Rockhopper Exploration — Operator confident in 2018 Sea Lion Phase 1 FID

Rockhopper Exploration — Operator confident in 2018 Sea Lion Phase 1 FID

Premier Oil’s (PMO’s) FY17 results highlighted progress made by the Sea Lion project operator in securing vendor/debt financing, a key hurdle ahead of the final investment decision (FID). Premier’s proposed financing structure proposes a combination of vendor finance ($375m), senior debt ($750m) and equity ($375m) to fund the $1.5bn gross capex bill ahead of first oil. We had previously heavily risked Sea Lion Phase 1, given perceived uncertainty over Premier’s commitment to the project. We believe deleveraging of Premier’s balance sheet, the materiality of Sea Lion in the context of Premier’s development portfolio and progress made with regard to project finance significantly increase our confidence in the project reaching FID. We risk Sea Lion Phase 1 at a 40% chance of success (up from 20%), increasing our valuation of Rockhopper (RKH) from 44.2p/share to 62.9p/share (+42%).

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Written by

Rockhopper Exploration

Operator confident in 2018 Sea Lion Phase 1 FID

Company update

Oil & gas

19 March 2018

Price

25p

Market cap

£114m

£/US$1.4

Estimated net cash ($m) at 31 December 2017

51.1

Shares in issue

457.3m

Free float

93%

Code

RKH

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

3.6

15.1

8.8

Rel (local)

5.0

19.5

10.8

52-week high/low

27.7p

18.5p

Business description

Rockhopper is an AIM-listed E&P with assets in the Falkland Islands, Egypt and Italy. Its main asset is the Sea Lion development project in the Falklands.

Next events

Funding progress

H218

Sea Lion FID

H218

Ombrina Mare arbitration

Mid-2019

Analysts

Sanjeev Bahl

+44 (0)20 3077 5742

Elaine Reynolds

+44 (0)20 3077 5713

Rockhopper Exploration is a research client of Edison Investment Research Limited

Premier Oil’s (PMO’s) FY17 results highlighted progress made by the Sea Lion project operator in securing vendor/debt financing, a key hurdle ahead of the final investment decision (FID). Premier’s proposed financing structure proposes a combination of vendor finance ($375m), senior debt ($750m) and equity ($375m) to fund the $1.5bn gross capex bill ahead of first oil. We had previously heavily risked Sea Lion Phase 1, given perceived uncertainty over Premier’s commitment to the project. We believe deleveraging of Premier’s balance sheet, the materiality of Sea Lion in the context of Premier’s development portfolio and progress made with regard to project finance significantly increase our confidence in the project reaching FID. We risk Sea Lion Phase 1 at a 40% chance of success (up from 20%), increasing our valuation of Rockhopper (RKH) from 44.2p/share to 62.9p/share (+42%).

Year end

Revenue
(US$m)

PBT*
(US$m)

Cash from
operations (US$m)

Net (debt)/
cash (US$m)

Capex
(US$m)

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

9.8

(8.3)

(0.7)

51.1

(27.6)

12/18e

8.1

(13.9)

3.0

35.7

(18.5)

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

De-risking Sea Lion Phase 1 (Rockhopper 40%)

In this note, we describe the events that lead us to believe that Sea Lion Phase 1 is more likely to be developed than we had previously assumed. Higher prevailing oil prices and lower capital costs are key elements behind the operator’s renewed confidence in progressing the project through to FID in 2018. Premier estimates net economics, on a leveraged basis, and assumes a 10% cost of equity at $1bn ($65/bbl oil). We use more conservative assumptions, with RKH’s weighted average cost of capital at 12.5% and first oil deferred to 2023 (operator 2022). Based on a $70/bbl long term oil price, our risked valuation of RKH stands at 62.9p/share.

Oil price sensitivity remains high

The economics of Sea Lion remain sensitive to our underlying oil price assumption and cost of capital. For example, a $5/bbl increase/decrease in our long-term oil price assumption (from $70/bbl Brent) has a c 19% positive/negative impact on our RKH risked valuation. Premier Oil estimates that its net economics are break-even at c $45/bbl.

Valuation: Sea Lion funding and FID key catalysts

Key catalysts in 2018 include finalised funding terms with providers of vendor and debt finance. This will be followed by project FID towards the end of the year. We expect both of these to further de-risk Sea Lion Phase 1 from our current 40% chance of commercial success.

Premier Oil confident in de-risked Sea Lion Phase 1

Premier Oil reported FY17 results on 8 March 2018, highlighting the progress the company has made in restoring balance sheet strength. This included a combination of refinancing existing facilities, successful execution of the Catcher development and consequent enhanced organic cash generation and non-core asset disposals. Looking ahead, Premier Oil expects leverage to fall to c 2.5x net debt/EBITDAX by end Q119, enabling management to direct cash flow towards high-return growth projects in addition to debt reduction.

The largest project in Premier Oil’s current development portfolio is Sea Lion, with potential Phase 1 net production of 50kboed, and a Premier estimated post-tax net leveraged NPV10 of c $1bn at a $65/bbl oil price. Funding for the project is expected to be split into three component parts: vendor financing (c $375m), export credit/bank finance (c $750m) and upstream partner equity (c $375m).

Exhibit 1: Premier Oil major projects delivering future production

Exhibit 2: Sea Lion Phase 1 pre-first oil capex split and sources of capital

Source: Premier Oil

Source: Premier Oil

Exhibit 1: Premier Oil major projects delivering future production

Source: Premier Oil

Exhibit 2: Sea Lion Phase 1 pre-first oil capex split and sources of capital

Source: Premier Oil

Below we highlight key elements of Premier Oil’s FY17 annual results presentation/conference call, which give us increased confidence in the potential development of Sea Lion Phase 1:

Premier Oil expects material deleveraging in 2018 with a management forecast reduction in net debt/EBITDAX to 2.5x by end Q119 at a $65/bbl Brent crude price.

Cash receipts from non-core asset sales (eg Babbage) are expected to further reduce leverage.

Premier’s committed development capex in 2018/19 remains relatively low, with the Tolmount development expected to be delivered at a net capex cost of c $100m.

Premier estimates a Sea Lion Phase 1 project break-even (net to Premier) of $45/bbl.

Increasing interest from senior debt providers and service contractors to part-finance Sea Lion Phase 1 development, reducing Premier’s net equity capital requirements to $375m pre-first oil. Premier Oil’s CEO, Tony Durrant, said: “We’re encouraged by the return of interest from some banks into the project finance market. I think that’s a conversation that would have been very difficult 12-24 months ago. But we’ve had recent discussions which are encouraging.”

EIA statement: public consultation nearing completion.

Alignment with Falkland Islands Government (FIG) on commercial and regulatory terms.

Premier’s Catcher development experience gives the Sea Lion operator greater confidence in the execution of FPSO projects. Premier sees overlap in the chosen contractors for Sea Lion and Catcher, based on Catcher’s track record of delivery.

The Falklands accounts for c 44% of Premier Oil’s December 2017 net 2P reserves.

Further due diligence on the Sea Lion project by contractors providing vendor finance gives confidence in the technical case. This is supported by the 17 wells drilled to date and technical assessment of issues associated with Metocean conditions, waxy crude and logistical constraints.

The Sea Lion project has a substantially agreed field development plan (FDP), which will be updated for the final time ahead of sanction.

Letters of intent (LoIs) signed with contractors for provision of rig, well services, and logistical services and vendor financing.

Formal sanction of Sea Lion is expected by FIG in 2019.

Premier expects to finalise project funding during 2018 ahead of FID towards the end of 2018 and with first oil in 2022. We continue to assume a 2023 first oil for Phase 1 of the development, just over four years after project sanction. This is a slightly longer development timeline than Catcher, which was sanctioned by Premier Oil in June 2014 and delivered first oil in December 2017.

Exhibit 3: Premier Oil comparison of Sea Lion Phase 1 and Catcher

Source: Premier Oil

Exhibit 4: Edison Gross production profile for Sea Lion Phases 1 to 3

Source: Edison Investment Research

Valuation: Phase 1 development becoming a reality

We see confirmation of vendor financing and senior debt as important enablers of the project that we feel will further de-risk Sea Lion Phase 1 from a market perspective. In this note, we have increased our commercial chance of success for Sea Lion Phase 1 from a modest 20% to 40%, although we see potential for further de-risking in the coming months as financing is secured. This upgrade also includes the impact of rolling forward the date at which we discount cash flows to start 2018, modified capex phasing and is partly offset by a currency mark-to-market with our £/US$ rate changing from 1.3 to 1.4.

Our total Rockhopper RENAV rises from 44.2p/share to 62.9p/share (+42%) as a result and we provide a valuation sensitivity analysis to Sea Lion’s chance of success in Exhibit 5 below.

Exhibit 5: Sea Lion Phase 1 de-risking

Source: Edison Investment Research

We note that Premier Oil’s net Sea Lion Phase 1 valuation, which Premier management estimates at $1bn using a $65/bbl oil price assumption, includes the cost carry of RKH’s share of capex to first oil and is calculated on a leveraged basis with a 10% cost of equity. Key differences between our valuation of Sea Lion and Premier Oil’s are highlighted below:

Exhibit 6: Differences between Edison and Premier Oil (WI 60%) valuation of Sea Lion Phase 1

Edison

Premier Oil

Phase 1 unrisked NPV net to Premier Oil $474m

Phase 1 unrisked NPV net Premier Oil c $1,000m

First oil 2023

First oil 2022

Unleveraged

Leveraged (finance costs undisclosed)

12.5% cost of capital

10% cost of equity

$70/bbl Brent LT oil price

$65/bbl oil price assumption

RKH cost carried

RKH cost carried

Edison

Phase 1 unrisked NPV net to Premier Oil $474m

First oil 2023

Unleveraged

12.5% cost of capital

$70/bbl Brent LT oil price

RKH cost carried

Premier Oil

Phase 1 unrisked NPV net Premier Oil c $1,000m

First oil 2022

Leveraged (finance costs undisclosed)

10% cost of equity

$65/bbl oil price assumption

RKH cost carried

Source: Edison Investment Research

Exhibit 7: Rockhopper risked valuation

Asset

Recoverable reserves

 

Net risked value

Shares: 457m

First

WI

CoS

Gross

Net

NPV

at WACC of 12.5%

Sensitivity of WACCs at

Country

production

(%)

 

mmboe

$/boe

$m

/share

10%

15%

20%

Net (debt)/cash - December 2017e

51

8.0

8.0

8.0

8.0

G&A (NPV12.5 of five years)

(20)

(3.2)

(3.2)

(3.2)

(3.2)

Cash to buyer of Civita assets

(2)

(0.3)

(0.3)

(0.3)

(0.3)

Production

Guendalina

Italy

20%

100%

1.2

0.2

13.8

3

0.5

0.5

0.5

0.5

Abu Sennan

Egypt

22%

100%

10

2.2

5.3

12

1.8

2.1

1.6

1.3

Development

Sea Lion Phase 1

Falkland Islands

2023

40%

40%

221

88

5.7

251

39.3

51.8

29.8

16.9

Sea Lion Phase 2 in PL32

Falkland Islands

2028

40%

20%

87

35

4.0

21

3.2

5.0

2.1

0.9

Sea Lion Phase 2 in PL04

Falkland Islands

2028

64%

20%

214

137

3.4

70

11.0

17.5

6.7

2.2

Ombrina Mare - under arbitration

Italy

16

2.5

2.5

2.5

2.5

Core NAV

 

 

 

 

533

262

 

402

62.9

83.9

47.8

28.9

Source: Edison Investment Research

Our updated valuation assumes a 40% commercial chance of success for Sea Lion Phase 1. We expect further de-risking as Premier secures debt funding and reaches project FID. As it stands, we estimate that the market is assuming a c 20% chance of success for Sea Lion Phase 1 and minimal value for future phases of development.

Exhibit 8: Rockhopper base case valuation waterfall

Source: Edison Investment Research

Risks and sensitivities

The economics of Sea Lion remain sensitive to our underlying oil price assumption and cost of capital, as shown in Exhibit 9. A $5/bbl reduction in our long-term oil price assumption (from $70/bbl Brent to $65/bbl) has a 19% negative impact on our RKH RENAV. Premier Oil estimates that the company’s net economics are break-even at c $45/bbl.

Exhibit 9: Rockhopper valuation sensitivity to long-term oil price and WACC*

WACC

7.5%

10.0%

12.5%

15.0%

17.5%

Oil price $/bbl

50

42

29

21

14

11

60

78

57

42

32

24

70

113

84

63

48

37

80

149

111

84

65

50

90

184

138

105

81

63

Source: Edison Investment Research. Note: *Base case long-term $70/bbl Brent in 2022, and 12.5% WACC.

Funding risk: key risks are around the Sea Lion partner group’s ability to secure vendor, senior debt and equity financing for the Phase 1 development, as discussed earlier in this note.

Oil price risk: the bulk of RKH’s value is dependent on long-term prices, although near-term cash flows are reliant on near-term realisations in Italy and Egypt.

Fiscal regime change: the FIG is unlikely to increase the fiscal take in the foreseeable future, especially given the current outlook for oil prices. Indeed, given the delays in getting project sanction, it is in everyone’s interest to incentivise first oil as soon as possible. A renegotiation of terms is therefore possible, but we are not assuming it.

Reservoir risk: Sea Lion has been extensively appraised, so reservoir distribution here is understood and the waxy nature of the Sea Lion crude known. Similar appraisal and analysis will be required at the Isobel-Elaine complex.

Argentina: relations between Argentina and the UK have thawed in recent years. In September 2016, the UK and Argentinean governments agreed to work together to remove “restrictive measures around the oil and gas industry, shipping and fishing affecting the Falkland Islands”. A second commercial flight to the Falklands is expected later this year, which requires UK and Argentinean support. We hope that a path to normalisation of diplomatic relations continues.

Payment and repatriation risk from Egypt: Egyptian production can be paid in a combination of Egyptian pounds and US dollars, and we believe that it is materially easier to be paid in Egyptian pounds (although to date RKH has only accepted US dollars, paid directly into its UK bank accounts).

Financials

Rockhopper presents an end-December 2017 unaudited $51m in cash and no debt. We expect this to fall to just over $35.7m by year end FY18 (assuming a c $3m receivable unwind) as the company funds pre-sanction activity for Sea Lion, including corporate G&A as well as $3m for Abu Sennan and the Raya-1X well in Egypt.

Current cash is clearly not enough to fund development of Sea Lion, but existing farm-out agreements with PMO will enable RKH to progress to Sea Lion first oil, based on the partner group’s estimated $1.5bn gross capex bill. Existing agreements call for a $337m development carry on Phase 1, with a similar-sized carry on further phases. Given the debt-biased financing structure outlined by PMO, the carry net to RKH of the $375m equity finance for Phase 1 pre-first oil would only be $150m. We would not be surprised to see an evolution of the existing farm-out agreement.

Greater Mediterranean assets and 2018 outlook

RKH recently provided an update on the company’s Greater Mediterranean assets, reporting improved production from Abu Sennan, strong realisations and confirmation of a four-well drilling programme in 2018. The company’s Egyptian receivables position is significantly reduced ($4.5m outstanding) and historical liabilities to Beach Energy have been satisfied, meaning RKH will now benefit from 100% of payments from the Egyptian General Petroleum Corporation (EGPC) relating to its net interest. Cash flows from the company’s Egyptian asset base are expected to cover operational costs, G&A and contribute to maintenance capex going forward. Company financials are largely driven by the company’s producing Greater Mediterranean assets and the continued investment in Sea Lion.

Abu Sennan: producing slightly ahead of management expectations following workovers in H217 at 880kboed net. Following JV approval, the company is to drill one exploration well (Prospect S), two development wells and a water injection programme at Al Jahraa in 2018. The focus remains on replacing reserves and maintaining production, with the potential to materially increase recovery factor over time. (Abu Sennan accounts for 2p/share of our NAV.) Net capex for the assets is estimated at $3m in 2018.

El Qa’a Plain: the Raya-1X commitment well is to be drilled in 2018, targeting a relatively high COS, but small (1-2mmbo) prospect close to existing discoveries. Net capex is estimated at less than $1m.

Italy: Guendalina continues to perform to forecasts (290kboed in 2017). However, the Civita gas field incurred downtime in February 2018 due to a pipeline depressurisation event, which is to be remedied. RKH continues to look at divesting its non-core Italian assets, including Civita (currently just 0.3p/share of our NAV), to Cabot Energy.

Exhibit 10: Financial summary

Accounts: IFRS, Year-end: December, US$000s

2014

2015

2016

2017e

2018e

2019e

2020e

PROFIT & LOSS

Total revenues

 

1,910

3,966

7,417

9,837

8,078

7,884

7,229

Cost of sales

 

(3,970)

(11,049)

(7,667)

(8,317)

(9,404)

(10,784)

(12,266)

Gross profit

 

(2,060)

(7,083)

(250)

1,520

(1,326)

(2,900)

(5,037)

SG&A (expenses)

 

(10,033)

(10,895)

(9,970)

(5,729)

(5,600)

(5,740)

(5,884)

Other income/(expense)

 

(1,782)

(22,934)

(8,237)

(2,188)

0

0

0

Exceptionals and adjustments

5,844

(10)

116,527

4,565

(100)

(2,000)

(2,050)

Depreciation and amortisation

 

0

0

0

0

0

0

0

Reported EBIT

 

(8,031)

(40,922)

98,070

(1,832)

(7,026)

(10,640)

(12,971)

Finance income/(expense)

 

657

975

307

533

181

52

29

Other income/(expense)

 

(209)

(4,750)

(333)

(6,991)

(7,094)

(8,158)

(9,382)

Exceptionals and adjustments

0

0

0

0

0

0

0

Reported PBT

 

(7,583)

(44,697)

98,044

(8,290)

(13,940)

(18,747)

(22,323)

Income tax expense (includes exceptionals)

 

(5)

55,395

0

2,813

0

0

0

Reported net income

 

(7,588)

10,698

98,044

(5,477)

(13,940)

(18,747)

(22,323)

Basic average number of shares, m

 

289

293

446

457

457

457

457

Basic EPS

 

(2.6)

3.7

22.0

(12.0)

(30.5)

(41.0)

(48.9)

Adjusted EBITDA

 

(13,875)

(32,814)

(15,163)

(1,456)

(420)

(411)

(899)

Adjusted EBIT

 

(13,875)

(40,912)

(18,457)

(6,397)

(6,926)

(8,640)

(10,921)

Adjusted PBT

 

(13,427)

(44,687)

(18,483)

(12,855)

(13,840)

(16,747)

(20,273)

Adjusted EPS (p/share)

 

0

0

0

0

0

0

0

Adjusted diluted EPS (p/share)

 

(2)

12

(1)

(2)

(3)

(4)

(5)

BALANCE SHEET

 

Property, plant and equipment

 

12,146

12,637

18,025

13,579

18,204

19,854

16,847

Goodwill

 

0

0

0

0

0

0

0

Intangible assets

 

204,164

256,658

426,419

442,960

449,937

441,866

436,659

Other non-current assets

 

11,506

9,803

9,439

10,283

10,283

10,283

10,283

Total non-current assets

 

227,816

279,098

453,883

466,822

478,425

472,003

463,790

Cash and equivalents

 

199,726

110,434

81,019

51,098

35,735

33,568

30,890

Inventories

 

2,188

1,670

1,608

1,545

1,545

1,545

1,545

Trade and other receivables

 

4,681

6,199

17,184

13,985

11,000

11,000

11,000

Other current assets

 

1,384

2,192

495

3,638

3,638

3,638

3,638

Total current assets

 

207,979

120,495

100,306

70,266

51,918

49,751

47,073

Non-current loans and borrowings

 

0

0

0

0

0

0

0

Other non-current liabilities

 

60,960

106,893

93,174

92,029

99,123

107,282

116,664

Total non-current liabilities

 

60,960

106,893

93,174

92,029

99,123

107,282

116,664

Trade and other payables

 

19,358

30,457

34,012

15,272

15,272

15,272

15,272

Current loans and borrowings

 

0

0

0

0

0

0

0

Other current liabilities

 

100,439

9

9

9,016

9,016

9,016

9,016

Total current liabilities

 

119,797

30,466

34,021

24,288

24,288

24,288

24,288

Equity attributable to company

 

255,038

262,234

426,994

420,771

406,931

390,185

369,911

Non-controlling interest

 

0

0

0

0

0

0

0

CASH FLOW STATEMENT

 

Profit for the year

 

(7,583)

(44,697)

98,044

(8,290)

(13,940)

(18,747)

(22,323)

Taxation expenses

 

0

0

0

0

0

0

0

Net finance expenses

 

(470)

3,942

16

6,448

6,914

8,106

9,353

Depreciation and amortisation

 

2,186

2,744

4,725

5,333

6,897

8,621

10,414

Share based payments

 

672

1,937

994

(48)

100

2,000

2,050

Other adjustments (impairments)

 

(4,415)

26,075

(115,546)

(3,003)

0

0

0

Movements in working capital

 

(1,627)

3,143

(9,433)

(1,118)

2,985

0

0

Interest paid/received

 

0

0

0

0

0

0

0

Income taxes paid

 

0

0

0

0

0

0

0

Cash from operations (CFO)

 

(11,237)

(6,856)

(21,200)

(678)

2,957

(19)

(507)

Capex

 

(11,261)

(80,919)

(40,203)

(27,587)

(18,500)

(2,200)

(2,200)

Acquisitions & disposals net

 

(24,037)

0

(13,527)

(2,605)

0

0

0

Other investing activities

 

84,720

39,791

77,755

398

181

52

29

Cash used in investing activities (CFIA)

 

49,422

(41,128)

24,025

(29,794)

(18,319)

(2,148)

(2,171)

Net proceeds from issue of shares

 

(225)

(2,733)

0

0

0

0

0

Movements in debt

 

0

0

0

0

0

0

0

Other financing activities (includes rig settlement)

 

439

2,219

(2)

12

0

0

0

Cash from financing activities (CFF)

 

214

(514)

(2)

12

0

0

0

Increase/(decrease) in cash

 

38,399

(48,498)

2,823

(30,460)

(15,363)

(2,167)

(2,678)

Currency translation differences and other

 

(1,155)

(794)

(2,238)

539

0

0

0

Cash at end of period

 

99,726

50,434

51,019

21,098

5,735

3,568

890

Net (debt)/cash

 

199,726

110,434

81,019

51,098

35,735

33,568

30,890

Movement in net (debt)/cash over period

 

(47,756)

(89,292)

(29,415)

(29,921)

(15,363)

(2,167)

(2,678)

Source: Company accounts, Edison Investment Research

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Copyright 2018 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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 2018. “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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. 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 Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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 2018. “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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Research: TMT

discoverIE Group — Outlining the growth opportunity

At the recent Capital Markets Day, discoverIE management confirmed the company’s strategy to grow the business through a combination of organic growth, and acquisition of design and manufacturing businesses. The integration process is designed to retain the entrepreneurial spirit of acquired businesses while taking advantage of the group balance sheet and central functions, to drive good organic growth post acquisition. Management aims to provide investors with a progressive dividend and a return of 15-20% pa.

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