■ Farm-out to Premier Oil
■ Funding issue resolved
■ Commercialisation draws nearer
Market anxieties over the Falkland Islands oil and gas fields were reflected in the share price of Rockhopper Exploration, which oscillated wildly on news that it had farmed out a 60 per cent stake in its licence interests in the Falkland Islands to Premier Oil. The share price - up by 11 per cent at one point - subsequently collapsed, possibly in reaction to Canaccord Genuity trimming its core valuation of the Sea Lion project by 46p to 433p a share. In our view, though, this opens up a buying opportunity.
The announcement was particularly significant given recent confirmation that Falkland Oil & Gas had brought in French utility EDF as its farm-out partner in the South Atlantic. Alas, the involvement of yet another British company in the region will not play well in Buenos Aries. Regional actions undertaken by the Argentine government have rendered projects in the Falklands even more problematic from a logistical perspective, but the investments by EDF and, now, Premier, imply that commercial development of the disputed archipelago is moving ahead in spite of the diplomatic impasse.
Admittedly, it has taken a while for Rockhopper to bring in a co-investor to help shoulder the estimated $2bn (£1.26bn) costs of developing its Sea Lion discovery, but the commercial case firmed up in April after publication of an upbeat competent persons report from independent consultants Gaffney, Cline & Associates. Premier will fork out a total of $1bn to secure the stake and bring the asset into production. The initial commitment from Premier comprises $231m in cash plus an exploration carry of up to $48m and, subject to development plan approval, an additional carry of up to $722m. Premier will take over as operator of the Sea Lion project, which could conceivably add an extra 50,000 barrels to its daily production rate.
