R O ROCKHOPPER EXPLORATION PLC TELEPHONE +44 (0)1722 414 419 C K ROCKHOPPER EXPLO RATION PLC HILLTOP PARK FAX +44 (0)1722 328 491 H O SEA LION DEVIZES ROAD info rockhopperexploration.co.uk P @ P ANNUAL REPORT 2010 SALISBURY E www.rockhopperexploration.co.uk R 49º 16’ 05”S 59º 03’ 33”W WILTSHIRE E SP3 4UF COMPANY REG. NO. 05250250 X P L THE STORY SO FAR O R A T I O N P L C A N N U A L R E P O R T 2 0 1 0 EXPLOR E, APP RAISE, DEVELOP. D I R ANNUAL REP ORT 2 010 C E O C T N O R T S E ’ R N E T P O S R T : ‘Rockhopper’ (RKH) is the first company to make an oil discove ry in the Falkland Islands. Our st rategy is to explore, appraise DIRECTORS’ REPORT: OVERVIEW and develop our current ac reage RKH BACKGROUND 01 RKH KEY EVENTS in the North Falkland Basin both DIRECTORS’ REPORT: BUSINESS REVIEW safely and responsibly. 03 CHAIRMAN’S STATEMENT 05 MANAGING DIRECTOR’S REVIEW DIRECTORS’ REPORT: GOVERNANCE 07 BOARD OF DIRECTORS 08 STATUTORY INFORMATION 12 CORPORATE GOVERNANCE STATEMENT 16 DIRECTORS’ REMUNERATION REPORT 18 HEALTH, SAFETY, ENVIRONMENTAL AND SOCIAL MANAGEMENT 20 RISK MANAGEMENT REPORT FINANCIAL STATEMENTS AIM: RKH 22 INDEPENDENT AUDITOR’S REPORT www.rockhopperexploration.co.uk 23 GROUP INCOME STATEMENT 23 GROUP STATEMENT OF COMPREHENSIVE INCOME 24 GROUP BALANCE SHEET 25 GROUP STATEMENT OF CHANGES IN EQUITY 26 GROUP CASH FLOW STATEMENT 27 NOTES TO THE GROUP FINANCIAL STATEMENTS 46 COMPANY BALANCE SHEET 47 NOTES TO THE COMPANY FINANCIAL STATEMENTS ADDITIONAL INFORMATION 53 INVESTOR INFORMATION ROCKHOPPER EXPLORATION PLC BACKGROUND TIMELINE : T R O W P E E I R ’ V S R R O E T V C E O R I D 2004 2007 2009 Rockhopper is set up and is granted 2D interpretation confirms potential P50 Competent Persons Report (CPR) licences PL023 and PL024 2.5 billion barrels potential recoverable completed by RPS Energy on licences PL023 and PL024 2005 First independently verified gas discovery Farm In to Desire Petroleum licences 850km 2 3D survey completed with in the Falklands, confirmed on the Johnson PL003 and PL004 completed CGG Veritas, at that time, the largest prospect in the Falklands area Rockhopper is granted licences First contingent gas resource in the PL032 and PL033 Placing of new shares to raise Falklands confirmed by RPS on Rockhopper £1.3 million at 37p per share acreage IPO and Admission to AIM raising £15 million at 42p per share Site survey collected on Ernest Top 8 oil prospects considered by RPS with Wavefield Inseis Energy to contain potential 1 billion barrels 2006 recoverable 920km 2D seismic acquired with GSI 550 km additional 2D seismic in licences PL023 and PL024 collected with Wavefield Inseis Environmental Impact Statements (EIS) submitted on all operated acreage Four CSEM lines acquired over EIA commissioned on PL023 and PL024 licences PL023 and PL024 Desire Petroleum, a partner of Rockhopper, 2008 signs a Letter of Intent with Diamond Positive CSEM results obtained 3D interpretation confirms potential P50 Offshore for North Falkland Basin drilling 1.2 billion barrels potential recoverable campaign during 2010 3D survey commences on licences PL032 and PL033 Ocean Guardian rig secured and departs Total prospects mapped now contain for Falkland Islands potential P50 3.7 billion barrels recoverable across all operated acreage 2010 Ocean Guardian arrives in EIA commissioned on PL032 and PL033 the Falkland Islands SPD appointed to provide drilling expertise Well on Sea Lion prospect spudded Placing of new shares raises £3.6 million Well on Sea Lion declared at 101p per share as an oil discovery Well on Ernest prospect spudded Well on Ernest declared as a dry hole ANNUAL REPORT 2010 ROCKHOPPER EXPLORATION PLC KEY EVENTS OPERATIONAL AND FINANCIAL D I R O E C V T E O R R S V ’ R I E E P W O R T : DURING THE YEAR: ≥ $78m raised net of costs ≥ Two slots assigned for the Ocean Guardian ≥ Well 14/ 19-1 spudded on the Liz prospect ≥ $65m of resources available at 31 March 2010 POST YEAR: ≥ Well 14/ 10-2 spudded on the Sea Lion prospect ≥ Well 14/ 10-2 on Sea Lion prospect declared as an oil discovery ≥ Best estimate of barrels recoverable on Sea Lion increased from 170m to 242m ≥ $67m raised net of costs ≥ Well 26/6 -1 spudded on the Ernest prospect ≥ Well 26/6 -1 on the Ernest prospect declared as a dry hole ≥ $120m of resources available at 30 June 2 010 ANNUAL REPORT 2010 01 ROCKHOPPER EXPLORATION PLC W : E T I R V O P E E R R ’ S S R S O E T C N E I R I S D U B OCEAN GUARDIAN DEPARTS FOR THE FALKLAND ISLANDS The group was ready to drill when the right opportunity arose and has been transformed by the discovery on the Sea Lion prospect 02 ROCKHOPPER EXPLORATION PLC CHAIRMAN’S STATEMENT DR PIERRE JUNGELS CBE B U D S I R I E N The discovery on the Sea Lion prospect possible size of the Sea Lion prospect, In corporate terms, I am delighted to C T E O S has transformed the value proposition attributing it with a best estimate of 170 report that at the executive level R S S ’ represented by the group. A pure million barrels recoverable. At 170 million Dave Bodecott, our exploration director, R R E E exploration play , such as Rockhopper barrels recoverable, RPS had calculated and Peter Dixon -Clarke, our finance P O V when it began, creates value through a net present value , at $80 per barrel and director, are both now full time R I T E : a number of discrete steps, each with its applying a 10% discount rate , for the employees. At the non-executive level W own set of risks and rewards , as it goes prospect of $2.5 billio n. Following the we will look for two additional through the process of proving reserve s drilling, the best estimate was increased non -exe cutive s thereby bringing the total then moving forward to production . by RPS to 242 million barrels recoverable, number of directors to eight and creating indicating that there could be significant the balance between executive and n chronological order, we see upside still to be realised. non -executive that the Combined Code the key value points for the group requires for good governance. Ias being: We spudded well 26/6-1 on the Ernest ≥ The winning of the exploration licences, prospect on 23 July 2010 and declared In financial terms, once we have an ≥ The making of the first discovery on it to be a dry hole on 17 August 2010. agreed work programme for the next those licences, The well was drilled approximately phase, we will be in a position to cost it ≥ The testing of the discovery wel l to give 120 kilometres from the Sea Lion and consider how best to finance it. As an indication of its commercial potential, discovery in a previously undrilled part part of this planning, we are underta king ≥ Confirmation of the size of the discovery of the basin to test a different play a review of our advisers and considering for scoping development plans as well type from that of Sea Lion. The well whether we should remain on the as the full exploration of the acreag e, encountered good quality sands with Alternative Investment Market (“AIM”) ≥ Completion of the field development high porosity and permeability and or move up to the Main Market of the plan, and we intend to undertake detailed studies London Stock Exchange, a decision we ≥ First oil and subsequent production . of all the data gathered. will take when it is right for the group . The first value point, the winning of the We are fully funded to complete the well The fifth value point, the completion exploration licences, was achieved in the on the Ernest prospect, the flow test on of a field development plan, cannot earliest days of the group. In 2004 we the Sea Lio n prospect , which we believe be concluded until the discovery is were awarded licences PL023 & PL024, in will help move the discovery forward appraised and confirmed as to its size, the south of the basin, and in 2005 we towards being declared as commercial , but the research and planning as to farmed into Desire Petroleum (“Desire”) and pay our 15% contribution to two how best to deliver this has already licences PL003 and PL004 and were further wells on PL003 & PL004, where been started. awarded PL032 & PL033, the former Desire is the operato r. Shell acreage in the north of the basin CONCLUSION that contains the Sea Lion discovery. With the current programme funded and In conclusion, the group has been underway, w e have therefore turned our transformed by the discovery on the The second value point, the making of planning focus to the fourth value point, Sea Lion prospect and is now working the first discovery, took until 6 May 2010 confirmation of the size of the Sea Lion through the steps required to ensure when we announced the results of well Field. This will require appraisal of the that you, as shareholders, get the best 14/10-2 on the Sea Lion prospect. This discovery on Sea Lion and to deliver this possible value from it. discovery was the result of a great deal of we see three distinct work streams, being rigorous technical work undertaken over technical, corporate and financial.