The question on a lot of people's mind is as follows - has the share price for Rockhopper Exploration (LON:RKH) got ahead of itself?

To consider this question, the spreadsheet here and summarised below looks at the Sea Lion valuation and its value expressed in terms of the RKH share price.

Please note that the analysis does not account for upside nor any other RKH assets or cash balances (select the Rockhopper file to download).

For the analysis, I used the following assumptions:

 

  • Well cost = $40m, no wells = 34, no injectors = 6, Subsea CAPEX Costs = $1500M, Development Cost = $3200m, FPSO = $500k/day, OPEX = $7/bbl, CAPEX + DRILLEX = $13.5/bbl.

It's best to download the spreadsheet but a quick look below at the unrisked sensitivity table suggests not. However, it is less clear if you factor in "political" uncertainty, reserves uncertainty (until more appraisal drilling is complete) and also fiscal uncertainty (I don't for example support the theory that FI oil revenues will revert to FI and that Oil Companies will be allowed to keep as much revenue based on 30% tax and 9% royalty, hence the table showing risked and tax equalisation sensitivity). I haven't accounted for farm down either as that is "subjective" but you could also divide project NPV into 50% but add back the farm down cash raise so this should be fairly neutral.

Sea Lion

So, at 480p (today's SP), I guess it's six of one and half dozen of the other - glass half full! The jury is out for now but, if the share price gets back to 550 or beyond, it certainly looks over-priced unless more reserves are added.

As ever, comments appreciated on Sea Lion or indeed any aspect of developing oil / gas in Falklands.

JPGH

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