Rockhopper Exploration
Written by
Rockhopper Exploration |
Chatham well deferred |
Rig contract cancelled |
Oil & gas |
16 February 2016 |
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Rockhopper Exploration is a research client of Edison Investment Research Limited |
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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 |
PBT* |
Operating cash flow |
Net (debt)/cash |
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) |
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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