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Rockhopper Exploration (LON:RKH) holds a material stake in the major discoveries in the Falklands. The Sea Lion complex holds 517mmboe of 2C contingent resource (900mmboe 3C), while the Isobel Elaine complex could be a similar magnitude (according to management estimates).
This resource base (over which RKH holds a >50% working interest) is significant on a global scale and commercially attractive given the cost reductions achieved through the FEED process so far – the project is NPV10 break-even at $45/bbl. Although the timing of project sanction is uncertain (particularly given the financial constraints of its partner PMO), the fiscal regime and resource base makes this a compelling long-term project. Our revised core NAV is 74p/share.
Giant undeveloped resource base in the Falklands
The Sea Lion complex is an important discovery and one of the largest undeveloped fields globally. A combination of political constraints, low oil price and financing issues has meant a slower development timeline than hoped, but this does not diminish the resource in a well appraised, well understood reservoir.
With an extension of the licence to 2020, PMO/RKH have time to find the best development arrangement with potential partners and a recent thawing in the political climate gives us hope that a wider range of partners may be interested. Funding an initial development of c 220mmbbl (with pre-first oil capex of $1.5bn gross) opens up fully funded exploitation of the resource and significant value.
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