Looking at the JV from Rockrose's perspective

There is still a fair amount of emotion around the recent farmout to RR. Shitty deal, uneccesary cap. raise, incompetent board and mgt etc., etc. The reality for HHR is, for better or worse, the deal is done. Whatever they were before, HHR is now an investor in the project. They are meant to hang on as operator until FID/first gas but will still need to report to RR as the majority partner.

So what does the deal look like from RR perspective and what is their strategy moving forward?

RR have the financial strength to carry the project with or without HHR. RR financials (Dec 2021) net assets $1.4bn, net cash $75m, adjusted profit $485m. They also have the support of Viaro, their parent company, if required. The increased and extended windfall tax means the RR need a development asset, with chunky capex, in the pipeline.

Looking at the project from RR perspective my DCF for RR (60%) is $570m. (vs HHR (40%) $248)
RR project capex is $395m and farm in $148m for a total cost of $543m. RR however, have an opportunity to earn a capex super-deduction of $496m meaning their net total capex could as low as $47m.

At a net capex of roughly $50m the HHR DCF still returns $320m at 50p/therm.

RR now has effective control of the project. IMO RR (and Viaro) will drive this project forward to deliver over $2bn in revenue and ½ billion in tax deductions to RR.

I don't think that RR have a real ambition to be an operator and that nominating as operator is more about control. RR don't currently operate any of their projects however they are in JV's with a number of substantial operators who could provide support. These include Repsol-Sinopec, Shell, BP, Petrogas, Totalenergies and Porenco UK. RR also holds a 22.19% interest in the Bacton Terminal.

So where does this all leave HHR?

HHR is a single asset company and I think there would have been pressure from RR to give up equity, or the whole company, to RR. The farm out and retention of 40% has allowed HHR to retain its independence. (for now)

HHR is cashed up after the $20m placement, and $12m from the farm in. They have put themselves in a strong position to deal with RR. They have enough cash to remain independent and have structured a deal so that RR has a strong incentive to ensure the project proceeds on time.

While the HHR SP remains low they are a possible T/O target. (a point that @sergeant has already made) Their defense against this is they are cashed up and have substantial director holdings.

What do others think? Will HHR stay the course or be taken out? My bet, for what it's worth, is that the project will end up 30% Shell (operator), 30% HHR and 40% RR. Either that or HHR get taken out early and low!

I realize, that for some, this may all seem far to rosy and I respect that. Most of the posters on this tread will have lost cash before on O&G explorers, including me. All IMO, DYOR.