Canaccord Research Portal - Rockhopper Exploration plc

Rockhopper Exploration plc


RKH:AIM : 172p
£300.6M
Speculative Buy



150 mgross oil column containing 53 metres of net pay in multiple zones, the thickest of which is 25 metres, with average porosity of 19% and "excellent" permeability in the main zone. Pre-drill, the best estimate of Sea Lion's reserves potential was 170 mmbbl: however, given that this assessment assumed a net oil column of approximately 30 metres and porosity of 23%, it seems eminently possible that this figure will be exceeded.
Impact
Yesterday's progress report gave us no cause for concern. Hence, we were surprised that Rockhopper's share price fell by over 18% on the news and regard this as an attractive buying opportunity.



Action / Valuation
Although there are reasons to believe Sea Lion could be bigger than the pre-drill best estimate of 170 mmbbl, for the time being we continue to use this figure as the basis for our valuation of Rockhopper. Allied to an oil price of US$70 per barrel flat real and a 15% discount rate, we estimate a field of this size would be worth 343p/share. In addition, our assessment of the expected monetary value (EMV) of the prospects that the company either will drill or hopes to participate in the drilling of over the next few months plus its remaining cash is equivalent to 90p/share. Based on this we reiterate our target price of 433p/share and SPECULATIVE BUY recommendation.
* Certain research on the Canaccord Research Portal is produced by Canaccord Genuity Limited which is authorized and regulated by the Financial Services Authority (FSA).Where identified, this is non-independent research and a marketing communication under the FSA Conduct of Business rules.