Developing the Sea Lion project remains the “core piece” of Rockhopper Exploration’s (RKH) business, in the words of chief executive Sam Moody. But with a final investment decision from operator Premier Oil now not expected until mid-2019, investors need some reassurance that all is sustainable until then.
The good news is that cash generation from the greater Mediterranean portfolio now covers general and administrative costs. A decline in outstanding receivables from Egypt’s national oil company has also helped. But Rockhopper’s 40 per cent share of Sea Lion’s pre-development costs mean the business remains cash negative.
That has weighed on the balance sheet. In the year to June, cash, cash equivalents and term deposits fell from $62.5m (£47.6m) to $46.4m, and are expected to decline to just over $30m by the end of 2018. But chief executive Sam Moody has two reasons to remain calm about the current level of cash burn.
The first is Rockhopper’s $337m carry for the initial phase of the North Falklands basin development, once project financing is eventually secured. The second is the potential windfall from a claim against the Italian government, for which a third-party litigation funder is entirely on the hook. Should an arbitration panel find in favour of Rockhopper’s claims of lost profits, it could be awarded more than $100m.
Peel Hunt expects a full-year adjusted pre-tax loss of $3.4m and a loss per share of 0.8¢, compared with losses of $8m and 1.1¢ in 2017.
ROCKHOPPER EXPLORATION (RKH) | ||||
ORD PRICE: | 34.7p | MARKET VALUE: | £159m | |
TOUCH: | 34.7-35p | 12-MONTH HIGH: | 45p | LOW: 20p |
DIVIDEND YIELD: | NIL | PE RATIO: | N/A | |
NET ASSET VALUE: | 90.5¢* | NET CASH: | $46.4m** |
Half-year to 30 Jun | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
2017 | 5.06 | -6.96 | -0.91 | nil |
2018 | 5.20 | -7.42 | -1.64 | nil |
% change | +3 | - | - | - |
Ex-div: | n/a | |||
Payment: | n/a | |||
£1=$1.32. *Including intangible assets of $444m, or 97¢ a share. **Including term deposits of $30m. |