Hartshead Resources and the independent Viaro Energy, operating in the UK North Sea, have announced modifications to the Farm-out Agreement (FOA) and Joint Operating Agreement (JOA). These changes involve Hartshead’s wholly owned subsidiary, Hartshead Resource (HRL), and Viaro’s subsidiary, RockRose Energy (RockRose).

The amended agreements grant Hartshead the option to divest an additional 20% equity interest in its UK Southern Gas Basin License P2607. In return, Hartshead will receive an uncapped free carry covering all gross costs related to the Phase 1 project development, known as the Financing Backstop. This strategic move allows Hartshead to exercise the Financing Backstop after the Final Investment Decision has been made and upon the complete expenditure of RockRose’s current carry for Phase 1 project development costs.

The initial total gross consideration outlined in the Farm-out Agreement (FOA) for a 60% divestment of License P2607 amounted to approximately A$196.3m. This sum included reimbursement of past costs, a partial carry on HRL’s share of development costs, bonus milestone payments, and A$48.4m from the UK government Investment & Capital Allowance. With the recent amendments to the FOA and JOA, there is now a robust financial backstop in place to secure funding for HRL’s share of costs for Phase 1. This serves as a contingency in case alternative funding arrangements on acceptable terms are not agreed upon by HRL.

HRL retains, at its exclusive discretion, the option to forego the Financing Backstop and explore alternative financing avenues to maintain its existing 40% interest. This decision will be made after the full utilisation of the current carry commitment from RockRose. As per current capital projections, this expenditure is expected to conclude by Q2 2025, affording Hartshead over 12 months to secure project debt finance.

Hartshead CEO Chris Lewis said: “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.”

The inclusion of the Financing Backstop, facilitated by an uncapped carry, stands as a significant milestone for the Company. It effectively mitigates project financing risks, establishes a transparent route to development and cash flow, and positions HRL with the choice of maintaining its remaining project interest entirely funded without incurring debt.