Hartshead Resources (ASX:HHR, OTCGNYF), an Aussie-listed North Sea gas field developer, has landed a novel funding deal which one City broker reckons is worth nearly four times the company’s market valuation.
Hartshead: North Sea firm lands unique deal to unlock gas field development
Hartshead Resources (ASX:HHR, OTCGNYF), an Aussie-listed North Sea gas field developer, has landed a novel funding deal which one City broker reckons is worth nearly four times the company’s market valuation.
A funding solution agreed with joint venture (JV) partner RockRose gives Hartshead optionality whilst, crucially, giving the financial greenlight for the partners to advance the Somerville and Anning gas fields into development.
RockRose will cover "uncapped" 100% of the Phase 1 development costs – with Phase 1 being the delivery of Somerville and Anning – in exchange for a 20% piece of that joint venture's assets.
Hartshead, meanwhile, retains the ability instead to secure alternative project financing (inclusive of debt financing or gas presale/offtake transactions) in order to retain all of its current 40% stake in project.
In the meantime, as the project advances, Hartshead told investors that the existing "carry" from its prior RockRose farm-out transaction leaves it with “more than 12 months” of project funding, based on current capital projections.
According to Hartshead, the funding backstop is a “major achievement” that de-risks the project financing, giving the company a clear pathway to development and cashflow.
“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,” Hartshead chief executive Chris Lewis said in a statement.
Francesco Mazzagatti, chief executive of RockRose subsidiary Viaro, added: “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.
“… 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.”
In Sydney, investors traded Hartshead into positive territory, with the oil and gas share up a shade over 4% to 2.5 cents apiece.
Analysts at City broker Cavendish, meanwhile, took a more bullish view of the deal’s value and potential impact.
“The agreement puts Hartshead in a unique position where it is able to retain its 40% interest via sourcing debt but can progress towards a final investment decision (FID) knowing that it has a fully funded equity share for its remaining project interest,” Cavendish analyst James McCormack said in a note.
“We estimate that the 20% carry is worth c£85m (A$163m) – c2.4x Hartshead’s current market cap.
“Together with the initial cash payment and past costs, we estimate that the RockRose farm-out is worth A$240m net to Hartshead, c3.6x Hartshead’s market cap.”
Describing the Hartshead asset base to investors, McCormack added: “Hartshead has a material interest in five blocks in the Southern North Sea Gas Basin, covering four existing gas discoveries and 14 identified prospects.
“In aggregate, these five blocks contain 785Bcf (131mmboe) of gross 2P, 2C and 2U reserves and resources.
“All four existing gas discoveries have been materially derisked through existing penetrations, flow tests and in the case of the Anning and Somerville fields, a multi-year production history.”
Hartshead presently retains a 40% interest in the assets, whilst the backstop funding amounts to some US$800 million of debt-free, non-equity-diluting financing. The company’s ASX-listed shares meanwhile give it a market capitalisation of a mere A$84 million.
The Phase 1 fields have an estimated 301.5 billion cubic feet (Bcf) of gas reserves, whilst the subsequent phases promise further upside through the unlocking and development of further gas resources, which are envisaged as feed into the UK’s Bacton Energy Hub – which is part of the government's energy transition and net zero plans.
A previously published timeline, based on an FID in 2023, anticipated 'first gas' production coming in 2025.
RockRose, which presently owns the other 60% of the project, was previously quoted on London’s AIM prior to a premium-price private equity takeover back in 2020. That deal valued RockRose at £247.5 million (based on an £18.50 per share deal, which was a premium of more than 60% at the time).
GNYF), an Aussie-listed North Sea gas field developer, has landed a novel funding deal which one City broker reckons is worth nearly four times the company’s market valuation.
(20min delay)