Third-party funder paid €26m for backing disputed arbitration award

Oil: Italy in breach of Energy Charter Treaty

A third-party funder has been paid €26m (£22m) after its client monetised a disputed arbitration award that it backed.

Rockhopper Exploration PLC was awarded €190m in 2022 against the Republic of Italy, which is currently trying to annul the decision. It was backed by an unnamed litigation funder.

In the meantime, Rockhopper – an AIM-listed oil and gas company based in the UK with interests in the Falkland Islands and Italy – struck a deal with a separate specialist fund, also unnamed, to draw down some of the money.

The company announced this week that, having satisfied all precedent conditions – including receiving the approval of the Falkland Islands government – the fund has made the first of three potential payments, with €26m of the €45m handed over going to the litigation funder.

This fully discharges Rockhopper of all of its liabilities under the funding agreement.

Of the €19m retained by Rockhopper, €4m is going to its legal advisers, King & Spalding, as a success fee.

A further two tranches remain payable to Rockhopper upon a successful outcome of the annulment bid, which is before the International Centre for Settlement of Investment Disputes.

Tranche 2 is a contingent payment of €65m upon a successful annulment outcome and tranche 3 a potential payment on recovery of amounts in excess of 200% of the specialist fund’s total investment.

Rockhopper commenced arbitration proceedings in March 2017 accusing the Italian government of breaching the Energy Charter Treaty with its decision not to award the company a production concession covering the Ombrina Mare oil field, which is off the country’s eastern coast.

In August 2022, the arbitration panel unanimously held that Italy had breached its obligations under the treaty, entitling Rockhopper to compensation of €190m plus interest dating back to January 2016.

The third-party funding agreement did not cover any costs arising past the date of the award.

A provisional stay of enforcement was lifted last year but Rockhopper said Italy has not responded to its request for payment or to multiple subsequent attempts to engage in negotiating a settlement.

The monetisation agreement was with a “regulated specialist fund with over $4bn in investments under management that has experience in investing in legal assets”.

Rockhopper retains legal and beneficial ownership of the award and will receive 100% of all tranche 2 and 3 payments.

Rockhopper chief executive Samuel Moody said: “This cash gives us the strongest balance sheet we have had for a number of years, and we remain confident in the merits of our legal case as we await the decision of the ad hoc panel on the annulment request from the Italian Republic.”

Speaking when the monetisation deal was agreed last December, Mr Moody explained that it provided “near-term certainty for Rockhopper and de-risks our exposure to the annulment process, while maintaining potentially significant upside exposure both to a successful annulment outcome and eventual recovery”.

Simon Thomson, non-executive chairman, added: “We are aware of a number of international arbitration awards against the government of Italy where payment remains outstanding.

“Given this background, and the circumstances of our own dispute, we are therefore pleased to have entered into this agreement, allowing us to secure material value now and remain exposed to future upside in the hands of experienced professional litigators.”

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