Rockhopper Exploration
Written by
Rockhopper Exploration |
Isobel-2 success |
Successful appraisal |
Oil & gas |
12 January 2016 |
Share price performance
Business description
Analysts
Rockhopper Exploration is a research client of Edison Investment Research Limited |
||||||||||||||||||||||||||||||||
Yesterday’s drilling result has vindicated Rockhopper’s (RKH) confidence in the Isobel Deep/Elaine complex and extended its success rate to 10/12. Drilling 4km and 350m downdip of Isobel-1, the well encountered 27m of net oil pay (within the Isobel Deep, Isobel and Emily reservoirs), no gas and no oil water contact. As a result, the company believes that the total oil column is in excess of 480m and is “highly likely to contain a commercially viable quantity of recoverable oil”. The company has previously talked about Isobel potentially unlocking over 500mmboe, more than the SeaLion development (c 375mmboe). The result firms up the logic of the merger with FOGL, after which Rockhopper would hold 64% of Isobel. The results should also give the partners a strong hand in farm-out negotiations. We look forward to updating our valuation more fully in the short term.
Year |
Revenue |
PBT* |
Operating cash |
Net (debt)/ |
Capex |
12/13 |
0.0 |
(15.7) |
(12.8) |
247.5 |
(41.3) |
12/14 |
1.9 |
(7.4) |
(11.2) |
199.7 |
(10.6) |
Note: *PBT is normalised, excluding amortisation of acquired intangibles and share-based payments. We expect to update our forecasts in the near future.
Many reservoirs
With the Isobel-2 well, Rockhopper has been able to de-risk the discovery made by Isobel-1, extending the knowledge of the fields and overcoming the technical issues seen at Isobel-1, which had forced the suspension before the full reservoir had been drilled (penetrating 24m, around a third of the prognosed thickness). Post-well, the company estimated pMean resources of more than 500mmboe. The 4km step-out Isobel-2 was designed to re-drill the Isobel Deep reservoir, while providing a location to test a number of other horizons. Appraisal drilling could focus on optimal placing of wells to better understand these additional reservoirs and confirming no OWC. We do not expect Isobel Deep to be re-entered for some time.
Well result suggests third phase of development
Following the Isobel-2 well result, Rockhopper believes the fields could form a third phase of the Falkland Islands development. If the results of the well prove up the earlier 500mmboe estimates, it could make the Isobel/Elaine complex substantially larger than SeaLion. However, appraisal drilling is unlikely in the near term. The rig will now move to Chatham, after which we believe the partners will concentrate on the SeaLion development and a possible farm-down.
We expect to refresh our valuation of the company in the near term to account for the merger (due to close on 18 January) and the results of the Isobel-2 well. However, this result is strongly positive and speaks well for RKH’s technical expertise in the North Falklands basin. In our June 2015 update we valued the Isobel complex's +500mmbbl prospect at $3.4/bbl on a gross unrisked basis, although we note this was at a higher prevailing oil price.
|
Disclaimer
|