With amendments in place, funding solution secured for UK North Sea gas project

ASX-listed Hartshead Resources NL and Viaro Energy, through its wholly-owned subsidiary RockRose Energy, have reached an agreement to amend the farm-out agreement (FOA) and joint operating agreement (JOA), providing the former with an option to divest an additional 20% equity interest in its UK Southern Gas Basin License P2607, in return for an uncapped free carry of all gross costs for Phase I development costs of a gas project in the UK North Sea.

Following a recently completed farm-in deal, Viaro Energy’s RockRose holds a 60% working interest in production license P.2607, which includes the Anning and Somerville fields, while Hartshead has a 40% stake. At the time, RockRose committed to A$135.7 million or about $91.8 million consideration for purchasing Hartshead’s partial interest, which forms part of Hartshead’s equity requirement for the project development costs of Phase I.

However, Hartshead and RockRose have now arranged to amend the farm-out agreement and JOA, thus, the financing backstop interest for an uncapped free carry may be exercised after the final investment decision (FID) has been taken and upon the full expenditure of the current RockRose’s carry for Phase 1 project development costs.

Chris Lewis, Hartshead CEO, commented: “The execution of the amendments to the farm-out agreement and joint operating agreement with RockRose, allows us to advance the Phase I development of the Anning and Somerville gas fields by securing the option of an uncapped carry for our interest of the project.

“Hartshead is in a unique position as it has the added ability of being able to retain its 40% interest via alternative financing whilst ensuring it is now able to progress to take final investment decision and progress towards project development, now that it has a financing backstop provided.”

According to the ASX-listed player, the amendment to the existing farm-out agreements provides security of funding for 100% of Phase 1 project development costs. Exercising the financing backstop would increase the total committed project funding to over A$800 million or over $532 million. However, Hartshead maintains the flexibility to retain its 40% interest and select alternative funding.

According to the company, the existing Phase 1 cash bonus has been converted and increased to an additional A$54.7 million (nearly $36.4 million) in work program carry in the event Hartshead retains its 40% interest. The JV claims to be making good progress on the development and towards FID while Phase 2 bonuses of A$9 million ($5.99) cash remain.

Francesco Mazzagatti, CEO of Viaro Energy, remarked: “I am quite pleased with the restructuring of our original farm-in agreement with Hartshead, as it provides us with complete certainty that the development of Anning and Somerville will be fully funded to completion. Giving our partner the option of a financing backstop ensures stability for the JV, a particular challenge for North Sea operators nowadays with the shrinking pool of traditional capital providers for E&P opportunities.”

Moreover, project funding discussions with funding providers suggest that Hartshead maintains a conservative target debt level, which with debt funding would see the company funded through its estimated share of development costs.

The firm has been progressing discussions with various debt providers and will continue these discussions on development finance through a combination of reserve based lending (RBL), corporate/Nordic bonds, prepayment/commodity offtake facility, and infrastructure funds.

“With the amendments in place, we can now confidently proceed to the FID. I am grateful to the Hartshead team for a smooth and seamless cooperation at every stage of our developing partnership,” added Mazzagatti.

Discovered in 1969, Anning and Somerville came online in 2008 and 1999, respectively. The fields ceased production in 2015, at which point Somerville had produced 48 bcf of gas, and Anning had produced 16 bcf of gas. This field development consists of an unmanned dual-platform development with gas transportation via a subsea tie-in to the offtake route.

After completing Phase 1, the project’s Phase 2 will focus on the Hodgkin and Lovelace fields while Phase 3 may also be in the pipeline, as Hartshead’s exploration portfolio underwent a study by Xodus Group, generating a new prospect inventory totaling 14 prospects and leads with unrisked 2U prospective resources of 344 Bcf.

Hartshead Resources and RockRose launched in October 2023 an invitation to tender for pipeline EPCI services for the Anning and Somerville fields, following completion of the pipeline route survey covering the offtake routes for gas production from the developments.