac in two installments, with a retained upside participation to Rockhopper in two undeveloped licenses. The first installment of €3 million is payable to Zodiac once all necessary regulatory consents in Italy and the Falklands are received.

The second part of the requirement has been fulfilled, since the UK firm was granted extensions on October 18, 2024, for all of its North and South Falkland Basin petroleum production licenses, enabling them to run until December 31, 2026.

The second installment of €2.5 million is payable to Zodiac on or after the completion, provided that two additional conditions are satisfied – Italy’s annulment application being overthrown and receiving a minimum of €10 million from the award monetization.

Assuming the second installment is payable, Rockhopper will retain a royalty on the AC19 and Serra San Bernado assets, taking the form of either 10% of the revenues of the interests acquired by Zodiac or 25% of the gross proceeds received for the part sold if they realize value by on-selling the licenses acquired.

Following the completion of the transaction, the UK player will have no remaining liabilities relating to its Italian licenses, its P&A liability will have been reduced by approximately $15 million, and its annual cash burn by around €500,000–750,000. 

The UK firm is also developing the giant Sea Lion oil project in the North Falkland Basin (NFB) with Navitas Petroleum. In July, it was shared that the project is ready for a final investment decision (FID), expected this year for Phase 1, while the Falkland Islands’ green light for the project’s environmental impact statement (EIS) is pending.