Oil and gas company Rockhopper Exploration has put in place insurance policy to cover the event that the Italian Republic succeeds in annulling Rockhopper Ombrina Mare arbitration award, while selling its remaining Italian assets to Zodiac Energy.
The insurance policy will ensure that, in the event that the Italian Republic succeeds in having the entire award annulled or in the event of partial annulment, the combination of the Tranche 2 payment and the insurance payout shall entitle Rockhopper to a total no less than €31 million.
Whilst both the company and its advisors remain confident of its position it has decided, in line with normal market practice, that insuring to protect shareholders against loss resulting from an annulment of the Award to be the most prudent course of action.
To remind, the oil company started arbitration in March 2017 following Italy’s decision in 2016 to impose restrictions on offshore oil and gas operations in its waters within 12 miles of the coast of Italy, and after the country's Ministry of Economic Development of Italy informed Rockhopper Exploration that the production concession covering its Ombrina Mare field area would not be awarded, despite the Ombrina Mare project having completed all the required technical and environmental authorizations.
Ombrina Mare is an appraisal/development project situated in the shallow waters of the central Adriatic off the coast of Abruzzo, Italy.
In August 2022, the arbitration panel decided Italy will have to pay €190 million plus interest to the oil and gas company Rockhopper Exploration for breaching its obligations related to the company's Ombrina Mare field.
Rockhopper Exits Other Italian Developments
Rockhopper entered into the sale and purchase agreement (SPA) with Zodiac Energy for its wholly-owned subsidiary Rockhopper Civita Limited.
Rockhopper Civita Limited holds all Rockhopper’s Italian assets and liabilities with the exception of the Ombrina Mare Arbitration Award. Under the terms of the SPA consideration, Rockhopper will pay Zodiac in two instalments, with a retained upside participation to Rockhopper in two undeveloped licences.
The first instalment of $3.2 million (€3 million) is payable to Zodiac on satisfaction of two precedent conditions, those being receipt of all necessary regulatory consents in Italy, as well as regulatory consents in the Falklands.
The second instalment of $2.7 million (€2.5 million) is payable to Zodiac on or after completion, assuming the satisfaction of two additional conditions, those being successfully defending the Italian Republic’s annulment application and receiving a minimum of $10.9 million (€10 million) from the award monetization.
According to Rockhopper, the Tranche 2 payment under the Award monetization is $71.1 million (€65 million), due on a successful defense of the annulment application, but can be reduced in the event of a partial annulment.
In addition, assuming the second instalment is payable, Rockhopper will retain a royalty on two assets within the Rockhopper Civita Limited portfolio, those being AC19 (a northern Adriatic license with two gas discoveries and an additional adjacent prospect) and Serra San Bernado (which contains the Monte Grosso exploration prospect).
The royalties will take the form of either 10% of the revenues of the interests acquired by Zodiac or, should they realize value by on-selling the licenses acquired, 25% of the gross proceeds received for the part sold.
The transaction is subject to both Italian and Falkland Island Government regulatory approval, the timing of which is uncertain but is anticipated within 12 months.
“The steps announced today provide us with further strategic and commercial clarity as we continue to focus on progressing the Sea Lion development. The combination of the insurance policy and transaction with Zodiac allows us to refocus the company on Sea Lion by further reducing both short and long term costs, reducing risk, protecting our balance sheet whilst maintaining some potential upside in two Italian licenses,” said Samuel Moody, CEO of Rockhopper Exploration.