Rockhopper Exploration plc Building a well-funded, full-cycle, exploration-led E&P company Report and Accounts Rockhopper Exploration plc for the year ended 31 December 2017 Head office: Telephone +44 (0)207 486 1677 4th Floor [email protected] 5 Welbeck Street www.rockhopperexploration.co.uk London @RockhopperExplo W1G 9YQ Report and Accounts Company Reg. No. 05250250 for the year ended 31 December 2017 2017-RKH Cover pp01-04-JB06.indd 1 18/04/2018 17:23 Contents Strategic Report Financial Statements 2 2017 highlights Group company financial statements 3 Rockhopper – the story so far 51 Group income statement 4 Rockhopper at a glance 51 Group statement of comprehensive income 6 Vision, strategy and business model 52 Group balance sheet Chairman and Chief Executive Officer’s review 53 Group statement of changes in equity 9 Industry overview 54 Group cash ow statement 1 0 S e a Lion Phase 1 development overview 55 Notes to the group financial statements 12 Operations review 17 Key Performance Indicators (KPIs) Parent company financial statements 18 Financial review 75 Company balance sheet 21 Internal controls and risk management 76 Company statement of changes in equity 22 Principal risks and uncertainties Notes to the company financial statements 26 Health, safety, environmental and social management 82 Key licence interests as at 1 April 2018 Governance Report 2 Chairman’s governance report Supplementary Information 28 Senior management team 83 Glossary 29 Rockhopper Board 84 Shareholder information 30 Board of directors 32 Corporate governance statement 35 Remuneration report 46 Statutory information 48 Independent auditor’s report to the members of Rockhopper Exploration plc Designed and produced by JacksonBone Limited. Printed in England by Synergy Group. Supply base quay, Stanley, Falkland Islands 2017-RKH Cover pp01-04-JB06.indd 2 18/04/2018 17:23 Rockhopper Exploration plc Strategic Report Rockhopper Exploration plc (AIM: RKH) is an oil and gas exploration and production company with key interests in the North Falkland Basin and the Greater Mediterranean region. Report & Accounts for the year ended 31 December 2017 1 Strategic Report Rockhopper Exploration plc 2017 highlights Funding package for the Sea Lion Phase 1 development progressing; working towards final investment decision by year end 20181 > E s t i m a t e d capex to first oil reduced from US1.8 billion to US1.5 billion > Life of field costs down to less than US35 per barrel > L e t t e r s of Intent signed with contractors for a range of services and vendor financing > Discussions progressing with senior debt providers including commercial banks and export credit agencies > F i e l d Development Plan substantially agreed with the Falkland Islands Government > E n v i r o n m e n t a l Impact Statement public consultation process completed. Building a material production base in the Greater Mediterranean to maintain balance sheet strength and fund future growth > Material increase in production net working interest production averaged 1.2 kboepd in 201 2016 0.8 kboepd > Revenue up 40 to US10.4 million 2016 US.4 million > Cash operating costs of US9.5 per boe maintaining a low cost base > C o n t i n u e d management of G&A costs US5.3 million down over 50 in 3 years > G&A costs covered by operating cash ows > S a l e of non-core interests in Italy US9.5 million of future decommissioning costs removed from balance sheet upon completion > I n i t i a t e d international arbitration against Republic of Italy to seek significant monetary damages in relation to Ombrina Mare > B a l a n c e sheet strength maintained with cash resources of US51 million at 31 December 201 and no debt. Outlook 1 > Progress Sea Lion towards final investment decision by year end 2018 > Four well drilling campaign in Egypt to commence in Q2 2018 > Ombrina Mare arbitration hearing date set for early February 2019 > Continued pursuit of new venture opportunities to add production and cash ow. 1 Operator estimate 2 Report & Accounts for the year ended 31 December 2017 Rockhopper Exploration plc Strategic Report Rockhopper – the story so far 2017 2016 Ombrina Mare arbitration commences Sea Lion enters FEED Rockhopper commences international arbitration Sea Lion project enters FEED with set of proceedings, seeking very significant monetary world-class contractors. damages, as a result of the Republic of Italy’s breaches of the Energy Charter Treaty in relation Rockhopper completes merger with Falkland Oil & to the Ombrina Mare project. Gas Ltd following shareholder approval from both Rockhopper and FOGL shareholders. In late 201 and early 2018, Letters of Intent were signed with a number of key contractors Rockhopper acquires non-operated production for the provision of services and vendor and exploration assets in Egypt. financing for the Sea Lion project. 2015 2014 NFB exploration campaign commences Acquisition of MOG In March, the Eirik Raude rig arrives in the North In May, Rockhopper announced a recommended Falkland Basin to commence a multi-well drilling cash and share offer to acquire AIM listed campaign. Exploration successes at ebedee and Mediterranean Oil & Gas plc. The transaction Isobel Deep with multiple oil discoveries made. completed in August. Through the acquisition Rockhopper acquired a portfolio of production, In November, Rockhopper announced the terms development, appraisal and exploration interests of its all-share merger with Falkland Oil & Gas. in Italy, Malta and France. Through the merger with FOGL, Rockhopper consolidates its leading acreage and resource position in the North Falkland Basin. 2013 2012 Consolidates interests in NFB acreage Farm-Out Rockhopper consolidates its interests in the In July, Rockhopper announced it had entered Falklands through the farm-in to acreage held into a farm-out agreement with Premier Oil plc by Desire Petroleum. As a result, Rockhopper Premier, whereby Premier acquired a 60 increases its interests in licences PL004a, PL004b operated interest in Rockhopper’s North Falkland and PL004c to 24. Basin licences for undiscounted consideration of c.1bn comprising cash, development carry and exploration carry. In recognition of Rockhopper’s unrivalled understanding of the North Falkland Basin, it was agreed that Rockhopper would retain the sub-surface lead in relation to future exploration activities. 2011 2010 Sea Lion Appraisal Sea Lion Discovery Following the successful ow test in late 2010 In February, the Ocean Guardian drilling rig a further eight exploration and appraisal wells arrived in Falklands waters to carry out a multi-well were drilled by Rockhopper across the complex, programme on behalf of multiple operators. In the six of those being discoveries. spring, Rockhopper as operator drilled its first exploration well on the Sea Lion prospect which In addition, Rockhopper participated resulted in an oil discovery. The well was successfully in a further five non-operated wells. ow tested in September. Report & Accounts for the year ended 31 December 2017 3 Strategic Report Rockhopper Exploration plc Rockhopper at a glance Falkland Islands North Falkland Basin Sea Lion Phase 1 (PL032) > 40 working interest > 220 mmbbls gross* 88 mmbbls net to Rockhopper* 50°S > Targeting FID year-end 2018, FFAALLKLLAANNDD Rockhopper subject to securing funding* I SISLLANNDDSS 40.0% Sea Lion Phase 2 (PL032/PL004) SSTTAANLEY > 40-64 working interest† * 100 kms > 300 mmbbls gross 60°W 120-192 mmbbls net to Rockhopper* Phase 3 – Isobel-Elaine (PL004) > 64 working interest Sea Lion > Isobel-Elaine complex significantly de-risked during 201516 NFB exploration campaign Chatham Jayne Operator estimate † Rockhopper Rockhopper Sea Lion Phase 2 straddles licences PL032 in which (op) 60.5% Rockhopper holds a 40 interest and PL004 in 64.0% which Rockhopper holds a 64 interest. Zebedee Isobel/Elaine Rockhopper (op) 95.5% Rockhopper (op) 100.0% Head Office London, UK 0 10 Regional Offices Rome, Italy kms Cairo, Egypt 4 Report & Accounts for the year ended 31 December 2017 Rockhopper Exploration plc Strategic Report Greater Mediterranean Guendalina ITALY Exploration Production Discovery Ombrina Mare Mediterranean Sea MonteMonte Grosso TURKEY GREECE ABU Cairo SENNAN Suez EL QA’A PLAIN EGYPT 0 100 200 Red Sea Kilometers TUNISIA Abu Sennan Abu El Gharadig NE Guendalina Badr El Din 04 Sheiba 181 Badr El Din 11 El Qa’a Plain Badr El Din 01 BW1 Abu El Gharadig Asa Western Desert 33 Al Jahraa Al Ahamadi 0 300 LIBYA ASA-1X Al Jahraa-1 GPZZ-1 Kilometers El Salmiya-1 GPZZ Al Jahraa SE-1X GPY Al Ahmadi-1X El Salmiya Al Jahraa SE Abo Senan Western EGYPT Desert 33/15 GPT Abu Sennan GPT SW ASH-1X Ash Oil well Abu Sennan Licence Production lease Seismic area 0 5 10 Oil field Kilometers Gas field Italy Egypt Guendalina Monte Grosso Abu Sennan > 20 working interest > 23 working interest > 22 working interest > Northern Adriatic gas > Exploration stage seeking > Western Desert oil and gas production production regulatory permits to drill El Qa’a Plain Civita Ombrina Mare > 25 working interest > 100 working interest > 100 working interest > Exploration commitment > Onshore gas production > International arbitration well to spud AprilMay 2018 commenced hearing date set February 2019 Report & Accounts for the year ended 31 December 2017 5 Strategic Report Rockhopper Exploration plc Vision, strategy and business model Vision To build a well-funded, full-cycle, exploration-led E&P company Strategy Delivering on strategy > Building a balanced portfolio in core