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Rockhopper still a good risk-reward trade

Half-year results for the oil and gas outfit provided further hope for its Sea Lion project
September 8, 2017

For an oil company with little production, and big questions hanging over its key asset, half-year numbers for Rockhopper Exploration (RKH) were rather good. Of course, the ‘material’ year-on-year increase in output was only 600 barrels of oil equivalent per day (boepd). And while cash operating costs from the Greater Mediterranean portfolio fell 44 per cent to $8.7 (£6.6) per boe, the claim that operating cash flow covered the group’s general and administrative costs only stacks up if you exclude changes in working capital. For a company eyeing massive future growth, the latter metric needs to be factored in.

IC TIP: Buy at 21p

Then again, the prospect group will get its Sea Lion project off the ground have strengthened. First, Rockhopper and senior partner Premier Oil (PMO) have started discussions with export credit agency UK Export Finance, “in relation to a proposed $800m senior debt financing”. Second, the unnamed contractors we were previously told had “expressed interest” in funding the project are now engaged in discussions to provide $400m of financing. Non-binding proposals have been received, with more “expected in the coming weeks”. That should leave Sea Lion within touching distance of approval, now that phase one estimated capital expenditure has fallen from $1.8bn to $1.5bn. Better still, field costs should be no more than $35 per barrel.

For what they’re worth, consensus forecasts are for a pre-tax loss of $7.7m and a loss per share of 1.8¢ this year, against losses of $13.8m and 3.1¢ in 2016.

ROCKHOPPER EXPLORATION (RKH) 
ORD PRICE:21pMARKET VALUE:£96m
TOUCH:20.5-21p12-MONTH HIGH:31pLOW: 18p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:92.4¢*NET CASH:$62.5m
Half-year to 30 JunTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
20162.910423.8nil
20175.1-7.0-0.91nil
% change+74---
Ex-div:n/a   
Payment:n/a   
£1=$1.31 *Includes intangible assets of $439m, or 96¢ a share