Rockhopper Exploration plc

5 Welbeck Street, Fourth Floor
London, W1G 9YQ
England
Telephone: (+44 20 7) 486 1677
Web site: https://rockhopperexploration.co.uk

Public Company
Founded:
2004 as Crude Oil and Gas Ltd.
Incorporated: 2005 as Rockhopper Exploration plc
Employees: 21
Sales: $10.4 million (2017)
Total Assets: £528.06 million (2017)
Stock Exchanges: London AIM
Ticker Symbol: RKH
NAICS: 211120 Crude Petroleum Extraction

Rockhopper Exploration plc is an oil and gas exploration and production company focused on two areas: the oil fields around the Falkland Islands and the Greater Mediterranean basin. The company is the leader in the North Falkland Basin, with four licenses that cover 5,800 square kilometers. As of 2018, the company had already discovered contingent oil reserves of 517 million barrels (mmbbl) of 2C reserves and 900 mmbbl of 3C reserves in this zone. In the Mediterranean, the company's operations include stakes in exploration and discovery projects in Italy and Egypt. The company also has several production assets, including 100 percent of an onshore gas production facility in Civita, Italy; a 20 percent interest in a natural gas producer in Guendalina, Italy; and a 22 percent stake in an oil and gas production project in Abu Sennan in Egypt's Western Desert. Altogether, the company produced 1,200 barrels of oil equivalent per day (boepd) in 2017. The company is led by cofounders Pierre Jungels, chair, and Sam Moody, CEO.

FALKLAND ISLANDS EXPLORATION

Great Britain's decision to send its military to defend its disputed claim on the tiny Falkland Islands off the coast of Argentina in 1984 could be partly explained by the hope of future oil discoveries in the waters surrounding the islands. A number of pioneering entrepreneurs had already begun developing interests in the region. Most notable among them was Colin Phipps, who had leveraged his background as a petroleum geologist to found the U.K.-based Clyde Petroleum. Under his leadership, Clyde had grown into one of the leading independent oil exploration and production companies in the United Kingdom.

Phipps was also a politician, serving as a member of Parliament during the 1970s. In that capacity, Phipps joined a fact-finding mission to Argentina to investigate a long-standing belief in the presence of large oil reserves in the waters around the Falkland Islands. Phipps himself became one of the first to carry out a geological analysis of the islands in 1977. However, his interest in the zone waned, in part because of the high expense of starting up exploration projects at the time.

COMPANY PERSPECTIVES

Vision: To build a well-funded, full-cycle, exploration-led E&P company.

In the meantime, the Falkland Islands government began taking concrete steps toward stimulating exploration in the region. In 1995 the government carried out an auction for parcels in the North Falkland Basin, attracting major multinationals such as Amerada Hess, Fina, Lasmo, Shell, and Teikoku, among others. In the event, Shell, Hess, and Lasmo acquired exploration rights for the largest acreage in the zone, which initially focused on the shallower waters in the North Falkland Basin. As a new, and tiny, independent company, Desire Petroleum avoided direct competition with its larger rivals, and instead acquired several smaller parcels on the periphery of the zone. Phipps also acquired an equity stake in Lasmo during this period.

By 1998 oil exploration operations conducted by Shell and others in the region had resulted in the drilling of six exploratory wells, and the discovery of large oil and gas reserves in the northern basin. When oil prices dropped to as low as $10 per barrel, exploitation of the reserves became economically unfeasible, resulting in the decision by the major oil companies to end their operations in the region. Desire Petroleum remained too small to be able to continue exploration on its own, however, so its acreage reverted back to the Falklands government.

ROCKHOPPER START-UP

Phipps and Richards continued to promote the exploration of the region by working with the British Geological Survey and the Falkland Islands Mineral Resources Department, as well as by carrying out their own three-dimensional (3D) surveys. However, the revival of the Falklands' oil industry came from an industry outsider.

In 2001 Richard Visick, a London-based lawyer, had acquired Weddell Island, the largest island in the Falklands chain, which was also the site of the Sea Lion Lodge hotel. In 2004 Visick founded Crude Oil and Gas Ltd. and convinced regulators at the Mineral Resources Department to grant the company a license to part of the acreage that was formally held by Shell. In January 2005 Crude Oil and Gas was awarded two new exploration licenses—PL023 and PL024—that focused on the eastern part of the northern basin, where Shell had successfully made its first live oil “show.” The company's initial acreage included an exploration area of more than 1,600 square miles.

Visick, however, had no intention of taking an active role in the company. Instead, he brought in an acquaintance, Sam Moody, a graduate from Lancaster University who had originally pursued a career in finance before becoming a property investor in England's West Country, as head of the company. The pair then turned to the oil industry veteran Pierre Jungels, who agreed to become the company's chair in February 2005. A native of Belgium, Jungels had served as CEO of Enterprise Oil, helping build it into the largest independent exploration company in Europe during the 1990s. Following the addition of Jungels, the company renamed itself Rockhopper Exploration, after the species of penguin found on the Falkland Islands. Visick remained with the company, taking the position of nonexecutive director.

AIM EXCHANGE LISTING

Rockhopper remained a three-person show, operating from a head office in Swindon, England, a location chosen because it was within easy reach of the three partners' homes. Rockhopper began its own 2D and 3D surveys of the eastern margin of the northern basin soon after. The company also reached a farm-in agreement with Desire Petroleum, which had continued carrying out its own exploration operations, focusing primarily on the shallow sands on the margin east of the Shell discovery site. The farm-in agreement gave Rockhopper an initial 7.5 percent stake in Desire's two licenses: PL003 and PL004. The company also acquired two additional licenses of its own: PL032 and PL033.

Because the potential for generating revenues remained a long-term prospect, Rockhopper also set out to raise funding for its exploration operations. It brought in additional managers, including Keith Williams as the exploration director and Peter Dixon-Clarke as a part-time finance director. The company then listed its shares on the London Stock Exchange's AIM exchange in 2005, raising £15 million.

KEY DATES
2004:
Crude Oil and Gas Ltd. is founded by Richard Visick.
2005:
The company changes its name to Rockhopper Exploration plc and is listed on the AIM exchange.
2010:
Rockhopper's Sea Lion Prospect becomes the first to successfully drill for oil in the Falklands.
2014:
The company acquires Mediterranean Oil & Gas plc.
2018:
Rockhopper begins selecting vendors for the full-scale implementation of oil production at the Sea Lion Prospect.

Rockhopper's early data were promising. In 2007, based on its 2D data, the company reported potential P50 reserves of 2.5 billion barrels in the PL023 and PL024 fields. The P50 classification referred to probable oil reserves with an estimated chance of recovery of 50 percent. In 2008 the company's 3D surveys revealed potential P50 reserves of 1.2 billion barrels in the company's PL032 and PL033 licenses.

Buoyed by these results, Rockhopper was able to complete two successful share issues, of £1.3 million at 37 pence per share in 2007, and then £3.6 million at 101 pence per share in 2008. The following year the company became the first in the Falklands region to have its discovery independently verified. The company then joined with Desire to acquire the Ocean Guardian drilling rig.

DRILLING BEGINS

The arrival of the Ocean Guardian rig in February 2010 launched a new phase of the project. Rockhopper spudded its first exploratory well soon after, in the area known as the Sea Lion Prospect. This well successfully passed its flow testing and was declared an oil discovery, with estimated recoverable reserves of 242 mmbbl, in September of that year. The company had also spudded a second well, in an area known as the Ernest Prospect. This well proved dry, however.

Nonetheless, the successful discovery in the Sea Lion Prospect enabled the company to raise an additional $78 million in capital in 2010. It successfully spudded two more discovery wells in 2011, which enabled it to declare the Sea Lion Prospect as a commercially viable oil-producing field by August 2011. The declaration helped spur the rise of Rockhopper's share price, which reached as high as 212 pence, and permitted the company to complete a new share issue, priced at 180 pence, to raise £46.5 million.

While Rockhopper's prospects rose with the success of the Sea Lion Prospect, its partner Desire found itself struggling. Rockhopper came to Desire's rescue in October 2011, acquiring an additional 52.5 percent— and operational control—of the Area 1 portion of Desire's PL003 and PL004 licenses. Rockhopper also raised its share in the Area 2 portion to 23 percent. Both sites were expected to become extensions of the Sea Lion Prospect.

Rockhopper itself turned to a larger partner in 2012, completing a farm-out agreement with Premier Oil, which paid Rockhopper $216 million, as well as $722 million in development carry costs and $48 million in exploration carry costs, for a 60 percent stake in the Sea Lion Prospect. Shareholders reacted negatively to the deal, along with the company's announcement that it was pushing back the timing of the project by six months, resulting in a drop of 30 percent in the company's share price in 2013.

However, the company was nonetheless vindicated, as Premier Oil's superior resources allowed the Seal Lion oil field to come closer to first oil by the end of that year. Rockhopper used the proceeds of the farm-out to raise its share of Desire Petroleum's acreage, completing a farm-in agreement for 24 percent of Desire's PL004 license.

MEDITERRANEAN ENTRY

By that point Rockhopper had secured its position as the oil exploration leader in the Falklands. In 2015 it took delivery of the Eirik Raude oil rig to launch a new multiwell drilling program. This quickly led to the successful discoveries of oil fields in the Zebedee and Isobel Deep projects.

In November of that year Rockhopper announced it had reached an agreement to acquire its chief rival in the region, Falkland Oil & Gas Ltd. (FOGL), which had also been active in the North Falkland Basin. Rockhopper and FOGL were formally merged in 2016.

Meanwhile, Rockhopper's Mediterranean operations hit a setback in January 2016, after the Italian government reintroduced restrictions on offshore oil and gas operations, including a ban on activity within 12 nautical miles of the country's coastline. The decision effectively placed Rockhopper's Ombrina Mare project on hold and led Rockhopper to launch international arbitration proceedings against the Italian government, seeking damages and the right to move the project forward. The arbitration hearing was scheduled for early 2019, with a decision expected by mid-2019.

Regardless, Rockhopper had slowly begun generating revenues on its oil production. In 2014 it produced 272 boepd, which generated revenues of $1.9 million. These figures rose to 1,350 boepd and $7.4 million in 2016. With oil prices rising in 2017, the company posted a revenue gain to $10.4 million, despite a drop in production to 1,200 boepd that year.

Rockhopper continued to move forward with its operations. In April 2018 the company and partner Premier Oil announced plans to reach a final investment decision on the Sea Lion Prospect by the end of the year. In the meantime, the company had made significant gains in lowering the cost of the project, revising the original price tag of $1.5 billion down to $1.2 billion. At the same time, Rockhopper began selecting the main contractors for the full-scale implementation of the Sea Lion Prospect, and raised an additional $400 million.

The company's operations in Egypt were also taking off as well, as it put into place plans to drill four wells by mid-2018 and to develop other exploration assets both in Abu Sennan and in the El Qa'a Plain. With oil prices rising to $80 per barrel, Rockhopper prepared itself for its coming transformation into a fully fledged oil production company.

M. L. Cohen

PRINCIPAL SUBSIDIARIES

Desire Petroleum Ltd.; Falkland Oil and Gas Limited (Falkland Islands); Melita Exploration Company Limited (Malta); Rockhopper Civita Limited; Rockhopper Egypt Pty Ltd. (Australia); Rockhopper Exploration (Hydrocarbons) Limited; Rockhopper Exploration (Oil) Limited; Rockhopper Exploration (Oil) Limited (Falkland Islands); Rockhopper Exploration (Petrochemicals) Limited; Rockhopper Italia S.p.A.; Rockhopper Mediterranean Limited; Rockhopper Resources Limited.

PRINCIPAL DIVISIONS

Falkland Islands; Greater Mediterranean.

PRINCIPAL COMPETITORS

Afren plc; Bowleven plc; Cairn Energy PLC; CNR International (U.K.) Limited; Dana Petroleum plc; En-Quest PLC; Marathon Oil UK LLC; Ophir Energy plc; Premier Oil plc; Suncor Energy UK Ltd.; Tullow Oil plc.

FURTHER READING

“A ‘Transformational’ Year for Falklands Sea Lion Development, Says Rockhopper Exploration.” Merco Press, May 19, 2018.

Addison, Velda. “Rockhopper, Premier Progress toward Sea Lion FID.” E&P Mag, April 19, 2018.

Jacobs, Justin. “Premier Oil's Falklands Plans Take Shape.” Petroleum Economist, October 2013, 10.

Li, Martin. “Rockhopper Breathes New Life into Desire.” Investors Chronicle, October 13, 2011.

Robinson, Mark. “Rockhopper Hit by Tax Dispute.” Investors Chronicle, August 28, 2013.

“Rockhopper Exploration Ready to Rock and Roll in the Falklands as US$400mln Funding Talks Near Completion.” ProactiveInvestors, May 18, 2018. Accessed August 21, 2018. http://www.proactiveinvestors.co.uk/companies/news/197261/rockhopper-exploration-ready-to-rock-and-roll-in-the-falklands-as-us400mln-funding-talks-near-completion-197261.html .

Thompson, Jennifer, and Cat Rutter Pooley. “Oil and Gas Explorer Rockhopper in Legal Fight with Italy.” Financial Times, March 23, 2017.