Resource extraction is a risky business. Along with volatile commodity prices, testing operating conditions and huge funding challenges, prospectors routinely end up reliant on tie-ups with other companies. Rockhopper Exploration (RKH) knows this more than most. For the past year, the Aim-traded group has watched its flagship Sea Lion development project stall while partner Premier Oil (PMO) has battled a debt crisis. Despite this, the noises from management of both groups suggest that financing arrangements are in sight in 2017. So while Sea Lion won't be the world's cheapest oilfield to develop or operate, we agree with Rockhopper that the project's economics do stack up with oil looking increasingly stable at around $55 (£44) a barrel.
- Huge discount to NAV
- Premier Oil financing progress
- Low-cost Mediterranean asset
- Stabilising oil price
- Sea Lion obstacles
- Italian setback
Assuming the capital can be secured and the project sanctioned, Rockhopper's claim on the 83m barrels targeted in Sea Lion's first phase - let alone the hundreds of millions of barrels estimated in the wider discovery area - looks deeply undervalued with the shares trading at just 28 per cent of reported net asset value of 93¢ (74p), which includes 14p cash.