UK-listed Rockhopper Exploration has reached a new agreement with Navitas Petroleum to enable a larger than previously discussed farm-in of the Israel-based explorer and producer into the Sea Lion project near the Falkland Islands.
Once the deal obtains regulatory approvals and becomes binding, Navitas will have a 65% interest in Sea Lion against the 30% stake that was initially agreed in early 2020.
Rockhopper will retain a 35% interest in the project and has no plans to further reduce this holding, it said.
Offering a larger shareholding for Navitas has become possible after one of Sea Lion’s partners, UK-listed Harbour Energy, announced its exit the project in September.
Rockhopper said in a statement that it hopes for “greater alignment and simplified commercial arrangements across the joint venture” to push forward the project towards FID.
Pre-development work on the first phase of Sea Lion, which is aiming to develop gross reserves of 523 million barrels of oil equivalent, was suspended last year following the drop in energy prices caused by the Covid-19 related decline in oil and gas consumption.
Loans to Rockhopper
A key benefit for Rockhopper from the new deal is that Navitas will provide a loan to the UK explorer, initially at the pre-FID phase and then, following FID, will extend additional finance to cover two-thirds of Rockhopper’s share of development costs.
According to Rockhopper latest financial report, the company had just $7.1 million of cash at the end of June this year against $11.7 million at the end of December 2020.
In August, Navitas and partners arranged project financing in excess of $900 million and took FID on the Beacon Offshore-operated 330 million barrel Shenandoah project in the US Gulf of Mexico.
Rockhopper said earlier that this Shenandoah deal demonstrated Navitas’ ability to raise capital for large-scale offshore oil developments.
Additionally, Navitas said in recent presentations to investors that it expects global oil demand to keep growing at least until 2035, despite energy transition winds.
The initial pre-FID loan from Navitas will fund Rockhopper’s share of Sea Lion costs from the completion of the deal up to FID.
It will have an 8% annual interest attached to it against post-FID development funding that is interest-free, the statement said.
Alternative development plan
Rockhopper said the two partners will consider a lower cost alternative development plan for Sea Lion using the design and engineering work that was undertaken for the project in the last decade.
An earlier development plan for Sea Lion is understood to have called for the drilling of 23 subsea wells hooked up to a floating production, storage and offloading vessel.
The finalisation of definitive documentation under the plan is now expected in the first quarter of 2022.
In the event that FID is not achieved within five years of completion of the proposed deal, Rockhopper can elect to remove Navitas from the PL032 licence north of the Falklands by repaying this pre-FID Loan, the London-listed company added.