Rockhopper reports lower losses

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Rockhopper Exploration (RKH) narrowed its losses to $6 million (£3.7 million) in the first half of the year, compared with $20 million a year before as it reduced its exploration expenses, with extensive drilling and seismic campaigns coming to an end.

Exploration and evaluation expenses fell by $25 million, mainly due to a $15 million decrease in an impairment charge and a $10 million reduction in seismic acquisition costs.

The completion of the farm-out of the Sea Lion prospect to Premier Oil (PMO) in October crystallised $14 million of transaction costs and a capital gains tax liability with the Falkland Islands government, the company said.

The exact size of the liability is yet to be agreed but will be payable at 26% of the taxable gain in two installments, with the first trenche due in 2013.

The Sea Lion field is now fully financed. This means that Rockhopper has approximately 142 million barrels of financed oil that, from late 2017, should begin generating cash flow with an estimated value to Rockhopper in excess of $2 billion at a 10% discount factor.

The firm said in a statement: "Having approximately 142 million financed barrels of oil and $270 million of free cash puts Rockhopper into a very strong position.

"The current priority is working with the Falkland Islands government to input into their ongoing 'Oil Readiness Review', particularly in the area of tax where we have already had confirmation that following the review, our tax position in respect of the farm-out will be no worse and may be improved."

Analyst view

Analysts at Panmure Gordon commented: "[Friday's] half-year update underlines the progress that the company has made in spreading the development costs associated with Sea Lion.

"However, with a substantial cash pile, the medium-term exploration and development programme in the Falklands taken care of, there is the thorny question of what's next. What is clear is that the company, now that it has passed operatorship, cannot just sit and wait for things to happen in the Falklands.

"We believe that the current portfolio carries a value of 350p (which is our target price). As a result, we are maintaining our 'buy' recommendation."


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