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.
The acquisition is dominated by the production assets at Abu Sennan, which are predominantly (90%) oil and operated by experienced company Kuwait Energy. The asset started commercial production in 2013 and has gross 2P+2C reserves of 20.5mmboe. Rockhopper points to substantial upside in exploration, and the nearterm drilling programme is looking to unlock near-field reserves. We understand that receivables are relatively low (at around $3m as at May 2015) and that the current contractors receive regular payments.
The rig in the Falklands will soon complete activities with other operators and we expect drilling at Jayne and Chatham before the end of the year. However, given the positive result of the Isobel well, we would expect possible further wells to appraise the discovery, possibly in preference to the current plan.
We have amended our valuation to include the Egyptian acquisition (we assume it closes in late 2015), cash movements and some delays to our modelled Italian portfolio. This increases the valuation slightly from 144p/share to 147p/share (core NAV), which represents substantial upside to the current share price. We note that current oil prices have depressed many E&P shares and there is concern that many projects may be delayed. We acknowledge that this is possible, especially given the fall in operator Premier Oil's (PMO) cash flows in the macro environment and substantial upfront capex required. However, for the moment we assume that first oil is still in (late) 2019 and note that Rockhopper remains fully funded for Sea Lion Phase 1a (through the carry and loan agreement with PMO).