Funding Solution Could Drive Fid In 2018
Edison | Sep 26, 2017 06:16AM ET
Rockhopper Exploration (LON:RKH) holds c 50% of the Sea Lion field, one of the largest undeveloped fields globally. With gross contingent 2C reserves of 517mmbbls (and 900mmbbls 3C), the phased development of the fields has been delayed by a number of factors. However, with costs falling to produce an NPV10 break-even of less than $45/bbl and a more solid funding solution becoming apparent over the last six months, a final investment decision (FID) is being targeted in 2018.
Together with its Mediterranean production assets and $63m in cash at end H117, it is well placed to realise long-term value. We have reviewed our modelling and applied lower long-term oil price assumptions, which results in a core NAV of 44p/share.
Sea Lion funding no longer requires farm-out
During the FEED process, the JV has been able to reduce capex to first oil from $1.8bn to $1.5bn. This reduces NPV10 break-even to <$45/bbl and generates an ungeared IRR at FID (at our price assumptions) of c 30%. The JV has looked to innovative funding sources to get the field into production and envisages using export credit finance to provide $800m of senior debt, with a further $400m coming from vendor or contractor finance. This reduces the equity portion of capex required to only $300m, which is more digestible for PMO (carrying RKH), as it had financial issues after the fall in oil prices. Importantly, this structure means that no farm-down is required and the partners can more aggressively target a FID in 2018. The company is targeting first oil in 2022 (we assume 2023 for conservatism).
Funding Solution Could Drive Fid In 2018
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