Key for Rockhopper Exploration (LON:RKH), at a recent results presentation Premier Oil's (LON:PMO) management talked about progress being made for Sea Lion’s development and the options that are currently being explored. The turbulent macro environment and PMO’s financial difficulties have slowed Sea Lion’s progress, but these comments suggest increasing options to develop the asset. For RKH, we examine a number of possible scenarios for sensitivities (vendor financing, export credit approach, flexing of fiscal terms), although we leave our baseline approach and valuation broadly unchanged until news is more concrete. Our core NAV remains 73p/share (although a number of estimates change within this), representing material upside for investors as and when Sea Lion’s development moves forward.
Sea Lion financing options being examined
Our analysis indicates that Sea Lion’s economics are attractive at current oil prices (IRR is over 20% a $55/bbl flat Brent price). PMO is exploring structuring and financing options to move it towards FID (including export credit and service company financing) and is exploring options with the Falkland Islands Government to best enable development. We assess what these options may mean qualitatively and quantitatively where appropriate, although we caution that the final solution may be materially different to these approaches. In theory, the deal that RKH has with PMO already covers all capex required for Phase 1 (pre first oil), so the impact of the financing options should be limited. However, we imagine RKH would be open to reducing its working interest to bring certainty to the development.
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