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Rockhopper announced yesterday that it has successfully raised the equity required to deliver first oil from the Sea Lion field in the North Falkland Basin. In an oversubscribed equity placing, the company has raised up to US$140m, subject to shareholder approval, and conditional on the partners reaching a final investment decision (FID) by the end of March next year. The new money was raised at 53p/shr, plus a quarter warrant with an exercise price of 80p. The share price responded well to the news, closing yesterday at almost 72p/shr. Having accounted for the dilutive effect of the raise, and cutting our commercial risk factors on Sea Lion, we calculate an updated risked core NAV of 71p/shr and a total NAV of 105p/shr. At the latter point we set our target price, which now offers around 46% upside. The next major milestone for the project will be securing the cUS$1bn of project finance, which we expect over the coming months. This will allow for the partners to reach a final investment decision (triggering admission of the new equity) and move ahead with the development. First oil is anticipated for 1Q28, with gross production at start-up around the 45 kbopd mark.
Rockhopper Exploration plc
Having received the Ombrina Mare tranche 1 arbitration award last year, Rockhopper is in its strongest financial position for years as it aims to take FID on Sea Lion this year. Reiterate Buy with an upgraded TP of 65p.
Savannah Energy, Helix Exploration, Centrica, Equinor, Rockhopper Exploration, Helium One Global, Sunda Energy, Tower Resources, Ascent Resources, Tullow Oil, Kosmos Energy, Viper Energy, Gran Tierra Energy Source: FactSet, weekly change 02/06/2025-06/06/2025 Oil rose as stronger-than-expected US jobs data eased concerns about an economic slowdown that would crimp demand, spurring algorithmic traders to reduce short positions. West Texas Intermediate climbed almost 2% to settle above $64 a barrel, notching the largest weekly gain since November. Crude followed equities higher after US job growth in May narrowly surpassed economist forecasts, allaying concerns of near-term demand deterioration. The figures also pushed economy-sensitive diesel futures to a two-week high. The positive economic data spurred commodity trading advisers to ease off of their bearish tilt. The funds, which can accelerate price momentum, liquidated short positions to sit at negative 9% short in WTI on Friday, compared with 64% short on June 5, according to data from Bridgeton Research Group. The rally was supported by enduring risk-on sentiment from optimistic signs on trade talks between the US and China, the world’s largest importer of crude. President Donald Trump and his Chinese counterpart, Xi Jinping, agreed to further negotiations over tariffs and supplies of rare earth minerals. The positive signals come against the backdrop of an oil market that has been increasingly rangebound in recent weeks. Prices have traded in a $5 band since the middle of May, and a gauge of volatility for US crude futures is at the lowest since early April. Oil has been buffeted in Trump’s second term as trade tensions between the world’s two largest economies menace demand. At the same time, the OPEC+ alliance has been adding barrels back to the market at a faster-than-expected rate, further clouding an already weak outlook for the second half of the year. The number of oil rigs in the US, meanwhile, plummeted to the lowest in about four years as shale explorers anticipate weakening global oil demand. Oil prices WTI for July delivery rose 1.9% to settle at $64.58 a barrel in New York. Brent for August settlement added 1.7% to settle at $66.47 a barrel. Rigzone.
Rockhopper Exploration plc Savannah Energy Plc
Rockhopper is an AIM-listed E&P with a 35% stake in Sea Lion, one of the world’s largest undeveloped oil fields. The giant field was discovered back in 2010; however, progress stalled due to former operator Premier Oil’s financial issues. The arrival of development specialist Navitas in 2020 has injected fresh impetus. The Tel Aviv-listed independent is in the final stages of its major Shenandoah project offshore US, which once onstream (around mid-year) will allow for attention, and capital, to be directed towards Sea Lion. Going into the project Rockhopper is positioned strongly, with a major portion of capex covered under farm-in agreements with Navitas. Furthermore, the monetisation of an arbitration award in Italy has injected €19m of cash into the business, with another €31m due imminently thanks to a prudent insurance policy protecting against annulment by the Italian state. The market is slowly waking to the clear potential within Rockhopper’s portfolio; however, there remains considerable upside to the prevailing share price. Our DCF-derived risked total NAV at 105p/share offers over 2x returns, with far more running room as Sea Lion is de-risked further. We initiate coverage with a 105p target price offering 132% upside.
Brazil looks to boost receipts from oil sector
Rockhopper Exploration plc Mosman Oil & Gas Ltd.
Rockhopper has announced the unsuccessful result of its most recent Italian arbitration process hearing, with the previous award to Rockhopper now having been annulled by the panel. Rockhopper will now look to claim under its insurance policy, with an expectation of receiving EUR31m cash.
Rockhopper has released its full year 2024 results. These reiterate the existing balance sheet cash, alongside providing an update on the company’s key Sea Lion project as it advances towards FID, and on the Italian arbitration process, which is due to deliver significant additional cash to Rockhopper.
Rockhopper has announced that its Sea Lion JV partner, Navitas, has released a resource report for the asset (from NSAI), giving further clarity on future development phases beyond the initial Phase 1, while also reporting progress on development works and contracting for the project.
Rockhopper has released an update on its Sea Lion project, including news on development progress, updated CAPEX, and a new CPR from Sea Lion operator Navitas. In our view, this is a helpful demonstration of Navitas progressing the project, with a process to secure funding now upcoming, ahead of targeted FID in mid-2025.
COP29 reaches bad-tempered agreement
RKH HIBI SNUYF
Rockhopper has announced an extension to all its Falklands licences to the end of 2026, helping facilitate the Sea Lion JV’s upcoming project funding process.
Rockhopper has announced two updates. First, it has taken out an insurance policy against its upcoming Italian arbitration annulment court decision, underpinning a cash payment of EUR31m for Rockhopper. Second, it has disposed of its remaining Italian assets portfolio, removing forward decommissioning liabilities for the company.
Together, the insurance policy and the Italian asset disposal help reduce risk and streamline the business as it continues to progress the Sea Lion oil field towards FID. We reiterate Buy, TP 30p.
Rockhopper has released its H1 2024 results. These report a significant cash position given recent receipt of an initial payment connected with its Italian arbitration, alongside providing an operational update which reiterates the Sea Lion JV’s ongoing progress towards project FID.
As work to progress Sea Lion towards FID continues, and with its balance sheet significantly strengthened, we believe Rockhopper is in the best financial position it has been for a number of years. Reiterate Buy, TP 30p.
We have updated our model for Rockhopper, including for the recent EUR19m arbitration cash payment. Rockhopper continues to make strong progress towards FID on its Sea Lion project, with operator Navitas reworking the development to reduce upfront CAPEX earlier this year, and now focusing on securing full funding. Taking Sea Lion towards and through a positive FID would be very positive for Rockhopper and the value of its stake in the project, and the recent arbitration monetisation provides important cash to help here.
A number of important milestones have yet to occur, but with its liquidity position substantially improved, Rockhopper is in the best financial position it has been for many years, as Sea Lion continues to progress towards FID. We upgrade to Buy from Hold, TP 30p.
Crude up on EIA storage draw
Rockhopper Exploration plc Enwell Energy plc
Rockhopper recently announced FY23 results, reporting a net loss of $(4.5m) (FY22 $35.5m profit) on zero revenue. Net cash at December of $8.0m, with a further $2.0m received post period end upon exercise of warrants. Principal focus during the period was around advancing progress towards development of the Sea Lion project in the Falklands. A revised initial development phase is targeting recovery of 312mmbbls (up from 269mmbbls) and peak production of 55kbopd. Estimates of the 2C contingent resources at Sea Lion were raised in a new CPR to 791mmbbls. Rockhopper made moves to sought to monetise the damages award for the expropriation of the Ombrina Mare field by the Italian Government, with a deal agreed with a specialist fund to pay €45m in a first tranche, with a further €65m in event of a successful outcome (in Rockhopper’s favour) over the annulment hearing which may reach a decision by the end of 2025. Rockhopper will also receive a profit share of 20% of any amounts paid over a limit of 200% of the Funds expenses and fees. The outlook remains positive, with the balance sheet in reasonable shape and investors eager to see progress on Sea Lion being moved towards FDP submission. We reiterate our BUY recommendation and raise our TP to 24p (from 23p). Sea Lion adds weight with a new CPR upgrading the 2C resources to 791mmboe – a significant increase from the prior 712mmbbls. Operator Navitas and Rockhopper have revised the development plan again, with a rephasing of the development with the initial phase targeting 312mmbbls and 55kbopd. The development plan still envisages 23 wells over two phases. The JV is still targeting FID later this year, with first production before the end of 2026. Navitas are currently looking to secure long lead items for the development. Development plan improves economics for Falklands with the new development plan estimated to reduce breakeven to $25/bbl. However, the capex to first oil is still significant at $1.2bn – albeit reduced from $1.3bn - and funding is still a potential issue for Rockhopper. The company can accept a (more expensive) funding package from Navitas or can look to secure funding from third parties. We see this as significantly de-risking the chance of the development proceeding for Rockhopper and also benefits Navitas in that it removes scope for partner drag. Monetising the Italian arbitration award through a specialist fund, following the successful ruling in Rockhopper’s favour, is an understandable move to remove the uncertainty over timing of receipt of proceeds. The deal sees the company receive a €45m payment but will retain €15m as €26m is required to settle the arrangements with the original arbitration funder, with some additional legal costs to be paid. The second tranche of €65m is payable upon a successful annulment outcome, with a potential third (unspecified) payment in event that recovery exceeds 200% of the specialist funds investment (ie fees, legal costs and payments to Rockhopper) – with Rockhopper receiving 20% of this ‘profit’ amount. While tax is payable on these fund proceeds, we believe the deal makes sense as this introduces a level of certainty and removes the risk around timing of receipt of funds from Italy (which could take years). While the amounts to be received by Rockhopper are significantly smaller – c€80m (minimum), the deal does remove an element of risk. We would also argue that this is still a substantial amount of money for the company and will affray some of their share of capex for their share of the Sea Lion development. We feel that the shares continue to look undervalued, with the price not reflective of the potential of Sea Lion, nor over the proceeds to be realized from the monetization of the arbitration award. We have adjusted our forecasts to reflect the results, warrant exercise and the fund stage payments around the arbitration award. However, we have not included anything for the 20% ‘profit share’ – there is too much uncertainty as to the potential quantum at this time. Consequently, this sees us lift our TP to 24p (from 23p). There was little material new information in the results, with the financial accounts largely irrelevant given the current pre-development stage of Rockhopper’s assets. However, investors have been cheered by the prudent decision to monetise the arbitration award through a specialist fund, as that secures income in the near term, whilst also providing some potential upside for the future. It also removes any near-term pressure on working capital. Progress continues to move ahead with Sea Lion, and the slimmed down development will reduce the capex exposure in the near term. Funding the capex is an issue that investors will wish to see resolved – whether by using the Navitas funding or a third-party lender. We would anticipate the current discount to unwind on news of achieving further development milestones and making FID on Sea Lion. We have amended our forecasts to reflect the FY23 results and reiterate our BUY recommendation.
Rockhopper has released its 2023 results, reporting ongoing development planning progress on its significant Sea Lion project, and work towards closure of its Italian arbitration award monetisation deal, which should bring in significant new cash for the company.
Rockhopper said that operator Navitas has updated the Sea Lion development plan, with a new assessment of 2C resources increased to 791mmbbls (from 712mmbbls). This follows updated reservoir modelling and other studies. Navitas continues to secure long lead equipment and is assessing various FPSOs for suitability for the development. The development plan still envisages 23 wells over two phases, with plateau production of 55kbopd recovering 312mmbbls (up from 269mmbbls). The JV is still targeting FID later this year, with first production before the end of 2026. RKH said it had cash at Dec of $8m, with a further $2.2m due to warrant exercise this month. The upgrade to resources for Sea Lion is a boost for the project, and this should markedly improve overall field life economics. We amend our forecasts to reflect the new development phasing, with an increase to TP of 22.6p (from 19.6p). We reiterate our BUY recommendation. Studies lead to resource upgrade, with a new CPR by NSAI estimating 2C resources of 791mmbbls (from 712mmbbls), with the Sea Lion development resource increasing to 312mmbbls (from 269mmbbls). Development plans changed by Navitas with a rephasing of drilling development wells in the initial stage, with 11 wells in the first stage before a pause of around 24 months before the remaining 12 wells are drilled. 5 wells will be drilled before first production. However, the plans also see the deployment of a smaller FPSO with peak production falling to 55kbopd (from 80kbopd), although there is scope to add further vessels to develop later phases of the field. The staged development will see 23 wells drilled over two phases. Lower cost route to production with the revised development costing $2.5bn (gross), with a $1.2bn spend to get to first production in 2027. This development is anticipated to have life of field capex of $8.00 (from $7.50/bbl) and opex of $17/bbl (from $20.20/bbl). FID is targeted later year. Cash position is healthier (than we expected) with cash at December of $8m (above our $6.7m estimate), with a further $2.2m to be received shortly following exercise of warrants. We have adjusted our forecasts to reflect the amended development plan, higher resources along with higher cash and share dilution. We have also incorporated our current oil price forecasts. This leads us to move our TP to 22.6p (from 19.6p). Sea Lion progress should cheer investors that the project is (finally) moving closer to becoming reality. While the FID is not expected to be achieved until later this year, the revised development plan will reduce capex and allow more time for Rockhopper to secure proceeds from the Ombrina Mare award. The recent monetization of the potential award gives additional clarity for Rockhopper and will allow greater certainty when discussing financing with potential lenders. However, with Navitas also offering potential (albeit more expensive) funding, we feel investors can feel optimism that the project is drawing closer. We would anticipate the current discount to unwind on news of the Italian arbitration hearing, along with development milestones for Sea Lion. We maintain our BUY recommendation with a TP of 22.6p.
Rockhopper has announced an update to its Sea Lion development plan, further reducing upfront CAPEX and helping put the project in the best position to achieve full funding.
Rockhopper announced that it has entered into an agreement with a specialist fund to monetise the Italian arbitration award (that was awarded in RKH’s favour last year). Deal sees RKH receive a €45m payment but will retain €15m as €26m is required to settle the arrangements with the original arbitration funder, with some additional legal costs to be paid. The second tranche of €65m is payable upon a successful annulment outcome, with a potential third (unspecified) payment in event that recovery exceeds 200% of specialist funds investment – with RKH receiving 20% of these amounts. The deal makes sense as this introduces a level of certainty and removes the risk around timing of receipt of funds from Italy (which could take years). In return, the amounts received by the company are materially smaller. However, this does reduce risk and is still a significant amount of money and will cover some of the costs of their share of the Sea Lion development. We have adjusted our estimate of the net proceeds to Rockhopper, and consequently downgrade our TP to 19.6p (from 21.5p). We reiterate our BUY recommendation.
Rockhopper has announced a monetisation of its Italian arbitration award, made in 2022 and for which the legal process for recovery by Rockhopper remains ongoing.
Rockhopper announced interims results yesterday, reporting a net loss of $2.6m (1H22 $(0.7m)) on zero revenue. Net cash at June of $6.7m. Activity in period was focused around progressing the Sea Lion development in the Falklands, with a revised development plan targeting 269mmbbls and plateau production of 80kbopd in the first phase of development. In Italy, the award of €190m (plus interest) for the effective expropriation of the Ombrina Mare field was (unsurprisingly) appealed by the Italian Government. The stay of enforcement was lifted earlier this year, with escrow arrangements now put in place. The annulment hearing is set to take place early next year, and it looks unlikely that Italy will have the decision overturned. In actuality, there was little new information in this announcement, with all eyes on the courtroom next year as the annulment hearing takes place. The (likely) success for the company will transform the financial position of Rockhopper and allow the development of Sea Lion to proceed under far more favourable terms. We adjust our forecasts to reflect interims and maintain our TP of 21.5p and reiterate our BUY recommendation.
Rockhopper has released its H1 2023 results, reporting an end June cash holding of US$6.7m, and providing an update on the company’s Sea Lion development activities, and on attempts to enforce its significant Italian arbitration award.
Rockhopper Exploration recently announced FY22 results, with revenue of $0.7m (FY22 $0.8m) leading to a net profit of $35.5m (FY21 $(7.8m), following a tax gain of $38.8m. Net cash at December was $9.8m, after a placing to raise $10.1m during the year. Activity in the period saw the completion of the Navitas farm-in to the Falklands with a subsequent rephasing of the Sea Lion development and increased recoverable resources for the project. This will see reduced capex to first oil and life of field costs, with FID targeted next year 2024. In Italy, the arbitration tribunal found in favour of the company with an award of €190m (+ interest). While this is now bogged down in the appeals process, Rockhopper remain confident that they will win. We have adjusted our forecasts to reflect the FY results, and reiterate our BUY recommendation and maintain our target price of 21.5p.
Rockhopper has released its full year 2022 results. These update on the company’s funding position as it goes about achieving full funding and FID on its significant Sea Lion development project in the Falklands, and pursuing its c.EUR190m arbitration award against the Italian government.
Rockhopper recently announced details of an updated development plan for the flagship Sea Lion development in the Falklands. Operator Navitas separately indicated that the initial staged development phase will have reduced upfront capex, reduced life of field costs, and increased recoverable resources. The new development plan will see an initial phase would cost $1.8bn (gross) and achieve 80kbopd of plateau production. Navitas also commissioned a new CPR which assessed the 2C resource for the Sea Lion area as 712mmbbls (from 517mmbbls previously). While FDP is anticipated in 2024, pending securing of funding for the project, the update suggests the value of the project is materially greater than previously believed. With a favourable macroeconomic backdrop, Sea Lion looks more likely to be developed, and we believe Rockhopper’s investment case is improved. We have adjusted our forecasts to reflect the new development plan, and this sees our TP rise to 21.5p (from 14.5p). We reiterate our BUY recommendation.
Sea Lion upfront development CAPEX materially reduced. Rockhopper has announced an update to its planned development concept for its Sea Lion project in the Falklands (Rockhopper 35%), which is being progressed in partnership with Navitas Petroleum. As previously indicated by Rockhopper, the main change in the new development plan is a reduction in the CAPEX required to get to first oil: this is now expected to be US$1.3bn gross, from US$1.8bn previously, and includes using a leased redeployed FPSO. There is then an additional US$0.5bn gross for further drilling post first oil, and then a further US$0.4bn for further wells three and a half years after first oil (denoted as phase 2), for US$2.2bn gross in total. Overall this makes for life of field unit CAPEX of US$8.2/bbl (though Rockhopper quote US$7.5/bbl in the statement), a very sensible number in our view, which benefits from the size of the resources being targeted.
Rockhopper announced that the Italian Government has appealed against the recent arbitration award in favour of Rockhopper, and is seeking to have the award annulled. The award by the International Centre for Settlement of Investment Disputes of €190m (plus interest) to Rockhopper was due because Italy had breached the terms of the Energy Charter Treaty when they cancelled the permits for the Ombrina Mare field. While the motion for annulment is no real surprise, the impact on Rockhopper is that it will need to rely on the funding offered by JV partner Navitas in order to keep to schedule for the Sea Lion development. We have adjusted our forecasts to reflect potential payment in two years’ time and increased the risking on the prospect of payment. Consequently, we reduce our target price to 14.5p (from 19.0p). We reiterate our BUY recommendation.
Italy arbitration update
H1 2022 results
Rockhopper reported interim results, with 1H21 revenue of $0.5m (1H21 $0.3m) with net loss of $(0.7m) (1H21 $(3.3m). Net cash at the end of June was $9.1m, following a placing to raise $10.4m in the period. Activity centred around the completion of the farm-out to Navitas following Harbour Energy’s exit from the Sea Lion project. The new JV sees Navitas taking on a 65% working interest (WI) and operatorship, with Rockhopper holding the remaining 35% WI. In addition the Falklands licences were extended to 2024 to allow for more time to advance Sea Lion into the development phase with FID targeted in 2023/24. A welcome (and long awaited) bonus came in the news of the successful arbitration over the Ombrina Mare project. This case was brought against the Italian government with Rockhopper being awarded €190m+interest (we estimate a total of €250m) with Rockhopper to receive an estimated c€200m net. While the Italian government has a period in which to appeal, the scope of reasons to overturn the award is limited. The proceeds will cover a significant portion of Rockhopper’s share of the Sea Lion development and will make securing funding much easier. With the balance sheet secure and the path to development of Sea Lion clarified, the outlook for Rockhopper is encouraging. We have amended our forecasts to reflect the interim results, and de-risked the Arbitration award. This leads us to raise our Target Price to 19p (from 18.7p). We reiterate our BUY recommendation.
Rockhopper announced that it has won its Arbitration case against the Italian Government. The ICSID arbitration panel was unanimous in holding that Italian Government had breached its obligations under the Energy Charter Treaty and Rockhopper will receive €190m in compensation, plus an amount for interest from January 2016 to when settlement is made (which we estimate could be another €50m). This transforms Rockhopper’s fortunes as it will now be able to fund a significant portion of its share of the Sea Lion development, thus removing the financing risk inherent at having to secure debt. We have adjusted our forecasts to reflect the award, and this lifts our target price to 18.7p (from 9.0p). We reiterate our BUY recommendation.
Successful Italy arbitration award
$2.8m) leading to a net loss of $(7.9m) (FY20 $(236.5)), with net cash at Dec of $11.7m. The modest revenue related to the Italian assets sold off to United Oil & Gas. The results were broadly in line with our forecasts, given the little operational activity over last couple of years. Post period end, the (long awaited) farm-out to Navitas was agreed following Harbour Energy’s departure and the Sea Lion project is back on track with FID targeted in 2023/24. The Arbitration result on the Ombrina Mare case is awaited with a decision anticipated before October 2022 (although it could be announced as soon as August) – a favourable outcome could see Rockhopper awarded substantial damages. It is encouraging that Sea Lion is moving forward, although significant hurdles over financing and approvals need to be overcome ahead of FID. We have adjusted our forecasts to reflect the FY results, and reduce our target price to 9.0p (from 9.2p) to reflect lower cash at bank. We reiterate our BUY recommendation.
Full year 2021 results
Navitas Sea Lion farm out signed
Market update - 01/02/2022
RKH UKOG SDXEF
Rockhopper has announced agreed Heads of Terms for Harbour Energy to exit from the Falklands Sea Lion project, with Navitas set to farm in for a 65% WI (leaving RKH with 35% WI). Navitas will loan funds to Rockhopper (at 8% interest) to cover their share of costs to FID, and in the event of achieving FID, Navitas will then loan further funds to cover 2/3rds of Rockhopper’s share of development costs not met by third-party finance (i.e. debt). The loans are to be repaid from 85% of Rockhopper’s share of FCF from future production revenues. This is a positive step forward for the Sea Lion project. We have amended our estimates to reflect the new proposed equity structure for Sea Lion, and a greater Chance of Development which consequently moves our Target Price to 9.2p (from 6.3p). We upgrade our recommendation to BUY (from HOLD).
New Navitas farm in to Sea Lion, Harbour exit
1H highlight importance of Ombrina Mare and farm-out Following the news that Harbour Energy, the operator of the Sea Lion project in the Falkland Islands, has decided not to proceed with the project, its development has become more uncertain. This makes the outcome of the Ombrina Mare arbitration and the proposed farm-out to Navitas even more important. The loss of Harbour is a setback that increases uncertainty around further progress. Rockhopper remains committed to developing Sea Lion, with the first priority being to close the potential farm out to Navitas Petroleum. Werner.Riding@peelhunt.com, Matt.Cooper@peelhunt.com
Market update - 30/09/2021
RKH SAVE TRP ZOL
Rockhopper Exploration announced FY21 interim results, reporting revenue of $0.3m (1H20 $2.5m) leading to a net loss of $(3.3m) (1H20 $(226.8m)), with net cash at June of $7.1m. The results were in line with our forecasts, given the lack of activity in the period. The withdrawal of Harbour Energy (post period end) from the flagship Sea Lion project is very disappointing, although Rockhopper hopes to conclude a farm-out to Navitas which could keep the project alive, and a judgement is (hopefully) due in 2H21 on the Ombrina Mare arbitration – a favourable outcome could see Rockhopper awarded substantial damages. The set-back at Sea Lion creates significant uncertainty as to whether this project is still viable, and we have increased our overall risking of the Rockhopper portfolio accordingly. Consequently, we downgrade our TP to 6.3p (from 9.4p) and retain our HOLD recommendation due to the potential upside from the Italian tribunal.
H1 2021 results
Harbour not to proceed with Sea Lion
Sea Lion update: Harbour to exit stage left In a disappointing development for Rockhopper it was confirmed this morning that Harbour Energy, the operator of the Sea Lion project in the Falkland Islands, has decided not to proceed with the project. The loss of Harbour as operator is a significant setback and increases uncertainty levels with regards to the timing of further progress. Rockhopper remains committed to the development of Sea Lion, with the first priority being ongoing discussions with potential farminee Navitas Petroleum. We reduce our chance of development risking for Sea Lion from 50% to 5% and our TP from 10p to 5p, Hold. Werner.Riding@peelhunt.com, Matt.Cooper@peelhunt.com 4-page note
Sea Lion, to be or not to be? Rockhopper recently reported results showing YE20 cash of US$11.7m, an amount sufficient to sustain the business into 2022 as it works to complete the farm-out of Sea Lion to Navitas Petroleum. The outcome of the Ombrina Mare arbitration in July, where significant monetary damages are being sought, could be a material catalyst. Similarly, the decision by Harbour Energy as to whether it remains in Sea Lion could also be a significant share price driver (in both directions). Pending the outcome of these two key events, we reduce our TP from 20p to 10p and change our recommendation to Hold from Add. Werner.Riding@peelhunt.com, Matt.Cooper@peelhunt.com 4-page note
Full year 2020 results
FY20 results show healthy cash position Rockhopper has reported results which showed YE20 cash of US$11.7m, 17% ahead of PHe US$10m, and an amount sufficient to sustain ongoing business costs as efforts continue to complete the farm-out of the Sea Lion project to Navitas Petroleum. A significant one-off, non-cash impairment of historic exploration costs that won’t be developed as part of a potential Sea Lion phase 1 development resulted in a loss before tax of US$236m. A potential near-term catalyst in July is the outcome of the Ombrina Mare arbitration, where significant monetary damages are being sought; Add, 20p target price. Werner.Riding@peelhunt.com, Matt.Cooper@peelhunt.com
Falklands licence extensions
Sea Lion farm out extension
Trinity Exploration & Production (TRIN LN): H1 2020 results, production increases, stable cash position | Rockhopper Exploration (RKH LN): Challenging market conditions lead to significant write down at Sea Lion | President Energy (PPC LN): Strong flow rates at EVx-1 well, Argentina
RKH PPCGF 3BE
H1 2020 results
Edison Investment Research is terminating coverage on Avacta Group (AVCT), BCI Minerals (BCI), Destiny Pharma (DEST), Globalworth Real Estate Investments (GWI), Henderson Alternative Strategies Trust (HAST), Herantis Pharma (HRTIS), Jupiter Green Investment Trust (JGC) and Rockhopper Exploration (RKH). Please note you should no longer rely on any previous research or estimates for these companies. All forecasts should now be considered redundant. Previously published reports can still be accessed via our website
Cost reductions
Sea Lion farm out agreement extended
Rockhopper Exploration recently announced that its Greater Mediterranean assets generated $10.3m revenue in 2019 as it focused on progressing with Sea Lion Phase 1 development. In January, Rockhopper and Premier Oil announced that a Heads of Terms (HoT) had been signed with Navitas Petroleum to farm in for a 30% interest in the Sea Lion project. Despite the current macroeconomic situation, the company announced that progress has been made to convert the HoT into finalised agreements. Completion of the sale of its Egyptian assets, together with the HoT, leaves the company in a stable financial position. Our risked valuation now stands at 24.4p/share (-54%) for our mid-case based on revised long-term price assumptions, reflecting current market expectations.
Full year 2019 results
Coronovirus impact update
Model update
Rockhopper (RKH) has announced that, together with Premier Oil, it has signed Heads of Terms with Navitas Petroleum to farm down a 30% interest in the Sea Lion project. The deal increases confidence that project debt financing to the joint venture can be secured successfully for Sea Lion Phase 1 of development, while Rockhopper maintains a material 30% stake in Sea Lion, and Premier 40% and operatorship. Rockhopper’s share of project costs will now be covered from 1 January 2020 through to Phase 1 completion, pending sanction. Meanwhile, partner Premier has announced a series of significant North Sea M&A deals, which materially strengthen its balance sheet and further support the Sea Lion project financing discussions. We update our valuation to account for the farm-down deal and roll forward the discount date, resulting in a risked valuation of 53.7p/share, down from 79.6p/share.
Sea Lion farm out
Egypt update
Abu Sennan sale update
Rockhopper Exploration (RKH LN) (not covered): 1H19 report | Europa Oil & Gas (EOG LN) (not covered): Exploration licence award, offshore Morocco | Chariot Oil & Gas (CHAR LN) (not covered): CPR on additional prospects, offshore Morocco | SDX Energy (SDX LN) 1,6; BUY, £0.65: Successful MSD-19 well at West Gharib Concession
RKH EOG CHAR SDXEF
SDX Energy (SDX): MSD-19 development well completed as a producer | Rockhopper Exploration (RKH): Strong H1 operating performance with continued focus on costs | Chariot Oil & Gas (CHAR): CPR ascribes an additional1.2Tcf of prospective resources offshore Morocco | Europa Oil & Gas (EOG) - Award of Large Exploration Licence, Offshore Morocco
RKH CHAR EOG SDXEF
The Rockhopper (RKH)/Premier Oil (PMO) joint venture (JV) has submitted the preliminary information memorandum (PIM) to potential providers of senior debt project finance for the Sea Lion development. Submission of the PIM is supported by independent expert reports covering a range of technical, legal and tax aspects of the Sea Lion project. The JV views this as a material milestone and anticipates moving into detailed lender due diligence and documentation in Q419. In June, Italy's request for the suspension of the Ombrina Mare arbitration was rejected. RKH is seeking significant monetary damages and an award is now expected in Q120. Confirmation of Sea Lion FID and a successful arbitration outcome for Ombrina Mare have the potential to close the gap between the current share price and our valuation. We continue to assume a Sea Lion phase 1 first oil date of mid-2024, with our risked valuation standing at 79.6p/share.
Rockhopper (RKH): Sea Lion Funding | Trinity (TRIN): Production Optimisation | Seplat (SEPL): Interim Results | Eco (ECO): Results | Nostrum Oil & Gas (NOG): Operational Update | Tower Resources* (TRP): Extension of Bridging Loan
RKH SEPL ECO NOG TRP 3BE
Rockhopper has announced the disposal of its Abu Sennan producing asset in Egypt to AIM-listed United Oil and Gas. Total consideration is US$16m, of which US$11m is expected in cash at completion, with the balance dependent on a United equity placing, and Rockhopper potentially taking some United shares if result of the placing does not allow full payment of the US$16m in cash. Completion is expected in Q4 2019, with an effective date of 1 January 2019.
Rockhopper (RKH)/United Oil & Gas (UOG): SUSPENDED - Sale of Italian Assets to United
Based on our analysis, we believe the current share price implies a c 20% chance of success for Sea Lion Phase 1 at $70/bbl or c 39% at a $60/bbl long term oil price (excluding any value for further phases of Sea Lion). Given recent progress with the award of letters of intent (LOIs) for key project components and with more than 60 people working on the development, we are more positive on the chance of success. In our view, the key outstanding risks are in project funding and politics. H119 has the potential to be eventful for Rockhopper with more definitive guidance on the availability of export credit funding and a hearing on the Ombrina Mare arbitration, scheduled for February. Our valuation increases to 78.9p/share (+7.2%) largely due to sterling weakness. This valuation assumes a 55% chance of Sea Lion Phase 1 progressing and 20% for subsequent phases at a $70/bbl long-term oil price. Given the subjectivity of key inputs, we provide sensitivities to these key value drivers in this note.
Rockhopper Exploration (RKH LN) (not covered): Egypt update | Total (FP FP) (not covered): Deal in Abu Dhabi | Eland Oil & Gas (ELA LN) (not covered): Licence extension in Nigeria
Rockhopper Exploration plc Eland Oil & Gas
Premier Oil’s (PMO) half-year results included several indications of the operator’s intent to progress the development of Sea Lion. This included: 1) sanction by Premier’s board of the Tolmount gas project, a key project that precedes Sea Lion in Premier’s development hopper (Falkland’s accounted for c 44% of Premier’s December 2017 net 2P reserves); 2) PMO’s expectation of remaining FCF positive at $65/bbl including Sea Lion capex; 3) the appointment of a pathfinder bank to assist with the senior financing structure of Sea Lion; and 4) signature of letters of intent (LOIs) with selected contractors for the provision of services and vendor financing. LOIs have been signed with the Sea Lion FPSO provider, drilling contractor, subsea equipment provider, well services, subsea installation contractor and for helicopter services. While Premier did not provide guidance on the timing of final investment decision (FID) for Sea Lion, we assume the project will be sanctioned in mid-2019 with the potential for first oil four years later in 2023. Our latest Rockhopper RENAV of 73.6p/share assumes a 55% commercial chance of success for Sea Lion Phase 1 based on a long-term Brent crude price of $70/bbl.
Rockhopper recently released its 2017 results, reporting year end net cash of US$51m, as previously guided, and in line with our forecast. The statement also mentioned the Sea Lion funding process, which continues to progress, with the JV moving forward with the due diligence process for commercial bank funding. Sea Lion funding is the absolute key focus for the stock, with good progress having been made over the last six months, and a genuine possibility of meaning the JV is able to reach FID by the end of 2018 – a profound catalyst.
Cabot Energy (CAB LN)1 ; Speculative Buy, £0.10: FY17 results | Energean Oil & Gas (ENOG LN) (not covered): FY17 results | Rockhopper Exploration (RKH LN) (not covered): FY17 results | Acquisition in Zimbabwe
Rockhopper Exploration plc Cabot Energy
Premier Oil’s (PMO’s) FY17 results highlighted progress made by the Sea Lion project operator in securing vendor/debt financing, a key hurdle ahead of the final investment decision (FID). Premier’s proposed financing structure proposes a combination of vendor finance ($375m), senior debt ($750m) and equity ($375m) to fund the $1.5bn gross capex bill ahead of first oil. We had previously heavily risked Sea Lion Phase 1, given perceived uncertainty over Premier’s commitment to the project. We believe deleveraging of Premier’s balance sheet, the materiality of Sea Lion in the context of Premier’s development portfolio and progress made with regard to project finance significantly increase our confidence in the project reaching FID. We risk Sea Lion Phase 1 at a 40% chance of success (up from 20%), increasing our valuation of Rockhopper (RKH) from 44.2p/share to 62.9p/share (+42%).
Rockhopper has provided an update on the company’s Greater Mediterranean assets, reporting improved production from Abu Sennan, strong realisations and confirmation of a four-well drilling programme in 2018. The company’s Egyptian receivables position is significantly reduced ($4.5m outstanding) and historical liabilities to Beach Energy have been satisfied, meaning that Rockhopper will now benefit from 100% of payments from EGPC relating to its net interest. Cash flows from the company’s Egyptian asset base are expected to cover operational costs, G&A and contribute to maintenance capex going forward. Our last published valuation ranges from a core NAV of 44p/share (Phase 1 risked at 20% CoS) to 81p/share (Phase 1 at 50% CoS).
Sea Lion Phase 1 continues to progress towards project sanction, targeted for end 2018. Focus remains on financing the $1.5bn gross capex required to achieve first oil. A mix of senior debt financing ($800m), vendor financing ($400m) and equity ($300m) was assumed in our last published valuation ranging from a core NAV of 44p/share (Phase 1 risked at 20% COS) to 81p/share (Phase 1 at 50% COS). The recent rise in oil price should increase the JV’s confidence in project risked returns, which we estimate at 30% IRR based on a $70/bbl long-term Brent crude assumption.
Rockhopper (RKH) holds c 50% of the Sea Lion field, one of the largest undeveloped fields globally. With gross contingent 2C reserves of 517mmbbls (and 900mmbbls 3C), the phased development of the fields has been delayed by a number of factors. However, with costs falling to produce an NPV10 break-even of less than $45/bbl and a more solid funding solution becoming apparent over the last six months, a final investment decision (FID) is being targeted in 2018. Together with its Mediterranean production assets and $63m in cash at end H117, it is well placed to realise long-term value. We have reviewed our modelling and applied lower long-term oil price assumptions, which results in a core NAV of 44p/share.
Rockhopper’s (RKH) half year results indicate that it (and Premier Oil, PMO) are making progress in moving Sea Lion towards FID, particularly with regard to financing the development. Discussions have started on the structure of senior debt with UK export financing (making up a proposed $800m). Non-binding proposals have been received for a significant proportion of the planned $400m vendor financing. These components would leave just $300m of equity to be provided to get the project to first oil, which should be manageable for the partners and negate the need for a farm-down. Elsewhere, the sale of Civita in Italy has streamlined its production business, which now covers a much smaller G&A bill. We intend to update our modelling and valuation in the coming days (not least to account for our new lower oil price assumption), for the moment leaving our NAV at 72p/share.
Rockhopper Exploration (RKH LN) (not covered): 1H17 results | EnQuest (ENQ LN); HOLD, £0.35: 1H17 results | Serinus Energy (SEN CN)1 ; Speculative Buy, C$0.55: Tunisia update on operations in Tunisia | SDX Energy (SDX LN/CN)1 : Buy, £0.55; Boosted drilling program in Morocco & Egypt | Chariot Oil & Gas (CHAR LN) (not covered): Operational Update in Morocco | San Leon Energy (SLE LN) (not covered): Final Results
RKH ENQ CHAR SZX1 SDXEF SNUYF
Rockhopper Exploration (RKH) has announced the disposal of its Civita gas field (and a collection of other properties) to Northern Petroleum. The deal is good for RKH, as it reduces future abandonment liabilities on a number of licences in exchange for limited reduction in production cash flows (estimated gross profit of €0.7m in 2016) and a small consideration of $1.6m. It will likely reduce G&A costs going forward and allow RKH to concentrate on its three main assets in Italy (Monte Grosso, Ombrina Mare and Guendalina). The bulk of RKH’s value remains in its Sea Lion development and we hope progress is made in 2017 towards project sanction. We have adjusted our valuation for RKH to account for the deal, which reduces our NAV slightly to 72p/share.
Rockhopper’s (RKH) full year 2016 results do not reveal any material news, but do help underline the progress the company made in 2016 with the acquisition of production assets in Egypt and the continued lowering of costs at Sea Lion. Net production of 1,350boe/d helps to offset general costs and maintain the substantial cash balance (end of year $81m). Most importantly, perhaps, is that the board considers the Sea Lion development to be “sufficiently robust to be sanctioned in the current environment, assuming the required capital investment can be secured”. Therefore, focus continues on working with the operator (Premier) in getting the project to FID. We point investors to our recent note on the mechanisms that the partnership can follow and the impact on RKH’s value. Our NAV is 73p/share.
Rockhopper had a busy year making material progress with its Sea Lion project, adding further resource in the Falklands and growing its Greater Mediterranean business. The company reported a net profit of US$98.0m and ended the year with cash and term deposits of US$81m. G&A was cut further and should be largely covered by operating cash flow prospectively. With a project break-even oil price of cUS$45/bbl, including a 10% ungeared return, we believe Sea Lion has a good chance of being brought to fruition once the funding position is resolved. Now that FEED is nearly complete attention is turning to commercialisation activity. We believe there is too much value in play for there not to be a resolution. We remain Buyers of Rockhopper with an 85p/share Target Price which includes a 55% chance of commercialisation for Sea Lion P1.
Key for Rockhopper (RKH), at a recent results presentation Premier Oil’s (PMO) management talked about progress being made for Sea Lion’s development and the options that are currently being explored. The turbulent macro environment and PMO’s financial difficulties have slowed Sea Lion’s progress, but these comments suggest increasing options to develop the asset. For RKH, we examine a number of possible scenarios for sensitivities (vendor financing, export credit approach, flexing of fiscal terms), although we leave our baseline approach and valuation broadly unchanged until news is more concrete. Our core NAV remains 73p/share (although a number of estimates change within this), representing material upside for investors as and when Sea Lion’s development moves forward.
The operational update from Rockhopper (RKH) contains no significant news, but does draw a line on the rig litigation (now settled) and provides further detail on the drilling activity in Egypt in 2017. Two wells will be drilled in H117, an exploration well followed by a development well, which will target a reservoir deeper than so far seen at Al Jahraa-4. The company hopes it will prove up the connection between the Al Jahraa and Al Jahraa SE fields. The company remains in strong financial health, with $60-65m cash at year end (after adjustments), and the largest net holding of reserves in Sea Lion. Our core NAV falls slightly from 74p/share to 73p/share.
We expect 2017 to be a year of increasing clarity on the direction of the Falkland Island assets, and one in which Rockhopper (RKH) starts to make headway in its Mediterranean portfolio with a full year of stewardship of its Egyptian production and exploration assets. The 20 December update brings little new news on its core asset (Sea Lion), but provides for a higher cash figure than we had previously modelled (due to a higher than expected insurance settlement). Our thoughts on Sea Lion remain unchanged, leaving our core NAV unchanged at 74p/share.
Rockhopper (RKH) holds a material stake in the major discoveries in the Falklands. The Sea Lion complex holds 517mmboe of 2C contingent resource (900mmboe 3C), while the Isobel Elaine complex could be a similar magnitude (according to management estimates). This resource base (over which RKH holds a >50% working interest) is significant on a global scale and commercially attractive given the cost reductions achieved through the FEED process so far – the project is NPV10 break-even at $45/bbl. Although the timing of project sanction is uncertain (particularly given the financial constraints of its partner PMO), the fiscal regime and resource base makes this a compelling long-term project. Our revised core NAV is 74p/share.
The results for H1 2016 confirmed Rockhopper’s strong position in the Falklands and its progress in the Mediterranean. In the Falklands, the merger with Falkland Oil & Gas completed.
Rockhopper released interim results for what has been a busy half for the company. Reported net profit was US$131.3m for EPS of USc29.9/share (1H15 USc14.4/share) which included a US$138.8m accounting gain on the FOGL acquisition. Cash and net cash at 30 June was US$65.4m and the company narrowed YE16 guidance to US$60-66m (from US$60-70m). We have revised our figures to reflect the accounting gain and for a first cut at estimates including the now completed Beach Egypt acquisition. Our target price remains unchanged at 85p per share which includes Sea Lion P1 based on a 55% chance of commerciality. We remain buyers.
Rockhopper announced yesterday that it has now closed its acquisition of two Egyptian assets from Australia’s Beach Energy. This sees the company paying US$11.9m cash for net production of 1.1mboe/d and 2P+2C of 4.9mmboe (we assume 90% oil). This is all from a 22% interest in the Abu Sennan asset – a group of four onshore fields operated by Kuwait Energy (other partner is Dover Investments). OPEX is US$8/boe, and there is an existing US$25m of net cost recovery for Rockhopper to benefit from. The Al Jahraa SE-1X well has recently been drilled, hitting 16.4m of net pay and adding 2mmboe of gross 2P (included in the net 4.9mmboe acquired). This is expected to be brought onstream post approvals. There is also a further sidetrack well being drilled, and we expect additional drilling going forward (one to two wells per year at a net cost of less than US$1.0m each) in order to maintain production, though this could be stepped up on higher oil prices. The deal also includes 25% in the El Qa’a Plain exploration asset.
Rockhopper Exploration has completed the acquisition of Beach Petroleum (Egypt), announced in April 2016. Beach Egypt holds a 22% interest in the Abu Sennan concession and a 25% interest in the El Qa'a Plain concession.
The release of the independent audit of Rockhopper’s (RKH’s) assets confirms that contingent 2C resources at Sea Lion exceed 500mmboe. This should give further comfort to investors on the value of the project, which should continue to benefit from the deflating cost environment. Elsewhere, due to issues during the redrilling of Isobel, the data available to the company and auditors were only enough to substantiate 2C volumes of 20mmboe at this time. However, the company remains very confident (with appraisal) that the complex could hold 400-500mmbls (which is closer to the current auditors’ 3C estimate). Investors will have to wait until further appraisal is undertaken, probably in Sea Lion development drilling, for further confirmation. We have made some adjustments to the modelling following the CPR, increasing our core NAV to 93p/share.
Rockhopper (RKH) has announced it is to purchase a stake in the Abu Sennan asset from Beach Energy. This is a rekindling of the deal first announced in August 2015 (then cancelled due to pre-emption). The deal agreed has better headline prices ($11.9m/$2.7/boe 2P+2C vs $22m/$4.5/boe) and, despite the lower commodity prices, returns metrics (IRR of 23% vs 22%). The acquisition gives Rockhopper valuable low-cost production and exposure to appraisal and exploration at Abu Sennan and El Qa’a Plain. Until closing, we do not include the proposed deal in the NAV, but our modelling indicates that it would add $15m or 2.3p/share. We have remodelled Sea Lion to account for larger volumes indicated by Premier, which increases the core NAV to 90p/share. This indicates notable upside for investors with a long-term outlook.
Rockhopper is to purchase interests in Egypt from Beach Energy. The headline price is US$9m cash, significantly lower than the original transaction and without any new Rockhopper shares.
The results contained few surprises. Rockhopper remains fully funded through initial development of Sea Lion, due to arrangements with Premier, and it is estimated that net cash at end 2016 will be US$70-80m.
The results contain few surprises and Rockhopper remains fully funded through initial development of Sea Lion due to Carry and Loan facilities from Premier. It is testing the commercial bank market as an alternative source of funding.
Rockhopper reported a net profit for FY15 of US$10.7m, boosted by the Falklands related tax credit. Net cash used in operations was half our forecast at US$6.7m but capex was higher and YE15 cash and net cash was US$110m in line with our forecast. Other notable points were the planned retirement of Pierre Jungels as Chairman who will be replaced by Dave McManus, a forecast of US$8-10m for revenue from Italy for FY16 where production is currently running at 700boed, and the company’s inability to progress to a full listing at this time. With respect to Sea Lion, sanction remains on track for mid-2017. Notably, there was no impairment to the carrying value for Sea Lion. We remain Buyers of Rockhopper with a 90p/share target price.
Rockhopper has announced that following a number of operational issues with the rig, its Chatham well has been deferred - it will now be explored during the pre-development drilling at Sea Lion. Although unfortunate, the well deferral does not affect the planning or timetable for Sea Lion phase 1a, where the FEED contract for SURF transport and installation was awarded to Subsea7 on 11 February. The Sea Lion field development should create material value, and the recent discovery of the Isobel Deep/Elaine complex holds potential of over 500mmboe. Moving to our new, lower oil price assumptions, and accounting for the deferral of Chatham, lowers our core NAV to 80p/share (RENAV is 94p/share), which still represents notable upside from the current share price. We note that the recent news on Ombrina Mare (where drilling is now not possible due to a change in Italian regulations) is a blow to longer-term potential but is outside the timescale of our 18-month RENAV.
Premier Oil has terminated early the contract for the Eirik Raude drilling unit. This means the Chatham well will not be drilled as part of the current Falklands campaign, which is disappointing. However, the resources added at the Zebedee location along with the potentially significant discoveries in the Isobel/Elaine area, mean that this has been a hugely successful drilling campaign.
Rockhopper has been informed that Ombrina Mare, offshore Italy, will now not be awarded a Production Concession. This is disappointing. However, our valuation anticipated this news and contained no value for Ombrina Mare. We retain our 110p TP and Buy recommendation.
In early January 2016, the results of the Isobel-2 re-drill were announced, confirming a large total oil column in the Isobel Deep reservoir (more than 480m) and hydrocarbons across four other horizons. Rockhopper has concluded that Isobel is “highly likely to contain a commercially viable quantity of recoverable oil”. This resource base adds to the Sea Lion development, which has benefited from falling service costs. With largely unchanged capital investment, the project should see a sharp increase in Phase 1a recoverable volumes, reducing the break-even price. The merger with FOGL, completed on 18 Jan, has streamlined the ownership of the assets and makes a potential farm-out easier for RKH and PMO. We have adjusted our valuation for substantial changes since our last note, arriving at a core NAV of 104p/share (was 147p) and RENAV of 133p/share (178p).
We have updated our assumptions for Sea Lion as well as dropping Ombrina Mare and Egypt from our price target. Based on lower oil prices, our new TP is 96p which ignores the very significant upside in both the Falklands and offshore Italy. We remain confident in Rockhopper’s ability to build a more balanced E&P share and retain our Buy recommendation.
Rockhopper's merger with Falkland Oil and Gas (FOGL) should become effective this morning following Court sanction on Friday, resulting in a substantial consolidation of licence holdings offshore the Falklands. We believe the combination enhances value by improving the prospects of commercialising North Falklands Basin (NFB) resources either directly or as a result of a sale or farm-out. It also follows positive news on the Isobel Deep #2 well and on the proposed Sea Lion Phase 1a development. We estimate that current undeveloped resource for the enlarged Rockhopper is being valued at just US$0.30/bbl of oil. We believe there is line of sight to establishing 1bnbbl of gross oil resources in the NFB. We calculate a revised NAV of 89.4p per share and set a Target Price of 90p per share; we remain Buyers.
Rockhopper has been busy of late announcing its merger with Falkland Oil and Gas, a reconfiguration of its Sea Lion development and commercial terms, and progress in its exploration drilling campaign. The reconfiguration of the development and progression to FEED in particular are very positive steps helping put the project in the best position to attract a further JV partner and get to a positive FID. We have now fully updated our model for the new terms and Falkland Oil and Gas merger. Along with a change to EPS this shows that Sea Lion sanction is likely to be dependent on long-term oil price expectations of around US$60/bbl and above. Once this level is reached and exceeded it shows considerable upside for Rockhopper shares. If it is not and FID is not achieved then the company is likely to struggle to create substantial value. It is encouraging to see the reconfiguration of the project helping make it robust at lower oil price levels and the recovery required to get to these is not impossible. Risk and reward remain high and given this keen dependence on the oil price we pull back our recommendation from a Buy to an Add.
Rockhopper has announced significant advances in the proposed Sea Lion Phase 1a development, offshore the Falkland Islands. These enhance the underlying value of the project, confirm concrete steps in bringing the project to final sanction and clarify the split in economics between Premier and Rockhopper. We increase our Target Price on Rockhopper to 120p per share (from 115p), prior to completion of the merger with Falkland Oil and Gas, and reiterate our Buy recommendation.
Yesterday’s drilling result has vindicated Rockhopper’s (RKH) confidence in the Isobel Deep/Elaine complex and extended its success rate to 10/12. Drilling 4km and 350m downdip of Isobel-1, the well encountered 27m of net oil pay (within the Isobel Deep, Isobel and Emily reservoirs), no gas and no oil water contact. As a result, the company believes that the total oil column is in excess of 480m and is “highly likely to contain a commercially viable quantity of recoverable oil”. The company has previously talked about Isobel potentially unlocking over 500mmboe, more than the SeaLion development (c 375mmboe). The result firms up the logic of the merger with FOGL, after which Rockhopper would hold 64% of Isobel. The results should also give the partners a strong hand in farm-out negotiations. We look forward to updating our valuation more fully in the short term.
Rockhopper has announced that an oil discovery has been made by the Isobel Deep well in the Falklands. The well has also confirmed oil bearing sands in other fan bodies and has increased the likelihood that the Isobel / Elaine complex can become a third phase of development in the North Falkland Basin. Isobel Deep also extends Rockhopper’s success rate in the NFB (to 10 out of 12 wells) and should increase reserves markedly. The success is also in a block currently owned by Falkland Oil & Gas and Rockhopper’s interest should shortly increase to 64%. We retain our Buy recommendation.
Rockhopper and FOGL have announced an agreed all share merger at an implied 11% premium to FOGL's closing share price. Rockhopper's management will run the enlarged Group. The announcement indicates FOGL was in a much weaker financial position than we expected. The combination should facilitate potential unitisation on Sea Lion and farm-out discussions, making it more likely, in our view that commercial production will be established offshore the Falklands. This deal makes a lot of sense to us and has been facilitated by the damage the Humpback well did to FOGL. On a pro-forma basis we estimate the combined entity will have a risked NAV per share of 86p per share. We cut our current Target Price on FOGL to 9.5p (from 13.0p) and our recommendation to Hold (from Buy).
Rockhopper Exploration plc Falkland Oil And Gas
Rockhopper has announced a proposed merger with FOGL, consolidating ownership of assets in the North Falkland basin, in which the Sea Lion development and Isobel/Elaine Deep discovery lie. As a result, the new entity will have large interests in both major discoveries in the Falkland Islands, making any future deals to develop/farm-down the assets much easier. The deal could complete in January 2016 (after shareholder and government approvals), around the time of the Isobel-2 well result, which is aiming to further de-risk >500mmboe resources.
Rockhopper has announced that the exploration well testing the Isobel/Elaine fan complex has started. This follows the recent success in Italy and will test a number of fan systems in early 2016. We include a risked 1-2p in our valuation and retain our Buy recommendation.
Rockhopper has announced that the Civita field has started production. Following the successful Guendalina sidetrack, Italian net production should reach 700 boed in 2016. We will revisit our assumptions and expect to retain our Buy recommendation.
Rockhopper has announced the results of the successful Guendalina sidetrack, which should add noticeably to production in 2016. We will revisit our assumptions and reiterate to retain our Buy recommendation.
Rockhopper is doing its best to diversify. We have had a corporate acquisition followed by the recent attempt to purchase assets in Egypt. It is trying build a second core area at a low price, extend its exploration portfolio and generate some cash flow. We believe the transactions add value to Rockhopper but that the Falklands is critical to our Buy recommendation.
Rockhopper + Premier Oil have decided to drill another well on Isobel/Elaine in the current NFB drilling campaign. The well will commence in October and we reiterate our Buy recommendation
Rockhopper had a successful first half to the year with the well-documented Zebedee and Isobel Deep discoveries for a two out of two record in its 2015 drilling programme. The Company continues to work its Mediterranean assets and has recently announced the acquisition of c4.5mmboe of 2P+2C reserves and resources in Egypt in support of that business. The new news in the results was a surprise profit of US$42.2m, reflecting tax accounting, confirmation that Sea Lion FEED has slipped into 4Q15, but the overall project remains on track for 2019 first oil. A decision is still pending on whether to drill a follow-up well on Isobel Deep, rather than the Jayne East well, although drilling operations are expected to commence this month. We reiterate our Buy recommendation on Rockhopper and our 155p per share Target Price, although we note that is based on a long term US$ 90/bbl Brent price, which is under review.
Rockhopper reports a profit for H1 2015 largely because of a one-off tax credit. There are few other surprises. The NFB drilling campaign has been successful so far and we expect progress in Italy before year end. The return of the rig to the NFB and completion of activities in Italy should provide the catalysts for the share to perform and move closer to our 138p TP
Rockhopper has announced an acquisition of the Egyptian assets of Beach Energy for a headline figure of US$22m, and a 2P+2C metric of under US$4.5/boe (well below historical metrics in Egypt and North Africa). The assets include a 22% WI in a production concession (Abu Sennan), which is forecast to produce nearly 5mboe/d (gross) in 2015 and exploration acreage at the El Qa’a licence. The free cash flows are expected to pay back in 18-24 months and should provide enough to cover a large portion of G&A in coming years, as well as providing exploration prospectivity in excess of 100mmboe (possible 74mmboe in four wells). We have adjusted our valuation to account for the assumed acquisition completion and expenditure and arrive at a core NAV of 147p/share.
Rockhopper has announced the acquisition of approximately 4.5mmboe of 2P+2C reserves and resources from Beach Petroleum for US$ 22m, prior to adjustments, payable in cash and stock. We estimate the value of the 2P acquisition at around US$ 4.75/boe, considerably less than the market value ascribed to other Egyptian assets. Approximately 90% of the reserves are oil which have been subject to fewer issues over payment from EGPC than for gas. This deal marks a continuation of Rockhopper's efforts to build a Greater Mediterranean business at a reasonable price.
Rockhopper has announced the purchase of interests in Egypt from Beach Energy Limited. The headline price is US$22m which will be split almost 50-50 on payment between cash and new shares. Rockhopper will add to assets in its second core area at a low price (less than US$4.5 per boe resources), extend its exploration portfolio and generate sufficient cash flow on completion to cover its G&A costs. We believe the assets fit Rockhopper very well and reiterate our Buy recommendation.
Rockhopper is a London-listed E&P with fully-funded development of Sea Lion, a 400mmbbl field in the Falklands. It also holds production, development and exploration assets in the Mediterranean.
Rockhopper is an AIM-listed E&P with its main assets in the Falkland Islands. The company holds 40% in the Sea Lion discovery, which contains gross 2C volumes of 400mmbbl. Development planning is being progressed with partner Premier aimed at reaching FID in mid-2016. In our view this asset is undervalued at current levels and we initiate with a Buy recommendation and 120p price target.
