Rockhopper Exploration (LON: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.
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.