Rockhopper Exploration and Premier Oil have signed a detailed heads of terms with Navitas Petroleum to farm in for a 30 percent interest in the Sea Lion project located offshore the Falkland Islands.
Rockhopper said on Tuesday that, under the deal with Navitas, working interest in Sea Lion licenses PL032, PL004b, and PL004c will be aligned: Premier 40% (operator); Rockhopper 30%; and Navitas 30%.
In addition, Rockhopper and Premier have agreed certain amendments to their existing commercial arrangements.
Samuel Moody, CEO of Rockhopper, commented: “Navitas add valuable offshore experience from their Gulf of Mexico projects and hugely successful prior personal involvement in Israel’s offshore sector. They also materially strengthen and enhance the prospects for a successful project financing, as clearly demonstrated by their success in funding other similar developments elsewhere in the world and with proven access to capital markets.
Moody added: “Furthermore, we are obviously very pleased to announce that all of our project costs are being covered from the start of 2020 and in the event of a successful sanction that they will continue to be covered through to Phase 1 Project Completion (estimated 9 – 12 months after first oil) while maintaining a very material 30% stake in the Sea Lion project along with additional upside in the PL004a licence containing the Isobel discovery. This transaction will therefore materially strengthen the Company financially.
“Discussions are continuing to progress with senior lenders regarding project financing and should be positively supported by the transaction.”
“Our arrangements with Navitas are at a detailed non-binding Heads of Terms stage and we look forward to working with them to put in place formal binding documentation in the coming months. In the intervening period, we are pleased that Premier has separately agreed funding arrangements for all of Rockhopper’s costs on Sea Lion.”
Phase 1 funding
Rockhopper said that the joint venture would continue to pursue a senior debt project finance (or similar) to fund the Phase 1 development of Sea Lion.
Existing funding arrangements between Rockhopper and Premier are to be replaced such that Rockhopper is funded for all pre- and post-sanction costs not met by senior debt by Premier and/or Navitas through a combination of carry and loans.
Premier will carry all of Rockhopper’s costs from January 1, 2020 to March 1, 2020 (being the effective date for the transaction) and on a bridging basis pending completion of the transaction.
Premier and Navitas will fund all of Rockhopper’s project development costs (excluding production area license fees and taxes) from March 1, 2020 to Phase 1 Project Completion (estimated to occur 9-12 months after first oil) through an interest free loan. Funds drawn under the loan will be repaid from 85% of Rockhopper’s working interest share of free cash flow.
An additional standby loan will be available from Premier to cover Rockhopper’s share of production area license fees and any Capital Gains Tax liability. This new standby loan will attract interest at a rate of 15% per annum and will be repaid from Rockhopper’s residual share of Phase 1 free cash flow.
Phase 2 consideration and funding
Existing funding arrangements between Rockhopper and Premier will be replaced such that, subject to certain conditions, Rockhopper will receive contingent payments of up to $36 million from Premier and Navitas’ share of Phase 2 cash flows, linked to the achievement of certain production and oil price milestones.
PL004a – Isobel Elaine
Rockhopper has granted Navitas and Premier an option to acquire working interests in PL004a (30% and 4% respectively) to align working interests across PL032 and PL004. The option must be exercised by Navitas within eight years of completion of the transaction, or the date of Phase 2 FID.
In the event the option is exercised and subject to certain conditions, Rockhopper will receive contingent payments of up to $12 million from Navitas’ and Premier’s share of Phase 3 cash flows, linked to the achievement of certain production and oil price milestones.
It is intended that Navitas will become a party to the AMI entered into between Rockhopper and Premier in 2012 in relation to future joint exploration activities in the Falkland Islands area.
Conditions to SPA Signing, targeted for 1Q 2020, include the completion of Navitas due diligence and agreement of definitive transaction documentation and associated Phase 1 project documents (including but not limited to Joint Operating Agreement, joint venture financing agreement, joint venture marketing agreement, decommissioning security agreement, field security agreement).
A condition to closing of transaction, targeted for 2Q 2020, is Falkland Islands Government approval for the transaction.
Following farm-in completion, but prior to April 1, 2021, Navitas can exercise a withdrawal right, subject to certain conditions including in the event that Phase 1 FID has not occurred.
In the event that Navitas’ board has failed to take a positive Phase 1 FID by April 1, 2021, or otherwise fails to secure its share of funding, Premier may elect to remove Navitas.
In the event that either Navitas elects to withdraw or Premier elects to remove Navitas, Premier will have the option to step into the Navitas arrangements, or, in the very unlikely event, implement a wind down of the project which could ultimately result in relinquishment of the acreage.
In either event, Rockhopper is liable for its share of project wind down costs with no funding support from Premier and/or Navitas and if Premier does opt to wind down the project then Rockhopper has the right to acquire Premier’s interest and become 100% working interest licence holder and Operator of licences PL032, PL004a, b and c, subject to all necessary regulatory approvals.
In related news, Premier Oil also on Tuesday announced agreements for acquisitions of the Andrew Area and Shearwater assets from BP for $625 million, and an additional 25 percent interest in the Premier-operated Tolmount Area from Dana for $191 million plus contingent payments of up to $55 million.
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