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Rockhopper Exploration

CPR confirms size of Sea Lion

Update | Oil & gas | 25 May 2016

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 Exploration

Phase 1, a step closer to FID

Update | Oil & gas | 24 Aug 2018

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 Exploration

Operator confident in 2018 Sea Lion Phase 1 FID

Update | Oil & gas | 19 Mar 2018

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 Exploration

Greater Med assets provide positive cash flow

Flash note | Oil & gas | 26 Feb 2018

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).

Rockhopper Exploration

Sea Lion on track for 2018 sanction

Flash note | Oil & gas | 11 Jan 2018

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 Exploration

Funding solution could drive FID in 2018

Outlook | Oil & gas | 26 Sep 2017

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 Exploration

All eyes on financing

Flash note | Oil & gas | 07 Sep 2017

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

Disposing Civita makes sense

Update | Oil & gas | 08 Jun 2017

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 Exploration

Sea Lion economics robust in current environment

Flash note | Oil & gas | 12 Apr 2017

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 Exploration

Sea Lion thoughts and Ombrina Mare

Update | Oil & gas | 05 Apr 2017

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.

Rockhopper Exploration

Operational update

Update | Oil & gas | 09 Feb 2017

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.

Rockhopper Exploration

Looking to 2017

Update | Oil & gas | 21 Dec 2016

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.