Hartshead has taken a concrete step towards developing its UK Southern Gas Basin project by reaching a $196.3m farm-out deal with established UK North Sea independent RockRose Energy.

Under the agreement, RockRose will take up a 60% equity interest by reimbursing past costs, partially carry the company’s share of development costs, bonus milestones and $48.4m of UK Government Investment & Capital Allowance.

Its participation also covers $536m of gross project expenditure, which significantly reduces the level of funding that Hartshead Resources (ASX:HHR) will need to secure in order to develop the project.

Hartshead will also retain operatorship of the project – until it is transferred to RockRose at mutually agreed future date – under the deal, which materially de-risks the UK Southern Gas Basin project and provides a clear pathway to full financing and subsequent development.

Additionally, the company has received firm commitments from institutional and sophisticated investors for a $20m placement of shares priced at 4c each.

Proceeds from this placement will augment proceeds from the farm-out and are expected to ensure that the company is fully-funded for its share of non-debt project development costs.

“The successful execution of a farm-out agreement with RockRose materially de-risks the Phase I development of the Anning and Somerville gas fields by securing over $536m of gross project expenditure, provides technical and commercial validation of our gas development and implies a material uplift in value for the project,” chief executive officer Chris Lewis said.

“This is a landmark transaction for Hartshead shareholders. I am delighted to welcome RockRose to the P2607 Joint Venture and I am looking forward to working with the team as we progress the Phase 1 development and other opportunities in the Licence.”

RockRose farm-in deal and share placement

Under the agreement, RockRose will make an initial payment of $12.2m as the initial consideration and for its 60% share of the pre-completion joint venture costs on completion of the transaction.

It will then free carry Hartshead share of development costs to a total of $95m and pay bonuses of $9.8m once the Phase 1 final investment decision is made and $31.7m when the Phase 1 field development plan is approved by the UK Government.

The remaining $48.4m will be provided by way of UK government Oil and Gas Investment allowance, which is a “super-deduction” style investment allowance for the oil and gas sector to invest in the UK.

There is also a separate $9m conditional bonus on NSTA approval of the field development plan for the Phase 2 development.

Directors in the company have – subject to shareholder – agreed to subscribe for a further 18.75 million shares to raise a further $750,000.

The road to gas development

The farm-out to RockRose means the inclusion of a credible joint venture partner, which is a critical consideration for prospective debt funding partners.

Initial discussions with funding providers suggest that a conservative target debt level, which together with the Farm-out and Placement proceeds, sees the Company funded through its estimated share of development costs.

Hartshead is currently planning to raise development finance through a combination of one or more of the following instruments:

  • Reserve Based Lending (RBL);
  • Corporate/Nordic Bonds;
  • Prepayment/Commodity Offtake Facility;
  • Infrastructure Funds; and
  • Further sell down of minority interest in the Licence (post project advancement).

Likewise, front-end engineering and design work – a key deliverable in order to reach FID – is on track to be completed in the second quarter of 2023.

The company is also progressing finalisation of its gas transport and processing agreement with Shell.

 

 

 

This article was developed in collaboration with Hartshead Resources (ASX:HHR), a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

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