Rockhopper payout wins £210m after drilling ban

 

By J Brock (FINN)

 

Italian government ordered to compensate Rockhopper after coastal exploration banned

 

The Ocean Guardian semi-submersible rig, which drilled on behalf of Rockhopper Exploration off the Falkland Islands in 2010. Photograph: Gary Clement

 

The Italian government has been ordered to pay more than £210m to Rockhopper Exploration Plc as compensation for an offshore oil drilling ban.

 

Rockhopper’s litigation began in 2015 after the Italian government banned oil exploration and production within a 12 mile-limit off Italy’s coast, making the company’s planned Ombrina Mare oilfield a thing of the past.

 

A closed-door tribunal under the energy charter treaty (ECT), unanimously agreed on Wednesday that Italy had breached its obligations to Rockhopper, entitling it to a compensation of about six times more than the estimated £33m it had invested in the project.

 

The arbitration panel unanimously held that Italy had breached its obligations under the Energy Charter Treaty entitling Rockhopper to compensation. The award is final and binding on the parties. Italy has 120 days to apply for an annulment of the award, which can only be annulled in limited circumstances. Under a legal agreement with the Falkland Island Government Rockhopper is prevented from making any form of distribution.

 

The ECT was drawn up to protect the profits of European energy companies as the Soviet Union crumbled in the early 1990s. Under the terms of the ECT, companies can sue governments if they make policy decisions that could cut profits. This poses a clear challenge as governments seek to reduce their fossil fuel emissions.

 

All costs associated with the arbitration were funded on a non-recourse (“no win – no fee”) basis from a specialist arbitration funder. After payments due to the arbitration funder, Rockhopper expects to retain approximately 80%  of the award (assuming full recovery of the award). Further analysis is required to establish the tax treatment on any payments related to the award.

 

Samuel Moody, CEO commented

 

‘We are delighted to have won our case. A huge amount of work has been involved since we acquired Mediterranean Oil & Gas Plc in 2014 and commenced the Arbitration in 2017.  I would like to pay tribute to our team for their dedication over such a long period.  We will update the market in due course once we have been able to analyse fully the results of the arbitration and its full, very positive financial implications for Rockhopper. This positive milestone builds on our recent transaction with Navitas and while work still needs to be done on Sea Lion, we believe after collection of the award, it will make a material contribution towards our share of the development costs.’