Monday, 27 July 2015

Rockhopper ~ Building a full cycle, exploration-led E&P

by Will Forbes
We belatedly publish excerpts from our recent Rockhopper initiation

The full initiation is available here

Rockhopper (RKH) is midway through a four-well exploration and appraisal campaign to explore and understand the reservoirs in its licences, including the 400mmbbl Sea Lion development, shared with Premier Oil (PMO). RKH is fully funded for Phases 1a and 1b, from which further development can be financed. This forms the majority of RKH’s core value (144p/share), which is well above the current share price. Furthermore, our analysis indicates the value should increase markedly over time as first oil approaches. Beyond Sea Lion, the Isobel Deep discovery hints at another major discovery field, once fully explored and appraised. With pre-drill estimates of over 500mmbbl, it could more than double gross resources.

Development of first oil at Sea Lion in 2019
After a planned final investment decision (FID) in mid-2016, Sea Lion should see first oil in late 2019 under Phase 1a, with two or more phases unlocking resources from PL032 and PL04 over time. Current plans are to produce around 60mb/d from an FPSO, though success in further drilling may boost these plans in the longer term.

Source: RKH

Exploration still provides upside
Recent news has de-risked potential at the Isobel Deep/Elaine complex, estimated to contain 510mmbbl pMean resources. If proven up, the complex would be a second major leg in the North Falkland’s story, and push gross recoverable resources over 900mmbbl. Further exploration and appraisal is needed and we expect the consortium to return to follow up the first Isobel Deep well to understand the potential. The well has further demonstrated RKH has good understanding of the basin with nine of 11 wells successful.

Valuation: Undervalued and should grow
The 2012 farm-out to PMO secured RKH’s financial position and put it in a rare group of fully-funded developers. Our core NAV (144p) is well above the share price, while RENAV including the Isobel Deep complex, its two upcoming Falkland wells (Chatham and Jayne East) and Faseto in Italy increases further. Of these, we are most interested in the results of any future Isobel drilling (timing yet to be firmed up), which could de-risk a complex, which is potentially as large as than Sea Lion, and unlock further value. Our analysis indicates core NAV growth of around 20%, promising strong returns for investors.

Source: Edison Investment Research

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