Chatham well deferred

Rockhopper Exploration 16 February 2016 Update

Rockhopper Exploration

Chatham well deferred

Rig contract cancelled

Oil & gas

16 February 2016

Price

26.75p

Market cap

£122m

£0.67/US$

Est net cash ($m) at end 2015 (including short-term instruments)

111

Shares in issue

456m

Free float

88%

Code

RKH

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

7.8

(24.7)

(55.5)

Rel (local)

(7.5)

(20.6)

(48.2)

52-week high/low

79.50p

24.25p

Business description

Rockhopper is a London-listed E&P with fully-funded development of Sea Lion, a 400mmbbl field in the Falklands. The Isobel Deep/Elaine complex could add a further 500mmbbl or more. It also holds production, development and exploration assets in the Mediterranean.

Next event

CPR

H116

SPS FEED award

Q116

Analysts

Will Forbes

+44 (0)20 3077 5749

Elaine Reynolds

+44 (0)20 3077 5713

Ian McLelland

+44 (0)20 3077 5756

Rockhopper Exploration is a research client of Edison Investment Research Limited

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 outide the timescale of our 18-month RENAV.

Year end

Revenue
($m)

PBT*
($m)

Operating cash flow
($m)

Net (debt)/cash
($m)

Capex
($m)

12/13

0.0

(15.7)

(12.8)

247.5

(41.3)

12/14

1.9

(7.4)

(11.2)

199.7

(10.6)

12/15e

3.5

(11.6)

(8.6)

111.4

(79.7)

12/16e

8.6

(8.5)

0.2

71.1

(40.4)

Note: *PBT is normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Deferral of Chatham a minor disappointment

Drilling Chatham would have potentially de-risked another aspect within the Sea Lion development, with the well designed to test for the presence/absence of a gas cap. A deeper target could also open a play for other northerly fan systems. However, the deferral is not a great issue for Phase 1a, as Chatham is likely to be drained in Phase 1b. We had valued Chatham at only 2p/share (risked).

Falkland Island portfolio activity continues

Progress in the Falkland portfolio continues and the award of the SURF FEED was made on 11 February. The resources of the Isobel Deep/Elaine discovery will be included in a CPR that should give investors an independent view on the potential of this system, which management believes could contain more than 500mmboe. Given the need for further appraisal drilling we expect volume estimates in a CPR to be considerably more conservative.

Valuation: NAV falls due to oil price reduction

We have recently adjusted our near and long-term oil price assumptions ($40/bbl in 2016, $50/bbl in 2017 moving to $70/bbl long term). This has the effect of reducing our NAV to 80p/share from 104p/share (and RENAV to 94p/share from 133p/share with the removal of Chatham’s value). Despite this fall, the value of Sea Lion should provide a solid footing in coming years as and when the project is sanctioned.

Valuation: Core NAV falls due to oil price

We have recently introduced new, lower, oil price assumptions that account for the fall in NAV. The removal of Chatham reduces our RENAV slightly, although even at higher oil prices, we had valued Chatham at only 2p/share.

Exhibit 1: NAV summary

Asset

FX £/US$= 1.4

 

 

Recoverable reserves

 

Shares: 456m

WI

CoS

Gross

Net

NPV/boe

Net risked value

Country

%

mmboe

$/boe

$m

/share

Net (Debt) Cash - December 2015e

111

17

G&A (NPV10 of three years G&A)

(24)

(4)

2016 Exploration

(8)

(1)

Production

Guendalina

Italy

20%

100%

2.6

0.5

15.1

8

1.2

Civita

Italy

100%

100%

0.2

0.2

3.4

1

0.1

Development

SeaLion 1a

Falkland Islands

40%

45%

220

88

6.8

269

41

SeaLion 1b

Falkland Islands

40%

45%

130

52

4.8

112

17

SeaLion 2

Falkland Islands

64%

45%

50

32

2.0

29

4

SeaLion 2+ (Zebedee)

Falkland Islands

64%

23%

87

56

2.1

26

4

Core NAV

 

 

 

 

 

 

524

80

Isobel Deep

Falkland Islands

64%

23%

500

320

1.2

91

14

RENAV

 

 

 

 

 

 

615

94

Source: Edison Investment Research

Financials

Rockhopper remains in a strong financial position, holding (an estimated) $111m in cash at year end. Management forecasts its year-end 2016 cash position will be $70-80m, which together with the carry from the Premier farm-down, should provide enough funds for continuing development of the Sea Lion and appraisal of Isobel Deep.

We believe that Premier is seeking a partner for the Falkland Islands portfolio to reduce risk and carry development expenditure. In order to facilitate a farm-out, Rockhopper may see its working interests fall, but benefit from the development de-risking and strong partners.

Exhibit 2: Financial summary

 

 

$000s

2011

2012

2013

2014

2015e

2016e

2017e

Year-end 31 Dec

 

 

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

0

0

0

1,910

3,502

8,645

5,522

Cost of Sales

0

0

0

(3,970)

(1,658)

(2,004)

(1,699)

Gross Profit

0

0

0

(2,060)

1,844

6,640

3,823

EBITDA

 

 

(55,123)

(12,924)

(16,948)

(5,845)

(10,849)

(3,221)

(9,285)

Operating Profit (before amort. and except.)

(55,278)

(13,191)

(17,230)

(8,031)

(12,245)

(8,769)

(12,884)

Intangible Amortisation

0

0

0

0

0

0

0

Exceptionals

0

58,668

0

0

0

0

0

Other

0

0

0

0

0

0

0

Operating Profit

(55,278)

45,477

(17,230)

(8,031)

(12,245)

(8,769)

(12,884)

Net Interest

1,496

1,640

1,499

657

634

203

134

Profit Before Tax (norm)

(53,782)

(11,551)

(15,731)

(7,374)

(11,612)

(8,566)

(12,750)

Profit Before Tax (FRS 3)

(53,782)

47,117

(15,731)

(7,374)

(11,612)

(8,566)

(12,750)

Tax

0

(122,359)

(62,542)

(5)

47,515

1,203

686

Profit After Tax (norm)

(53,782)

(133,910)

(78,273)

(7,379)

35,903

(7,364)

(12,064)

Profit After Tax (FRS 3)

(53,782)

(75,242)

(78,273)

(7,379)

35,903

(7,364)

(12,064)

Average Number of Shares Outstanding (m)

284.2

284.2

284.3

292.6

296.5

456.1

456.1

EPS - normalised (p)

 

(18.9)

(47.1)

(27.5)

(2.5)

12.1

(1.6)

(2.6)

EPS - normalised and fully diluted (p)

(18.9)

(47.1)

(27.5)

(2.5)

12.1

(1.6)

(2.6)

EPS - (IFRS) (p)

 

(18.9)

(26.5)

(27.5)

(2.5)

12.1

(1.6)

(2.6)

Dividend per share (p)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

-107.9

52.7

76.8

69.2

EBITDA Margin (%)

-306.0

-309.7

-37.3

-168.1

Operating Margin (before GW and except.) (%)

-420.5

-349.6

-101.4

-233.3

BALANCE SHEET

Fixed Assets

 

303,684

152,540

154,009

227,816

312,473

347,325

353,726

Intangible Assets

303,296

151,957

153,656

204,164

285,893

324,273

330,674

Tangible Assets

388

583

353

12,146

16,034

12,506

12,506

Investments

0

0

0

11,506

10,546

10,546

10,546

Current Assets

 

108,944

299,582

249,723

207,979

117,343

76,989

60,432

Stocks

0

0

0

2,188

1,708

1,708

1,708

Debtors

1,787

1,559

1,932

4,681

2,891

2,891

2,891

Cash

103,263

297,741

247,482

199,726

111,371

71,017

54,460

Other

3,894

282

309

1,384

1,373

1,373

1,373

Current Liabilities

 

(6,419)

(34,921)

(110,140)

(119,797)

(27,395)

(27,395)

(27,395)

Creditors

(6,419)

(34,921)

(110,140)

(119,797)

(27,395)

(27,395)

(27,395)

Short term borrowings

0

0

0

0

0

0

0

Long Term Liabilities

 

0

(85,304)

(39,137)

(60,960)

(113,617)

(113,617)

(113,617)

Long term borrowings

0

0

0

0

0

0

0

Other long term liabilities

0

(85,304)

(39,137)

(60,960)

(113,617)

(113,617)

(113,617)

Net Assets

 

 

406,209

331,897

254,455

255,038

288,804

283,302

273,146

CASH FLOW

Operating Cash Flow

 

(30,827)

(14,029)

(12,834)

(11,237)

(8,566)

46

(6,557)

Net Interest

0

0

0

0

0

0

0

Tax

0

0

0

0

0

0

0

Capex

(238,521)

208,792

(41,312)

(10,588)

(79,746)

(40,400)

(10,000)

Acquisitions/disposals

0

0

0

(24,037)

0

0

0

Financing

70,632

24

34

234

(500)

0

0

Dividends

1,191

(3,918)

3,853

(1,155)

488

0

0

Net Cash Flow

(197,525)

190,869

(50,259)

(46,783)

(88,324)

(40,354)

(16,557)

Opening net debt/(cash)

(268,757)

(103,263)

(297,741)

(247,482)

(199,726)

(111,371)

(71,017)

HP finance leases initiated

0

0

0

0

0

0

0

Other

32,031

3,609

0

(973)

(31)

0

0

Closing net debt/(cash)

 

(103,263)

(297,741)

(247,482)

(199,726)

(111,371)

(71,017)

(54,460)

Source: Edison Investment Research, company accounts

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