Edison Issues Outlook on Rockhopper Exploration (RKH)
Rockhopper (RKH) holds a material stake in the major discoveries in the Falklands. The Sea Lion complex holds 517mmboe of 2C contingent resource (900mmboe 3C), while the Isobel Elaine complex could be a similar magnitude (according to management estimates). This resource base (over which RKH holds a >50% working interest) is significant on a global scale and commercially attractive given the cost reductions achieved through the FEED process so far - the project is NPV10 break-even at $45/bbl. Although the timing of project sanction is uncertain (particularly given the financial constraints of its partner PMO), the fiscal regime and resource base makes this a compelling long-term project. Our revised core NAV is 74p/share.
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We have revised our core NAV to reflect our uncertainty on project timing (we now assume first oil in early 2022) and commercial terms, as well as moving to a 2017 valuation date and increased discount rate. With our assumed long-term oil price of $70/bbl, the development of Sea Lion will create significant free cash flows and value. A material move toward sanctioning the project (perhaps by the introduction of a new partner or financing structure) has the potential to increase this markedly, while firming up of Isobel Elaine complex volumes could add materially in time.
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