Rockhopper Exploration — Update 9 February 2017

Rockhopper Exploration — Update 9 February 2017

Rockhopper Exploration

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Rockhopper Exploration

Operational update

Company update

Oil & gas

9 February 2017

Price

26.50p

Market cap

£121m

US$1.3/£

Net cash ($m) at end 2016e excluding post-period adjustment

80

Shares in issue

456.7m

Free float

99%

Code

RKH

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

14.0

14.0

(7.0)

Rel (local)

13.9

8.1

(25.7)

52-week high/low

39.0p

19.2p

Business description

Rockhopper Exploration is a London-listed E&P with fully funded development of Sea Lion, a 500mmbbl+ field in the Falklands. The Isobel Elaine complex could add further significant resources. Rockhopper also holds production and exploration assets in the Mediterranean and Egypt.

Next events

Development and exploration in Egypt

H117

Ombrina Mare arbitration update

Q117

Analysts

Will Forbes

+44 (0)20 3077 5749

Elaine Reynolds

+44 (0)20 3077 5713

Rockhopper Exploration is a research client of Edison Investment Research Limited

The operational update from Rockhopper (RKH) contains no significant news, but does draw a line on the rig litigation (now settled) and provides further detail on the drilling activity in Egypt in 2017. Two wells will be drilled in H117, an exploration well followed by a development well, which will target a reservoir deeper than so far seen at Al Jahraa-4. The company hopes it will prove up the connection between the Al Jahraa and Al Jahraa SE fields. The company remains in strong financial health, with $60-65m cash at year end (after adjustments), and the largest net holding of reserves in Sea Lion. Our core NAV falls slightly from 74p/share to 73p/share.

Year
end

Revenue
($m)

PBT*
($m)

Operating cash flow ($m)

Net cash/
(debt) ($m)

Capex
($m)

12/14

1.9

(7.6)

(11.2)

199.7

(11.3)

12/15

4.0

(44.7)

(6.9)

110.4

(80.3)

12/16e

7.8

122.9

(24.4)

79.8

(34.2)

12/17e

11.1

(18.1)

(1.7)

50.1

(28.0)

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

Egyptian work programme

2017 will be the first full year of RKH’s ownership of the Abu Sennan asset. We model full-year 2017 production at similar levels to 2016 and note the development well and two workovers planned that will contribute to this. The recent acquisition of a 25% stake in Abu Sennan by Global Connect (private) underlines the attractive nature of the asset, even though the financial terms have not been disclosed.

Sea Lion development still in background

Sea Lion’s development has been dependent on the ability of Premier Oil (PMO) to fund the capex, leading to delays given PMO’s reduced financial health in recent years. Recent refinancing moves by PMO could lead to a more positive picture in 2017, although we believe any news on a farm-down is unlikely in the near term (we still expect both partners to seek a farm-down to a larger player that is better positioned to develop >500mmboe of Sea Lion resources (not including Isobel Deep/Elaine, which could be of a similar magnitude).

Valuation: Reduced to 73p/share

We have adjusted our modelling to reflect the company’s cash position and forecast capital expenditure in 2017, resulting in a slight revision of the core NAV to 73p/share (from 74p/share). The bulk of the value is in the Sea Lion development, where the technical studies part of FEED is almost complete, although we note that RKH’s WI and NPV may change with a farm-down. The substantial cash reserves of $60-65m at year end equate to around 11p/share. Egyptian and Italian production should largely cover the G&A burn and the Egyptian exploration well gives the possibility of further upside in the event of success.

Valuation

Our valuation falls slightly to 73p/share (from 74p/share) after minor adjustments to the year-end cash and capex programme. We also move our 2017 Brent assumption from $51.8/bbl to $51.7/bbl (following EIA forecasts).

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 WACCs of

Country

First production

%

 

mmboe

$/boe

$m

/share

10%

15%

Net (debt)/cash at Dec 2016e

80

14

14

14

G&A (NPV10 of five years)

(41)

(7)

(7)

(7)

2017 Exploration

(2)

(0)

(0)

(0)

Remaining payments for Falkland exploration (from 2016, paid in 2017)

(18)

(3)

(3)

(3)

Production

0

0

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

4.1

3.1

13

2

3

2

Development

0

0

Sea Lion Phase 1

Falkland Islands

2022

40%

25%

220

88

9.5

209

37

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

136

24

36

16

Core NAV

 

 

 

 

544

265

 

416

73

99

55

Isobel Elaine

Falkland Islands

64%

13%

472

302

2.1

81

14

29

6

Isobel Elaine (CPR volumes)

Falkland Islands

64%

13%

140

90

2.1

24

4

8

2

Source: Edison Investment Research

Financials

Rockhopper remains in strong financial health, with $80m cash at year end ($60-65m after campaign close-out costs and the rig settlement). Cash flows from production should largely offset G&A costs, leaving the $13m capital programme in 2017 (including $8m for Sea Lion FEED and $3m for Egyptian drilling/work-overs) as the main outflow leading to our estimated 2017 year-end cash position of $50m.

Exhibit 2: Financial summary

 

 

$'000s

 

2012

2013

2014

2015

2016e

2017e

Dec

 

 

 

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

 

0

0

1,910

3,966

7,823

11,079

Cost of Sales (incl. depreciation of production assets)

0

0

(3,970)

(11,049)

(7,593)

(12,968)

Gross Profit

0

0

(2,060)

(7,083)

230

(1,890)

EBITDA

 

 

 

(12,924)

(17,230)

(8,031)

(32,824)

134,033

(3,905)

Clean EBITDAX

 

 

(6,966)

(15,769)

(6,249)

(9,890)

(3,172)

(3,905)

Operating Profit (before amort. and except.)

(13,191)

(17,230)

(8,031)

(40,922)

129,507

(12,580)

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)

129,507

(12,580)

Net Interest

1,640

1,499

448

(3,775)

(6,574)

(5,523)

Profit Before Tax (norm)

 

(11,551)

(15,731)

(7,583)

(44,697)

122,933

(18,103)

Profit Before Tax (FRS 3)

 

47,117

(15,731)

(7,583)

(44,697)

122,933

(18,103)

Tax

(122,359)

(62,542)

(5)

55,395

(530)

(634)

Profit After Tax (norm)

(133,910)

(78,273)

(7,588)

10,698

122,403

(18,737)

Profit After Tax (FRS 3)

(75,242)

(78,273)

(7,588)

10,698

122,403

(18,737)

Average Number of Shares Outstanding (m)

284.2

284.3

292.6

293.4

456.5

456.5

EPS - normalised (US$c)

 

(47.1)

(27.5)

(2.6)

3.6

26.8

(4.1)

EPS - normalised and fully diluted (US$c)

(47.1)

(27.5)

(2.6)

3.6

26.8

(4.1)

EPS - (IFRS) (US$c)

 

 

(26.5)

(27.5)

(2.6)

3.6

26.8

(4.1)

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

0.0

BALANCE SHEET

Fixed Assets

 

 

152,540

154,009

227,816

279,098

489,068

492,558

Intangible Assets

151,957

153,656

204,164

256,658

460,944

460,924

Tangible Assets

583

353

12,146

12,637

18,120

21,630

Goodwill / Other

0

0

11,506

9,803

10,004

10,004

Current Assets

 

 

299,582

249,723

207,979

120,495

105,351

75,638

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

79,828

50,115

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

422,348

390,602

CASH FLOW

Operating Cash Flow

 

 

(14,029)

(12,834)

(11,237)

(6,856)

(24,441)

(1,713)

Net Interest

0

0

0

0

0

0

Tax

0

0

0

0

0

0

Capex

207,746

(42,267)

(11,261)

(80,302)

(34,223)

(28,001)

Acquisitions/disposals

0

0

(24,037)

0

(4,688)

0

Equity financing / buybacks

(2,337)

4,842

(1,201)

(2,116)

32,752

0

Dividends

0

0

0

0

0

0

Net Cash Flow

191,380

(50,259)

(47,736)

(89,274)

(30,601)

(29,714)

Opening net debt/(cash)

 

(103,263)

(297,741)

(247,482)

(199,726)

(110,434)

(79,828)

HP finance leases initiated

0

0

0

0

0

0

Other

3,098

0

(20)

(18)

(5)

(0)

Closing net debt/(cash)

 

 

(297,741)

(247,482)

(199,726)

(110,434)

(79,828)

(50,115)

Source: Edison Investment Research, company accounts

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt and Sydney. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Rockhopper Exploration and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt and Sydney. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Rockhopper Exploration and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Research: TMT

Keywords Studios — Update 8 February 2017

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