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.
Written by
Rockhopper Exploration |
Disposing Civita makes senses |
Asset sale |
Oil & gas |
8 June 2017 |
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Rockhopper Exploration is a research client of Edison Investment Research Limited |
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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 $1.6m. It will likely reduce G&A costs going forward and allow RKH to concentrate on its three main assets in Italy (Monte Grosso, Ombrina Mare and Guendalina). The bulk of RKH’s value remains in its Sea Lion development and we hope progress is made in 2017 towards project sanction. We have adjusted our valuation for RKH to account for the deal, which reduces our NAV slightly to 72p/share.
Year end |
Revenue (US$m) |
Reported PBT |
Cash from |
Net (debt)/ |
Capex |
12/15 |
4.0 |
(44.7) |
(6.9) |
110.4 |
(80.9) |
12/16 |
7.4 |
98.0 |
(21.2) |
81.0 |
(40.2) |
12/17e |
9.6 |
(11.9) |
(1.0) |
50.4 |
(13.0) |
12/18e |
9.1 |
(20.8) |
(1.9) |
33.1 |
(15.4) |
Note: Historical financials are as reported.
Disposal of Civita reduces EBITDA and G&A
Civita is a relatively small asset, with production of 130boe/d, producing revenues of €1.1m and EBITDA of around €0.2m. The disposal of the asset (alongside five others), with RKH paying Northern Petroleum $1.6m, relieves the company of material future abandonment costs at the six sites – RKH estimates plugging and abandonment liabilities to be €8.5m. Additionally, the company should be able to reduce G&A costs in Italy, which we have accounted for in small changes to our forecasts.
Other Italian assets remain core and valuable
The company remains committed to the remaining assets: the producing asset of Guendalina, the exploration opportunity at Monte Grosso and the possibility of recovering damages from the lost development opportunity at Ombrina Mare. We do not currently include any value for exploration at Monte Grosso, but note that RKH estimates it to contain c 250mmbbl with a 23% chance of success.
Valuation: NAV falls to 72p/share
We have adjusted our valuation and forecasts for RKH following the deal, with our NAV falling from 73p to 72p/share. Although the deal is good for the company, our NAV falls because we had not fully accounted for the extent of abandonment liabilities at the other licences transferred to Northern Petroleum. RKH continues to trade at a material discount to our NAV, which is dominated by the latent value of its holdings in the Falkland Islands development at Sea Lion (and possibly Isobel Deep/Elaine).
Valuation
Exhibit 1: NAV summary
Asset |
FX: £/US$1.3 |
|
|
Recoverable reserves |
|
Net risked value |
||||||||
Shares: 457m |
WI |
CoS |
Gross |
Net |
NPV |
at WACC of 12.5% |
at WACC of |
|||||||
Country |
First production |
% |
|
mmboe |
$/boe |
$m |
/share |
10% |
15% |
20% |
||||
Net (debt)/cash - Dec 2016e |
81 |
14 |
14 |
14 |
14 |
|||||||||
G&A (NPV10 of five years) |
(44) |
(8) |
(8) |
(8) |
(8) |
|||||||||
2017 Exploration |
(2) |
(0) |
(0) |
(0) |
(0) |
|||||||||
Remaining payments for Falkland exploration (from 2016, paid in 2017) |
(18) |
(3) |
(3) |
(3) |
(3) |
|||||||||
Cash consideration for sale of Civita assets |
(2) |
(0) |
(0) |
(0) |
(0) |
|||||||||
Production |
||||||||||||||
Guendalina |
Italy |
20% |
100% |
2.0 |
0.4 |
11.8 |
5 |
1 |
1 |
1 |
1 |
|||
Abu Sennan |
Egypt |
22% |
100% |
19 |
4.1 |
3.1 |
13 |
2 |
3 |
2 |
1 |
|||
Development |
||||||||||||||
Sea Lion Phase 1 |
Falkland Islands |
2022 |
40% |
20% |
220 |
88 |
10.8 |
191 |
33 |
43 |
26 |
17 |
||
Sea Lion Phase 2 in PL32 |
Falkland Islands |
2026 |
40% |
16% |
88 |
35 |
5.7 |
32 |
6 |
8 |
4 |
2 |
||
Sea Lion Phase 2 in PL04 |
Falkland Islands |
2026 |
64% |
16% |
215 |
137 |
5.7 |
124 |
22 |
32 |
15 |
7 |
||
Ombrina Mare - under arbitration |
Italy |
100% |
15% |
25 |
25 |
8.1 |
30 |
5 |
5 |
5 |
5 |
|||
Core NAV |
|
|
|
|
569 |
290 |
|
410 |
72 |
95 |
56 |
36 |
||
Isobel Elaine |
Falkland Islands |
64% |
10% |
472 |
302 |
2.1 |
65 |
11 |
23 |
5 |
0 |
|||
Isobel Elaine (CPR volumes) |
Falkland Islands |
64% |
10% |
140 |
90 |
2.1 |
19 |
3 |
7 |
1 |
0 |
|||
Source: Edison Investment Research
Exhibit 2: Financial summary
Accounts: IFRS, Year-end: 31 December, US$000s |
|
2015 |
2016 |
2017e |
2018e |
|
Total revenues |
|
3,966 |
7,417 |
9,566 |
9,068 |
|
Cost of sales |
|
(11,049) |
(7,667) |
(10,183) |
(11,526) |
|
Gross profit |
|
(7,083) |
(250) |
(617) |
(2,457) |
|
SG&A (expenses) |
|
(10,895) |
(9,970) |
(8,700) |
(9,635) |
|
Other income/(expense) |
|
(22,934) |
(8,237) |
0 |
0 |
|
Exceptionals and adjustments |
|
(10) |
116,527 |
2,910 |
(2,400) |
|
Reported EBIT |
|
|
(40,922) |
98,070 |
(6,407) |
(14,492) |
Finance income/(expense) |
|
|
975 |
307 |
0 |
0 |
Other income/(expense) |
|
|
(4,750) |
(333) |
(5,523) |
(6,352) |
Reported PBT |
|
|
(44,697) |
98,044 |
(11,930) |
(20,844) |
Income tax expense (includes exceptionals) |
|
|
55,395 |
0 |
(634) |
(236) |
Reported net income |
|
|
10,698 |
98,044 |
(12,564) |
(21,080) |
Basic average number of shares, m |
|
|
293 |
446 |
457 |
457 |
Basic reported EPS (c) |
|
|
3.7 |
22.0 |
(27.5) |
(46.1) |
|
|
|
|
|
|
|
Balance sheet |
|
|
||||
Property, plant and equipment |
|
|
12,637 |
18,025 |
19,035 |
22,880 |
Intangible assets |
|
|
256,658 |
426,419 |
426,990 |
428,075 |
Other non-current assets |
|
|
9,803 |
9,439 |
9,439 |
9,439 |
Total non-current assets |
|
|
279,098 |
453,883 |
455,465 |
460,394 |
Cash and equivalents |
|
|
110,434 |
81,019 |
50,386 |
33,128 |
Inventories |
|
|
1,670 |
1,608 |
1,608 |
1,608 |
Trade and other receivables |
|
|
6,199 |
17,184 |
17,184 |
17,184 |
Other current assets |
|
|
2,192 |
495 |
495 |
495 |
Total current assets |
|
|
120,495 |
100,306 |
69,673 |
52,415 |
Non-current loans and borrowings |
|
|
0 |
0 |
0 |
0 |
Other non-current liabilities |
|
|
106,893 |
93,174 |
89,697 |
96,049 |
Total non-current liabilities |
|
|
106,893 |
93,174 |
89,697 |
96,049 |
Trade and other payables |
|
|
30,457 |
34,012 |
34,012 |
34,012 |
Current loans and borrowings |
|
|
0 |
0 |
0 |
0 |
Other current liabilities |
|
|
9 |
9 |
9 |
9 |
Total current liabilities |
|
|
30,466 |
34,021 |
34,021 |
34,021 |
Equity attributable to company |
|
|
262,234 |
426,994 |
401,420 |
382,740 |
Non-controlling interest |
|
|
0 |
0 |
0 |
0 |
|
|
|
|
|
|
|
Cash flow statement |
|
|
||||
Profit for the year |
|
|
(44,697) |
98,044 |
(12,564) |
(21,080) |
Taxation expenses |
|
|
0 |
0 |
(634) |
(236) |
Net finance expenses |
|
|
3,942 |
16 |
5,523 |
6,352 |
Depreciation and amortisation |
|
|
2,744 |
4,725 |
8,919 |
10,451 |
Share based payments |
|
|
1,937 |
994 |
1,990 |
2,400 |
Other adjustments (impairments) |
|
|
26,075 |
(115,546) |
(4,900) |
0 |
Movements in working capital |
|
|
3,143 |
(9,433) |
0 |
0 |
Cash from operations (CFO) |
|
|
(6,856) |
(21,200) |
(1,032) |
(1,878) |
Capex |
|
|
(80,919) |
(40,203) |
(13,001) |
(15,380) |
Acquisitions & disposals net |
|
|
0 |
(13,527) |
(1,600) |
0 |
Other investing activities |
|
|
39,791 |
77,755 |
(15,000) |
0 |
Cash used in investing activities (CFIA) |
|
|
(41,128) |
24,025 |
(29,601) |
(15,380) |
Net proceeds from issue of shares |
|
|
(2,733) |
0 |
0 |
0 |
Movements in debt |
|
|
0 |
0 |
0 |
0 |
Other financing activities (includes rig settlement) |
|
|
2,219 |
(2) |
0 |
0 |
Cash from financing activities (CFF) |
|
|
(514) |
(2) |
0 |
0 |
Increase/(decrease) in cash |
|
|
(48,498) |
2,823 |
(30,633) |
(17,258) |
Currency translation differences and other |
|
|
(794) |
(2,238) |
0 |
0 |
Cash at end of period |
|
|
50,434 |
51,019 |
20,386 |
3,128 |
Net (debt) cash |
|
|
110,434 |
81,019 |
50,386 |
33,128 |
Movement in net (debt) cash over period |
|
|
(89,292) |
(29,415) |
(30,633) |
(17,258) |
Source: Edison Investment Research, company accounts
|
|
In an in line update, SCISYS reports that its order book grew by 4% over Q1, while net debt fell by £2.4m as at end-April. Cash flow was boosted by the receipt of overdue payments from the MOD and a tax credit from HMRC that were deferred from 2016. All business units have been performing well and we note that this year is likely to be more H2 weighted than is typical due to the acquired ANNOVA. Noting management’s goal to achieve £60m in revenues and double-digit operating margins within three to five years, we believe the stock looks attractive on c 9x our maintained FY18e EPS.