Rockhopper Exploration
Written by
Rockhopper Exploration |
Looking to 2017 |
End-year update |
Oil & gas |
21 December 2016 |
Share price performance
Business description
Next events
Analysts
Rockhopper Exploration is a research client of Edison Investment Research Limited |
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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.
Year end |
Revenue |
PBT* |
Operating cash flow ($m) |
Net (debt)/cash |
Capex |
12/14 |
1.9 |
(7.6) |
(11.2) |
199.7 |
(10.6) |
12/15 |
4.0 |
(44.7) |
(6.9) |
110.4 |
(80.3) |
12/16e |
7.8 |
122.5 |
(23.7) |
80.5 |
(34.0) |
12/17e |
11.7 |
(17.6) |
(0.7) |
62.6 |
(17.2) |
Note: *PBT is adjusted, excluding exceptional items and share-based payments.
Egyptian production bases
The company has slightly reduced its guidance for yearly production to 1,350boe/d (from 1,500boe/d) net. With the Italian assets outperforming slightly, this means that the Egyptian production has underperformed. We believe some of this may be due to lower drilling intensity given recent lower oil prices, which could be balanced by the recent drilling as well as 2017 plans (including committed exploration wells over the next 36 months).
Sea Lion still the core asset
Helped by the deflation in the service environment, work in 2016 by Premier Oil (PMO) and RKH has reduced the life of field costs to $35/bbl for Phase 1, while NPV10 break-even is $45/bbl, driven by a capex to first oil of $1.5bn (gross). This has made the project more attractive, especially as the oil price has recently strengthened. Sea Lion is a material asset for RKH, but under the current financing structure (and given PMO’s financial position) there is a risk of delays to reaching FID, while RKH may see its working interest reduce should a farm-out of the asset be executed. Any loss of working interest should be compensated for by a greater certainty of reaching FID.
Valuation: Unchanged at 74p/share
After the update, we have nudged our production estimates down (primarily in Egypt), but increased our year-end net cash figure, with the net effect of leaving the valuation unchanged at 74p/share. This is made up of the large cash pile (standing at $80m at year end) and the latent value of the Sea Lion development. Elsewhere, the company is examining its options on the Ombrina Mare licence, and we expect further details on this in Q117.
Valuation
Higher year-end net cash of c $80m is balanced by other changes (a payable for 2016 drilling still due and marginally lower production expectation in Egypt). This leaves only marginal changes to the valuation, with core NAV remaining 74p/share. The main uncertainty is the value of the Falkland portfolio – under PMO’s current financial position it may be some time before it is ready to fund development, while a farm-out to enable faster development may see RKH sacrifice some WI/value vs current position. To some extent this is mitigated by the relatively low risking we apply for an asset so well appraised, but we flag to investors that these components may move in time.
Exhibit 1: NAV summary
Asset |
FX £/US$ = 1.3 |
WI % |
CoS
|
Recoverable reserves, mmboe |
|
Net risked value, at WACC of 12.5% |
Value at varying discount rates, p/share |
||||||
Country |
First production |
Gross |
Net |
NPV $/boe |
|||||||||
$m |
p/share |
10% |
15% |
||||||||||
Net cash – December 2016e |
80 |
14 |
14 |
14 |
|||||||||
G&A (NPV10 of five years) |
(41) |
(7) |
(7) |
(7) |
|||||||||
2017 Exploration |
(1) |
(1) |
(1) |
(1) |
|||||||||
Remaining payments for Falkland exploration (from 2016, paid in 2017) |
(10) |
(2) |
(2) |
(2) |
|||||||||
Production |
|||||||||||||
Guendalina |
Italy |
20% |
100% |
2.0 |
0.4 |
11.7 |
5 |
1 |
1 |
1 |
|||
Civita |
Italy |
100% |
100% |
0.2 |
0.2 |
3.1 |
0 |
0 |
0 |
0 |
|||
Abu Sennan |
Egypt |
22% |
100% |
19 |
4.2 |
3.8 |
16 |
3 |
3 |
2 |
|||
Development |
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Sea Lion Phase 1 |
Falkland Islands |
2022 |
40% |
25% |
220 |
88 |
9.4 |
208 |
36 |
47 |
29 |
||
Sea Lion Phase 2 in PL32 |
Falkland Islands |
2026 |
40% |
20% |
88 |
35 |
4.9 |
35 |
6 |
9 |
4 |
||
Sea Lion Phase 2 in PL04 |
Falkland Islands |
2026 |
64% |
20% |
215 |
137 |
4.9 |
135 |
24 |
36 |
16 |
||
Core NAV |
|
|
|
|
544 |
265 |
|
426 |
74 |
100 |
56 |
||
Isobel Elaine |
64% |
13% |
472 |
302 |
2.1 |
81 |
14 |
29 |
6 |
||||
Isobel Elaine (CPR volumes) |
64% |
13% |
140 |
90 |
2.1 |
24 |
4 |
8 |
2 |
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Source: Edison Investment Research, Rockhopper Exploration accounts
Financials
Rockhopper remains in good financial health, with approximately $80m of estimated year end cash and production assets that go some way to offset G&A cash burn (subject to commodities prices and production). The longer-term funding position has not changed, with the current PMO farm-out deal substantially funding the development of Sea Lion phase I.
Exhibit 2: Financial summary
|
$000s |
|
2012 |
2013 |
2014 |
2015 |
2016e |
2017e |
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Year end 31 December |
|
|
|
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
|||
PROFIT & LOSS |
||||||||||||
Revenue |
|
|
|
0 |
0 |
1,910 |
3,966 |
7,823 |
11,658 |
|||
Cost of Sales (incl. depreciation of production assets) |
0 |
0 |
(3,970) |
(11,049) |
(7,593) |
(12,460) |
||||||
Gross Profit |
0 |
0 |
(2,060) |
(7,083) |
230 |
(801) |
||||||
EBITDA |
|
|
|
(12,924) |
(16,948) |
(8,031) |
(32,824) |
134,033 |
(3,545) |
|||
Clean EBITDAX |
|
|
(6,966) |
(15,487) |
(6,249) |
(9,890) |
(3,172) |
(3,545) |
||||
Operating Profit (before amort. and except.) |
(13,191) |
(17,230) |
(8,031) |
(40,922) |
129,089 |
(12,327) |
||||||
Intangible Amortisation |
0 |
0 |
0 |
0 |
0 |
0 |
||||||
Exceptionals |
58,668 |
0 |
0 |
0 |
0 |
0 |
||||||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
||||||
Operating Profit |
45,477 |
(17,230) |
(8,031) |
(40,922) |
129,089 |
(12,327) |
||||||
Net Interest |
1,640 |
1,499 |
448 |
(3,775) |
(6,574) |
(5,278) |
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Profit Before Tax (norm) |
|
(11,551) |
(15,731) |
(7,583) |
(44,697) |
122,515 |
(17,605) |
|||||
Profit Before Tax (FRS 3) |
|
47,117 |
(15,731) |
(7,583) |
(44,697) |
122,515 |
(17,605) |
|||||
Tax |
(122,359) |
(62,542) |
(5) |
55,395 |
530 |
634 |
||||||
Profit After Tax (norm) |
(133,910) |
(78,273) |
(7,588) |
10,698 |
123,045 |
(16,971) |
||||||
Profit After Tax (FRS 3) |
(75,242) |
(78,273) |
(7,588) |
10,698 |
123,045 |
(16,971) |
||||||
Average Number of Shares Outstanding (m) |
284.2 |
284.3 |
292.6 |
293.4 |
456.5 |
456.5 |
||||||
EPS - normalised (c) |
|
(47.1) |
(27.5) |
(2.6) |
3.6 |
27.0 |
(3.7) |
|||||
EPS - normalised and fully diluted (c) |
(47.1) |
(27.5) |
(2.6) |
3.6 |
27.0 |
(3.7) |
||||||
EPS - (IFRS) (c) |
|
|
(26.5) |
(27.5) |
(2.6) |
3.6 |
27.0 |
(3.7) |
||||
Dividend per share (c) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
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BALANCE SHEET |
||||||||||||
Fixed Assets |
|
|
152,540 |
154,009 |
227,816 |
279,098 |
489,068 |
497,485 |
||||
Intangible Assets |
151,957 |
153,656 |
204,164 |
256,658 |
460,944 |
465,061 |
||||||
Tangible Assets |
583 |
353 |
12,146 |
12,637 |
18,120 |
22,420 |
||||||
Goodwill / Other |
0 |
0 |
11,506 |
9,803 |
10,004 |
10,004 |
||||||
Current Assets |
|
|
299,582 |
249,723 |
207,979 |
120,495 |
105,993 |
88,118 |
||||
Stocks |
0 |
0 |
2,188 |
1,670 |
1,866 |
1,866 |
||||||
Debtors |
1,559 |
1,932 |
4,681 |
6,199 |
22,000 |
22,000 |
||||||
Cash |
297,741 |
247,482 |
199,726 |
110,434 |
80,470 |
62,595 |
||||||
Other |
282 |
309 |
1,384 |
2,192 |
1,657 |
1,657 |
||||||
Current Liabilities |
|
|
(34,921) |
(110,140) |
(119,797) |
(30,466) |
(30,009) |
(30,009) |
||||
Creditors |
(34,921) |
(110,140) |
(119,797) |
(30,466) |
(30,009) |
(30,009) |
||||||
Short term borrowings |
0 |
0 |
0 |
0 |
0 |
0 |
||||||
Long Term Liabilities |
|
|
(85,304) |
(39,137) |
(60,960) |
(106,893) |
(142,062) |
(147,585) |
||||
Long term borrowings |
0 |
0 |
0 |
0 |
0 |
0 |
||||||
Other long term liabilities |
(85,304) |
(39,137) |
(60,960) |
(106,893) |
(142,062) |
(147,585) |
||||||
Net Assets |
|
|
|
331,897 |
254,455 |
255,038 |
262,234 |
422,990 |
408,009 |
|||
CASH FLOW |
||||||||||||
Operating Cash Flow |
|
|
(14,029) |
(12,834) |
(11,237) |
(6,856) |
(23,726) |
(675) |
||||
Net Interest |
0 |
0 |
0 |
0 |
0 |
0 |
||||||
Tax |
0 |
0 |
0 |
0 |
0 |
0 |
||||||
Capex |
208,792 |
(41,312) |
(10,588) |
(80,302) |
(33,988) |
(17,200) |
||||||
Acquisitions/disposals |
0 |
0 |
(24,037) |
0 |
(4,688) |
0 |
||||||
Equity financing injection (and insurance proceeds in 2016) |
(3,383) |
3,887 |
(1,894) |
(2,134) |
0 |
0 |
||||||
Insurance proceeds in 2016 |
0 |
0 |
0 |
0 |
32,438 |
0 |
||||||
Dividends |
0 |
0 |
0 |
0 |
0 |
0 |
||||||
Net Cash Flow |
191,380 |
(50,259) |
(47,756) |
(89,292) |
(29,964) |
(17,875) |
||||||
Opening net debt/(cash) |
|
(103,263) |
(297,741) |
(247,482) |
(199,726) |
(110,434) |
(80,470) |
|||||
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
||||||
Other |
3,098 |
0 |
0 |
0 |
0 |
0 |
||||||
Closing net debt/(cash) |
|
|
(297,741) |
(247,482) |
(199,726) |
(110,434) |
(80,470) |
(62,595) |
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Source: Edison Investment Research, Rockhopper Exploration accounts
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