TIDMRKH
RNS Number : 3805X
Rockhopper Exploration plc
20 December 2023
The information contained within this Announcement is deemed by
Rockhopper Exploration plc to constitute inside information as
stipulated under the Market Abuse Regulation (EU) No. 596/2014 as
it forms part of UK law by virtue of the European Union
(Withdrawal) Act 2018 ("MAR").
20 December 2023
Rockhopper Exploration plc
("Rockhopper" or the "Company")
Monetisation of Ombrina Mare Arbitration Award
Rockhopper Exploration plc (AIM: RKH), the oil and gas company
with key interests in the North Falkland Basin, announces its entry
into a funded participation agreement (the "Agreement") with a
regulated specialist fund with over $4bn in investments under
management that has experience in investing in legal assets (the
"Specialist Fund") to monetise its ICSID Award (the "Award"), in
relation to the arbitration against the Republic of Italy relating
to the Ombrina Mare oil field (the "Arbitration"). The Award was
previously announced on 24 August 2022.
Key terms of the Agreement
-- Rockhopper to retain legal and beneficial ownership of the Award
-- Under the terms of the Agreement, the Specialist Fund will
make cash payments to Rockhopper in up to three tranches:
Ø Tranche 1 - Rockhopper will retain approximately EUR15 million
of an upfront payment of EUR45million on completion. As previously
disclosed, Rockhopper entered into a litigation funding agreement
in 2017 under which all costs relating to the Arbitration from
commencement to the rendering of the Award were paid on its behalf
by a separate specialist arbitration funder (the "Original
Arbitration Funder"). That agreement entitles the Original
Arbitration Funder to a proportion of any proceeds from the Award
or any monetisation of the Award. Rockhopper has entered into an
agreement with the Original Arbitration Funder to pay EUR26 million
of the Tranche 1 proceeds to discharge all of its liabilities under
the agreement with the Original Arbitration Funder. In addition,
Rockhopper is due to pay certain success fees to its legal
representatives. After making these payments, Rockhopper will
retain approximately EUR15million of the Tranche 1 payment and 100
per cent of all Tranche 2 and 3 payments.
Ø Tranche 2 - Additional contingent payment of EUR65 million
upon a successful annulment outcome. Should the Award be partially
annulled and the quantum reduced as a result, then Tranche 2 will
be reduced such that the amounts under Tranche 1 and Tranche 2
shall be adjusted downward on a pro-rata basis. For example, if the
quantum of the Award is reduced by 20%, then the amounts under
Tranche 1 and Tranche 2 shall be reduced by 20%. For the avoidance
of doubt, the amounts under Tranche 1 and Tranche 2 shall not
reduce below EUR45m in any circumstance.
Ø Tranche 3 - Potential payment of 20% on recovery of amounts in
excess of 200% of the Specialist Fund's total investment including
costs.
-- Tax will also be payable on Rockhopper's share of the
proceeds from the monetisation of the Award. These calculations are
complex and are unlikely to be resolved for some months but
Rockhopper currently estimates that the approximate effective tax
rate of between 10-15% is likely.
The Specialist Fund will cover all costs related to the
Arbitration from the date of this announcement.
Benefits of the agreement
-- Materially strengthens Rockhopper's balance sheet with no dilution to shareholders
-- De-risks the Award process while maintaining potentially significant upside
-- Removes future costs associated with the Award
-- Accelerates monetisation when compared to Rockhopper
challenging the annulment itself and seeking to enforce against the
Republic of Italy, which could take several years
-- Allows Rockhopper to focus on its core opportunity in the Falkland Islands
Proceeds from the monetisation will be used by Rockhopper for
both working capital, general corporate purposes and towards
Rockhopper's equity funding requirements in relation to developing
the Sea Lion oil field
Under the terms of the previously announced arrangements with
the Falkland Islands Government, it remains the case that
Rockhopper is prevented from making distributions, including any
form of dividend or share buyback.
Precedent Conditions
Approval will be required from the Falkland Islands Government
to the transaction. A further announcement will be made on
completion. Should completion not occur by 30.6.24. either side has
the right to termination. In the case of non-completion Rockhopper
will use proceeds of the Award to provide compensation to the
Specialist Funder based on their legal fees incurred.
Samuel Moody, Chief Executive of Rockhopper, commented:
"We are delighted to be able to announce this transaction which
provides near-term certainty for Rockhopper and de-risks our
exposure to the annulment process, while maintaining potentially
significant upside exposure both to a successful annulment outcome
and eventual recovery.
In the meantime, work continues refining the phasing of the Sea
Lion development in the Falklands and we will make further updates
to the market as appropriate. We are hopeful that this new funding
will largely or entirely fulfil our equity requirements for Sea
Lion which will only become clear once the project and financing
have been finalised. "
Simon Thomson, Non-Executive Chairman, commented:
"We are aware of a number of international arbitration awards
against the Government of Italy where payment remains outstanding.
Given this background, and the circumstances of our own dispute, we
are therefore pleased to have entered into this agreement, allowing
us to secure material value now and remain exposed to future upside
in the hands of experienced professional litigators. We look
forward to redeploying this capital in Sea Lion which continues to
offer significant value for shareholders."
Background
As announced on 23 March 2017, Rockhopper commenced
international arbitration proceedings against the Republic
of Italy in relation to the Ombrina Mare project.
Following the decision in February 2016 by the Ministry of
Economic Development not to award the Company a Production
Concession covering the Ombrina Mare field, the Company, with its
legal advisers, has considered its options with regard to obtaining
damages and compensation from the Republic of Italy for breaching
the Energy Charter Treaty ("ECT").
By way of background, the ECT entered into legal force in April
1998 and is designed to provide a stable platform for energy sector
investments. The Republic of Italy, as a member of the European
Union, was a founding signatory to the ECT.
In addition, the Company announced it had secured non-recourse
funding for the Arbitration from the Specialist Arbitration Funder
that specialises in financing commercial litigation and arbitration
claims.
As announced on 24 August 2022, the arbitration panel
unanimously held that the Republic of Italy had breached its
obligations under the Energy Charter Treaty (the "Award") entitling
Rockhopper to compensation of EUR190 million plus interest at
EURIBOR + 4%, compounded annually from 29 January 2016 until time
of payment (except the four-month period immediately following the
date of the Award).
The third-party funding agreement with the Original Arbitration
Funder does not cover any costs arising past the date of the Award
(23 August 2022). The Company recorded $185,000 of legal expenses
attributable to the Arbitration in the audited accounts to 31
December 2022. The Award was considered a contingent asset as at 31
December 2022 and was merely disclosed in those same accounts and
had no carrying value.
On 20 October 2022, Italy submitted an application to the
International Centre for Settlement of Investment Disputes
("ICSID") seeking to annul the Award under Article 52 of the ICSID
Convention. The Republic of Italy also requested a provisional stay
of the enforcement of the Award pursuant to Article 52(5) of the
ICSID Convention. The provisional stay prevented Rockhopper from
taking legal action to enforce the Award in any jurisdiction.
Following a hearing on 6 March 2023, the ad hoc committee (the
"Committee") convened by ICSID to rule on the annulment issued the
following orders with regard to the provisional stay of
enforcement:
1: that Italy and Rockhopper (together the "Parties") shall
confer - in good faith and using their best efforts to cooperate
and find an effective arrangement - for the mitigation of the risk
of non-recoupment using a first-class international bank outside
the European Union (or as Italy and Rockhopper otherwise agree) to
be put into place in anticipation of the termination of the
provisional stay of enforcement of the Award. This is to mitigate
the perceived risk that, in the event the Award is annulled, Italy
may not be able to recover Italian assets seized or frozen by
Rockhopper (before the ad hoc Committee issues its decision on
annulment) in court enforcement proceedings.
2: that Rockhopper shall, within 30 days of the date of the
decision, apprise the Committee of arrangements agreed with Italy
for the mitigation of the risk of non-recoupment or that
negotiations have failed and, in the latter event, propose concrete
arrangements in accordance with the decision for the mitigation of
the risk of non-recoupment. Italy may then briefly comment on
Rockhopper's proposal within 10 days, constructively highlighting
any areas of disagreement between the Parties.
In line with preceding orders and following failure to agree
arrangements with the Republic of Italy, Rockhopper submitted its
proposed arrangements (the "Escrow Arrangements") to mitigate the
risk of non-recoupment on 24 May 2023. On 5 June 2023 Italy
submitted its comments on the Escrow Arrangements.
On 11 July 2023, and having received additional comments from
the Parties, the Committee issued the following orders with regard
to the provisional stay of enforcement:
1: That the provisional stay of enforcement shall terminate 5
business days following the provision by Rockhopper to Italy of
documentation that escrow arrangements in the form proposed have
been established, provided that Italy does not within those 5
business days submit a reasoned written objection in these
annulment proceedings that the escrow arrangements established are
not in accordance with the proposed arrangements.
2: Reserves its right to revisit its decision at any time;
and
3: Reserves its decision on costs
The Republic of Italy submitted no further comments on the
Escrow Arrangements and so the stay of enforcement is now
lifted.
The Republic of Italy has not responded to Rockhopper's
September 2022 request for payment of EUR247 million, or to
multiple subsequent attempts to engage in negotiating a
settlement.
The annulment hearing is currently scheduled to commence in
April 2024.
Enquiries:
Rockhopper Exploration plc
Sam Moody - Chief Executive Officer
Tel. +44 (0) 20 7390 0234 (via Vigo Consulting)
Canaccord Genuity Limited (NOMAD and Joint Broker)
Henry Fitzgerald-O'Connor/Ana Ercegovic
Tel. +44 (0) 20 7523 8000
Peel Hunt LLP (Joint Broker)
Richard Crichton/Georgia Langoulant
Tel. +44 (0) 20 7418 8900
Vigo Consulting
Patrick d'Ancona/Ben Simons/Fiona Hetherington
Tel. +44 (0) 20 7390 0234
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END
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