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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

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.

Rockhopper Exploration

A large part of a large pie

Outlook | Oil & Gas | 18 Oct 2016

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 o 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.

Rockhopper Exploration

Egypt hops from Beach to Rocks

Update | Oil & Gas | 21 Apr 2016

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 Exploration

Chatham well deferred

Update | Oil & Gas | 16 Feb 2016

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.