Rockhopper Exploration — Disposing Civita makes sense

Rockhopper Exploration — Disposing Civita makes sense

Rockhopper Exploration (RKH) has announced the disposal of its Civita gas field (and a collection of other properties) to Northern Petroleum. The deal is good for RKH, as it reduces future abandonment liabilities on a number of licences in exchange for limited reduction in production cash flows (estimated gross profit of €0.7m in 2016) and a small consideration of $1.6m. It will likely reduce G&A costs going forward and allow RKH to concentrate on its three main assets in Italy (Monte Grosso, Ombrina Mare and Guendalina). The bulk of RKH’s value remains in its Sea Lion development and we hope progress is made in 2017 towards project sanction. We have adjusted our valuation for RKH to account for the deal, which reduces our NAV slightly to 72p/share.

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Rockhopper Exploration

Disposing Civita makes senses

Asset sale

Oil & gas

8 June 2017

Price

20.25p

Market cap

£93m

£/US$1.3

Net cash ($m) at end December 2016 (excluding adjustments)

81

Shares in issue

456.9m

Free float

93%

Code

RKH

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(4.7)

(9.0)

(46.0)

Rel (local)

(6.6)

(11.1)

(54.4)

52-week high/low

39.0p

19.2p

Business description

Rockhopper is an AIM-listed E&P with assets in the Falkland Islands, Egypt and Italy. Its main asset is the Sea Lion development project in the Falklands.

Next events

Ombrina Mare arbitration

2017/18

Egyptian drilling

Mid-2017

Analysts

Will Forbes

+44 (0)20 3077 5749

Elaine Reynolds

+44 (0)20 3077 5713

Rockhopper Exploration is a research client of Edison Investment Research Limited

Rockhopper Exploration (RKH) has announced the disposal of its Civita gas field (and a collection of other properties) to Northern Petroleum. The deal is good for RKH, as it reduces future abandonment liabilities on a number of licences in exchange for limited reduction in production cash flows (estimated gross profit of €0.7m in 2016) and a small consideration of $1.6m. It will likely reduce G&A costs going forward and allow RKH to concentrate on its three main assets in Italy (Monte Grosso, Ombrina Mare and Guendalina). The bulk of RKH’s value remains in its Sea Lion development and we hope progress is made in 2017 towards project sanction. We have adjusted our valuation for RKH to account for the deal, which reduces our NAV slightly to 72p/share.

Year end

Revenue (US$m)

Reported PBT
(US$m)

Cash from
operations (US$m)

Net (debt)/
cash (US$m)

Capex
(US$m)

12/15

4.0

(44.7)

(6.9)

110.4

(80.9)

12/16

7.4

98.0

(21.2)

81.0

(40.2)

12/17e

9.6

(11.9)

(1.0)

50.4

(13.0)

12/18e

9.1

(20.8)

(1.9)

33.1

(15.4)

Note: Historical financials are as reported.

Disposal of Civita reduces EBITDA and G&A

Civita is a relatively small asset, with production of 130boe/d, producing revenues of €1.1m and EBITDA of around €0.2m. The disposal of the asset (alongside five others), with RKH paying Northern Petroleum $1.6m, relieves the company of material future abandonment costs at the six sites – RKH estimates plugging and abandonment liabilities to be €8.5m. Additionally, the company should be able to reduce G&A costs in Italy, which we have accounted for in small changes to our forecasts.

Other Italian assets remain core and valuable

The company remains committed to the remaining assets: the producing asset of Guendalina, the exploration opportunity at Monte Grosso and the possibility of recovering damages from the lost development opportunity at Ombrina Mare. We do not currently include any value for exploration at Monte Grosso, but note that RKH estimates it to contain c 250mmbbl with a 23% chance of success.

Valuation: NAV falls to 72p/share

We have adjusted our valuation and forecasts for RKH following the deal, with our NAV falling from 73p to 72p/share. Although the deal is good for the company, our NAV falls because we had not fully accounted for the extent of abandonment liabilities at the other licences transferred to Northern Petroleum. RKH continues to trade at a material discount to our NAV, which is dominated by the latent value of its holdings in the Falkland Islands development at Sea Lion (and possibly Isobel Deep/Elaine).

Valuation

Exhibit 1: NAV summary

Asset

FX: £/US$1.3

 

 

Recoverable reserves

 

Net risked value

Shares: 457m

WI

CoS

Gross

Net

NPV

at WACC of 12.5%

at WACC of

Country

First production

%

 

mmboe

$/boe

$m

/share

10%

15%

20%

Net (debt)/cash - Dec 2016e

81

14

14

14

14

G&A (NPV10 of five years)

(44)

(8)

(8)

(8)

(8)

2017 Exploration

(2)

(0)

(0)

(0)

(0)

Remaining payments for Falkland exploration (from 2016, paid in 2017)

(18)

(3)

(3)

(3)

(3)

Cash consideration for sale of Civita assets

(2)

(0)

(0)

(0)

(0)

Production

Guendalina

Italy

20%

100%

2.0

0.4

11.8

5

1

1

1

1

Abu Sennan

Egypt

22%

100%

19

4.1

3.1

13

2

3

2

1

Development

Sea Lion Phase 1

Falkland Islands

2022

40%

20%

220

88

10.8

191

33

43

26

17

Sea Lion Phase 2 in PL32

Falkland Islands

2026

40%

16%

88

35

5.7

32

6

8

4

2

Sea Lion Phase 2 in PL04

Falkland Islands

2026

64%

16%

215

137

5.7

124

22

32

15

7

Ombrina Mare - under arbitration

Italy

100%

15%

25

25

8.1

30

5

5

5

5

Core NAV

 

 

 

 

569

290

 

410

72

95

56

36

Isobel Elaine

Falkland Islands

64%

10%

472

302

2.1

65

11

23

5

0

Isobel Elaine (CPR volumes)

Falkland Islands

64%

10%

140

90

2.1

19

3

7

1

0

Source: Edison Investment Research

Exhibit 2: Financial summary

Accounts: IFRS, Year-end: 31 December, US$000s

 

2015

2016

2017e

2018e

Total revenues

 

3,966

7,417

9,566

9,068

Cost of sales

 

(11,049)

(7,667)

(10,183)

(11,526)

Gross profit

 

(7,083)

(250)

(617)

(2,457)

SG&A (expenses)

 

(10,895)

(9,970)

(8,700)

(9,635)

Other income/(expense)

 

(22,934)

(8,237)

0

0

Exceptionals and adjustments

 

(10)

116,527

2,910

(2,400)

Reported EBIT

 

 

(40,922)

98,070

(6,407)

(14,492)

Finance income/(expense)

 

 

975

307

0

0

Other income/(expense)

 

 

(4,750)

(333)

(5,523)

(6,352)

Reported PBT

 

 

(44,697)

98,044

(11,930)

(20,844)

Income tax expense (includes exceptionals)

 

 

55,395

0

(634)

(236)

Reported net income

 

 

10,698

98,044

(12,564)

(21,080)

Basic average number of shares, m

 

 

293

446

457

457

Basic reported EPS (c)

 

 

3.7

22.0

(27.5)

(46.1)

 

 

 

 

 

 

 

Balance sheet

 

 

Property, plant and equipment

 

 

12,637

18,025

19,035

22,880

Intangible assets

 

 

256,658

426,419

426,990

428,075

Other non-current assets

 

 

9,803

9,439

9,439

9,439

Total non-current assets

 

 

279,098

453,883

455,465

460,394

Cash and equivalents

 

 

110,434

81,019

50,386

33,128

Inventories

 

 

1,670

1,608

1,608

1,608

Trade and other receivables

 

 

6,199

17,184

17,184

17,184

Other current assets

 

 

2,192

495

495

495

Total current assets

 

 

120,495

100,306

69,673

52,415

Non-current loans and borrowings

 

 

0

0

0

0

Other non-current liabilities

 

 

106,893

93,174

89,697

96,049

Total non-current liabilities

 

 

106,893

93,174

89,697

96,049

Trade and other payables

 

 

30,457

34,012

34,012

34,012

Current loans and borrowings

 

 

0

0

0

0

Other current liabilities

 

 

9

9

9

9

Total current liabilities

 

 

30,466

34,021

34,021

34,021

Equity attributable to company

 

 

262,234

426,994

401,420

382,740

Non-controlling interest

 

 

0

0

0

0

 

 

 

 

 

 

 

Cash flow statement

 

 

Profit for the year

 

 

(44,697)

98,044

(12,564)

(21,080)

Taxation expenses

 

 

0

0

(634)

(236)

Net finance expenses

 

 

3,942

16

5,523

6,352

Depreciation and amortisation

 

 

2,744

4,725

8,919

10,451

Share based payments

 

 

1,937

994

1,990

2,400

Other adjustments (impairments)

 

 

26,075

(115,546)

(4,900)

0

Movements in working capital

 

 

3,143

(9,433)

0

0

Cash from operations (CFO)

 

 

(6,856)

(21,200)

(1,032)

(1,878)

Capex

 

 

(80,919)

(40,203)

(13,001)

(15,380)

Acquisitions & disposals net

 

 

0

(13,527)

(1,600)

0

Other investing activities

 

 

39,791

77,755

(15,000)

0

Cash used in investing activities (CFIA)

 

 

(41,128)

24,025

(29,601)

(15,380)

Net proceeds from issue of shares

 

 

(2,733)

0

0

0

Movements in debt

 

 

0

0

0

0

Other financing activities (includes rig settlement)

 

 

2,219

(2)

0

0

Cash from financing activities (CFF)

 

 

(514)

(2)

0

0

Increase/(decrease) in cash

 

 

(48,498)

2,823

(30,633)

(17,258)

Currency translation differences and other

 

 

(794)

(2,238)

0

0

Cash at end of period

 

 

50,434

51,019

20,386

3,128

Net (debt) cash

 

 

110,434

81,019

50,386

33,128

Movement in net (debt) cash over period

 

 

(89,292)

(29,415)

(30,633)

(17,258)

Source: Edison Investment Research, company accounts

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

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Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Rockhopper Exploration and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

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Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

SCISYS — Solid order book growth and pipeline strong

In an in line update, SCISYS reports that its order book grew by 4% over Q1, while net debt fell by £2.4m as at end-April. Cash flow was boosted by the receipt of overdue payments from the MOD and a tax credit from HMRC that were deferred from 2016. All business units have been performing well and we note that this year is likely to be more H2 weighted than is typical due to the acquired ANNOVA. Noting management’s goal to achieve £60m in revenues and double-digit operating margins within three to five years, we believe the stock looks attractive on c 9x our maintained FY18e EPS.

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