Rockhopper’s (LON:RKH) half year results indicate that it (and Premier Oil, PMO) are making progress in moving Sea Lion towards FID, particularly with regard to financing the development. Discussions have started on the structure of senior debt with UK export financing (making up a proposed $800m). Non-binding proposals have been received for a significant proportion of the planned $400m vendor financing. These components would leave just $300m of equity to be provided to get the project to first oil, which should be manageable for the partners and negate the need for a farm-down. Elsewhere, the sale of Civita in Italy has streamlined its production business, which now covers a much smaller G&A bill. We intend to update our modelling and valuation in the coming days (not least to account for our new lower oil price assumption), for the moment leaving our NAV at 72p/share.
The Sea Lion field ranks as one of largest undeveloped fields globally and the cost reductions that PMO/RKH achieved (enabling a pre-first oil capex bill of $1.5bn) mean that the project is NPV10 break-even at around $45/bbl. This should make the project attractive as oil prices move up (our long-term assumption is $70/bbl in 2022) and help to unlock the resources in Isobel/Elaine where RKH holds the largest WI. Talks with the Falkland Islands government continue “on a range of fiscal, environmental and regulatory matters”.
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