Investment banking heavyweight Credit Suisse has initiated coverage of Rockhopper Exploration (LON:RKH) with a bullish assessment of prospects for the Falklands–focused firm.
It rates the stock as ‘outperform’ with a 408p price target, some 40 per cent more than the current market price of 282p.
Rockhopper’s Sea Lion oil discovery is the most advanced asset in the waters off the Falkland Islands.
After a successful appraisal drilling campaign last year, the focus is on engineering and financing as it moves towards a final investment decision for a future oilfield development project
Analyst Arpit Harbhajanka added that having already discovered oil in the North Falkland basin, Rockhopper will try to bring in a partner to develop the new oilfield.
“A successful farm-out of the Sea Lion discovery is central to Rockhopper's investment proposition. The Sea Lion discovery is likely to be a commercially viable field, in our opinion,” he said.
The analyst believes the firm’s oil resources could increase in the future and because Rockhopper is the largest holder of undeveloped resources in the North Falkland basin it may become a takeover target.
Merchant Securities also named Rockhopper as one of its ‘Twelve Top Picks for 2012’ today.
Analyst Brendan Long believes the shares will rise because of ‘value recognition’ rather than the kind of drilling success seen in 2011.
Long says a new competent persons report at the end of March will increase reserves and in turn crystallise the firm’s recent operational successes.
The Merchant Securities’ analyst’s view on a potential farm-out echoes Credit Suisse’s assessment.
“A farm-out of a partial interest in the Sea Lion Project to a global leader in the oil & gas sector would increase the credibility of reserve and value estimates; ensure the project will go ahead; and reduce substantially funding risks which would typically be borne by the new partner,” Long said in a note to clients.
“Thus a farm-out would be a major catalyst that would represent a new phase for the advancement of the Sea-Lion project.”
Merchant Securities have a ‘buy’ recommendation on the stock with a 428p price target.
Rockhopper’s initial assessment of the Sea Lion development project’s scope, revealed in September, estimated development costs of $2 billion.
That initial plan assumed first oil would occur in early 2016. It estimated that the field could achieve maximum production of 120,000 barrels a day by 2018.
The firm has had further appraisal success since those initial figures were unveiled and the details are likely to be revised as the desktop work progresses.