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Rockhopper Exploration plc (LSE:RKH), the first company to discover oil and gas in the Falkland Islands, has secured for itself funds to develop oilfields at the eastern side of the tip of the South American continent after the Government of the Falkland Islands has granted approval of the farm-out agreement the exploration company signed with independent oil and gas producer Premier Oil (LSE:PMO).
In a statement, the government of the British-controlled territory has stamped its seal to transfer 60% interest from Rockhopper to Premier Oil, who will become operator of six exploration blocks, announced back in July 2012 with a tag price of US$1 billion.
“Formal completion of the farm-out process is anticipated shortly, when a further announcement will be made,” Rockhopper stated.
Secured Funding
Details of the contract state Rockhopper is to receive US$231 million upfront cash upon completion of transaction and Premier is to carry out Rockhopper’s share in the development of the newly discovered oilfields amounting to US$722 million of the first US$1.8 billion estimated gross capital expenditure for the said undertaking.
Premier will also shoulder Rockhopper’s US$48 million share in exploration activities within the licences and the Area of Mutual Interest (AMI), the portion of the licences that indicate analogous plays in areas South Africa, Namibia, and Southern Mozambique.
The decision to invite farm-in partners was earlier conceived as the company’s way of finding fresh capital while minimizing dilution to its shareholders, according to Rockhopper Chairman, Dr. Pierre Jungles, CBE, in his statement back in May.
Three More Years
An independent competent person report back in April 2012 stated the Sea Lion discoveries, located in one of the licences to be operated by Premier following the completion of the transaction, has about 1.3 billion barrels of oil in place and will generate about US$3.5 billion in cash flow.
The upfront cash of US$231 million is in fact half of the total exploration costs Rockhopper has accumulated up until 31st March 2012, at US$462 million.
Rockhopper has incurred about US$155 million in losses in the past five years and the company will have to wait until 2017 to start earning revenues once the oil production commences.
Back in the City, AIM-listed Rockhopper moved -0.1%, losing 0.25 pence by 11:00 AM GMT, to 169.75 pence. Share price has reached its record high of £5.10 in 2010, following the positive results of the flow testing of the Sea Lion discovery wells.
