Hartshead Resources clears the path to develop UK gas fields, saves costs along the way

Hartshead Resources has further de-risked Phase 1 development plans for its UK Southern Gas Basin assets after negotiating an option with its farm-in partner, RockRose Energy.

Exercising its option to divest a further 20 per cent in Phase 1 will provide Hartshead with an uncapped free carry on development costs. Picture: Getty Images.

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Hartshead Resources has further de-risked Phase 1 development plans for its UK Southern Gas Basin assets after negotiating an option with farm-in partner RockRose Energy that covers 100 per cent of its costs.

The company’s UK Southern Gas Basin assets consist of four discoveries and 14 identified prospects, with Phase 1 focused on bringing the previously producing Somerville and Anning fields back online.

Somerville and Anning have combined proved and probable reserves of 301.5 billion cubic feet of gas.

Six production wells will deliver production peaking at about 140 million standard cubic feet per day (MMscf/d) from 2025 into two wireline-capable normally unmanned installation platforms that will, in turn, transport gas to Shell’s infrastructure for onward transportation and processing for sale.

Given the UK’s goal of reducing its dependence on imported gas, the attractiveness of the Phase 1 development enabled Hartshead Resources (ASX:HHR) to rope in RockRose Energy as its farm-in partner.

Under the original agreement, RockRose – an existing North Sea oil and gas producer and subsidiary of Viaro Energy – agreed to pay the company $196.3 million in return for a 60 per cent interest in the project licences and paying its share of costs for the Phase 1 development, which secured over $536 million of gross project expenditure.

Road to FID clear

The two companies have now amended the farm-in agreement to include an option for HHR to divest a further 20 per cent in the project licences for an uncapped free carry over the total costs of the Phase 1 development.

While HHR is not required to exercise the option, it provides certainty for a final investment decision, on the basis of RockRose financing the project.

Exercising the financing backstop option would increase the total committed project funding to over $800 million.

Should the company retain its 40 per cent interest in the project licences, it will receive a Phase 1 cash bonus of $54.7 million in work program carry.

“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,” HHR chief executive officer Chris Lewis said.

“Hartshead is in a unique position as it has the added ability of being able to retain its 40 per cent 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.

“The joint venture team between Hartshead and RockRose has integrated exceptionally well over the last few months and I would like to personally thank RockRose for their support in the joint venture on licence P2607 and the significant progression of the Phase 1 development.”

Viaro chief executive officer Francesco Mazzagatti said he was pleased with the restructuring of the farm-in agreement as it provided certainty over Anning and Somerville being 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,” Mazzagatti said.

“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 co-operation at every stage of our developing partnership.”

Project debt discussions continuing

HHR is continuing to pursue the option to introduce project debt and maintain its current 40 per cent equity interest in Licence P2607.

It noted that discussions with funding providers suggest the project is maintaining a conservative target debt level, which could see the company funded through its estimated share of development costs.

Financing instruments being considered include:

• Reserve-based lending (RBL)
• Corporate/Nordic bonds
• Prepayment/commodity offtake facility
• Infrastructure funds.

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This article was developed in collaboration with Hartshead Resources, 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.

Originally published as Hartshead Resources clears the path to develop UK gas fields, saves costs along the way