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Rockhopper waits on Sea Lion

A final investment decision on the Sea Lion development is no longer expected this year
September 20, 2018

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.

IC TIP: Buy at 34.7p

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:34.7pMARKET VALUE:£159m
TOUCH:34.7-35p12-MONTH HIGH:45pLOW: 20p
DIVIDEND YIELD:NILPE RATIO:N/A
NET ASSET VALUE:90.5¢*NET CASH:$46.4m**
Half-year to 30 JunTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
20175.06-6.96-0.91nil
20185.20-7.42-1.64nil
% 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.